Bruce Vladeck (2008), former chief of the Health Care Financing Administration (now the Centers for Medicare & Medicaid Services} recently told a group of community benefit leaders, "The IRS Form 990 Schedule H is doing for community benefit what DRGs [diagnosis-related groups] did for medical records: move them from the basement to the executive office."

Community benefit reporting has taken center stage since the Internal Revenue Service (IRS) issued its community benefit reporting form for hospitals. This column describes what information the IRS requires on its new Form 990 Schedule H and how hospital leaders can prepare to complete the form.

WHAT THE IRS WANTS TO KNOW

1. Charity Care Policies, Budget, and Expenditures The form poses several questions about charity care policies:

* Does the organization have charity care policies and are they written policies?

* Does the organization use the federal poverty guidelines to determine eligibility for free and discounted care? If so, at what level are these determinations made?

* Does the policy include free or discounted care to the "medically indigent" (catastrophic expenses)?

The form also includes questions about charity care budgets:

* Does the organization budget amounts for free or discounted care provided under its charity care policy?

* If "yes," did the organization's charity care expenses exceed the budgeted amount?

* If "yes," as a result of budget considerations, was the organization unable to provide free or discounted care to a patient who was eligible?

Finally, the form has questions about the charity care expenditures, including the total and net expense and whether some offsetting revenues are available.

2. Means-Tested Government Programs

The form asks about expenditures for Medicaid and other means-tested programs, defining the latter as "government-sponsored health programs where eligibility for benefits or coverage is determined by income and/or assets." Examples include the State Children's Health Insurance Program (SCHIP) and other federal, state, and local healthcare programs.

3. Community Benefit Programs and Services

Hospital leaders may be pleased to see that Form 990 Schedule H does not stop after asking about charity care and means-tested government programs. Rather, the new form goes on to include information on a range of community benefit programs and services:

* Community health improvement services comprise activities carried out to improve community health that usually do not generate a patient bill (although a nominal fee may be charged) and are subsidized by the hospital organization.

* Community benefit operations are activities that support the community benefit program, such as community health needs assessment, administration, and fundraising or grant writing.

* Health professions education refers to educational programs that result in a degree or training necessary to be licensed as a health professional or continuing education necessary to maintain qualification (but not education available only to the organization's employees and medical staff).

* Subsidized services include clinical programs provided at a loss because they are needed by the community. Examples include inpatient psychiatric units, emergency services, and satellite clinics serving low-income communities.

* Research refers to studies that are self-funded or receive funding from a tax-exempt or governmental entity and have a goal of generating knowledge that is made available to the public.

* Cash and in-hind contributions include donations to another community organization used to carry out a community benefit activity and the cost of staff (while on payroll) on loan to a community program; donated space; and the financial value of donated food, equipment, and supplies.

4. Community Building

Community-building activities address the root causes of health problems, such as poverty, homelessness, and environmental problems. Before Form 990 Schedule H was published, this program category generated debate. Almost all persons who sent comments to the IRS argued that these programs should be considered community benefit.

Instead, Form 990 Schedule H permits hospitals to list community-building activities in a chart apart from community benefits. In a section for supplemental information, hospitals can describe how these activities promote the health of the community. Categories of community-building activities listed on the form include the following:

* Physical improvements and housing

* Economic development

* Community support

* Environmental improvements

* Leadership development and training for community members

* Coalition building

* Community health improvement advocacy

* Workforce development

5. Bad Debt

Another controversial issue was whether both bad debt and charity care should be reported as community benefit. The IRS opted to have charity care reported on Form 990 Schedule H as community benefit and to have bad debt reported in a separate section. In a section for supplemental information, hospitals are given space to describe why their bad debt should be considered community benefit.

Information about bad debt requested by the IRS includes the expense of the bad debt (at cost) and an estimate of the amount of the bad debt attributable to patients eligible under the organization's charity care policy.

6. Medicare

Another prepublication controversy revolved around whether Medicare shortfalls should be reported as community benefit. As with bad debt and community building, the IRS asks hospitals to report information about Medicare losses in a separate section from community benefits and to explain why it should be treated as community benefit.

7. Community Benefit Reports

Information is also required about community benefit reports: Does the organization prepare an annual community benefit report? If yes, does the organization make it available to the public?

8. Community Assessment

Two requests on Form 990 Schedule H are related to community assessment: "Describe how the organization assesses the health care needs of the communities it serves," and "Describe the community the organization serves, taking into account the geographic area demographic constituents."

9. Informing the Public

The IRS form asks hospitals how they inform and educate patients and persons who may be billed for patient care about eligibility for assistance under federal, state, or local government programs or under its charity care policy.

10. What Else?

Two questions allow hospitals to report additional information about how they serve their communities. First, the form asks for other ways the organization and its healthcare facilities further its tax-exempt purpose by promoting the health of the community. Examples given include having an open medical staff, having a community board, and using surplus funds. Organizations can also describe their leadership role in the community--whether they offer community members volunteer and philanthropic opportunities, and whether they participate in collaborative partnerships.

Second, if the filing organization is part of an affiliated healthcare system, the form asks about its role and that of its affiliates in promoting the health of the communities served. Hospitals that support clinics and other programs separately incorporated from the hospital (and therefore not accounted for on Form 990 Schedule H) can report how these programs contribute to community health. Hospitals that are part of a larger healthcare system can report how they contribute to the community benefit role of the overall system and other organizations in the system through dues or other contributions.

WHAT HOSPITALS SHOULD KNOW ABOUT RESPONDING

Treat Form 990 Schedule H as a Public Document The general public can access any tax-exempt organization's Form 990 through the website www.guidestar.org. Hospital leaders should answer questions on the form with the realization that responses will be reviewed by current and potential donors, physicians, employees, policymakers, the media, and others.

Review Policies

Form 990 Schedule H asks if the organization has certain policies, including those related to charity care, debt collection, and community assessment. Although the IRS does not pose any new requirements for having policies nor specify what should be in these policies, these questions should lead hospital executives to make sure such policies are in place, up to date, clearly stated, complete, and ready for public scrutiny.

Special attention should be given to charity care policies. The IRS instructions say only "services provided to persons who meet the organization's criteria for financial assistances" can be reported as charity care. Because charity care but not bad debt is reported as community benefit, many hospital financial, legal, and executive staff members are reviewing and revising these policies to ensure that they adequately separate charity care accounts from bad debt and give organizations full credit for all care provided to persons unable to pay for their care.

Report More than Numbers

Although Form 990 Schedule H asks for considerable quantitative information, it is the story behind the numbers and the descriptive information in the supplement information section that is likely to get the most attention from many reviewers. This is the place to describe how the organization assesses community need; how the organization defines its community, how community building, bad debt, and Medicare shortfalls benefit the community; and what else the organization is doing.

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