health maintenance organizations (HMOs) (Harshbarger and Massachusetts Attorney General’s Office, 1996). These guidelines are particularly notable in that they apply to all HMOs, both nonprofit and investor-owned. The basic reasoning provided by the Attorney General is that “all HMOs share responsibility for the health care needs of medically-underserved Massachusetts residents” (Harshbarger and Massachusetts Attorney General’s Office, 1998).

In three states, the statutes apply to other nonprofit organizations in addition to hospitals. As noted previously, Utah’s guidelines also apply to nursing homes, and New Hampshire’s law applies to all health-care charitable trusts. Pennsylvania’s statute applies to “institutions of purely public charity,” which is general language drawn from their state constitution. While this term has contributed to uncertainty about the scope of application, key elements in the statute suggest that major providers of health-care services (i.e., hospitals) are the central focus of attention. Perhaps the most unusual element of Pennsylvania’s statute is an option for applicable institutions to fulfill their charitable obligations by making payments in lieu of taxes (PILOTs) to government agencies, in essence, to pay property tax revenues that had been exempted. To encourage this practice, the state offers up to 350 percent credit for such payments, depending upon the size of the contribution in relation to annual revenues.

The most recent federal regulatory action in the community benefit arena came in March 2001 with the issuance of an IRS Field Service Advice Memorandum.31 The advisory reviews case law in the period since IRS Revenue Ruling 69-545 and offers two significant conclusions. First, it indicates that charity care is an important part of a hospital’s community benefit contributions, beyond simply the operation of an emergency room. Second, it indicates that it is insufficient simply to state that hospitals have established policies that ensure access for the medically indigent; that a hospital “must show that it actually provided significant health services to the indigent.”32 This action provided validation of recent efforts by consumer advocates to increase the volume of charity care provided by nonprofit hospitals, particularly in states with high numbers of medically indigent.

The actions taken by legislators, regulators, and the courts over the course of the last half-century reflect a clear inclination to respond to changing societal imperatives and emerging trends in organizational behavior. The most significant societal imperative driving actions related to hos-


IRS Field Advisory, Subject: Exempt Hospitals’ Compliance with Treas. Reg. Section 1.501(c)(3)-1(c).



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