Nonprofit Hospitals: Variation in Standards and Guidance Limits Comparison of How Hospitals Meet Community Benefit Requirements
Published: 2008-09-12T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Nonprofit hospitals qualify for federal tax exemption from the Internal Revenue Service (IRS) if they meet certain requirements. Since 1969, IRS has not specified that these hospitals have to provide charity care to meet these requirements, so long as they engage in activities that benefit the community. Many of these activities are intended to benefit the approximately 47 million uninsured individuals in the United States who need financial and other help to obtain medical care. Previous studies indicated that nonprofit hospitals may not be defining community benefit in a consistent and transparent manner that would enable policymakers to hold them accountable for providing benefits commensurate with their tax-exempt status. GAO was asked to examine (1) IRS's community benefit standard and the states' requirements, (2) guidelines nonprofit hospitals use to define the components of community benefit, and (3) guidelines nonprofit hospitals use to measure and report the components of community benefit. To address these objectives, GAO analyzed federal and state laws; the standards and guidance from federal agencies and industry groups; and 2006 data from California, Indiana, Massachusetts, and Texas. GAO also interviewed federal and state officials, and industry group representatives. IRS stated that the report in general was accurate, but noted several concerns regarding the description of the community benefit standard. CMS did not have any comments.
section_title: What GAO Found
paragraphs: IRS's community benefit standard allows nonprofit hospitals broad latitude to determine the services and activities that constitute community benefit. Furthermore, state community benefit requirements that hospitals must meet in order to qualify for state tax-exempt or nonprofit status vary substantially in scope and detail. For example, 15 states have community benefit requirements in statutes or regulations, and 10 of these states have detailed requirements. GAO found that among the standards and guidance used by nonprofit hospitals, consensus exists to define charity care, the unreimbursed cost of means-tested government health care programs (programs for which eligibility is based on financial need, such as Medicaid), and many other activities that benefit the community as community benefit. However, consensus does not exist to define bad debt (the amount that the patient is expected to, but does not, pay) and the unreimbursed cost of Medicare (the difference between a hospital's costs and its payment from Medicare) as community benefit. Variations in the activities nonprofit hospitals define as community benefit lead to substantial differences in the amount of community benefits they report. Even if nonprofit hospitals define the same activities as community benefit, they may measure the costs of these activities differently, which can lead to inconsistencies in reported community benefits. For example, standards and guidance vary on the level at which hospitals may report their community benefit (e.g., at an individual hospital level or a health care system level) and the method hospitals may use to estimate costs of community benefit activities. State data demonstrate that differences in how nonprofit hospitals measure charity care costs and the unreimbursed costs of government health care programs can affect the amount of community benefit they report. With the added attention to community benefit has come a growing realization of the extent of variability among stakeholders in what should count and how to measure it. At present, determination and measurement of activities as community benefit for federal purposes are still largely a matter of individual hospital discretion. Given the large number of uninsured individuals, and the critical role of hospitals in caring for them, it is important that federal and state policymakers and industry groups continue their discussion addressing the variability in defining and measuring community benefit activities.

section_title: Letter
paragraphs: In 2006, there were about 2,900 nonprofit hospitals in the United States.  In 2006, there were about 2,900 nonprofit hospitals in the United States. The exemption  Revenue Service (IRS) if they meet certain requirements. In addition to federal income tax  from the promotion of general welfare.$12.6 billion at the federal, state, and local levels.
For purposes of this report, nonprofit hospitals refer to nongovernmental, acute care,  general hospitals organized and operated for a charitable purpose and not designed  primarily for profit-making purposes. Nonprofit hospitals qualify for tax-exempt status if  they meet the requirements of section 501(c)(3) of the Internal Revenue Code.
These requirements include restrictions on the entity’s organizational and operational  structure, and political activities.
See H.R. Rep. No. 1860, 75th Cong., 3d Sess., 19 (1938).
JCT estimated the following values of exemptions for nonprofit hospitals and their  supporting organizations in 2002: $2.5 billion in federal income tax, $1.8 billion in federal  bond financing, $1.8 billion in federal charitable contributions, $500 million in state  corporate income tax, $2.8 billion in state and local sales taxes, and $3.1 billion in local  property tax. See Congressional Budget Office, Nonprofit Hospitals and Tax Arbitrage  (Washington, D.C.: December 2006).
IRS specified that hospitals must provide charity care to meet this  requirement. Since 1969, however, IRS has not specified that nonprofit  hospitals have to provide charity care to meet this requirement, but they  must provide a benefit to the community. This has become known as the  community benefit standard and has remained substantially unchanged  since 1969. In addition to charity care, services and activities that can  qualify as community benefits include the provision of health education  and screening to specific vulnerable populations within the community  and activities that benefit the greater public good, such as education for  health professionals and medical research.
Many of these community benefit activities—especially charity care—are  intended to benefit individuals who need financial and other help to obtain  medical care. In 2006, there were approximately 47 million uninsured  individuals in the United States. These individuals are more likely than  insured individuals to rely on hospital emergency rooms for medical care.  Some of these individuals with serious illness or injuries are admitted as  inpatients to the hospital, incurring substantial treatment costs. Because  uninsured individuals may lack the ability to pay for their medical care,  hospitals absorb some of the costs associated with providing  uncompensated care—either through a charity care program or as  expenses written off as bad debt. Given the benefits available to tax- exempt hospitals, policymakers have been interested in determining the  extent to which hospitals share the burden of caring for uninsured  individuals.
In 2005, we reported on the amount of uncompensated care that nonprofit,  for-profit, and government hospitals provided. We found that nonprofit  hospitals devoted only slightly more of their patient operating expenses to  uncompensated care, on average, than their for-profit counterparts. We  also found that the burden of uncompensated care was not evenly  distributed among nonprofit hospitals—a small number of nonprofit  hospitals provided substantially more uncompensated care than other  hospitals receiving the same tax preference. In 2006, the Congressional  Budget Office (CBO) also reported wide variation in the provision of  uncompensated care among nonprofit hospitals. These studies indicated  that nonprofit hospitals may not be defining community benefit in a  consistent manner that would enable policymakers to hold them  accountable for providing benefits commensurate with their tax-exempt  status.
Congress has since continued to raise questions about whether nonprofit  hospitals sufficiently accept and share the burden of uncompensated care.  As part of this effort, in 2007, you distributed a paper discussing potential  reforms to the community benefit standard. Among other things, you  sought feedback on whether hospitals should be required to devote a  minimum percentage of patient operating expenses or revenues  (whichever is greater) to charity care in order to continue to qualify for  federal tax exemption. You also expressed interest in gaining a better  understanding of nonprofit hospitals’ provision of community benefits in  relation to their tax-exempt status, and raised concerns about the extent to  which nonprofit hospitals define, measure, and report community benefits  in a consistent and transparent manner.
To obtain more information on these topics, you asked us to describe  IRS’s community benefit standard and the states’ community benefit  requirements, and to examine guidelines nonprofit hospitals use to define,  measure, and report the components of community benefit. In this report,  we (1) determine the community benefit standard and requirements that  IRS and the states have established; (2) examine the standards and  guidance nonprofit hospitals use to define community benefit activities  and their effects on reported community benefits; and (3) examine the  standards and guidance nonprofit hospitals use to measure the costs of  community benefit activities and their effects on reported community  benefits.
To determine the community benefit standard that IRS has established, we  examined relevant provisions of the Internal Revenue Code, IRS  regulations, revenue rulings, and federal case law. To review states’  community benefit requirements, we examined codified statutes and  regulations of the states.
