Rules for 501(c)(3) Institutions
At the Arkansas Hospital Association’s request, AHA legal counsel Diane Mackey prepared the following summary of challenges facing nonprofit hospitals who wish to avoid problems with the Internal Revenue Service. It is very important that hospital trustees read and understand these rules.

Political Campaign/Activities
Section 501(c)(3) precludes exemption for any organization that participates or intervenes, including publishing or distributing of statements, in any political campaign on behalf of, or in opposition to, any candidate for public office.

In addition, there is now an excise tax on a public charity’s political expenditures under §4955 of the Internal Revenue Code. Political expenditures are defined as any amounts paid or incurred by an organization in participating in a political campaign, again including the publication or distribution of statements. 

This excise tax gives the IRS a kind of intermediate sanction to penalize political activities short of revoking the charity’s exempt status. In addition to the penalty tax imposed on the organization, the tax also can be imposed upon the managers of the charity.

501(c)(3) hospitals also are prohibited from engaging in substantial legislative lobbying activities. The restriction provides that no substantial part of the organization’s activities may consist of efforts to influence legislation.

Private Inurement
Another statutory restriction under §501(c)(3) is that no part of the organization’s net earnings may inure to the benefit of any private individual. This "private inurement" concept generally refers to benefits conferred upon insiders such as officers and directors. However, reasonable compensation for services rendered is not prohibited.

When a nonprofit hospital engages one of its board members, or a firm represented on the board, to perform services for the hospital, the statute requires that the compensation paid does not exceed the value of the services rendered. 

Therefore, all such transactions must be executed at arm’s length, properly documented in writing, paid for at fair market value and with terms similar to other such transactions negotiated at arm’s length. In addition, the Arkansas Nonprofit Corporation Act rules on conflict of interest transactions must be complied with as well.

Conflict of Interest
Prior to 1995 the sole remedy of the IRS to punish private inurement was revocation of an organization’s tax exempt status under §501(c)(3). However, the intermediate sanction provisions of the law now allow the IRS to impose an excise tax liability upon any "excess benefit transaction" between certain disqualified persons and the charity. An excess benefit transaction is one in which the disqualified person receives an economic benefit that exceeds the value of the services rendered.

In addition to complying with those IRS rules, hospitals incorporated under the Arkansas Nonprofit Corporation Act of 1993 must also comply with the state statutory rules on conflict of interest transactions with directors. One of the advantages of the law is that it provides a clear pathway for the corporation to approve transactions in which one or more directors have a conflict of interest. The key principles are full disclosure and fairness.

For a full copy of Ms. Mackey's summary, call Beth Ingram at 501-224-7878.

Arkansans to Attend AHA Annual Meeting, 
Jan. 29-Feb. 1, Washington, DC
"A New Century of Caring for People" is the theme for the American Hospital Association's (AHA) annual membership meeting January 29-February 1 in Washington, DC.

Arkansas hospital CEOs, administrative team, and trustees will hear timely presentations from well-known politicians and campaign experts; visit with members of the state's congressional delegation; honor congressional aides with an appreciation/get-acquainted dinner; and lunch with Senators Lincoln and Hutchinson.

The AHA will again offer informative educational opportunities targeted towards healthcare trustees and executives at this year's meeting. Emphasizing the strength and the powerful role of trusteeship, the interactive sessions are designed to prepare trustees to handle the issues the new century is sure to bring. Trustee events include:

Saturday, January 29
Best Practices in Board Self-Evaluation
Accelerate the development of your governance team by learning best practices in board self-evaluation from a panel of nationally renowned experts and leading trustees. This session is designed to give you both principles and specific methods to take back to your organization.

Sunday, January 30
Trustees and Advocacy: A Powerful Partnership
How can you, as trustees, harness your individual and collective strength to improve healthcare delivery? In this session, trustees will explore their role as an influencer of federal, state and local political processes, including the key components of successful advocacy, and how to become more involved in essential grassroots advocacy efforts.

Monday, January 31
Trustee Leadership Breakfast
Join healthcare trustees from across the country to hear Rep. John Tanner (D-TN) discuss the latest from Washington, and network with colleagues.

For registration information for the AHA annual meeting and trustee activities, contact your hospital CEO or call Beth Ingram at 501-224-7878.

