In an effort to crack down on perceived inadequacies in the oversight of nonprofit hospitals’ charitable activities, the state of Montana has rolled out new rules aimed at closing long-standing gaps. This move stems from a legislative audit conducted more than four years ago, which critiqued the oversight measures of the Montana Department of Public Health and Human Services (DPHHS). The audit called for a tightening of regulations to ensure that nonprofit hospitals justify their tax-exempt status through tangible community benefits. Governor Greg Gianforte signed into law legislation designed to address these shortcomings, thereby establishing clearer benchmarks for charitable contributions from the state’s hospitals.
The Need for Stricter Oversight
One of the most critical issues at the heart of this scrutiny is the lack of uniformity in national oversight, complicating the evaluation of nonprofit hospitals’ contributions to their communities. To remedy this, the Montana health department introduced new rules aimed at collecting data on these hospitals’ community benefits. Over time, the primary objective is to establish clear standards for these benefits, including setting a minimum amount of financial aid that hospitals should provide to their patients.
However, Brenton Craggs, a former regulatory affairs coordinator for the health department and the self-described chief author of the oversight legislation, has emerged as a vocal critic of the new rules. Craggs argues that the regulations primarily serve the interests of the Montana Hospital Association rather than fulfilling the law’s intent to tighten oversight. One of his main criticisms lies in provisions that exempt hospitals with operating losses from the new community benefit and financial assistance standards. Craggs noted that this loophole could enable nearly every nonprofit hospital in Montana to claim operating losses within their fiscal years, effectively evading stringent oversight.
Controversial Provisions and Criticisms
Another area of concern raised by Craggs involves the policy that allows hospitals to count unpaid debts sent to collection agencies as uncompensated care, thus presenting these as community benefits. He contends that this provision permits hospitals to report financial losses as community contributions while exacerbating patients’ financial burdens. This strategy, he argued, distorts the true picture of hospitals’ community benefits and misguides the intent of the regulations.
Responding to these criticisms, Katy Mack, a spokesperson for the Montana Hospital Association, defended the sector by underscoring that hospitals sought the implementation of rules in line with federal laws and accounting practices. Mack emphasized that the precarious financial status of rural hospitals necessitated a balanced approach. She stated that hospitals support reasonable oversight but resist blanket rules that siphon off resources that could otherwise be directed toward critical community priorities, thereby potentially harming the communities they serve.
The Broader National Debate
This back-and-forth highlights a broader national tension between state regulators and nonprofit hospitals. The central debate revolves around whether these hospitals deliver enough return to their communities to justify their tax-exempt status, often through reported “community benefits” such as loss-driven services or free health screenings. The ambiguity of federal standards for these benefits leads to inconsistent reporting practices among hospitals, some of which classify profit-driven activities as community benefits.
Montana’s initiative to define what qualifies as a community benefit represents one of the latest state-level efforts to fill the regulatory void left by federal oversight. However, hospitals have fiercely lobbied against stringent state regulations from the outset. The Montana health department acknowledged these challenges in a recent notice, explaining its aim to align state standards with federal ones where feasible, while recognizing that this may not always be possible given the nuances in community needs and hospital operations.
The Push for Meaningful Reform
Critics like Christopher Whaley, a health economist from Brown University, argue that merely adhering to federal standards in state policies would render those efforts ineffective. Whaley contends that meaningful reform should build upon and surpass federal provisions to adequately address the gaps in oversight and ensure nonprofit hospitals provide genuine community benefits.
Craggs, who now serves as an attorney for the Montana Office of Public Instruction, formally opposed the state’s rules during public comment periods. He recounted his experience as the health department’s lead on the oversight legislation until he was removed from the project following resistance to changes proposed by the hospital association during a January 2023 hearing. His objections focused on the need for more robust standards that apply universally to both large and small hospitals, rather than the current exemptions that he believes afford undue leniency.
Legislative Process and Future Modifications
Despite Craggs’ stark criticisms, the state’s health department has chosen to stand by their formal notice of adoption without further comment. Throughout the legislative process, the Montana Hospital Association closely monitored the oversight bill, ultimately supporting it after legislators made specific amendments. Representative Bob Keenan, the bill’s sponsor, acknowledged that some amendments were stringent but believed the core policy remained intact. Keenan advocated for any necessary future legislative modifications to refine the policy further as needed to meet community expectations and legal requirements.
Craggs argued that the state’s oversight objective should be to establish universally applicable standards for all hospitals, irrespective of their size. Instead, he expressed concern that the current exemptions grant hospitals undue leniency and could delay the establishment of firm standards until potentially 2026. He pointed out that existing hospital data could already inform the development of these standards, questioning why the state would defer this essential task.
Balancing Interests and Ensuring Compliance
The state of Montana has introduced new regulations to address perceived deficiencies in the oversight of nonprofit hospitals’ charitable activities. This initiative follows a legislative audit conducted over four years ago, which criticized the Montana Department of Public Health and Human Services (DPHHS) for inadequate oversight measures. The audit called for stricter regulations to ensure that nonprofit hospitals justify their tax-exempt status by providing tangible community benefits. In response, Governor Greg Gianforte signed new legislation into law to remedy these shortcomings. The new rules are intended to close long-standing gaps and establish clearer benchmarks for charitable contributions from hospitals across the state. These measures aim to ensure that nonprofit hospitals fulfill their obligations to the communities they serve, thereby justifying their tax exemptions through demonstrable community benefits. Consequently, the state hopes to enhance transparency and accountability in the nonprofit healthcare sector, ultimately benefiting the public and ensuring fair use of tax-exempt status.
