LEGAL STRUCTURE OF HEALTHCARE ORGANIZATIONS

Description

A small county in middle America has never had a hospital. Residents have always traveled to neighboring counties for care. The county commissioners have decided that it is time for a local hospital. The county commission has $30 million in cash but needs another $70 million to build and operate the hospital. Several proposals have been presented:

A public hospital to be owned and operated by the county. The $30 million would be used as a down payment and the remaining $70 million would be financed by tax-exempt bonds.
A private hospital operated by a non-profit corporation. The $30 million will be a grant to the corporation with the $70 million being financed by bonds. If the corporation ever dissolves, the county commission receives the $30 million back.
A private hospital owned and operated by a for-profit corporation. The $100 million needed for the hospital will be raised through sale of shares in the corporation. The county commission will purchase $30 million in corporate stock and become a minority shareholder.
You have been asked to research and present to the commission the advantages and disadvantages of the proposals presented. Your presentation should include discussion of (but not limited to) the following:

Income and property tax exemption
Ability to use tax-exempt bond financing
Subject to public employment laws and public oversight
Subject to IRS rules for 501(c)(3) corporations

Required Reading
Barnes, B. G., & Harp, N. L. (2018). The U.S. Medicare disproportionate share hospital program and capacity planning. Journal of Accounting and Public Policy, 37(4), 335-351. doi:10.1016/j.jaccpubpol.2018.07.005

Bjorvatn, A. (2018). Private or public hospital ownership: Does it really matter? Social Science & Medicine, 196, 166-174. doi:10.1016/j.socscimed.2017.11.038

Blackburn, J., Zheng, Q., Grabowski, D. C., Hirth, R., Intrator, O., Stevenson, D. G., & Banaszak-Holl, J. (2018). Nursing home chain affiliation and its impact on specialty service designation for Alzheimer disease. INQUIRY: The Journal of Health Care Organization, Provision, and Financing, 55, 46958018787992. doi:10.1177/0046958018787992

Choi, S. (2017). Hospital capital investment during the great recession. INQUIRY: The Journal of Health Care Organization, Provision, and Financing, 54, 46958017708399. doi:10.1177/0046958017708399

Dalton, C. M., & Bradford, W. D. (2019). Better together: coexistence of for-profit and nonprofit firms with an application to the U.S. hospice industry. Journal of Health Economics, 63, 1-18. doi:10.1016/j.jhealeco.2018.10.001

Heled, Y., Vertinsky, L., & Brewer, C. (2019). Why healthcare companies should be benefit corporations. Boston College Law Review, 60(1), 73-144.

Herring, B., Gaskin, D., Zare, H., & Anderson, G. (2018). Comparing the value of nonprofit hospitals’ tax exemption to their community benefits. INQUIRY: The Journal of Health Care Organization, Provision, and Financing, 55, 46958017751970. doi:10.1177/0046958017751970

Joynt, KE, Orav, EJ, Jha, AK. Association Between Hospital Conversions to For-Profit Status and Clinical and Economic Outcomes. JAMA. 2014;312(16):1644–1652. doi:10.1001/jama.2014.13336

Mancino, D. M. (2017). Conversions of the status of Section 501(c)(3) organizations. Taxation of Exempts, 29(1), 3-16.

Schencker, L. (2017, Jan 08). Should Illinois hospitals pay property tax? Chicago Tribune.

Schröder, C., Behnke, M., Geffers, C., & Gastmeier, P. (2018). Hospital ownership: A risk factor for nosocomial infection rates? Journal of Hospital Infection, 100(1), 76-82. doi:10.1016/j.jhin.2018.01.019

Optional Reading
Burton, P. (2017, Aug 15). Rhode Island conduit issuer passes $1 billion in FY bond financing. Bond Buyer.

Calvert, W. R., & Langlieb, T. F. (2017). IRS. Practical Tax Strategies, 98(6), 251-254.

Lippman, E. J., & Grimmer, T. (2016). Transparency and accountability for bequests: The case of Long Island College Hospital. Journal of Leadership, Accountability and Ethics, 13(3), 28-35.

Morrison, M., Dickenson, D., & Lee, S. S. (2016). Introduction to the article collection ‘Translation in healthcare: Ethical, legal, and social implications’. BMC Medical Ethics, 17.

Nonprofit corporation subject to corporate overpayment interest rate. (2017). Taxation of Exempts, 28(4), 47-48.

Schlesinger, M., & Gray, B. H. (2016). Incomplete markets and imperfect institutions: Some challenges posed by trust for contemporary health care and health policy. Journal of Health Politics, Policy and Law, 41(4), 717-742. doi:10.1215/03616878-3620905

Woodhull, J. V., & Smith, J. M. (2017). Schedule A reporting: Section 509(a)(3) supporting organizations. Taxation of Exempts, 29(1), 17-29.

Sample Solution