AAMC Reporter: September 2007

Hospitals Strive to Report Community Benefit Initiatives Better

Beginning with the 2008 tax year, a proposed revision in an Internal Revenue Service (IRS) federal tax reporting form will require all tax-exempt hospitals to document their community benefit programs. Changes to IRS Form 990—which all tax-exempt organizations are required to file—will provide the federal government with a better understanding of how teaching hospitals benefit their communities through educational services, re-search, charity care, and other public endeavors. Non-profit hospitals, including teaching hospitals, receive tax exemptions at both the federal and state levels.

The changes to the IRS Form 990 come at a time of increased government interest in community benefit documentation. Recently, several institutions faced local and federal scrutiny over whether they are proffering enough community service activities to merit tax-exempt status.

According to Ivy Baer, J.D., M.P.H., of the AAMC's Division of Health Care Affairs, the overwhelming majority of tax-exempt hospitals provide substantial, clear community benefits, but a challenge lies in effectively quantifying the breadth and depth of these activities. With estimates that tax-exempt hospitals receive between $12.6 billion and $20 billion each year in federal tax benefits, the federal government is seeking assurance that hospital community benefit programs exist and are reported accurately.

Because the community benefit standard that underpins federal tax exemption is vague, it has been difficult for federal agencies to understand which activities that hospitals provide should be counted in community benefit disclosures. The revised Form 990 seeks to clarify this.

The IRS changes build on the community benefit reporting guidelines developed by the Catholic Health Association (CHA), and the IRS proposed using the CHA model as the basis for reporting by hospitals starting in the 2008 tax year.

The CHA model allows for explicit outlining of the ways that tax-exempt hospitals provide community benefit, including providing charity care for patients unable to pay for health care; educating physicians, medical students, and allied health professionals; conducting research whose findings could help the broader community; and helping to contribute to the overall health of the community by addressing social factors such as housing, education, employment, the environment, and economic prosperity.

Discussions often focus on charity care, but it is essential that other activities be recognized as community benefits.

"Academic medicine has suffered from the fact that there is not a clear methodology...for defining community benefit arising from research and education," said AAMC Senior Vice President Robert Dickler.

The repercussions for not demonstrating a community benefit can be costly. Courts can strip a hospital's tax-exempt status, as was the case with Provena Covenant Medical Center in Urbana, Ill. Since the Champaign County Board of Review first recommended that the state strip the hospital of its property tax exemption in 2003, Provena has paid more than $5 million in property taxes. A state judge recently restored the hospital's exemption, although the reversal may be appealed.

To help tax-exempt hospitals develop better reporting mechanisms on research and education activities—both at the state and federal levels—the AAMC recently held an invitational meeting with a small group of members.

One area of discussion centered on changes the AAMC could suggest to Schedule H, a component of the revised IRS Form 990. Schedule H is to be completed by those tax-exempt organizations that complete the IRS Form 990 and meet the definition of a hospital. As the IRS has invited people to provide feedback on this new form, the AAMC is working with its members to prepare commentary.

"We hope to help the IRS develop a form that is not overly burdensome to complete and that accurately depicts all the benefits hospitals are providing to their communities," Baer said.

The community benefit issue is not only a federal concern. At a time when many states and localities have budget shortfalls, these other jurisdictions have become very interested in how much community benefit their tax-exempt hospitals are providing. Approximately one quarter of states have standardized community benefit reporting requirements, although only a few states currently require hospitals to provide a predetermined amount of community benefit. Some states, notably Texas and Pennsylvania, require hospitals to provide a specific amount of charity care. Others, including Massachusetts and California, require that hospitals submit an annual report to the state. Those reports then are made available to the public.

Massachusetts General Hospital, for example, is dedicated to reporting on the many community benefit programs it supports.

"People were very committed to making sure everybody knew what the program was doing, and also wanting the attorney general to know," said Jeffrey P. Collins, M.D., M.A., the hospital Community Benefit Program's medical director.

Greater attention to community benefit could allow all institutions to highlight their programs.

"It will do more to put a broader light on community health care and community benefits," Collins said. "For a lot of institutions that have been doing this for a lot of years, and doing it in an excellent and committed way, this is going to let the IRS and the government see how much work is being done."

Greater interest in this issue, according to Baer, will provide institutions with an opportunity for reflection and self-improvement.

Already, though, the recent emphasis on community benefit is changing how people view academic medicine, said Baer.

"It has always been a three-legged stool of education, research, and patient care. Now, community benefit is being recognized as the fourth leg."

—By Elissa Fuchs

Contact Us    © 1995-2008 AAMC    Terms and Conditions    Privacy Statement