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Abstract: 

The most critical issue for a hospital in today’s highly competitive health care market is the relationship with its physicians. A typical acute care hospital simply cannot exist without the physician members of its medical staff referring to it patients for out-patient and in-patient clinical services. However, for a tax-exempt hospital there exists another dynamic which oftentimes can be at odds with the hospital’s goal of creating a strong working relationship with its physicians. Tax-exempt hospitals often rely upon tax-exempt bonds to finance capital projects such as equipment acquisitions or new construction. These bonds, however, contain certain restrictions under the Internal Revenue Code (“the Code”), which can indirectly affect the relationship between the hospital and its physicians. Utilizing the backdrop of a recently announced tax-exempt financing compliance enforcement initiative by the IRS, this article examines tax-exempt financing and its potential impact on a hospital’s relationship with its physicians and sets forth recommendations as to how both tax-exempt hospitals and physicians can avoid the problems sometimes created by the restrictions associated with tax-exempt financing.

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Affiliations:  1: The Rogers Law Firm.