Report: State’s tax credit program falls short for neediest rural hospitals

A state tax credit program meant as a lifeline for struggling rural hospitals is not built to ensure the facilities that need the most help receive the most aid, according to a new report released late Wednesday.

The report, called a “special examination” from the state Department of Audits and Accounts, also outlined other flaws in a three-year-old program that state officials pump $60 million into every year for tax credits that are then doled out to donors willing to write a check to support a rural hospital.

The new critique of the program comes about a month before lawmakers reconvene in Atlanta for the new legislative session and came at the request of the House Appropriations Committee, which is led by state Rep. Terry England, an Auburn Republican.

“While the General Assembly has attempted to add greater accountability and transparency provisions to the (law), transparency and accountability are still limited,” according to the state Department of Audits and Accounts report.

Specifically, a third-party firm named Georgia HEART that now handles the donations for all 58 of the participating hospitals received $1.8 million last year in fees from the donations even though it reported needing only $770,000 to administer the program.

The remaining $890,000 was transferred to an affiliated nonprofit “for the benefit of rural health” and not to the eligible rural hospitals, according to the report. As of June, about $530,000 of that money had not been spent.

The firm charges the full 3% fee allowed by law, which lawmakers capped after learning that the firm was charging 6%.

“We were unable to determine if Georgia HEART’s costs were reasonable and appropriate because its leadership was unwilling to allow DOAA access to its complete accounting, financial, or other business records,” the report says.

An emailed message seeking comment from Georgia Heart late Wednesday was not answered. The group is also affiliated with the Georgia Community Foundation and Georgia GOAL, a tax credit program that awards scholarships to private k-12 schools.

The report recommends the state consider creating a nonprofit that can take over the program under its current structure – or swap out the tax credit system for a grant program that would give the state more control over where the money goes.

As it is, taxpayers can decide whether to donate to a particular hospital or they can leave it undesignated. About $19 million was donated last year without a specific hospital named. Georgia HEART spreads that money out evenly, with each hospital receiving about $350,000 last year. The few hospitals that had not yet signed on with Georgia HEART received none of the undesignated money the last two years.

The report found that taxpayer choice and the program’s eligibility criteria for hospitals “will continue to limit the extent to which the rural hospitals most in financial need receive the most support.”

The state has a ranking of eligible hospitals based on need, but the report called that more “informational” than anything else.

Lawmakers created the rural hospital tax credit program in 2016 and it kicked off to a slow start, with just $8.4 million of the tax credits claimed. Lawmakers gradually bumped up the amount of the credit from its original 70% until it became a dollar-for-dollar tax credit, boosting interest.

But a federal tax rule change has dampened enthusiasm significantly, according to the report. Use of the tax credit dropped to about $28 million through last month, which was about half of what was claimed through the same period last year. The report noted that some participants turned to the program for “tax planning purposes,” with the donations primarily hailing from the Atlanta area where there are no participating hospitals.

The report will likely prompt proposed legislative fixes next year for a program set to run through 2024.

Lt. Gov. Geoff Duncan, who first proposed the rural hospital tax credit program as a state representative, said late Wednesday that his office was in the process of reviewing the report. The donation tax incentive was projected to help stem the flow of red ink at Georgia’s rural hospitals after a string of closures.

“I remain committed to this program and want to ensure it continues to be a vital lifeline to rural communities and their ability to deliver quality health care all across this state,” Duncan said in a statement. “I would expect to see some legislative adjustments in the upcoming session.”

England, whose committee requested the report, said Wednesday that lawmakers “will likely be coming with legislation this coming session to address the issues.”