Special report on taxation. IRS issues stricter guidelines for audits of tax-exempt hospitals.
The new audit guidelines serve as yet another reminder to tax-exempt hospitals that great care must be taken in structuring and documenting business arrangements with physicians and executives so as to withstand scrutiny by the IRS with regard to exempt status. Since increased census and utilization, and enhancement of the hospital's financial position, are no longer acceptable justifications for such activities as physician recruitment incentives (being suggestive of payment for referrals), it is important that hospitals make an effort to ensure that board minutes, recruitment policies, internal memoranda, and other documentation set forth the reasons--other than the benefits to the institution's bottom line--for having entered into such transactions. Hospitals must establish and document a community need for each physician recruited. Hospitals that actively recruit should be armed with studies evaluating recruiting needs in each clinical area, based on objective criteria, taking into consideration managed care contracting needs and the provision of services to the poor and needy. Finally, hospitals should re-examine all joint ventures and other business relationships with physicians to determine whether such arrangements resulted from arm's length negotiation, involve fair market value for goods and services, and conform, insofar as possible, with the Medicare fraud and abuse safe harbor regulations. Under GCM 39862 and the new guidelines, "aggressive" arrangements may not only create exposure under fraud and abuse laws, but could jeopardize the provider's tax-exempt status as well.
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D003159:Community-Institutional Relations; D005375:Financial Audit / Q000592:standards*; D006077:Government Agencies; D006759:Hospital-Physician Joint Ventures / Q000191:economics / Q000331:legislation & jurisprudence; D006788:Hospitals, Voluntary / Q000191:economics* / Q000331:legislation & jurisprudence; D013660:Taxes / Q000331:legislation & jurisprudence*; D014481:United States