To examine what activities are defined as community benefit, we reviewed  standards and guidance from the following government agencies and  industry groups: the Centers for Medicare & Medicaid Services (CMS),  IRS, the American Hospital Association (AHA), the Catholic Health  Association of the United States (CHA), VHA Inc., and the Healthcare  Financial Management Association (HFMA). CMS, the agency that  administers Medicare, requires cost information—including charity care  costs and bad debt expenses—from hospitals that participate in  Medicare. AHA officials stated that it represents over three-fourths of the  hospitals in the nation, including nonprofit hospitals. CHA represents  Catholic health care organizations, including hospitals, and is the nation’s  largest group of nonprofit health care sponsors, systems, and facilities.  VHA represents about 28 percent of the nation’s community-owned,  nonprofit hospitals. In 2006, CHA and VHA jointly released a set of  detailed community benefit guidelines—A Guide for Planning and  Reporting Community Benefit. HFMA represents health care financial  management executives and leaders in all areas of health care, including  hospitals. In 2006, the organization issued financial reporting guidance on  community benefit activities, including details on charity care and bad  debt. In addition to examining standards and guidance from these  organizations, we interviewed their officials and representatives. We also  interviewed representatives from the Association of American Medical  Colleges, which represents medical schools, teaching hospitals, and their  faculty, residents, and students, as well as academic and professional  societies; the Federation of American Hospitals, which represents for- profit community hospitals and health systems; the National Association  of Children’s Hospitals; state hospital associations and state health  officials from California, Indiana, Massachusetts, and Texas; and seven  nonprofit health care systems.
To examine the effects of including or excluding various community  benefit activities on reported community benefit, we analyzed 2006 state  data from California, Indiana, Massachusetts, and Texas. We selected  these four states because they represent diverse areas both geographically  and in the percentage of hospitals that are nonprofit, and because they  collected data on nonprofit hospitals’ community benefits, which not  many states maintain. The state data were also the most recent available  at the time of our analysis. We limited our analysis to nonprofit,  nongovernmental, acute care, general hospitals that reported gross patient  revenues and total operating expenses. We calculated and compared a  variety of hospital expenses, including charity care costs, bad debt,  unreimbursed costs of government health care programs, and the costs of  other activities that benefit the community, as percentages of total  operating expenses. To assess the reliability of the state data from  California, Indiana, Massachusetts, and Texas, we reviewed relevant  documentation for each of the data sets and interviewed knowledgeable  state officials about the accuracy of the data. Based on this information we  determined that the state-collected data were reliable for the purposes of  this report.
To examine practices nonprofit hospitals use to measure community  benefit activities, we reviewed the standards and guidance from CMS, IRS,  AHA, CHA and VHA, and HFMA. To examine the effects of these practices  on reported community benefit, we analyzed 2006 state data from  California, Indiana, Massachusetts, and Texas. Specifically, we compared  the different ways hospitals calculate expenses, including charity care  costs and the unreimbursed cost of Medicaid, as percentages of total  operating expenses. Appendix I contains a more complete description of  our methodology. We conducted our work from July 2007 through August  2008 in accordance with generally accepted government auditing  standards.
subsections: section_title: Background
paragraphs: In 2006, the majority—59 percent—of the roughly 4,900 nonfederal, acute  care general hospitals in the United States were nonprofit. The rest  included government hospitals (25 percent) and for-profit hospitals   (17 percent). States varied—generally by region of the country—in their  percentages of nonprofit hospitals (see fig. 1). States in the Northeast and  Midwest had relatively high concentrations of nonprofit hospitals, whereas  the concentration was relatively low in the South. For example, 88 percent  of Massachusetts’ hospitals were nonprofit, whereas only 32 percent of  Texas’ hospitals were nonprofit.
Among nonprofit hospitals we examined in California, Indiana,  Massachusetts, and Texas, the average size of these hospitals, as measured  by total operating expenses, varied (see table 1). For example, the average  total operating expenses of nonprofit hospitals in Massachusetts were   98 percent higher than average total operating expenses of nonprofit  hospitals in Indiana.
subsections: section_title: Federal Tax-Exemption Criteria for Nonprofit Hospitals
paragraphs: Federal tax exemption for charitable organizations has been in existence  since the beginning of federal income tax law. This exemption is based on  the principle that the government’s loss of tax revenue is offset by its relief  from financial burdens that it would otherwise have to meet with  appropriations from public funds, and by the benefits resulting from the  promotion of general welfare. Nonprofit hospitals have never been  expressly categorized as tax-exempt organizations under section 501(c)(3)  of the Internal Revenue Code. However, these hospitals are able to qualify  for federal tax exemption under section 501(c)(3) of the Internal Revenue  Code since IRS and courts have recognized the promotion of health for the  benefit of the community—where medical assistance is afforded to the  poor or where medical research is promoted—as a charitable purpose.  Specifically, nonprofit hospitals must be organized and operated  exclusively for the promotion of health, ensuring that no part of their net  earnings inure to the benefit of any private individual, and may not  participate in political campaigns on behalf of any candidate or conduct  substantial lobbying activities.
IRS has also issued revenue rulings specifying how nonprofit hospitals can  meet the requirements of federal tax exemption. In a 1956 revenue ruling,  IRS required tax-exempt hospitals to provide charity care to the extent of  their financial abilities, which was known as the financial ability  standard. However, through another revenue ruling in 1969, IRS  established the community benefit standard, which modified the charity  care-based financial ability standard as to how hospitals could qualify for  tax-exempt status. The community benefit standard specified that  nonprofit hospitals were not required to provide charity care to qualify for  federal tax exemption, but they must provide a benefit to the community.  Therefore, nonprofit hospitals could qualify for tax-exempt status so long  as they benefited the community in a way that relieved a governmental  burden and promoted general welfare, even if not every member of the  community received a direct benefit.
In the 1969 revenue ruling that established the community benefit  standard, IRS recognized five factors that would support a nonprofit  hospital’s tax-exempt status. These five factors were (1) the operation of  an emergency room open to all members of the community without regard  to ability to pay; (2) a governance board composed of community  members; (3) the use of surplus revenue for facilities improvement, patient  care, and medical training, education, and research; (4) the provision of  inpatient hospital care for all persons in the community able to pay,  including those covered by Medicare and Medicaid; and (5) an open  medical staff with privileges available to all qualifying physicians. IRS  further stated that tax-exempt status would be determined based on the  facts and circumstances of each case, and that neither the absence of  particular factors set forth in the 1969 revenue ruling nor the presence of  other factors would be necessarily conclusive.
Nonprofit hospitals that qualify for tax-exempt status are exempt from  federal income taxation, have access to bond financing that generates tax- free interest earnings for the bondholder—allowing these hospitals to  borrow funds at a lower cost than nonexempt entities—and are eligible to  receive contributions that are tax deductible for the donors. In addition,  these hospitals may also be exempt under state law from state and local  income, property, and sales taxes, which in some cases are of a greater  value than the federal income tax exemption.
section_title: Reporting of Community Benefit Information
paragraphs: Once nonprofit hospitals have applied for and are granted tax-exempt  status by IRS, they must file Form 990 with IRS on an annual basis.   Form 990 collects information such as revenues and expenses, and  program service accomplishments. In December 2007, IRS released a  revised Form 990 to include a schedule specific to hospitals—  Schedule H—that requires nonprofit hospitals to report their provision of  activities that benefit the community in specified categories: charity care,  bad debt, unreimbursed cost of government health care programs, and  other activities that benefit the community. The new hospital schedule  will be mandatory starting in filing year 2010 for tax year 2009, and IRS  officials have stated that complete data from the schedule may not be  available until 2011, at the earliest.
In addition to meeting IRS’s community benefit reporting requirements,  hospitals that participate in the Medicare program—including nonprofit  hospitals—must file hospital cost reports with CMS. The required cost  report includes Worksheet S-10, which collects revenue and cost  information on Medicaid, state and local indigent care programs, the State  Children’s Health Insurance Program, and other uncompensated care— defined by CMS as charity care and bad debt—provided by the hospitals.  CMS, in consultation with the Medicare Payment Advisory Commission  (MedPAC), is revising Worksheet S-10 as part of broader efforts to update  the Medicare hospital cost report.
