For-Profit Hospitals Argue for Change

The Federal Government’s Charities Inquiry has attracted some strong submissions, not the least from a consortium of “For Profit” private hospitals in Australia challenging the status of their Not for Profit competitors.

The Allen Consulting Group was commissioned to prepare a submission to the Inquiry by a group of companies active in the Australian health care sector citing a number of disadvantages compared to their competitors those who operate under the ‘charity’ banner.

Allen Consulting says the current definitions and administrative practices introduce unfair and arbitrary distinctions between health sector organisations providing the same services to the same client population, using the same inputs and operating under same regulations and revenue sources.

It says the current discrimination against for-profit hospitals undermines the overall effectiveness and strength of the Australian health sector, reduces public revenues, raises costs for consumers, and impedes investment and the introduction of best practice management practices.

The submission says around one third of Australian hospitals and hospital services are provided by private hospitals. Of these, around 55 per cent of services are delivered by for-profit hospitals, with the remaining 45 per cent delivered by not-for-profit hospitals.

The submission says despite dramatic changes in the nature of their activities (in recent years), Not for Profit hospitals continue to fall within the definitions for charities and related organisations, and so enjoy a range of tax concessions and exemptions.

These include an exemption from income tax, tax deductions (for the donor) in relation to gifts, FBT concessions, payroll tax exemptions, land tax exemptions, stamp duty exemptions, and exemptions from local rates and charges.

The submission goes into great detail about the costs of being disadvantaged and the financial benefits gleaned by Not for Profits.

The submission says Not for Profit hospitals, for example, fall within the technical definitions of charity because they contribute to the relief of sickness, even though they operate on a commercial fee-for-service basis and their customers are overwhelmingly from middle or high-income households.

It says it is unthinkable that Not for Profit hospitals dedicated to the service of private patients would be considered charities if established for the first time today. Their status reflects their history, rather than their current operations and context.

As part of its Executive Summary the submission makes five detailed recommendations which are reprinted as it appears in the submission.

R.1 That the definitions of charities and related activities should be reformed to provide competitive neutrality between for-profit and not-for profit entities providing similar goods and services.
R.2 That non-reciprocity be included as one of the key defining characteristics of charitable activity and organisations, both because it provides a clearer indication of genuinely charitable activity than the notion of ‘public benefit’, and because it avoids competitive neutrality problems that arise under the current set of definitions.
R.3 That the definition(s) of charities and related organisations should limit the extent of business activity allowed, including as a maximum dollar value, beyond which either the body loses its charitable status or the business activity must operate under its own accounts and without the benefits of charitable status.
R.4 That the definition of non-commercial or non-reciprocal activity be harmonised across all Commonwealth legislation, possibly based on the GST provisions for supplies for a nominal consideration. For simplicity this definition may also refer to the ‘significant business threshold’ from the Commonwealth’s competitive neutrality policy.
R.5 That not-for-profit hospitals engaged in business activity (as defined under the GST provisions, for example) should not be considered charities or related organisations, and should no longer have access to charity-based tax concessions, including FBT exempt employee benefits and payroll tax exemptions. Alternatively, a second-best solution would be for-profit hospitals to be accorded the same input tax treatment as non-profit hospitals, including in relation to FBT, payroll tax, local rates and charges, and stamp duty.

The submission is one of the last to be accepted by the Inquiry. In a previous edition of Pro Bono Australia we reported on the Catholic Church submission which warned of the problems if the Government changed the definition.
As well, the Uniting HealthCare Group (UHC) which is a distinct organisation established within the Uniting Church in Australia – Queensland Synod and operates a number of hospitals throughout Queensland, made a more recent submission which expands on that.

UHC is strongly of the view that the principle by which a charitable organisation should be defined is the purpose for which the organisation has been established.

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