The Impact of Obamacare on Financial Disclosure Laws for Nonprofit Hospitals: Some Say They Don’t Go Far Enough

Vol. 3, No. 5

Jeffrey C. Grass, JD, MS, ACLM, is managing member of the law firm of Jeffrey C. Grass & Associates, PLLC. He is the Chairman of the American Bar Association Subcommittee on Government Relations & Legislative Process. He is also a member of the American College of Legal Medicine. His principle office is located at The Bank of America Tower, 101 E. Park Blvd., Ste 600, Plano, Texas 75074. He can be reached at 214-273-7290 or


The Patient Protection and Affordable Care Act (PPACA),1 otherwise known as the Affordable Care Act (ACA) and Obamacare, now requires nonprofit hospitals to disclose more essential information about their finances.2 This requirement by the ACA coupled with changes in the Internal Revenue Code (IRC) are intended to bring about greater transparency and accountability in a growing sector of the health care industry providing medical services to an increasing number of patients.3 However, many community members and physicians believe that the current financial disclosure laws under the ACA, the IRC, and state law do not go far enough to ensure hospital funds are allocated appropriately to meet their community’s health care needs. These groups are frustrated by hospitals refusing to produce financial records by claiming the material is either confidential, privileged, or falling within an exception under state reporting laws. Consequently, battles are currently being waged in the state courts and legislatures around the country that are defining the parameters of the ACA and redefining the application of state law in the wake of the ACA. One such case in Texas, Jeffrey Grass vs. Knapp Medical Center, promises to (1) set a national trend requiring nonprofit hospitals to allow greater public access to their financial dealings; (2) utilize systems of self-governance by local communities and their medical staffs; and, (3) eliminate financial disclosure exceptions employed by nonprofit hospitals through their use of private foundations. These important issues could signal a fundamental shift in operation and management of nonprofit hospitals in America today.


Federal Financial Disclosure Laws Before the ACA

Federal financial disclosure laws before the ACA granted hospitals nonprofit exempt status if they meet certain criteria under IRC 501(c)(3).4 In order to maintain tax-exempt status, nonprofit hospitals are required to be organized and continually operated exclusively for “exempt purposes.” Also, none of their earnings may inure to the benefit of any private shareholder or individual.5 As pertaining to nonprofit hospitals, “exempt purposes” are providing needed medical services to a community under various criteria imposed by the IRS.6 These criteria have changed over time. From 1956 through 1969, the IRS required nonprofit hospitals to provide care at no or low cost to those who could not afford it to the extent the hospital was financially able to do so.7 With the advent of Medicaid and Medicare, hospitals began advocating for a relaxation of this requirement on the grounds that these programs would eliminate or greatly reduce the demand for charity care.8

The IRS agreed, and in 1969 removed the charity care requirement in favor of a broad standard that required only that hospitals provide benefits to the community.9 The “Community Benefit” standard was intended as the baseline test applied by the IRS to determine whether a hospital was operated to promote the health of the community in a manner that served a charitable purpose, thereby meriting a tax-exempt status.10 This “Community Benefit” standard remained from 1969 to 2008 but was problematic.11 Without clear guidelines in law or regulation, community benefit activities varied from hospital to hospital and from state to state even measuring similar activities inconsistently.12 Moreover, federal financial disclosure laws pertaining to nonprofit hospitals have generally been limited.13 Operational compliance by the nonprofit hospital is verified by its financial tax filings in IRS Form 990.14 However, the Form 990 has been regarded by many as woefully inadequate because the financial information it reports is extremely limited and offers no opportunity for holding the nonprofit hospital accountable for ineffective management and irresponsible use of assets when it comes to meeting the health care needs of its patients.15

For example, the Office of Legal and Regulatory Affairs of the American Hospital Association (AHA) reported (1) that the [990s] rarely included any information about the hospitals’ community benefit programs; (2) a lack of consistency in allocating expenses between program, management and general, and fundraising; (3) minimal disclosure of program service accomplishments; (4) lack of mention of donated services and materials; (5) no consistency in the preparation of the analysis of income-producing activities; (6) minimal and/or incorrect disclosures of the relationship of activities to the accomplishment of exempt purposes; (7) that some of the returns were technically incomplete; and (8) a large number of the returns indicated that the hospitals did not receive any gross unrelated business income.16

