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[Congressional Record Volume 155, Number 1 (Tuesday, January 6, 2009)]
[Senate]
[Pages S85-S86]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. INOUYE:
  S. 112. A bill to treat certain hospital support organizations as 
qualified organizations for purposes of determining acquisition 
indebtedness; to the Committee on Finance.
  Mr. INOUYE. Mr. President, the legislation I have reintroduced will 
extend to qualified teaching hospital support organizations the 
existing debt-financed safe harbor rule. Congress enacted that rule to 
support the public service activities of tax-exempt schools, 
universities, pension funds, and consortia of such institutions. Our 
teaching hospitals require similar support.
  As a result, for-profit hospitals are moving from older areas to 
affluent locations where residents can afford to pay for treatment. 
These private hospitals typically have no mandate for community 
service. In contrast, nonprofit hospitals must fulfill a community 
service requirement. They must stretch their resources to provide 
increased charitable care, update their facilities, and maintain 
skilled staffing resulting in closures of nonprofit hospitals due to 
this financial strain.
  The problem is particularly severe for teaching hospitals. Non-profit 
hospitals provide nearly all the postgraduate medical education in the 
United States. Post-graduate medical instruction is by nature not 
profitable. Instruction in the treatment of mental disorders and trauma 
is especially costly.
  Despite their financial problem the Nation's nonprofit hospitals 
strive to deliver a very high level of service. A study in the December 
2006 issue of Archives of International Medicine had surveyed 
hospitals' quality of care in four areas of treatment. It found that 
nonprofit hospitals consistently outperformed for-profit hospitals. It 
also found that teaching hospitals had a higher level of performance in 
treatment and diagnosis. It said that investment in technology and 
staffing leads to better care. And it recommended that alternative 
payments and sources of payments be considered to finance these 
improvements.
  The success and financial constraints of nonprofit teaching hospitals 
is evident in work of the Queen's Health Systems in my State. This 147-
year-old organization maintains the largest, private, nonprofit 
hospital in Hawaii. It serves as the primary clinical teaching facility 
for the University of Hawaii's medical residency programs in medicine, 
general surgery, orthopedic surgery, obstetrics-gynecology, pathology, 
and psychiatry. It conducts educational and training programs for 
nurses and allied health personnel. It operates the only trauma unit as 
well as the chief behavioral health program in the State. It maintains 
clinics throughout Hawaii, health programs for native Hawaiians, and a 
small hospital on a rural, economically depressed island. Its medical 
reference library is the largest in the State. Not the least, it 
annually provides millions of dollars in uncompensated health services. 
To help pay for these community benefits, the Queen's Health Systems, 
as other nonprofit teaching hospitals, relies significantly on income 
from its endowment.
  In the past, the Congress has allowed tax-exempt schools, colleges, 
universities, and pension funds to invest their endowment in real 
estate so as to better meet their financial needs. Under the tax code 
these organizations can incur debt for real estate investments without 
triggering the tax on unrelated business activities.
  If the Queen's Health Systems were part of a university, it could 
borrow without incurring an unrelated business income tax. Not being 
part of a university, however, a teaching hospital and its support 
organization run into the tax code's debt financing prohibition. 
Nonprofit teaching hospitals have the same if not more pressing needs 
as universities, schools, and pension trusts. The same safe harbor rule 
should be extended to teaching hospitals.
  My bill would allow the support organizations for qualified teaching 
hospitals to engage in limited borrowing to enhance their endowment 
income. The proposal for teaching hospitals is actually more restricted 
than current law for schools, universities and pension trusts. Under 
safeguards developed by the Joint Committee on Taxation staff, a 
support organization for a teaching hospital can not buy and develop 
land on a commercial basis. The proposal is tied directly to the 
organization endowment. The staff's revenue

[[Page S86]]

estimates show that the provision with its general application will 
help a number of teaching hospitals.
  The U.S. Senate several times has acted favorably on this proposal. 
The Senate adopted a similar provision in H.R. 1836, the Economic 
Growth and Tax Relief Act of 2001. The House conferees on that bill, 
however, objected that the provision was unrelated to the bill's focus 
on individual tax relief and the conference deleted the provision from 
the final legislation. Subsequently, the Finance Committee included the 
provision in H.R. 7, the CARE Act of 2002, and in S. 476, the CARE Act 
of 2003 which the Senate passed. In a previous Congress' S. 6, the 
Marriage, Opportunity, Relief, and Empowerment Act of 2005, which the 
Senate leadership introduced, also included the proposal.
  As the Senate Finance Committee's recent hearings show, substantial 
health needs would go unmet if not for our charitable hospitals. It is 
time for the Congress to assist the Nation's teaching hospitals in 
their charitable, educational service.
  Mr. President, I ask unanimous consent that the text of the bill by 
printed in the Record.
  There being no objection, the text of the bill was ordered to be 
printed in the Record, as follows:

                                 S. 112

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. TREATMENT OF CERTAIN HOSPITAL SUPPORT 
                   ORGANIZATIONS AS QUALIFIED ORGANIZATIONS FOR 
                   PURPOSES OF DETERMINING ACQUISITION 
                   INDEBTEDNESS.

       (a) In General.--Subparagraph (C) of section 514(c)(9) of 
     the Internal Revenue Code of 1986 (relating to real property 
     acquired by a qualified organization) is amended by striking 
     ``or'' at the end of clause (iii), by striking the period at 
     the end of clause (iv) and inserting ``; or'', and by adding 
     at the end the following new clause:
       ``(v) a qualified hospital support organization (as defined 
     in subparagraph (I)).''.
       (b) Qualified Hospital Support Organizations.--Paragraph 
     (9) of section 514(c) of the Internal Revenue Code of 1986 is 
     amended by adding at the end the following new subparagraph:
       ``(I) Qualified hospital support organizations.--For 
     purposes of subparagraph (C)(iv), the term `qualified 
     hospital support organization' means, with respect to any 
     eligible indebtedness (including any qualified refinancing of 
     such eligible indebtedness), a support organization (as 
     defined in section 509(a)(3)) which supports a hospital 
     described in section 119(d)(4)(B) and with respect to which--
       ``(i) more than half of its assets (by value) at any time 
     since its organization--

       ``(I) were acquired, directly or indirectly, by 
     testamentary gift or devise, and
       ``(II) consisted of real property, and

       ``(ii) the fair market value of the organization's real 
     estate acquired, directly or indirectly, by gift or devise, 
     exceeded 25 percent of the fair market value of all 
     investment assets held by the organization immediately prior 
     to the time that the eligible indebtedness was incurred.

     For purposes of this subparagraph, the term `eligible 
     indebtedness' means indebtedness secured by real property 
     acquired by the organization, directly or indirectly, by gift 
     or devise, the proceeds of which are used exclusively to 
     acquire any leasehold interest in such real property or for 
     improvements on, or repairs to, such real property. A 
     determination under clauses (i) and (ii) of this subparagraph 
     shall be made each time such an eligible indebtedness (or the 
     qualified refinancing of such an eligible indebtedness) is 
     incurred. For purposes of this subparagraph, a refinancing of 
     such an eligible indebtedness shall be considered qualified 
     if such refinancing does not exceed the amount of the 
     refinanced eligible indebtedness immediately before the 
     refinancing.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to indebtedness incurred on or after the date of 
     the enactment of this Act.
                                 ______
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