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Latest Developments on Charity Care and Community Benefit Requirements for Tax Exempt Hospitals

Summer 2007 | Volume 2, Issue 2

On July 19, 2007, the Internal Revenue Service released an interim report summarizing responses to the questionnaire it distributed to tax-exempt hospitals in May 2006. The interim report summarizes responses from 487 hospitals to questions on how the hospitals provide and report benefits to the community. Although the questionnaire included executive compensation issues, the report does not cover executive compensation because examinations are ongoing in that area. The Interim Report is available at http://www.irs.gov/charities/charitable/article/0,,id=172267,00.html.

The primary conclusion of the report is that hospitals report similar information in different ways, which makes it difficult to draw summary conclusions about the community benefit expenditures by tax-exempt hospitals. In particular, the report notes considerable variation in how hospitals report uncompensated care. For example, the researchers found significant differences in how hospitals measured income and assets and accounted for bad debt expense and shortfalls between actual costs and Medicare/Medicaid reimbursement rates. 97% of the respondents reported making uncompensated care available to least some persons; however, the report emphasizes that more analysis will be required to “accurately portray the community benefit actually provided by the respondent hospitals.” To address the limitations of the study, the researchers intend to do additional analysis and research and to test their findings by performing compliance checks or examinations of individual hospitals.

Revision of Form 990

On June 14, 2007, the IRS released a draft of a redesigned Form 990, the annual information return for tax-exempt organizations. The draft is available at http://www.irs.gov/charities/article/0,,id=171216,00.html. The proposed draft presents a substantially revised form, the first such significant revision since 1979. The revised form now includes a 10-page core form that all organizations must complete and 15 schedules to be completed if relevant to the organization. Of particular interest to hospitals, the form introduces a Schedule H entitled “Hospitals.” Schedule H includes five parts: Part I – Community Benefit Report; Part II – Billing and Collections; Part III – Management Companies and Joint Ventures; Part IV – General Information (questions on assessment of community need, ways that patients are informed of their eligibility for government assistance or charity care, emergency room policies, and ways that hospital’s facilities are used for exempt purposes); and Part V – Facility Information. Schedule J, which requests additional compensation information, will also be of interest to hospitals. The IRS is accepting comments on the proposed draft until September 14, 2007. They intend to require use of the new form to report information on 2008 (i.e., to be filed in 2009).

Minority Staff Report


As we have reported in past issues of our Health Law Vantage Point, Senator Grassley and his staff have taken particular interest in reviewing the standards currently applicable to hospitals that are recognized as tax-exempt under § 501(c)(3). As part of this ongoing project, on July 19, 2007, the Finance Committee Minority Staff issued a report entitled “Tax-Exempt Hospitals: Discussion Draft.” You can find the report at mscholz@gklaw.com), Jed Roher (608-284-2269 or jroher@gklaw.com) or any other member of our Health Care Team for more information on community benefit and charity care requirements for hospitals.

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