Assignment: American Federation Hospitals Assignment: American Federation H

Assignment: American Federation Hospitals

Assignment: American Federation Hospitals

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operate exclusively for charitable, scientific, or educational reasons;

2. serve public rather than private interests, in that the organization’s income does not benefit individuals; and

3. not engage in prohibited transactions, including but not limited to

• participating in political campaigns,

• attempting to influence legislation,

• lending any part of the organization’s income without receiving adequate security and interest,

• paying compensation in excess of reasonable salary levels,

• making investments for more than adequate consideration,

• selling an asset for less than adequate consideration,

• subverting in any other manner substantial portions of its income or assets, or

• making any part of its services available on a preferential basis.

In 1956, the IRS established that not-for-profit healthcare organizations qualified for tax-exempt status as charitable organizations under Revenue Ruling 56-185. In effect, this ruling established that healthcare organizations, in order to retain their tax-exempt status, are required to provide care to those unable to pay. This ruling was difficult to administer, and the term charitable organization was redefined in 1959 to include a concept of com- munity benefit or public interest that was broader than just the provision of care to those

unable to pay (Kuchler 1992). The standard has changed several times in the decades since, and today tax-exempt status in general and the community benefit standard specifically are under scrutiny from research, judicial, congressional, executive, and public sectors. As the next section explains, the community benefit standard remains the primary IRS test for designating tax-exempt status.

communIty benefIt And tAx-exemPt stAtus Hospitals obviously benefit the community. However, do not-for-profit hospitals benefit their communities more than for-profit hospitals do? In the late twentieth century, this question was raised in public in an exchange in the New England Journal of Medicine between Arnold Relman, the journal’s editor, and Michael Bromberg, president of the American Federation of Hospitals, an association of for-profit hospitals.1 Relman wrote an article warning his readers of the medical-industrial complex—“a large and growing network of private corporations engaged in the business of supplying health-care services [exclusive of supplies and pharma- ceuticals] to patients for a profit—services heretofore provided by nonprofit institutions or individual practitioners” (Relman 1980, 963). Relman worried that the medical-industrial complex would put the interests of stockholders before the interests of the community.

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