In response to this criticism, the IRS in 2009 introduced a new form, Schedule H, in an attempt to “combat the lack of transparency surrounding the activities of tax-exempt organizations that provide hospital or medical care” and “quantify, in an objective manner, the community benefit standard applicable to tax-exempt hospitals.”17 Schedule H was intended to create a nationwide, standardized, facility-specific, transparent, and fully publicly accessible reporting system covering the nation’s more than 2,900 nonprofit hospitals.18 Schedule H delineates financial assistance and bad debt, and requires identification of community health improvement and community building.19 Many states have attempted to capture similar information regarding nonprofit hospitals’ community benefit activities through their own reporting systems.20 However, state statutes have varied considerably in setting qualification standards in the formation of tax exempt business organizations.21 Consequently, measures taken by state and federal government prior to the ACA have proven to be anemic, and the inability to verify compliance under the “community benefit” standard remained a quandary due to the determination of many hospital governing boards to not disclose their financial information based on their individual concerns.22


Federal Financial Disclosure Laws After the ACA

Federal financial disclosure laws after the ACA seek to remedy the lack of transparency and accountability of nonprofit hospitals by first sharing financial data with the hospital’s community members and medical staff and then seeking out these groups participation in management decisions.23 In executing this new approach, the ACA has added financial disclosure requirements under IRC Section 501(r).24 Nonprofit hospitals must now meet and report as a condition of retaining their tax-exempt status (1) a description of how the organization is addressing the needs identified in each community health needs assessment; (2) a description of any needs that are not being addressed with an explanation as to why they are not being addressed; and (3) a copy of its audited financial statements (or the consolidated statements if the organization is included in consolidated financial statements).25

Taken together, the new requirements under the ACA obligate nonprofit hospitals to be more accountable to the communities they serve in order to justify their continued federal income tax exemption.26 Now, nonprofit hospitals must conduct a community health needs assessment (CHNA) every three tax years.27 According to the statute, this assessment must reflect input from persons who “represent the broad interests of the community served” by the hospital facility, “including those with special knowledge of or expertise in public health,” and be made “widely available” to the public.28 The hospital must have an implementation strategy for meeting the needs identified in the assessment, report how it is addressing those needs and describe any needs that are not being addressed together with the reasons they are not being acted on.29 Any nonprofit hospital organization that does not meet these requirements must be assessed a tax of $50,000 per year per noncompliant facility.30 Hospitals must report that they have completed the CHNA requirements beginning in tax years after March 23, 2012.31

Moreover, IRS Announcement 2011-52 released in July 2011 makes clear that the nonprofit hospital’s community to be assessed “may not be defined in a manner that circumvents the requirement to assess the health needs (or consult with persons who represent the broad interests of) the community served by a hospital facility by excluding, for example, medically underserved populations, low-income persons, minority groups, or those with chronic disease needs.”32 Announcement 2011-52 further states that the CHNA must take into account input from not only persons with special knowledge or expertise in public health, but also “[f]ederal, tribal, regional, [s]tate or local health or other departments or agencies with current data or other information relevant to the health needs of the community served by the hospital facility.”33 It also requires that the hospital report the name, title, affiliation and a description of the special knowledge or expertise of the public health expert or experts consulted.34 Clearly, the most competent among these groups will be the hospital’s medical staff, who are themselves demanding greater self-governance in assessing their communities’ health care needs and implementing strategies for meeting these needs by participating in the allocation of their hospital’s financial resources. Of course, this can only be accomplished by granting full and unrestricted access to the nonprofit hospital’s financial data and allocation of resources. The burden of ensuring an organization’s compliance with the ACA transparency and accountability requirements has fallen squarely on the shoulders of the nonprofit hospital’s governing body.35 And yet, it is frequently the hospital’s governing body that is most opposed to the disclosure of its financial materials to the community it serves. As a result, the degree to which a nonprofit hospital can decline such requests for disclosure and conceal its true financial dealings will continue to rest in state law.