President Signs Budget Deal, Medicare Relief
A budget bill to carry the U.S. government through its fiscal year 2000 was signed by President Clinton on November 29. Included in the mammoth $390 billion spending measure – among plans to hire more teachers, more policemen, pay back dues for U.S. membership in the United Nations, and implement a Middle East peace accord – is the "Medicare, Medicaid, and SCIHP Balanced Budget Refinement Act of 1999."

The act restores about $17 billion to Medicare over a five-year period, with more than half going to hospitals and health systems.

Under the bill, hospitals should receive an estimated $5.3 billion more for outpatient services than they would under current provisions of the Balanced Budget Act of 1997. Among the outpatient changes, hospital payments won't be cut to allow beneficiaries to have reduced coinsurance payments, restoring an overall 5.7% reduction made by the Health Care Financing Administration's interpretation of the act.

In addition, there will now be a 3.5 year transition to a full Medicare outpatient prospective payment system (PPS). Hospitals that were due to see increases under the new outpatient PPS will continue to do so, while others will have their losses limited. 

Rural hospitals with fewer than 100 beds, as well as cancer hospitals, are now completely protected from any losses as a result of the switch to PPS. And the implementation of a volume expenditure cap for outpatient services will be delayed for two years.

The budget bill also contains several other added benefits for the nation's rural hospitals, including specific provisions affecting sole community hospitals, Medicare-dependent hospitals, and new critical access hospitals. It restores about $600 million in graduate medical education payments to teaching hospitals; and makes adjustments in payments available to PPS-exempt hospitals.

While this relief package will definitely help many hospitals that have seen their Medicare revenues fall steadily over the past two years, it's not the last Congress will hear on the issue. The American Hospital Association and the Arkansas Hospital Association are already laying the groundwork for efforts to restore more funds to Medicare when Congress returns next year.

Hold the Date!
AAHT Annual Meeting, 
May 19, Little Rock
The Arkansas Association of Hospital Trustees will hold an annual meeting Friday, May 19, 2000 at the Embassy Suites in west Little Rock.

Jamie Orlikoff, noted governance consultant, will be the featured speaker. Involved in leadership and strategy issues for more than 17 years, Orlikoff has designed and implemented programs in four countries and consulted with healthcare governing boards since 1985.

Both new and veteran trustees are encouraged to attend the orientation/refresher session to gain insight from this thought-provoking speaker.

"The most fundamental characteristic of excellent governance is that all board members have a shared understanding of their job," says Orlikoff. "Healthcare has undergone dramatic changes in the past few years, so trustees must understand the market and how it affects their hospitals. 
The healthcare environment today is characterized by a transition from single facility, acute-care hospitals to integrated delivery systems which incorporate high-quality, cost-effective hospitals that have affiliations with other providers. Governance boards have been forced to learn new rules and adapt to handle oversight of not just hospitals, but accountable health plans and multi-hospital systems."

From finance and liability to quality and credentialing issues, Orlikoff will focus on what every trustee should know. He'll also share vital trends about the current healthcare environment and assist hospital and health system governing board members in strengthening their effectiveness and oversight of quality.

Additional speakers will be announced in program and registration materials which should be mailed in mid-March.

Kordsmeier Elected to Post
Ray Kordsmeier, chairman of the board of Conway Regional Medical Center, has been elected to a three-year term beginning January 1 as an American Hospital Association Regional Trustee alternate delegate to Regional Policy Board #7. Kordsmeier also has been named president-elect of the Arkansas Association of Hospital Trustees, effective January 1, 2000.

THT Spring Forum
Board Governance: An Agenda for the Future
Discover the most important healthcare issues for the next century at the exciting Texas Healthcare Trustees Spring Forum 2000. This year's Forum, "Board Governance: Coming Attractions," will be held March 10-11 in the beautiful oceanside city of Corpus Christi, Texas.

Cosponsored by the American Hospital Association, the Arkansas Hospital Association and the Oklahoma Hospital Association, this informative two-day Forum will bring together a host of knowledgeable speakers from around the country, including experts in board assessment.

Topics to be discussed include governance; physician partnerships; effective board meeting tips; CEO recruitment, retention, and evaluation; board self-assessment; quality assurance; physician recruitment strategies; and federal legislative and regulatory issues impacting healthcare, including the Balanced Budget Act.

For information on how to register for the Forum, call Beth Ingram at 501-224-7878; or Texas Hospital Trustees at 512-465-1562.