There has been much fanfare, but little discussion, among healthcare experts in the United States regarding the Internal Revenue Service recently published PLR 201731014 (the Letter Ruling). The Letter Ruling provides a good opportunity to review where we have come and where we are going in the tax-exempt hospital industry in America.
Let’s focus first on the Internal Revenue Service. For years, the IRS was flummoxed by the tax-exempt hospital industry that, at one time, made up more than 80% of the hospital providers in the United States. The Service simply had no method of regulating tax-exempt hospitals short of rescinding the tax-exempt status of hospitals and, therefore, the survivability of the hospital. Tax-exemption was the essential pre-condition to the access of tax-exempt financing that is the best reliable source of capital for rejuvenation and expansion of hospital facilities. The only other pool of funds for capital available to tax-exempt hospitals is donations that, while sometimes significant, are not, on balance, a reliable source of capital for a functioning hospital. Continue Reading