State Financial Disclosure Laws After the ACA

State financial disclosure laws for nonprofit hospitals vary among the 50 states and are often tied to state hospital licensure laws and regulations.36 In certain states, community members can easily access the financial records of public hospitals and minutes from their board meetings.37 In other states, public hospitals are not required to disclose any information related to trade secrets, attorney-client communications, and the hospitals’ long-range or strategic business plans.38

However, with the passing of the ACA and ever-changing attitudes toward the role of health care organizations in our society, local physicians, patients, and interest groups are advocating even greater expansion of the financial disclosure requirements of nonprofit hospitals under state law as well as greater self-governance by hospital medical staffs.39 Many of these attitudes are being driven by concerns that nonprofit hospitals are being mismanaged and that the health care needs of patients are not being met due to inept and corrupt practices by hospital administrators.40

A conflict has emerged at the state level between these groups and the members of the hospitals’ boards of directors or trustees, who oppose such openness and sharing of financial information citing concerns for confidentiality, the loss of a competitive advantage in the market place, and a possible decline in donations from the public if the confidentiality of their contribution were lost.41 Board members will often outright refuse to turn over requested financial information on these grounds or else hide their financial dealings behind a shell corporation or foundation that exists solely to solicit and distribute funds to the nonprofit hospital.42 By structuring their business organization in this way, nonprofit hospitals avoid requests for financial records from the public or hospital medical staffs by claiming it is not the nonprofit hospital that falls under the state reporting and disclosure requirements; rather, the charitable foundation is the entity obligated to report such information.43 The problem is the charitable foundation is only required to report the funds it gives to the nonprofit hospital, but it has no duty or ability to disclose how the nonprofit hospital allocates the funds it receives.44 Consequently, the use of private foundations under state law even after the implementation of the ACA is the cause of great frustration for many community members and physicians on the medical staffs.


A Case in Point

Currently on Petition for Review before the Texas Supreme Court is Jeffrey Grass v. Knapp Medical Center.45 Knapp presents the issue of whether a nonprofit hospital’s financial records must be disclosed to the public under state law46 or whether the financial disclosure obligation rests only with its private foundation, Knapp Medical Center Foundation (KMCF), formed solely to solicit and distribute funds to Knapp hospital.47 The answer to this question will resonate as the first state high court decides what interest in our post-ACA health care system is given priority: either (1) full transparency and accountability of a nonprofit hospitals financial dealings, management, and allocation of resources by patient communities and medical staffs; or (2) protection of a nonprofit hospital from economic competitors for fear that they may use confidential financial materials to obtain an unfair competitive advantage in the market.48

These issues first arose in Knapp when a battle ensued between members of the hospital medical staff and the Knapp Board of Directors amid allegations that the hospital administration was putting monetary gain above the interests of its patients.49 Consequently, the Knapp medical staff requested access to Knapp’s financial records as permitted under the Texas Nonprofit Business Corporations Act section 22.355 in order to see how financial allocations were being made.50 Section 22.355 requires a nonprofit organization to make its records, books, and annual reports of its financial activity available to the public for inspection and copying upon request.51 Furthermore, it was the Knapp medical staff’s intent to provide input to the hospital board of directors about the best allocation of financial resources based on the patients’ needs as understood by the physicians.52 These doctors argued that transparency in the financial dealings of Knapp hospital was the key to assuring their patients received the best care possible when they were admitted to the Knapp hospital.53

The Knapp board of directors denied the medical staff’s requests for access to its financial records, claiming that it had no obligation to disclose any financial information under section 22.355 because of an exception within the statute that provides for the disclosure of financial records to the public only if the nonprofit corporation (hospital) intends “to solicit and receive and does not actually raise or receive during a fiscal year contributions in an amount exceeding $10,000 from a source other than its own membership.”54 The Knapp board of directors claimed that it was exempt from the financial disclosure because it did not itself solicit funds from the public but instead had established the Knapp Medical Center Foundation (KMCF) to do so on its behalf.55 Moreover, Knapp board of directors claimed the right as a nonprofit hospital not to disclose the detailed financial information because it could fall into the hands of competitors and that the absence of confidentiality would bring fewer donations to nonprofit hospitals.56 In response, the Knapp medical staff alleged that the hospital administration was using KMCF as a shell corporation to solicit financial contributions in order to avoid having the public scrutinize how these funds were being spent.57 Knapp hospital then sued the medical staff’s lawyer, who made the request for the financial documents on their behalf.

