Tax-Exempt Hospitals and Community Benefits: A Review of State Reporting Requirements

Abstract

In June 2007 the Internal Revenue Service proposed a major overhaul of its reporting requirements for tax-exempt hospitals and released draft Form 990 (the IRS form filed by tax-exempt organizations each year). In December 2007 the IRS promulgated the final Form 990 after incorporating some of the recommendations made in the almost seven hundred public comments on the discussion draft. One recommendation adopted in the final Form 990 is the postponement until tax year 2009 (returns filed in 2010) of the requirement for hospitals to submit detailed information on the percentage of total expenses attributable to charity care, unreimbursed Medicaid costs, and community-health improvement programs (the discussion draft required this information for tax year 2007). Although the IRS will not require tax-exempt hospitals to provide detailed information about community benefits until the 2009 tax year, sixteen states have laws requiring tax-exempt hospitals to enumerate the benefits that they provide to the community. Information about the impact of these laws on the provision of community benefits (e.g., charity and uncompensated care) is examined in this study whose primary purpose is to highlight information policy makers may glean from states that have adopted community-benefit reporting laws.

Perceived Community Commitment of Hospitals

“…As a reflection of this controversy, the IRS recently started requiring nonprofit hospitals to start measuring and reporting their community benefit activities (Hellinger 2009). While this effort is important as a matter of public policy and accountability of public dollars, these activities may have benefits for hospitals beyond their tax-exempt status.…”

Tax-Exempt Hospitals and Community Benefit: New Directions in Policy and Practice

“…At the federal level, the United States Code title 26, section 501, subsection (c), specifies charitable organizations as one of several types of entities that qualify for tax exemption (65). Nonprofit hospitals also qualify for tax exemption at the state and local levels on the basis of their charitable status (28,38). Both federal and local standards for charitable organizations are largely grounded in the common law doctrine of charity (22).…”

“…The benefit of such an approach is that federal-level quantitative standards would be fairly unambiguous and thus relatively easy to apply to determine tax exemption. Several states, including Pennsylvania, Utah, and Texas, have adopted explicit quantitative standards that nonprofit hospitals must meet or exceed to remain tax exempt at the local level (13,28). However, explicit quantitative standards represent a one-size-fits-all approach that may not result in the optimal level and types of benefit for an individual community.…”

Erosion in the Healthcare Safety Net: Impacts on Different Population Groups

“…In addition, the Institute of Medicine (IOM) noted that other hospitals, in particular some nonprofit institutions, have adopted missions to provide a significant amount of care to the uninsured, Medicaid, and other vulnerable patients. Furthermore, 20 states in the United States have adopted community benefit requirements that mandate nonprofit hospitals to provide some charity care given their tax exempt status [2]. …”