IRS to audit hospital contracts

Can the Internal Revenue Service fix the Health Care Industry in this country? WOW, this is a tremendous question, but the answer is an emphatic "yes".

In a recent directive issued by the IRS to all its auditors in the health industry, the auditors are to see if the secret contracts between the hospitals and the health insurance companies, protected under trade secret law and not subject to public scrutiny, are legally enforceable and if not for a legal purpose to put back on the books all the revenues written off as contract allowances.

If we use Lee Memorial Health System as a representative of most of the hospitals (81 percent) who have secret contracts with insurance companies the following information describes what the impact will be. In this country, on the private side of the business, the hospitals must charge all patients the same price, with price being legally described as the actual amount collected. The hospital does put the same charges on all its bills to its patients, which creates the legal obligation on the patient to pay the full amount billed. The hospital as a matter of fact swears to the Federal and State governments it gives no discounts to any private pay patient. When we examine the annual reports for LMHS we notice on the private side, the largest expense item, of approximately $400 million is called a contract adjustment. This contract adjustment is what the IRS is going to be investigating.

The IRS will see why LMHS is given to the insurance companies $400 million a year. Keeping in mind a public facility cannot give out discriminatory discounts, especially to a third party payer. If the secret contracts are for an illegal purpose, such as brokering, and the health care provider splits the fees with the insurance companies for referring the policy holders to the hospital or limits competition in a region, then the revenue given to the insurance companies, in the form of a forgiveness of debt, is to be placed back on the books and treated as recognized income; and, because it is for an illegal purpose both the insurance companies and the hospitals, even tax exempt organizations, will have to pay taxes on these amounts.

If this comes about, the hospital will be forced to lower all its charges to a fair market value for its services and actually collect the same amount billed from the uninsured as from the insured patients. This will be a substantial saving for the 47 million uninsured patients. It will also have a tremendous effect on all the 255 million insured patients, both private and government insurance programs because the insurance companies will have to lower its premiums to its customers, mostly the employers who pay the premiums, due to the fact the premiums are based on the billed charges, not the actual amounts paid to the health care providers.

The only problem I see with what is taken place is the timing of this event. The auditors are going to be looking at the income tax returns filed in the year 2008 and the enforcement of collecting the taxes will be done in 2009. This means the necessary process is going to be started in one Presidency and be completed in another Presidency. Consequently, one President can say he started enforcing the statute, which has not been done in over 25 years and the next President will either be a hero or a goat for enforcing the statute. I genuinely think the people should insist this be done now, why should we have to wait another year or two to fix the health care system and enjoy the lower costs of health care services.