Beyond these two federal requirements, some states also require hospitals  to report their provision of community benefits using state-specific  reporting instruments. In addition, when requested, some hospitals also  report their community benefits to the state hospital associations or other  trade organizations to which they belong.
section_title: IRS’s Standard Provides Broad Latitude for Nonprofit Hospitals to Determine Community Benefit Activities; State Requirements Vary Substantially in Scope and Detail
paragraphs: IRS’s community benefit standard to qualify for tax-exempt status allows  nonprofit hospitals broad latitude to determine the services and activities  that constitute community benefit. Furthermore, state community benefit  requirements that hospitals must meet in order to qualify for state tax- exempt or nonprofit status vary substantially in scope and detail.
subsections: section_title: IRS’s Community Benefit Standard Provides Broad Latitude to Nonprofit Hospitals
paragraphs: IRS’s community benefit standard that hospitals must meet to qualify for  federal tax exemption provides broad latitude to the hospitals in  determining the nature and amount of the community benefits they  provide. Specifically, IRS, in a 1969 revenue ruling that established the  current community benefit standard, modified the existing tax-exemption  requirement that focused primarily on the level of charity care that a  hospital provided. This 1969 revenue ruling also listed the five factors that  demonstrated how a nonprofit hospital could benefit the community in a  way that relieved governmental burden and promoted general welfare.  While IRS recognized these five factors as supportive of a nonprofit  hospital’s tax-exempt status, it also stated that a nonprofit hospital seeking  exemption need not meet all five factors to qualify for tax-exempt status;  instead, the determination is based on all the facts and circumstances, and  the absence of a particular factor may not necessarily be conclusive. As  stated by the Commissioner of Internal Revenue, some of the five factors  are now common practice in the hospital community and are less relevant  in distinguishing tax-exempt hospitals from their for-profit counterparts.  For example, having an open medical staff, participating in Medicare and  Medicaid, and treating all emergency patients without regard to ability to  pay are common features of both tax-exempt and for-profit hospitals.
Although the focus of IRS policy is no longer the level of charity care that  hospitals provide, the 1956 revenue ruling remains relevant, and IRS and  various courts have continued to take into account the extent to which a  hospital provides charity care when determining an organization’s tax- exempt status. For example, among the factors that the Tax Court and  several United States Courts of Appeals have considered in determining  whether an organization met IRS’s tax exemption requirements were  existence of a charity care policy, provision of free or below-cost services  to individuals financially unable to make the required payments, and  provision of additional community benefit—other than making hospital  services available to all in the community—that either further the function  of government-funded institutions or would not likely be provided within  the community without a hospital subsidy.
section_title: State Community Benefit Requirements That Nonprofit Hospitals Must Meet Vary Substantially in Scope and Detail
paragraphs: State community benefit requirements that hospitals must meet in order to  qualify for state tax-exempt or nonprofit status vary substantially in scope  and detail. Specifically, 15 of the states have community benefit  requirements in statutes or regulations and 36 do not (see fig. 2). Of the  15 states with requirements, 5 states—Alabama, Mississippi, Pennsylvania,  Texas, and West Virginia—specify a minimum amount of community  benefits required in order for hospitals to be compliant with state  requirements. Another 4 of the 15 states—Illinois, Indiana, Maryland, and  Texas—have penalties for hospitals that fail to comply with their  community benefit requirements. Appendixes III, IV, V, VI, and VII  contain more information on state community benefit requirements and  other related provisions.
In addition to the variation in scope among state community benefit  requirements, the level of detail among such requirements also varies  substantially. Specifically, of the 15 states with community benefit  requirements, 10 states have detailed requirements and 5 states have less-  detailed requirements. The community benefit requirements of the 10  detailed states typically include some combination of the following  factors: a definition of community benefit, requirements for a community  benefit plan that sets forth how the hospital will provide community  benefits, community benefit reporting requirements, and penalties for  noncompliance. For example, California requires its nonprofit hospitals to  adopt and annually update a community benefit plan, and annually submit  a description of community benefit activities provided and their economic  values, among other things. Similarly, Illinois requires its hospitals to  develop an organizational mission statement and a community benefits  plan for serving the community’s health care needs, and to submit an  annual report of its community benefits plan, including a disclosure of the  amount and types of community benefits actually provided. These states  also typically define community benefit using examples of, and guidance  on, the types of activities considered to be community benefit. For  example, Illinois defines community benefit using examples of activities  that the state considers to be community benefit and Maryland defines  community benefit using both examples and guidance. In contrast, the  remaining five states with less-detailed requirements either only require  the provision of charity care or do not provide guidance on what counts as  community benefit. For example, Alabama’s requirement only provides  that charity care must constitute at least 15 percent of a hospital’s  business in order for the hospital to be exempt from property tax; and  Wyoming’s requirement does not specify which activities its nonprofit  hospitals must provide, but makes clear that hospitals must provide  benefit to the community to obtain or maintain tax-exempt status.
section_title: Differences in the Activities Nonprofit Hospitals Define as Community Benefit Substantially Affect the Amount of Community Benefits They Report
paragraphs: Variations in the activities nonprofit hospitals define as community benefit  lead to substantial differences in the amount of community benefits they  report. Among the government standards and industry guidance used by  nonprofit hospitals, consensus exists to define many activities and their  associated expenses—charity care, the unreimbursed cost of means-tested  government programs, and many other activities that benefit the  community—as community benefit. However, consensus does not exist to  define bad debt and the unreimbursed cost of Medicare—each of which  represents a substantial cost for nonprofit hospitals, according to the state  data we analyzed—as community benefit.
subsections: section_title: Community Benefits May Include Charity Care, Bad Debt, Government Health Care Programs, and Other Activities That Benefit the Community
paragraphs: Activities that benefit the community and their associated expenses, as  defined by the community benefit standards and guidance that nonprofit  hospitals use, generally fall into one of four categories: charity care, care  for patients whose accounts result in bad debt (referred to as bad debt for  the rest of the report), care for beneficiaries of government health care  programs and their associated unreimbursed costs, and other activities  that benefit the community. In these standards and guidance, charity care  is generally defined as care provided to patients whom the hospital deems  unable to pay all or a portion of their bills. Bad debt is generally defined as  the uncollectible payment that patients are expected to, but do not, pay.  The unreimbursed cost of government health care programs is generally  defined as the shortfall created when a facility receives total payments  that are less than the total costs of caring for public program beneficiaries.  Government health care programs include both means-tested programs for  which eligibility is based on financial need, such as Medicaid, and non- means-tested programs for which eligibility is not based on financial need,  such as Medicare. Lastly, other activities that benefit the community  typically include activities that address a community need, and exclude  activities that generate revenue for the hospital or are provided primarily  for marketing purposes. These other activities generally fall into one of  seven groups that the CHA and VHA guidance has identified, such as  health professions education and medical research. Appendix II contains  descriptions and examples of all seven groups.
section_title: While Consensus Exists to Define Charity Care as Community Benefit, Disagreement Exists over Bad Debt, Which Is a Substantial Cost for Nonprofit Hospitals
paragraphs: Consensus exists among the standards and guidance that nonprofit  hospitals use to define charity care as community benefit. Specifically,  among the five government and industry guidance documents we  examined, four—IRS, AHA, CHA and VHA, and HFMA—define charity  care as community benefit, as did all four state hospital associations we  interviewed. While CMS does not have a position on community benefit,  its reporting instrument collects information on uncompensated care and  defines the term to include charity care. In addition, of the 15 states with  community benefit requirements, 14 either explicitly define community  benefit to include charity care or, in the absence of a definition, mention  charity care as an example of community benefit.