Consequently, battle lines are now drawn and the essential question put before the Texas Supreme Court is whether the Texas Nonprofit Business Corporations Act section 22.355 in conjunction with the new transparency and accountability standards under the ACA requires a nonprofit organization (in this case a hospital) to make its records, books, and annual reports of its financial activity available to the public for inspection and copying; or, whether a nonprofit hospital may be exempted from these reporting requirements by establishing a private foundation dedicated solely to fundraising for the nonprofit organization (KMCF).58

The AMA and the Texas Medical Association (TMA) have weighed in on this question in their amicus brief filed on behalf of the medical staff arguing that

[w]hen the purpose, or result, of creating a related entity is to prevent the parent entity from being held accountable to the public it relies on for financial support, the parent entity should be estopped from asserting an exemption from laws requiring financial disclosure.59 The AMA and TMA argue that to allow such an exemption, under these facts, would be completely inconsistent with the public policy behind the requirements for disclosure and accountability.60

Moreover, “when nonprofits refuse to disclose financial records by using ‘shell’ entities, it erodes the public’s trust that is crucial to the nonprofit’s long-term mission.”61 The AMA and TMA have also argued that “trust is a major factor for the public to donate to a nonprofit, and the laws in place requiring transparency are designed to protect that public trust.” “The use of ‘shell’ entities to circumvent disclosure requirements challenges the inherent notion of ‘for the public good,’ which is the charitable and nonprofits’ reason for existing.”62 Similarly, the AMA and the TMA advocated that the self-governance by the medical staff, which includes having access to the financial information to participate in and recommend the allocation of nonprofit hospital expenditures, is essential to meeting a nonprofit hospital’s obligation to “protect patients’ interests in obtaining quality care through continuous review and evaluations of the medical care rendered in the hospital.”63



The answers to these questions by the Texas Supreme Court will combine with other states’ application of its own laws in combination with the new requirements under the ACA to expand the patient community’s ability to participate in the assessment of its own health care needs and then grant it the ability to implement strategies to meet those needs. Central to this requirement is the need for greater transparency of financial dealings and accountability for the irresponsible allocation of resources by the nonprofit hospital’s governing body. With greater numbers of the population being brought into the newly proposed health care system, the efficacy of the nonprofit hospital will be crucial to providing the best patient care possible as will its ability to retain its tax exemption status. The Texas Supreme Court’s holding in Knapp could be the clarion call of a new paradigm in America’s health care system standing for the principles of openness and inclusion rather than concealment and exclusion in the management and operation of nonprofit hospitals in the wake of the ACA.



1. 42 USC 1800, enacted on March 23, 2010.

2. Sen. Charles Grassley (R) Iowa, arranged to insert language in § 9007 of the Patient Protection and Affordable Care Act, the health reform bill signed into law in March 2010 that requires not-for-profit hospitals to adopt and disclose financial assistance policies for the medically underserved who are not covered by insurance. The American Hospital Association has long argued that mandatory charitable care disclosure policies are unnecessary and that the need can be met through voluntary disclosure procedures.

3. There is an equally vibrant movement by some lawmakers around the country to also require for-profit hospitals that receive public funds to disclose their financial information. In New Jersey, State Senate Majority Leader Loretta Weinberg has introduced such. “At a time of limited public resources we need to ensure that health care funding is used wisely and responsibly,” said Senator Weinberg. “If privately- run hospitals that are out to make a profit take public funds they should be required to meet basic standards of disclosure.” See WEINBERG ACTS TO REQUIRE FOR-PROFIT HOSPITALS TO DISCLOSE FINANCIAL INFORMATION. Health Professionals and Allied Employees. News Release May 6, 2013.

4. See 26 U.S.C. § 501(c)(3) (2006) (“referring to organizations “organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes, or to foster national or international amateur sports competition (but only if no part of its activities involve the provision of athletic facilities or equipment), or for the prevention of cruelty to children or animals”).

