Former Montana health staffer rebukes oversight rules as a hospital ‘wish list’

A former Montana health department staffer who described himself as the lead author of legislation to scrutinize nonprofit hospitals’ charitable acts said new rules implementing the bill amounted to a hospital “wish list” and that the state needs to go back to the drawing board.

The Montana Department of Public Health and Human Services recently adopted the rules outlining how the state will collect data on nonprofit hospitals’ charitable acts with the goal of eventually creating giving standards. That could include benchmarks, such as how much financial aid hospitals must provide patients.

The state’s rules come more than four years after a legislative audit found shortcomings in the health department’s oversight and more than a year after Republican Gov. Greg Gianforte signed the law.

The aim is to fill in national oversight gaps that make it hard to weigh whether hospitals do enough for patients and their communities to earn their tax-exempt status as charitable organizations.

Brenton Craggs, a former regulatory affairs coordinator for the health department who said he was the initial architect of the 2023 oversight law, said the state’s plan caters to the Montana Hospital Association.

“This is basically a wish list of demands from the hospital association,” Craggs said. “They wanted us to be bound to federal standards.”

The biggest red flag, Craggs said, is that the state’s rules allow hospitals with operating losses an exemption from Montana’s eventual community benefit and financial assistance standards.

“Almost every, if not every, single nonprofit hospital in the state will have operating losses during their fiscal years,” Craggs said.

He also said the state should ensure hospitals can’t count unpaid bills they submitted to debt collectors as part of uncompensated care they list as a benefit. As is, Craggs said, a hospital can claim that loss “while simultaneously financially ruining the patient.”

Katy Mack, a spokesperson for the Montana Hospital Association, said parts of the oversight as proposed in the law and rulemaking process weren’t workable with federal law, accounting practices, or the sustainability of rural hospitals.

“Hospitals are not opposed to reasonable and informed oversight,” Mack said. “Hospitals are opposed to one-size-fits-all rules that force them to divert resources from priorities identified by their community.”

Craggs’ rebuke reflects a nationwide tension between states’ seeking to put checks on nonprofit hospitals and pushback from those hospitals. The debate centers on whether nonprofit hospitals give back their fair share.

Nonprofit hospitals must report “community benefits” they provide, such as services offered at a loss or free health screenings. But federal law doesn’t specify what qualifies or how much to give. Hospitals report their giving inconsistently and, in some cases, count something that’s good for business as a benefit.

Montana is among the latest states trying to define what should count as a benefit. Hospitals lobbied against cumbersome oversight from the start.

In the health department’s notice that it had adopted the rules in September, state officials said the 2023 law ultimately restricted the reports it could require nonprofits to submit.

The law also required the state’s definitions of, and standards for, community benefits to align with federal standards “wherever possible.” The agency’s adoption notice said that, while it would try to stick to those standards, the department recognized that it “may not always be possible.”

Health policy analysts have said stopping at federal standards would be meaningless.

“The whole point of the state-level policy is to improve upon what the federal government has not done,” said Christopher Whaley, a health economist at Brown University who studies the business of health care. “If a state is saying we have to follow what the federal government does, then they’re just going to end up in the same exact place.”

Craggs, who now works as an attorney for the Montana Office of Public Instruction, filed a letter opposing the state’s rules during the public comment period before they were adopted. KFF Health News obtained that letter through a records request for the public comments regarding the rulemaking.

In an interview, Craggs said he was the health department’s lead on the oversight legislation and that he was removed from that work after he publicly pushed back against changes the association had proposed during a Jan. 25, 2023, legislative hearing.

Jon Ebelt, a health department spokesperson, said the agency didn’t want to comment. He said the state’s notice of its adoption of the rules stands on its own.

According to state lobbying reports, the oversight bill was among the association’s watched legislation for the 2023 session. The organization ultimately supported the bill after lawmakers made amendments.

Republican Rep. Bob Keenan, the bill’s sponsor, said some of the changes were “draconian.” But Keenan said he ultimately supported the policy as amended because he knew it was the result of long negotiations with the association. Lawmakers could make future changes, he said.

Craggs said the state’s oversight goal was to create standards that worked across hospitals, big and small. Instead, he said, the state’s exemptions give hospitals an easy out and the agency is kicking the can down the road on creating standards.

Montana missed the law’s July deadline to set standards and the health department has been vague about what shape those standards could take. Officials have said they need to compile years of data to set fair benchmarks and that they’ll begin establishing standards in 2026.

Craggs said past reports of hospital data are already available for officials to begin setting those standards. But he added the data the state plans to collect from hospitals has too many gaps to offer meaningful oversight.

In the adoption notice, the state said it must balance interests. It said the department will also take action if it appears any hospitals abuse their exemption from giving standards.

“Many critical access hospitals and rural emergency hospitals operate on very thin margins in remote, rural, and/or frontier areas,” the notice said.

The agency said hospitals with losses still must meet federal rules.