However, consensus does not exist among the standards and guidance  that nonprofit hospitals use to define bad debt as community benefit.  Among the five government and industry guidance documents we  examined, two—CHA and VHA, and HFMA—specify that bad debt should  not be defined as community benefit. CHA and VHA state that hospitals  have the responsibility to better identify patients eligible for charity care,  and thus distinguish charity care from bad debt. Citing the difficulty of  obtaining appropriate documentation to determine charity care eligibility,  HFMA, while it does not define bad debt as community benefit, has stated  that hospital charity care policies should address how to determine  eligibility when patients do not provide sufficient information to formally  make a determination. In contrast, AHA defines bad debt as community  benefit, as do three of the four state hospital associations we interviewed.  AHA asserts that it should be defined as community benefit because the  majority of bad debt is attributable to low-income patients who would  qualify for charity care if hospitals were able to obtain the necessary  documentation to formally make this determination.
IRS, on the other hand, has not taken a position on whether to define bad  debt as community benefit (see table 2). The agency recognizes the  divergence of practices and views in this area and, as stated by its officials,  would like more information on the amount of bad debt attributable to  low-income patients. As a result, IRS’s community benefit reporting  instrument—Form 990, Schedule H—will collect data on bad debt  separately from the list of hospital activities that are traditionally included  as community benefit, permit hospitals to explain why certain portions of  bad debt should be defined as community benefit, and allow hospitals to  estimate how much bad debt is attributable to low-income patients. CMS  does not have a position on community benefit; however, its reporting  instrument collects information on uncompensated care and defines the  term to include bad debt. State community benefit requirements vary in  whether they define bad debt as community benefit. Of the 15 states with  community benefit requirements, 3 states explicitly include bad debt as  community benefit, 2 states explicitly exclude bad debt, and 10 states do  not specify.
Whether nonprofit hospitals define bad debt as community benefit has an  important effect on the resulting amount of community benefit reported.  Specifically, nearly all of the nonprofit hospitals in the four states we  examined reported bad debt, and the amounts were typically substantial  when compared to charity care (see fig. 3). For example, in 2006 in  California, the average percentage of total operating expenses devoted to  bad debt was 7.4 percent—almost five times the average percentage  devoted to charity care costs. Moreover, the amounts of hospitals’ bad  debt varied widely across hospitals. For example, among nonprofit  hospitals in Texas, which had the most variation, the middle 50 percent of  hospitals reported bad debt ranging from 7.4 to 19.1 percent of total  operating expenses in 2006. Among the middle 50 percent of nonprofit  hospitals in Massachusetts, which had the least variation, the span was  still notable with bad debt ranging from 2.2 to 4.6 percent of total  operating expenses in 2006.
section_title: While Consensus Exists to Define Means-Tested Programs, Such as Medicaid, as Community Benefit, the Unreimbursed Cost of Medicare, Which Is a Sizable Cost for Hospitals, Remains Contentious
paragraphs: Consensus exists among the standards and guidance nonprofit hospitals  use to define the unreimbursed cost of means-tested government health  care programs, such as Medicaid, as community benefit. Among the five  government and industry guidance documents we examined, four—IRS,  AHA, CHA and VHA, and HFMA—define the unreimbursed cost of such  programs as community benefit, as did all four state hospital associations  we interviewed. While CMS does not have a position on community  benefit, its reporting instrument collects information on uncompensated  care and includes the unreimbursed cost of such programs as a type of  uncompensated care. In addition, state community benefit requirements  generally include the unreimbursed cost of such programs as community  benefit. Specifically, of the 15 states with community benefit requirements,  9 states explicitly include the unreimbursed cost of means-tested  government health care programs as community benefit, none of the states  explicitly exclude this cost, and 6 states do not specify.
Consensus does not, however, exist to define the unreimbursed cost of  Medicare as community benefit. Among the five government agencies and  industry groups we examined, only the CHA and VHA guidance specifies  that the unreimbursed cost of Medicare should not be defined as  community benefit because, among other reasons, Medicare losses for  some hospitals may be associated with inefficiency and not  underpayment. CHA and VHA also note that all hospitals compete to  attract Medicare beneficiaries, and CHA further stated that serving  Medicare beneficiaries is not a differentiating feature of nonprofit  hospitals.
In contrast, AHA defines the unreimbursed cost of Medicare as community  benefit, and HFMA states that hospitals should decide, based on their  circumstances, whether the unreimbursed cost of Medicare should be  defined as community benefit. AHA asserts that the unreimbursed cost of  Medicare should be defined as community benefit because Medicare does  not fully compensate hospitals for the cost of providing hospital care to  Medicare beneficiaries. AHA also notes that Medicare, like Medicaid,  serves a large number of low-income beneficiaries. HFMA states that the  unreimbursed cost of Medicare can be an important issue for many  providers and that such losses can be material to the facility’s financial  status; therefore, each hospital should decide, based on its circumstances,  whether to report these costs as community benefit. Similarly, all four  state hospital associations we interviewed stated that they define the  unreimbursed cost of Medicare as community benefit.
IRS has not taken a position on whether to define the unreimbursed cost  of Medicare as community benefit (see table 3). Its officials have stated  that, similar to IRS’s position on bad debt, IRS’s community benefit  reporting instrument will collect revenue and cost information related to  hospitals’ Medicare beneficiaries separately from the list of hospital  activities that are traditionally included as community benefit, and permit  hospitals to explain why they believe all or a portion of these costs should  be defined as community benefit. CMS, which does not have a position on  community benefit, does not collect information on the unreimbursed cost  of Medicare. State community benefit requirements vary in whether the  unreimbursed cost of Medicare should be included as community benefit.  Of the 15 states with community benefit requirements, 6 states explicitly  include the unreimbursed cost of Medicare as community benefit, none  of the states explicitly exclude this cost, and   9 states do not specify.
Whether nonprofit hospitals define the unreimbursed cost of Medicare as  community benefit has an important effect on the resulting amount of  community benefit reported. Specifically, most of the nonprofit hospitals  in the four states we examined—over 90 percent in Texas and over   80 percent in California, Indiana, and Massachusetts—reported having  unreimbursed costs of Medicare, and the amounts were typically  substantial compared to charity care costs and the unreimbursed cost of  Medicaid (see fig. 4). For example, in all four states the unreimbursed cost  of Medicare as a percentage of total operating expenses was at least   86 percent more than charity care costs as a percentage of the same  expenses. Similarly, the unreimbursed cost of Medicare as a percentage of  total operating expenses was at least 54 percent more than the  unreimbursed cost of Medicaid as a percentage of the same expenses.  Moreover, the amount of hospitals’ unreimbursed cost of Medicare varied  widely across hospitals. For example, among nonprofit hospitals in  Indiana, which had the most variation, the middle 50 percent of hospitals  reported unreimbursed costs of Medicare ranging from 4.9 to 13.4 percent  of total operating expenses in 2006. Among the middle 50 percent of  nonprofit hospitals in Massachusetts, which had the least variation, the  span was still notable with unreimbursed costs of Medicare ranging from  2.4 to 8.0 percent of total operating expenses in 2006.
section_title: Consensus Exists to Define Most Other Activities That Benefit the Community as Community Benefit
paragraphs: Consensus exists among the standards and guidance nonprofit hospitals  use to define six of the seven groups of other activities as community  benefit: cash and in-kind contributions, community benefit operations,  community health improvement services, health professions education,  medical research, and subsidized health services. State community  benefit requirements on these activities vary. For example, 13 of the 15  states with community benefit requirements cite additional activities— other than charity care, bad debt, or government health care programs—as  community benefit. For these states, the most commonly cited type of  activity appears to be subsidized health services, although the exact term  used varies among the states.
