By David A. Kindig, MD, PhD
Last summer, I called attention to the IRS request for comments on reporting requirements for non-profit hospitals, which must justify their tax exempt status by providing “community benefit” to the communities they serve. This is a big deal, since having this status amounts to a collective tax savings for these nonprofit hospitals of about $13 billion annually (a 2007 IRS estimate). Stories such as this one in Modern HealthCare highlight the controversial nature of this issue. Last week I attended a conference sponsored by St. Louis University and the Hilltop Institute to review current policy and research perspectives with regard to community benefit.
From a policy perspective, Julie Trocchio, Senior Director of Community Benefit for the Catholic Health Association, reported that when the new IRS Schedule H revisions were released two months ago, some providers raised concerns about a new section asking questions related to new requirements for tax exemption in the Affordable Care Act (ACA) related to community health needs assessment, billing, collections and charges. Because of this concern, the new section will remain optional for the current year. In addition, the ACA required the IRS to provide “guidance” on community benefit separately from its Schedule H assessment; this guidance is expected soon followed by two 60 day comment periods.
Although community benefit is significantly under-researched relative to its policy importance but several research papers were presented at last week’s conference; highlights include:
- From a sample of Missouri and Illinois hospitals: 77% of community benefit activities were in charity care , medical education, and unreimbursed Medicaid; 3% supported Community Health improvement activities; and 7% supported community building activities (Jason Turner and Connie Evashwick, St Louis University).
- From a sample of California hospitals: total community benefit spending was $1,146 per adjusted discharge, with $763 from government payment shortfalls, $214 from charity care, and $169 from other community benefit activity (Simone Rauscher, Georgetown University).
- Compared to for-profit hospitals, uncompensated care makes up a smaller percentage of non-profit hospitals’ community benefit “portfolios” (Paula Song, Ohio State University).
Conference participants engaged in discussion regarding the policy and research challenges surrounding community benefit. Central was whether community benefit funding could become a significant and stable resource for non-healthcare community health improvement investments as the number of uninsured patients declines under health reform. I strongly believe that this type of investment is required – in addition to the vital resources currently provided by public and private grants and philanthropy.
A number of challenges will test us as we move forward with this important work. The ACA will not close all gaps and the need for uncompensated care will remain -- much of current community benefit spending supports shortfalls from government payers, which will unfortunately continue. The lack of clarity regarding exactly how much the tax exemption is really worth remains a thorny issue, along with whether one government program should fully subsidize the payment policy decisions of another. Finally, thoughtful consideration and strategy must be applied to the nature, scope, and level of direction (or regulation) of community health needs assessment, and what the relationships should be between hospitals, public health agencies, and other population health improvement stakeholders.
Stay tuned for opportunities to comment on the new IRS guidance and to support additional research to advance our understanding of this critical population health policy issue.
David A. Kindig, MD, PhD is Emeritus Professor of Population Health Sciences and Emeritus Vice-Chancellor for Health Sciences at the University of Wisconsin School of Medicine and Public Health.
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