What is Community Benefit and Why Is It Important?
Community benefit is a term that has developed in response to hospitals’ increased efforts to demonstrate involvement and contributions made to the community. According to health association experts, it includes programs or activities that provide treatment and/or promote health and healing as a response to identified community needs. They are not provided for marketing purposes. Community benefit programs and activities must meet at least one of the following criteria:
- Generates a low or negative margin
- Responds to needs of special populations such as persons living in poverty and other disenfranchised persons (persons with disabilities for example)
- Supplies services or programs that would likely be discontinued or would need to be provided by another not-for-profit or government provider, if the decision was made on a purely financial basis
- Responds to public health needs
- Involves education or research that improves overall community health
Categories of community benefit include: charity care, subsidized government indigent care programs, community health services, health professional education, subsidized health services, research, financial contributions, and community building activities.
What is happening Nationally?
IRS Form 990 Changes
The IRS Form 990 presents an opportunity to tell the community benefit story and to document that not-for-profit health care organizations are fulfilling their tax-exempt purpose. According to the IRS, the Form 990 has failed to keep pace with the increasing size, diversity, and complexity of the nonprofit hospital sector. The current form does not provide for the reporting of community benefit activities or request important information regarding how nonprofit hospitals serve the public consistent with the privileges and benefits of tax exemption.
IRS has updated the Form 990 to:
- Increase transparency of tax-exempt organizations
- Give IRS and stakeholders a realistic picture of entities and their operations
- Promote compliance by accurately reflecting the organizations’ operations and use of assets
- Schedule H for Hospitals asks for a detailed accounting of their qualified community benefit costs
A few changes may take place in 2008 (to be reported in 2009), but by 2009 all mandatory
Leading groups providing Community Benefit Guidance: CHA and ACHI
| The Catholic Health Association (CHA) and VHA(formerly the Voluntary Hospitals of America) have been pioneers in the effort to highlight the charitable mission of its hospitals. Catholic health care is committed to improving the health status of communities and creating quality and compassionate health care that works for everyone, especially the vulnerable. www.chausa.org |
The Association for Community Health Improvement (ACHI), represented by Michael Bilton today, is a subsidiary organization of the American Hospital Association. ACHI strengthens community health through education, peer networking, and the dissemination of practical tools. ACHI serves community health needs in: access to care, chronic disease prevention and management, community benefit, collaborative strategies and measurement and evaluation. www.communityhealth.org |
Ongoing Debate on What Counts as Community Benefit
CHA has developed guidelines as to what counts for community benefit. However, there is currently a national debate on specific items and whether those items should be counted as community benefit. The American Hospital Association recommends including charity care, bad debt, and the unpaid costs of Medicare AND Medicaid when hospitals calculate community benefit. While CHA says hospitals should separate bad debt from charity care, and report charity care (but not bad debt) as part of community benefit. When totaling charity care, the CHA guide says hospitals should use figures that reflect the costs of offering that care, not their official charges.
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What Counts
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What doesn’t Count
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Under Debate
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- Charity care
- Government-sponsored indigent health care—unpaid costs of public programs
- Medicaid
- State Children's Health Insurance Programs (SCHIP)
- Medically indigent programs
- Community Benefit Services
- Addresses an identified community need
- Includes low-income and underserved persons
- Has a relationship to the organization's mission
- Meets a need that otherwise would have to be met by the government or another nonprofit organization
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- Contractual allowances or quick-pay discounts
- Any portion of charity care costs already included in the subsidized health care services category
- Programs provided for marketing purposes
- Programs for employees only
- Anything required of all health care providers by rules or standards.
- Programs that generate a profit
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- Medicare shortfall (this can be included in other financial reports but not in community benefit reporting) Bad debt.
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State Level Requirements Being Imposed
Approximately 18 states have imposed mandatory community benefit reporting requirements. These reporting requirements include such things as reporting their community benefit plan annually, performing an evaluation of community benefit programs, incorporating measurable objectives for community benefit programs, conducting community needs assessments every 3 years, and documenting how programs meet community needs. Some have imposed charity care thresholds whereby hospitals within the state must perform at least a certain percentage of net patient revenue of charity care. Almost every state has mandated the provision of free care ( Florida is one of these). In most cases hospitals are recommended to dedicate a minimum of 5% of its annual patient operating expenses or revenues to charity care, whichever is greater, in accordance with its charity care policy.