In contrast, consensus does not exist to define the seventh group of  activities—community-building activities—as community benefit. AHA,  CHA and VHA, and HFMA define community-building activities as  community benefit because these activities provide opportunities to  address the underlying causes of health problems, such as poverty,  homelessness, and environmental problems. IRS, however, has not taken a  position on whether to define community-building activities, which  include activities such as physical improvements and housing programs,  economic development, and environmental improvements, as community  benefit. The agency recognizes that there appears to be widespread  support for including these activities, and while the agency believes that  certain of these activities might constitute community benefit, more data  and study are required. CMS also does not comment on what other  activities should be defined as community benefit.
While data are not available to evaluate the effect of defining community- building activities as community benefit, data on groups of other activities  that benefit the community indicate that they represent a relatively small  proportion of total operating expenses for hospitals. Only two of the four  states we examined—Indiana and Texas—collect data on other activities  that benefit the community, though even these states do not collect any  data on two of the seven categories of other activities that benefit the  community. For the five groups of other activities with data, fewer  hospitals in Indiana and Texas generally reported having unreimbursed  costs for these activities when compared with other types of community  benefits, such as charity care, and the unreimbursed costs of most  activities account for less than 1 percent each of total operating expenses,  on average (see fig. 5). For example, more hospitals in these two states  reported having unreimbursed costs for community health improvement  services than for the other four groups—over two-thirds of Indiana  nonprofit hospitals and almost three-quarters of Texas nonprofit hospitals  reported having these costs. Among Texas and Indiana nonprofit hospitals,  the unreimbursed costs of these services averaged only 0.6 percent in  2006. In contrast, few hospitals reported having unreimbursed costs for  medical research—less than 15 percent of nonprofit hospitals in both  states reported these costs. Among Indiana nonprofit hospitals reporting  these costs, the unreimbursed costs of medical research averaged only   0.1 percent of total operating expenses in 2006. In Texas, however, these  costs averaged 0.8 percent, and the top quarter of hospitals had  unreimbursed costs at least twice the average—at 1.7 percent in 2006.
In addition to representing a small proportion of total operating expenses,  the costs of other activities that benefit the community are generally  smaller than the costs of other types of activities that benefit the  community, such as charity care, bad debt, and the unreimbursed costs of  Medicaid and Medicare (see fig. 6). For example, among nonprofit  hospitals in Texas that incurred costs for providing other community  benefits, the average cost of these activities—at 11 percent—is the  smallest of the different groups of community benefits.
section_title: Differences in How Nonprofit Hospitals Measure Costs of Community Benefit Activities Can Affect the Amount of Community Benefits They Report
paragraphs: Nonprofit hospitals may use a variety of practices to measure the costs of  community benefit activities, and differences in these practices can affect  the amount of community benefits they report. For example, standards  and guidance used by nonprofit hospitals specify a variety of levels at  which hospitals can report their community benefit. Specifically, IRS  requires hospitals to report community benefit on Form 990 by employer  identification number (EIN) because tax exemption is determined by  EIN. An EIN may cover a single hospital, several hospitals, or other  aggregates. In contrast, CMS requires hospitals to submit cost reports,  which include Worksheet S-10 with data on uncompensated care, at an  individual hospital level. Industry stakeholders, such as AHA and CHA,  have stated that hospitals should have the choice to report community  benefits on a health care system level or as individual hospitals. CHA has  stated that hospitals should have this option because, for example, they  may also have established foundations or free health clinics as separate  taxable entities through which they provide community benefit; hospitals  should therefore have the option to include this community benefit in their  reports. HFMA does not specify the level at which hospitals should report  community benefit. The percentage of expenses devoted to community  benefit could differ for hospitals that belong to a system depending on  whether they reported at a system or individual level, because reporting at  a system level aggregates the percentages of each hospital. One official  from a state hospital association noted that because individual hospital  percentages would be aggregated when community benefits are reported  at a system level, there is a potential for a health care system as a whole,  and not necessarily each individual hospital, to meet a community benefit  standard.
Data are not available that would allow us to evaluate the impact of  differences in the level at which nonprofit hospitals report community  benefit. IRS’s forthcoming Form 990, Schedule H, which will collect  community benefit data, will be of limited use for comparing individual  hospitals’ reported community benefits because, as noted, hospitals may  report community benefit as a single hospital or a larger aggregate, such as  a health care system. CMS’s Worksheet S-10 collects data on an individual  hospital level, but we have found the data to be unreliable. MedPAC has  stated that Worksheet S-10 should be improved, calling specifically for  differentiating charity care and bad debt. Although Worksheet S-10  could yield reliable data in the future, it does not currently collect data on  all the activities IRS includes as community benefit, such as medical  research or subsidized health services.
Standards and guidance used by nonprofit hospitals also differ in how they  instruct hospitals to estimate costs of community benefit activities.  Specifically, CHA and VHA and HFMA advocate calculating costs, if  possible, using a cost-accounting system. However, one state hospital  association we spoke with stated that smaller hospitals may not be able to  use this method. In contrast, CMS instructs hospitals to estimate costs on  Worksheet S-10 using a cost-to-charge ratio (CCR). CHA and VHA also  suggest using a CCR when a cost-accounting system cannot be used. There  are, however, many methods of calculating a CCR; CMS and CHA and VHA  specify how hospitals should calculate the CCR used to determine charity  care costs, but their formulas differ. AHA does not specify how to estimate  costs, but supports the CHA and VHA guidance. IRS instructs hospitals to  use a cost-accounting system, a CCR, or another cost-accounting method,  whichever is most accurate in estimating costs. Data are not available that  would allow us to evaluate the impact of the different practices hospitals  use to estimate costs on the amount of reported community benefit.
In addition to the different practices on reporting levels and  methodologies for estimating costs, which affect every aspect of reported  community benefit, standards and guidance used by nonprofit hospitals  also specify a variety of practices to measure the costs of charity care,  government health care programs, and other activities that benefit the  community, which can lead to inconsistent reporting of these activities.
subsections: section_title: Measurement Practices for Charity Care
paragraphs: Consensus does not exist on whether to add to charity care costs a  nonprofit hospital’s contributions to uncompensated care pools or  programs, or whether to offset charity care costs by payments to  hospitals from uncompensated care pools or programs. AHA and CHA and  VHA instruct hospitals to add their contributions and subtract the  payments they receive to calculate charity care costs, but CMS and HFMA  do not. IRS instructs hospitals to account for revenue from  uncompensated care pools or programs as offsetting either charity care  costs, the unreimbursed cost of Medicaid, or both, depending on the  state’s primary purpose for the revenue. If the state’s primary purpose is  unclear, IRS instructs hospitals to allocate portions of the revenue as  offsetting either charity care costs or the unreimbursed cost of Medicaid,  based on a reasonable estimate of the portions that are intended for  charity care and Medicaid.
Differences in how nonprofit hospitals calculate charity care costs can  have an important effect on the resulting amount of community benefit a  hospital reports. For nonprofit hospitals in Massachusetts in 2006, the  average percentage of total operating expenses devoted to charity care  would increase from 2.9 to 3.9 percent—a 34 percent increase—if hospital  contributions to uncompensated care pools were added to charity care  costs. If payments Massachusetts hospitals receive from uncompensated  care pools are then subtracted from the sum, the average percentage of  total operating expenses devoted to charity care would decrease from 3.9  to 1.8 percent, a 54 percent reduction.
section_title: Measurement Practices for Government Health Care Programs
paragraphs: Consensus does not exist on how nonprofit hospitals are instructed to  offset community benefit costs by Medicaid disproportionate share  hospital (DSH) payments. CHA and VHA specify that hospitals can  account for these payments as offsetting either charity care costs or the  unreimbursed cost of Medicaid. IRS instructs hospitals to account for  Medicaid DSH payments as offsetting either charity care costs, the  unreimbursed cost of Medicaid, or both depending on the state’s primary  purpose for the payment. If the state’s primary purpose is unclear, IRS  instructs hospitals to allocate portions of the payments as offsetting either  charity care costs or the unreimbursed cost of Medicaid based on a  reasonable estimate of the portions that are intended for charity care and  Medicaid. CMS does not specify whether these payments should offset any  specific costs. AHA and HFMA do not specify whether to include these  payments, but support the CHA and VHA guidance.
