Healthcare Workers Say Group Improperly Diverted Millions in Funds for Safety-Net Hospitals

[Sept. 29, 2016] OAKLAND, Calif. – Healthcare workers filed a claim with the California Franchise Tax Board alleging that a California non-profit organization improperly diverted millions of dollars of funds intended for safety-net hospitals that serve large percentages of Medi-Cal patients, and urged the Franchise Tax Board to investigate whether the group’s tax-exempt status should be revoked, which would require it to pay taxes on the $600 million in diverted funds.

 “The California Health Foundation and Trust operates as a public benefit charity but in fact serves as a tax dodge for corporations with billions of dollars in revenue,” said Dave Regan, president of SEIU-United Healthcare Workers West (SEIU-UHW), in a letter sent to the Franchise Tax Board. “Instead, its primary purpose is to redistribute funds in precisely the manner that we believe is forbidden by law. We urge the Franchise Tax Board to classify those funds as taxable income.”

 Healthcare workers assert that since 2010, the trust has inappropriately moved funds meant for safety-net hospitals with large percentages of Medi-Cal patients to those facilities with a considerably lower proportion. Workers say this revenue should be taxed since the trust’s main function does not qualify for tax-exempt purposes. 

 To remedy the problem, healthcare workers urged the Franchise Tax Board to classify California Health Foundation and Trust funds received by and disbursed to hospitals since 2010 as taxable income.

 The California Health Foundation and Trust’s redistribution scheme mirrors a similar arrangement in Missouri, where participating hospitals sign a private contract that authorizes the Missouri Hospital Association’s Management Services Corporation to collect ‘contributions,’ and redistribute these funds to other participating hospitals. In Missouri, this pool operates as a for-profit entity rather than a non-profit 501(c)(3). 


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