5. Exempt Purposes - Internal Revenue Code Section 501(c)(3). The exempt purposes set forth in section 501(c)(3) are charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and preventing cruelty to children or animals.

6. The term charitable is used in its generally accepted legal sense and includes relief of the poor, the distressed, or the underprivileged; advancement of religion; advancement of education or science; erecting or maintaining public buildings, monuments, or works; lessening the burdens of government; lessening neighborhood tensions; eliminating prejudice and discrimination; defending human and civil rights secured by law; and combating community deterioration and juvenile delinquency.

7. See generally Rosemary Stevens, In Sickness and in Wealth: American Hospitals in the Twentieth Century (New York: Basic Books 1989). Nonprofit status by hospitals has been desirable because they can enjoy a number of benefits not available to profit-making corporations and organizations. Chief among these is favorable treatment under the tax code. Rev. Rul. 69-545, 1969-2 C.B. 117. Qualified nonprofit organizations are exempt from federal income tax, and donations to them are tax-deductible to the donor, which encourages private contributions to the nonprofit hospital. They may also have the ability to have tax-exempt debt issued for their benefit. Many nonprofits are also exempt from state and local taxes, including property, income, and sales tax. The well-off could afford to have physicians come to their homes.

8. See Minority Staff of S. Finance Committee, Tax Exempt Hospitals: Discussion Draft 5 (2007) [hereinafter S. Finance Committee, Tax Exempt Hospitals], available at (noting that, “The new guidance in Rev Rul. 69-545 was based on what turned out to be an inaccurate expectation.”).

9. See Rev. Rul. 69-545, 1969-2 C.B. 117. The 1969 “community benefit” ruling set out five nonconclusive factors that would be examined to determine qualification for the nonprofit exemption: (1) the operation of an emergency room available to all community members; (2) a governance board composed of community members; (3) the use of surplus revenue for facilities improvement, patient care, and medical training, education, and research; (4) the provision of inpatient hospital care for all able to pay without discrimination based on payor; and (5) a requirement that all physicians who meet the hospital’s requirements be permitted hospital privileges. Id.

10. Id.

11. See Geisinger Health Plan v. Comm’r, 985 F.2d 1210, 1217 (3rd Cir. 1993) (examining the state of the law and concluding, “no clear test has emerged to apply to nonprofit hospitals seeking tax exemptions”).

12. See Corey Davis, THE NETWORK FOR PUBLIC HEALTH LAW: NEW REQUIREMENTS FOR NONPROFIT HOSPITALS PROVIDE OPPORTUNITIES FOR HEALTH DEPARTMENT COLLABORATION (October 2012) (citing U.S. Government Accountability Office, GAO-08-880, Variation in Standards and Guidance Limits Comparison of How hospitals Meet Community Benefit Requirements 8 (2008) [hereinafter GAO, Variation in Standards and Guidance] (2002 data) at 19. (reporting that “[v]ariations in the activities nonprofit hospitals define as community benefit lead to substantial differences in the amount of community benefits they report”); Id. at 41 (“We believe that because the [community benefit] standard affords considerable discretion to hospitals in both the determination and measurement of activities that demonstrate community benefit . . . the IRS standard allows nonprofit hospitals broad latitude to determine community benefit.”), Id. available at:

13. In 1989, Section 1877 of the Social Security Act, commonly known as “Stark Regulations,” was implemented. Section 1877 creates regulations for physician self-referral.

14. IRS Form 990, Schedule H is a tax document that nonprofit hospitals are required to file in order for the public to see their financial information. IRS Form 990 applies to all nonprofits and each has a schedule classification depending on their compliance and disclosure regulations. Schedule H is hospitals only. The organization's Form 990 (or similar such public record as the Form 990-EZ or Form 990-PF) is generally available for public inspection and photocopying at the offices of the exempt organization, through a written request and payment for photocopies by mail from the exempt organization, or through a direct Form 4506-A Request for Public Inspection or Copy or Political Organization IRS Form request to the IRS of the exempt organization filing of Form 990 for the past three tax years. Failure to file such timely returns and to make other specific information available to the public also is prohibited. See 26 U.S.C. § 6104 (identifying what materials are required to be available for inspection).