Differences in how nonprofit hospitals calculate the unreimbursed cost of  Medicaid can have an effect on the resulting amount of community benefit  a hospital reports (see fig. 7). For example, in Texas, the unreimbursed  cost of Medicaid (5.0 percent of total operating expenses) is 32 percent  more than the unreimbursed cost of Medicaid net of DSH payments   (3.8 percent of total operating expenses). In Massachusetts, however, the  unreimbursed cost of Medicaid is the same as the unreimbursed cost of  Medicaid net of DSH payments—1.9 percent of total operating expenses.
Moreover, consensus does not exist on whether nonprofit hospitals should  add provider taxes, which are used to match funds for federal Medicaid  resources, to the unreimbursed cost of Medicaid. CHA and VHA instruct  hospitals to include “Medicaid taxes” as a cost of Medicaid, describing  these taxes as the provider fees that are used to match federal funds. In  contrast, IRS instructs hospitals to account for these taxes as an element  of charity care costs, the unreimbursed cost of Medicaid, or both,  depending on the state’s primary purpose for payments to hospitals from  an uncompensated care pool or Medicaid DSH program. HFMA officials  stated that provider taxes for Medicaid should be defined as community  benefit because they are assessed for a means-tested program. CMS does  not specify whether to include these taxes. AHA does not specify whether  to include these taxes either, but supports the CHA and VHA guidelines.  State data we obtained did not contain information that would allow us to  analyze the impact of including these taxes as part of the unreimbursed  cost of Medicaid.
section_title: Measurement Practices for Other Activities That Benefit the Community
paragraphs: While consensus exists to define most other activities as community  benefit, the calculation of their costs using differing or nonexistent  instructions may foster inconsistency. For example, the unreimbursed  costs of subsidized health services may overlap with other reported  community benefits. To account for this overlap, IRS, CHA and VHA, and  HFMA specify that when reporting subsidized health services costs,  hospitals should subtract the portion already counted as part of charity  care costs and the unreimbursed costs of Medicaid. AHA does not specify  whether these costs should be subtracted, but supports the CHA and VHA  guidelines. CMS does not state which other activities it considers  community benefit and therefore does not have guidance on measuring  their costs. State data we obtained did not contain information that would  allow us to analyze the effect of this overlap for measuring the cost of  subsidized health services.
section_title: Concluding Observations
paragraphs: Since we last reported on the provision of uncompensated care by  hospitals in 2005, both policymakers and the hospital industry have  devoted considerable time and effort to the issue of community benefit. In  particular, distinguishing between charity care and bad debt—two  expenses that have historically been considered together as  uncompensated care due to the difficulty of obtaining documentation  necessary to distinguish patients unable to pay from those unwilling to  pay—has emerged as a key technical issue whose resolution will go far in  harmonizing positions in the policy debate.
With the added attention to community benefit has come a growing  realization of the extent of variability among stakeholders in what should  count and how to measure it. At the national level, in particular, there is  substantial divergence of opinion on whether hospitals should be  permitted to include bad debt and the unreimbursed cost of Medicare as  community benefit. States vary considerably in the extent to which they  have community benefit requirements, the nature of the requirements, and  instructions on how to measure the components of community benefit. At  present, determination and measurement of activities as community  benefit for federal purposes are still largely matters of individual hospital  discretion.
Given the large number of uninsured individuals, and the critical role of  hospitals in caring for them, it is important that federal and state  policymakers and industry groups continue their discussion addressing  the variability in defining and measuring community benefit activities. An  encouraging prospect for the future is the potential availability of two  national data sources derived from mandatory reporting to IRS and CMS.  National data should be helpful in standardizing reporting on community  benefit activities and informing public policy on the community benefit  standard. However, the data from these two sources will not be available  for analysis for several years, and it remains to be seen whether the data  will be consistent and reliable.
section_title: Agency Comments and Our Evaluation
paragraphs: CMS and IRS reviewed a draft of this report. CMS stated that it did not  have any comments. The director of the Exempt Organizations Division of  IRS provided us with oral comments, which are summarized below. IRS  stated that the report in general was accurate, although the agency noted  that it did not review GAO’s analysis of state community benefit  requirements for accuracy.
subsections: section_title: IRS Comments
paragraphs: IRS stated that the phrase “broad latitude to determine community  benefit” overstates the looseness of the IRS standard and that such  formulation is not supported by case law or published guidance.  Specifically, IRS stated that the fact that hospitals may in practice exercise  broad latitude does not make that the accepted IRS standard. In addition,  IRS stated that the 1969 revenue ruling lists a specific set of factors, and  court cases have closely followed the set of factors listed in that ruling.  IRS stated that a correct characterization would be “some latitude” or  “some flexibility,” citing Geisinger Health Plan v. Comm’r, 985 F.2d 1210,  1217 (3rd Cir. 1993). We believe that because the standard affords  considerable discretion to hospitals in both the determination and  measurement of activities that demonstrate community benefit for federal  purposes, the IRS standard allows nonprofit hospitals broad latitude to  determine community benefit.
IRS commented that in the concluding observations section, the phrase “at  present, determination and measurement of activities as community  benefit for federal purposes are still largely matters of individual hospital  discretion” was unclear as to whether the statement that follows “at  present” refers to the state of things before or after IRS released the new  Schedule H. IRS further stated that while in the years prior to IRS’s   Form 990, Schedule H, the determination and measurement of community  benefit was largely a matter of individual hospital discretion, the new  Schedule H provides clear standards. Specifically these clear standards  cover (1) the types of activities reportable or not reportable as community  benefit; (2) the fact that community benefit must be reported at cost rather  than charges or otherwise; (3) the fact that community benefit must be  reported by EIN (not by hospital or by system); and (4) the fact that bad  debt, the unreimbursed cost of Medicare, and community-building  activities cannot be included in the Part I quantifiable community benefit  table, although they are reported elsewhere on Schedule H and IRS allows  hospitals to explain what they think should count as community benefit.  IRS stated that, going forward with Schedule H reporting requirements,  there will be very little or no discretion regarding these measurement  points. IRS further stated that the area where Schedule H provides  individual organizations discretion is in whether the organization  estimates the cost of community benefit activities using a CCR, a cost- accounting system, or a blend, so long as it is the most accurate  information the organization has available. We believe that while Schedule  H provides guidance with respect to the types of activities reportable as  community benefit, it does not provide clear guidance on whether these  activities do or do not count as community benefit for purposes of  complying with IRS’s community benefit standard. Schedule H indicates  that bad debt, the unreimbursed cost of Medicare, and community-building  activities cannot be included in the Part I quantifiable community benefit  table; however, IRS has not clearly indicated whether it considers these  items as counting toward meeting the community benefit requirement.
IRS noted that because its Form 990, Schedule H, requires reporting of bad  debt and the unreimbursed cost of Medicare separately from items  identified as community benefit, it is misleading to include these two items  in the list along with charity care following the phrase “activities that  benefit the community” because the phrase sounds like “community  benefit,” and Schedule H does not treat these items on par with Part I  community benefit items such as charity care or unreimbursed cost of  Medicaid. We agree with IRS’s concern and have modified our text to  clarify this distinction.
IRS stated that it would be an overstatement of the law to say  uncategorically that a hospital need not meet all five factors to qualify for  tax-exempt status. IRS suggested that “the determination is based on all  the facts and circumstances, and the absence of a particular factor may  not necessarily be determinative,” and cited the 1969 revenue ruling and  IHC Health Plans, Inc. v. Comm’r, 325 F.3d 1188 (10th Cir. 2003). We agree  with IRS’s concern and have modified our text accordingly.
