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National accounting rules aimed at providing shareholders with a better understanding of how corporations report profits and losses are forcing not-for-profit hospitals to change the way they operate as well. Nonprofits not only continue to adjust their corporate structures and financial accounting standards, but also are striving to improve their quality programs and community health outreach.
These moves come amid tougher scrutiny from the Internal Revenue Service (IRS), bond issuers and insurers, state and national legislatures, U.S. and state attorneys general and the public, due to fallout from the Sarbanes-Oxley Act of 2002.
"We are seeing what I call the 'Sarbanes Creep'-the creep of Sarbanes-Oxley into the nonprofit health care world," says governance consultant James E. Orlikoff, president of Orlikoff and Associates, Chicago. "A very different world is emerging."
Stephen Albertalli, a long-time board member of a small hospital in Corning, N. Y., agrees that the application of SarbanesOxley seems to be expanding. "With Sarbanes-Oxley, most of us originally thought to focus on financial compliance," Albertalli says. "However, now [the board] is broadening its corporate compliance on a variety of issues like quality, finance, billing, coding and safety."
Many health care boards have also taken note of the implications of the new IRS Form 990, Medicare's False Claims Act, new rules passed by various state legislatures and congressional debate over regulating not-for-profits. They are closely watching legal actions taken against board members, and they are following recent news, such as the story in the Feb. 20 New York Times online about the Service Employees International Union (SEIU). The SEIU sent a letter to Beth Israel Deaconess Medical Center in Boston and some of its directors, arguing that the hospital directors who also work for corporations must use their knowledge of Sarbanes-Oxley when governing Beth Israel and, therefore, the hospital should not have included its losses from bad debts in its calculations of charity care for its 2005 and 2006 financial reports.
The economic recession also has raised concerns that federal and state budget shortfalls are placing pressure upon state attorneys general to find new sources of revenue-and taxexempt entities will be challenged more often as a result.
Beyond economics, not-for-profit boards are watching the standards bar get raised higher and higher in many places....