15. See Rummana Alam, JD. NOT WHAT THE DOCTORS ORDERED: NONPROFIT HOSPITALS AND THE NEW CORPORATE GOVERNANCE REQUIREMENTS OF THE FORM 990. In 2008, the IRS revised Form 990 due to concerns over perceived abusive transactions at the corporate governance level of nonprofit hospitals, and whether favorable tax treatment for these hospitals is justified, prompted the redesign of the Form 990. The theory is that by encouraging internal and external transparency, a hospital board will better fulfill its fiduciary duties of oversight and obedience to the nonprofit mission of the organization. Kathleen M. Boozang, Board Independence and Transparency: Searching for the Key to Good Governance, 1 J. HEALTH & LIFE SCI. L. 127, 136 (2008). The new Form 990 requirements are supposed to reflect the principles of compliance, transparency, and minimizing taxpayer burden. IRS Releases Discussion Draft of Redesigned Form 990 for Tax-Exempt Organizations, IRS.GOV (June 14, 2007),,,id=171329,00.html.


17. Internal Revenue Service, Draft Form 990 Redesign Project – Schedule H Instructions, at 1, (June 2007) available at See also Instructions for Schedule H (2008),

18. Sara Rosenbaum, Maureen Byrnes, and Amber M. Rieke, Hospital Tax-Exempt Policy: A Comparison of Schedule H and State Community Benefit Reporting Systems, 2 FRONTIERS IN PUB. HEALTH SERVS. AND SYS. RES. 1 at 6–12. available at

19. See note 17, supra.

20. See note 18, supra.

21. See COREY DAVIS, note 12, supra (citing GAO, Variation in Standards and Guidance, supra note 12, at 16–19 (documenting that, in 2005, 36 states had no community benefit requirements and that requirements varied in states that did have them).

22. GAO, GAO-05-743T, Nonprofit, For-Profit, and Government Hospitals: Uncompensated Care and Other Community Benefits at 19 (2005) (reporting on hospitals in five states) [hereinafter GAO, Nonprofit, For-Profit, and Government Hospitals].

23. Michael Peregrine, Robert Louthian III, and Michael Fine (2013), An Overview of the Additional Tax Exemption Requirements for Nonprofit Hospitals, at 3. Available at

24. Section 501(r), added to the Code by the ACA, imposes new requirements on 501(c)(3) organizations that operate one or more hospital facilities (hospital organizations). The ACA also added new section 4959, which imposes an excise tax for failure to meet the CHNA requirements, and added reporting requirements under section 6033(b) related to sections 501(r) and 4959.

25. Id.

26. As articulated in the 1969 Ruling, five specific criteria have great importance under the Community Benefit standard: (1) Community Board; (2) Open Medical Staff; (3) Emergency Room; (4) Non-Emergency Care; and, (5) Use of Surplus Funds.

27. These requirements apply to hospital organizations that operate a facility “required by a State to be licensed, registered or similarly recognized as a hospital” or that the “Secretary determines has the provision of hospital care as its principal function.” PATIENT PROTECTION AND AFFORDABLE CARE ACT, Pub.L. 111-148, 124 Stat. 119, 855-858 (2010), as amended by the Health Care and Education Reconciliation Act of 2010, Pub. L. 111-152 (2010) §9007(a) [hereinafter ACA] (adding new section 26 U.S.C. § 501(r)). These requirements apply to hospitals organizations on a facility-by-facility basis.

28. ACA § 9007(a).

29. Id.

30. ACA § 9007(b)(1) (codified at 26 U.S.C. § 4959).

31. ACA § 9007(f). This means that the planning and implementation must begin well before then.

32. IRS, Notice 2011-52, Notice and Request for Comments Regarding the Community Health Needs Assessment Requirements for Tax-Exempt Hospitals, available at

33. Id. at 15.

34. Id. at 10.

35. Id.

36. Sara Rosenbaum, Maureen Byrnes, and Amber M. Rieke, Hospital Tax-Exempt Policy: A Comparison of Schedule H and State Community Benefit Reporting Systems, 2 FRONTIERS IN PUB. HEALTH SERVS. AND SYS. RES. 1 Article 3, at 6–12. Available at

37. At its 2008 Annual Meeting the American Medical Association (AMA) House of Delegates (HOD) referred Resolution 723, “Increasing Transparency of Hospital Contracts for Ancillary Services,” for report back at the 2009 Annual Meeting. Resolution 723 was introduced by the American Medical Association Organized Medical Staff Section. Resolution 723 proposed that our AMA adopt the policy that ancillary services providers in hospitals must be selected with medical staff participation. In its discussion the AMA noted that ultimately, the financial disclosure requirements that a hospital is subject to depend on the nature of its ownership and the patients it serves.