IRS also provided technical comments, which we incorporated as  appropriate.
As agreed with your office, unless you publicly announce its contents  earlier, we plan no further distribution of this report until 30 days after its  issuance date. At the time, we will send copies to the Acting Administrator  of CMS, the Commissioner of Internal Revenue, and interested  congressional committees. We will also provide copies to others on  request. The report is also available at no charge on GAO’s Web site at  http://www.gao.gov.
If you or your staff have any questions, please contact me at (202) 512-7114  or steinwalda@gao.gov. Contact points for our Offices of Congressional  Relations and Public Affairs may be found on the last page of this report.  GAO staff who made major contributions to this report are listed in  appendix VIII.
section_title: Appendix I: Scope and Methodology
paragraphs: In conducting this study, we examined codified federal and state statutes  and regulations. In addition, we analyzed state data on community benefits  from California, Massachusetts, Indiana, and Texas. We selected these  four states because they represent diverse areas geographically, and they  collect data on nonprofit hospitals’ community benefits, which not all  states maintain. We interviewed officials from the Internal Revenue  Service (IRS) and the Centers for Medicare & Medicaid Services (CMS).  We also interviewed representatives from the American Hospital  Association (AHA); Association of American Medical Colleges; Catholic  Health Association of the United States (CHA); Federation of American  Hospitals; Healthcare Financial Management Association (HFMA);  National Association of Children’s Hospitals; VHA, Inc.; and state hospital  associations and state health officials from California, Indiana,  Massachusetts, and Texas. In addition, we interviewed representatives  from seven nonprofit health care systems, including health care systems  in each of the four analyzed states that were referred to us by  representatives from the state hospital associations.
To determine the community benefit standards IRS has established, we  examined relevant provisions of the Internal Revenue Code, IRS  regulations, revenue rulings, and federal case law. To review states’  community benefit requirements, we defined “community benefit  requirement” as a legal standard that expressly obligates a hospital to  provide health care services or benefits to the community served by the  hospital as a condition of maintaining tax-exempt status or qualifying as a  nonprofit hospital. It is generally something that hospitals are required to  do beyond their role of providing care for the sick and injured in exchange  for remuneration or compensation. We considered the requirement to be  one applicable to hospitals only if it either expressly referred to hospitals  or expressly referred to care or services of the nature and type that one  would reasonably expect to be provided by or performed primarily at  acute care hospitals. We also limited our research concerning community  benefit requirements to acute care, general hospitals. We looked only for  codified state statutes and regulations that impose this type of  requirement. If a statute or regulation described an activity that would fall  into one of the commonly recognized “community benefit” categories  identified by IRS, we considered it to present a community benefit activity.
We searched only for state statutes or regulations that require hospitals to  perform relevant activities in order to maintain tax exemption or nonprofit  status. Thus, we excluded statutes and regulations that require hospitals  to perform activities that benefit the community as a condition of  obtaining hospital licensure, or that have the indirect effect of benefiting  the community, such as state analogues to the Emergency Medical  Treatment and Active Labor Act and state vaccination provisions. We  excluded standards that are very general, such as Hawaii’s requirement  that hospitals be “maintained to serve, and…do serve the public” in order  to be exempt from property tax, although we did include requirements  that specified that nonprofit hospitals do more than provide health care in  exchange for compensation or remuneration. An example of the latter is  Wyoming, which provides that “he fundamental basis for [exemption  from ad valorem taxation] is the benefit conferred upon the public by  schools, orphan asylums and hospitals, and the consequent relief, to some  extent, of the burden upon the state to educate, care and advance the  interests of its citizens.”
We limited our search to codified state statutes and regulations. In  performing our search of state codes and regulations, we used some  search terms, namely “community benefit,” “charity care,” “gift to the  community,” and “community service plan,” but we did not limit our list of  states with community benefit requirements to states that use only these  terms. We then searched selected parts of state codes and administrative  codes, limiting our search to the subject areas of hospitals, public health,  tax, and corporations, to find community benefit requirements that do not  use readily searchable terms. If we found one provision in a state code or  regulation that imposed a community benefit requirement, we did not  continue searching that state’s authorities for additional or related  provisions. Some state codes and regulations provided penalties for failing  to comply with community benefit requirements. We noted penalty  provisions only if the penalty provision made a direct and express  reference to failure to comply with the community benefit requirement as  the basis for the penalty.
We did not include in our scope state statutes and regulations that address  community benefits but do not amount to requirements. These states  include those whose statutes explicitly state that having a community  benefits program is voluntary (Connecticut) and those that require that  hospitals report on the community benefits that they provide but do not  actually require that they provide any community benefits (Connecticut,  Georgia, Minnesota, Nevada, and Oregon). Although we did not include  these states in our count, we noted them in the report.
Due to our selection criteria, we included some states that organizations  such as CHA, VHA, and Community Catalyst do not list in their compendia  of states with community benefit laws, guidelines, and standards, and  excluded some states that those organizations do include. We chose to use  a broader definition of community benefit requirement, one that  encompasses state statutes and regulations that may not use common  community benefit terms, but nonetheless encompasses the same goals  and types of activities as states that do use those terms. This reasoning led  us to include Alabama, Colorado, Mississippi, North Dakota, and  Wyoming.
We excluded provisions dealing with hospital conversions, mergers, or  sales. These provisions often require that hospitals going through one of  these processes take steps to ensure that levels of community benefits are  maintained or safeguarded. We feel that such provisions should not be  included in a general compendium of state community benefit  requirements. This means that we excluded some provisions that actually  use the term “community benefit” and may even provide a detailed  definition. We did this because such provisions apply in a limited context.  They apply only to a limited number of hospitals (those that are going  through conversion, merger, or sale), and they apply for a limited amount  of time.
We excluded provisions granting tax exemption by merely incorporating  by reference the standard contained in section 501(c)(3) of the Internal  Revenue Code and provisions that used section 501(c)(3)-like language  restricting nonprofit hospital activities. However, we did include  provisions that by their language incorporated the 501(c)(3) standard and  had a reporting requirement. An example of the latter is Idaho, which  grants property tax exemption only to hospitals that have received tax  exemption from IRS pursuant to section 501(c)(3). In addition, Idaho  hospitals granted tax exemption must annually submit a community  benefits report. An example of the former is Arizona, which grants tax  exemption to organizations that are exempt from federal income tax.
To examine what activities are defined as community benefits among the  standards and guidance used by nonprofit hospitals, we reviewed the  standards and guidance of federal agencies and industry groups. To  examine the effects of these standards and guidance on reported  community benefit, we analyzed 2006 state data from California, Indiana,  Massachusetts, and Texas. The state data were the most recent available  at the time of our analysis. We limited our analysis to nonprofit,  nongovernmental, acute care, general hospitals that reported gross patient  revenues and total operating expenses. We calculated and compared a  variety of hospital expenses, including charity care costs, bad debt,  unreimbursed costs of government health care programs, and the costs of  other activities that benefit the community, as percentages of total  operating expenses. Charity care is generally defined as care provided to  patients who the hospital deems unable to pay all or a portion of their  bills. Bad debt is generally defined as the uncollectible payment that the  patient is expected to, but does not, pay. The unreimbursed costs of  government health care programs are generally defined as the shortfall  created when a facility receives payments that are less than the costs of  caring for public program beneficiaries. Other activities that benefit the  community include health professions education and medical research.  Not all of the four states we examined had data on all of these expenses;  therefore, we calculated each expense as a percentage of total operating  expenses whenever possible. We reduced charges to costs where possible  in the data from all four states using cost-to-charge ratios. We did not  reduce bad debt expenses because we found that hospitals did not  consistently report bad debt in costs or charges.
