Regulatory and judicial oversight of nonprofit hospitals.

The modern hospital bears little resemblance to its ancestors. The charitable institutions of the 19th century mainly tended, rather than treated, the sick, and they served mostly poor patients, whereas the wealthy received care at home. The transformation of hospitals “from places of dreaded impurity and exiled human wreckage into awesome citadels of science and bureaucratic order”1 occurred during the 20th century, thanks to scientific advances and the maturation of the medical profession and the health insurance industry.2 Hospitals today are big businesses that derive most of their revenues from paying patients and health care insurers. Yet one vestige of the ancestral institution remains: nearly two thirds of hospitals are private, nonprofit organizations.3 In return for exemptions from federal, state, and local taxes, they agree to organize and operate for charitable purposes — strictures that do not apply to their for-profit competitors. In a highly competitive marketplace in which profit margins are narrow, this commitment has generated intense economic, legal, and moral pressures. Recent litigation illuminates the identity crisis of nonprofit hospitals. More than 100 lawsuits have been filed accusing them of shirking their charitable commitments by charging uninsured patients high fees and then aggressively pursuing these “debts.” The plaintiffs allege that the hospitals have broken their covenant with the community and morphed into profit-seeking businesses. Similar claims have been made by the Internal Revenue Service (IRS) and state attorneys general. Broader societal expectations of nonprofit hospitals are also growing. As the dominant institutional player in health care delivery, such hospitals naturally are the focus of attention for solutions to the burgeoning problems of runaway costs, unequal access to care, and suboptimal quality. Regulators seek to steer the “nonprofits” toward these policy objectives and to press for loyalty to their charitable mission through a welter of federal, state, and municipal regulations. Meanwhile, nonprofit hospitals must contend with commercial pressures, primarily in the form of sharp competition from for-profit entities. With these tensions assuming increasing prominence in health policy discussions, it is helpful to examine the legal environment in which nonprofit hospitals operate. What we find is a great deal of regulatory ferment, no clear direction, and few signs that oversight will become more coherent in the foreseeable future.