38. Id.

39. See note 36, supra.

40. See Valerie McWilliams & Alan A. Alop, The Dearth of Charity Care: Do Nonprofit Hospitals Deserve Their Tax Exemptions?, 44 J. POVERTY LAW & POLICY 110, 115–18 (July–Aug. 2010); Provena Covenant Med. Ctr. v. Dept. of Revenue, 236 N.E.2d 1131, 1146 (Ill. 2010).

41. Vrouvas, M. Nonprofit organizations & Disclosure Law. Available at

42. IRC 501(c)(3) permits the creation of Private Foundations that exist to solicit money for and distribute funds to other tax exempt nonprofit organizations such as hospitals. Tax documents termed IRS Form 990-PF are filed with the IRS each year and these are made public as are the Form 990 for the nonprofit hospital it serves. 

43. See note 23, supra at Pg. 6 (describing how the ACA will require nonprofit Boards of Directors to ensure compliance with the CHNA now mandated or else lose their tax exempt status).

44. See IRS Form 990-PF.

45. Texas Supreme Court. Case Number: 13-0561; In the Court of Appeals for the Thirteenth District Number: 13-12-00099-CV Trial Court Number: C-820-11-J.

46. Texas Nonprofit Corporation Act § 22.355

47. At the trial court level, both Parties moved for summary judgment on the issue of whether Knapp was exempt from the disclosure requirements of § 22.353 of the Business Organizations Code. Judge Israel Ramon, Jr. of the 430th Judicial District Court of Hidalgo County, Texas ruled in favor of the physicians and entered a judgment that Knapp was not exempt from the obligation to make such disclosures under the Texas statute. The Knapp Board of Directors then appealed to the Texas Thirteenth Court of Appeals—in split decision—reversed the trial court and rendered judgment that Knapp was exempt from the disclosure requirements of § 22.353 of the Business Organizations Code as a matter of law. Justice Gina Benavides opined that even though KMCF was established for the specific benefit of Knapp, the two entities were distinctly separate. Thus, Knapp hospital was exempt from the disclosure requirements of § 22.353 but KMCF was not. In opposition, the dissenting Chief Justice Rogelio Valdez, vehemently disagreed with the majorities holding and accused Knapp and KMCF of a ‘sham to perpetrate a fraud’ by not providing oversight of the donations given to Knapp by KMCF.

48. See Petition for Review by Appellant. Jeffrey C. Grass v. Knapp Medical Center. Statement of Relevant Facts. Texas Supreme Court. Case Number: 13-0561; In the Court of Appeals for the Thirteenth District Number: 13-12-00099-CV Trial Court Number: C-820-11-J.

49. Id.

50. Id.

51. See TEX. BUS. ORGS. CODE ANN. § 22.355(2). Under this exemption, nonprofit corporations are not subject to § 22.353 if they do not intend to solicit and receive and do not actually raise or receive during a fiscal year contributions in an amount exceeding $10,000 from a source other than its own membership.

52. E. Findell, Knapp Wins Appeal To Withhold Financial Information. Retrieved from THE MONITOR. Available at

53. Id.

54. See TEX. BUS. ORGS. CODE ANN. § 22.355(2).

55. See Petition for Review by Appellant. Jeffrey C. Grass v. Knapp Medical Center. Statement of Relevant Facts. Texas Supreme Court. Case Number: 13-0561; In the Court of Appeals for the Thirteenth District Number: 13-12-00099-CV Trial Court Number: C-820-11-J.

56. Id.

57. Id.

58. See n. 47, supra.


60. Id. at 10.

61. Id.

62. Id. at 11.

63. Id.


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