Tax-exempt hospitals focus their response to the IRS, which is questioning their status

The IRS inquiry into the tax-exempt status of not-for-profit hospitals continues (i.e., do such hospitals provide community benefits, including charity care, sufficient to justify their tax-exempt status?), and hospital associations and their advisors continue to react to the IRS questionnaire that was sent out to hospitals a while back (see earlier post). 

The AHA wrote a letter to the IRS about ten days ago, pointing out problems with the questionnaire.

PriceWaterhouseCoopers released a report last month entitled My Brother’s Keeper: Growing expectations confront hospitals on community benefits and charity care (available here; registration may be required).  It’s a good read, and is based in part on roundtable discussions with some hospital executives. 

The key recommendations in the PwC report are very pragmatic:

• Review community needs not only at the hospital level, but over larger geographic areas, by teaming with business, community and political leaders.
• Conduct an economic impact study to quantify in dollars additional community benefits generated by the hospital.
• Publicize community benefit results to inform the public about progress to improve the overall health of the community.
• Adopt the CHA/VHA Community Benefit guidelines for both community reporting and on IRS Form 990. Commit to adopting the CHA/VHA guidelines regarding bad debt and Medicare shortfalls by 2010.
• Report charity care at cost, not charges.
• Enhance board involvement in  setting charity care policies, with periodic evaluations of performance.
• Educate and distribute the charity care policy to all hospital employees.
• Clarify policies to clearly identify charity care, as distinguished from bad debt.
• Simplify the charity care application process by integrating technology at the front-end of the qualification process.

The executive summary of the Catholic Health Association (CHA) guidelines on community benefits is available here.  CHA guidance on completing Form 990 released in May is available here.

In September, per a CHA press release, Senator Charles Grassley, who has been spearheading the inquiry into tax-exempt status of hospitals, praised the CHA’s efforts, and noted:

The IRS is creating a supplemental report to the Form 990 to include additional information from non-profit hospitals and their charity care and community benefit. I hope the IRS will give strong consideration to having that new information requirement conform with CHA guidelines.

— David Harlow