To examine practices nonprofit hospitals use to measure community  benefit activities, we reviewed the standards and guidance from IRS, CMS,  AHA, CHA and VHA, and HFMA. To examine the effects of these practices  on reported community benefit, we analyzed 2006 state data from  California, Indiana, Massachusetts, and Texas. We compared the different  ways hospitals calculate expenses, including charity care costs and the  unreimbursed cost of Medicaid, as percentages of total operating  expenses. Not all of the four states had data to compare the different  practices to measure all of these expenses; therefore, we calculated each  expense as a percentage of total operating expenses whenever possible.
We assessed the reliability of the state data from California, Indiana,  Massachusetts, and Texas in two ways. First, we performed tests of data  elements for all four states. For example, we examined the values for total  operating expenses and gross patient revenues to determine whether these  data were complete and reasonable. Second, we interviewed state officials  knowledgeable about the data and reviewed documentation related to the  data. We determined that all four states employed various data  consistency checks, including outlier and trend analysis and targeted  follow-up with hospitals on a case-by-case basis, to assess the quality of  the data they collected. We determined that the data we used in our  analyses were sufficiently reliable for our purposes.
We conducted our work from July 2007 through August 2008 in  accordance with generally accepted government auditing standards.
section_title: Appendix II: Other Activities That Benefit the Community Identified in Industry Guidance
subsections: section_title: Description
paragraphs: Donations and grants provided  to individuals or the community  at large, and fundraising for  community programs. charity events and individuals   for emergency assistance. fees for sporting event tickets.
Program, operating, and    education grants; matching    grants; and event sponsorship. involvement when activities are   on employees’ own time and    volunteer hours by employees   on own time. space for nonprofit or    community groups, emergency    medical care at a community    event, and provision of facility   parking vouchers for patients    and families in need.   fundraising efforts specific to    community programs.
Community benefit strategic  planning and operations.
Volunteer time of individuals for  community benefit volunteer    programs. community benefit volunteer    programs. assessment and community    asset assessments, such as a   youth asset survey. marketing survey process.
Activities intended to enhance  the development of community  health programs and  partnerships. neighborhood improvement,    and revitalization projects. health facility construction and   improvements, such as a    meditation garden or parking    lot. and participation in an    economic development council    or chamber of commerce.
Routine financial investments.   preparedness. and child care for community    residents with qualified need.
Interpreter training programs    for hospital staff as required by  law. efforts to reduce community    environmental hazards. operations and financing.
Training in conflict resolution,   cultural skills, civics skills, or    language skills, and    community leadership    development.
Programs that address only the  workforce needs of the health   care organization rather than   community-wide issues. community coalitions.
Local, state, and national    advocacy related to access to  health care and public health   issues.   professionals for areas   identified by the government   as medically underserved.
Programs for community health  education, community-based  clinical services, and health care  support services.
Prenatal and childbirth classes  serving at-risk and low-income  persons, public service   announcements with health   messages, support groups,   and self-help programs. designed to increase market   share, support given to   patients and families in the   course of their hospital visits,   and employee wellness and   health promotion provided as   an employee benefit. occasionally held clinics,   clinics for underinsured and   uninsured persons, and mobile  units used to deliver primary   care services.   community services and   assistance with enrollment in   government health care   programs. for public relations or   marketing, screenings and   clinics for which a fee is   charged and a profit is   realized, volunteers’ time, and  mobile units that provide   specialty care that is an   extension of the hospital’s   outpatient department.   and enrollment assistance   services designed to increase   facility revenue.
Education for physicians,  medical students, nurses,  nursing students, and other  health professionals, and  scholarships and funding for  professional education.
Internships, clerkships, and   residencies.
Providing a clinical setting for   restricted to members of the   medical staff. undergraduate training or   vocational training to students  enrolled in an outside   organization, and the costs of   high school student job   shadowing and mentoring   projects. staff and staff time spent   delivering care that is   concurrent with job shadowing.  provided as an employee   benefit. payments for professional   education to non-employees   and volunteers.
Clinical and community-health  research to be shared with  persons outside the  organization. formal research protocols;   studies on therapeutic   protocols; evaluation of   innovative treatments; and   research papers prepared by   staff for professional journals. used only internally.
Studies on health issues for   vulnerable persons, community  health, and innovative health   care delivery models.
Clinical services provided  despite a financial loss, even  after removing the effects of  charity care and unreimbursed  cost of Medicaid. If no longer  offered, these services would  either be unavailable in the area  or fall to the responsibility of  government or another nonprofit  organization.
Subsidies provided to maintain  the availability of these clinical  services.
Charity care, bad debt, and   unreimbursed cost of Medicaid.
Services provided in order to   services, neonatal intensive   care, burn units, women’s and  children’s services, renal   dialysis services, subsidized   continuing care, behavioral   health services, and palliative   care. attract physicians or health   plans.
Routine pain control program.
Activities that benefit the community, as defined by the standards and guidance used by nonprofit  hospitals, generally fall into one of four categories: charity care, bad debt, unreimbursed costs of  government health care programs, and other activities that benefit the community.
section_title: Appendix III: State Community Benefit Requirements
paragraphs: As of March 2008, 15 states require that hospitals provide community  benefits in order to receive tax exemption or achieve nonprofit status.  However, state community benefit requirements vary greatly in scope and  level of detail (see app. IV).
subsections: section_title: States with Detailed Community Benefit Requirements
paragraphs: Of the 15 states with community benefit requirements, 10 have detailed  community benefit requirements. We considered states to provide a  “detailed” definition if they provided some combination of the following: a  definition of community benefit, requirements for a community benefits  plan that sets forth how the hospital will provide community benefits,  reporting requirements, and penalties for noncompliance. These states  typically set forth a detailed definition of community benefit, specifying  numerous categories of activities that qualify, and are consistent with the  level of detail of community benefit definitions used by the Catholic  Health Association of the United States and other similar entities (see   app. II). Illinois, for example, includes the unreimbursed cost of providing  charity care, language assistant services, government-sponsored indigent  health care, donations, volunteer services, education, government- sponsored program services, research, subsidized health services, and  collecting bad debts. Illinois specifically excludes the cost of paying taxes  or other governmental assessments. Maryland defines community benefit  as “an activity that is intended to address community needs and priorities  primarily through disease prevention and improvement of health status,  including…ealth services provided to vulnerable or underserved  populations such as Medicaid, Medicare, or Maryland Children’s Health  Program enrollees...inancial or in kind support of public health  programs...onations of funds, property, or other resources that  contribute to a community priority...ealth care cost containment  activities; and...ealth education, screening, and prevention services.”
These 10 states also tend to have very detailed instructions on how  community benefits should be provided and reported. They may include a  description of the required elements of and the process by which a  hospital should compose its community benefits plan and the required  elements to be provided in a hospital’s annual report to the relevant  authority. A typical example is California, which requires each of its  nonprofit hospitals to have a mission statement that requires that  hospital’s policies to integrate and reflect the public interest in meeting its  responsibilities as a nonprofit organization; complete a community needs  assessment in consultation with community groups and government  officials; update its community needs assessment every 3 years; adopt and  annually update a community benefits plan for providing community  benefits either alone or in conjunction with other entities; and annually  submit its community benefits plan, including a description of the  activities undertaken and the economic value of community benefits  provided.
section_title: Other States with Community Benefit Requirements
paragraphs: The remaining five states with community benefit requirements have  provisions that are less detailed. Alabama requires that charity care  constitute at least 15 percent of a hospital’s business in order for it to be  exempt from property tax. Wyoming provides that “he fundamental  basis for  is the benefit conferred  upon the public by schools, orphan asylums and hospitals, and the  consequent relief, to some extent, of the burden upon the state to educate,  care and advance the interests of its citizens.” States such as Wyoming do  not specify activities that their nonprofit hospitals must provide, but their  provisions make clear that, in order to receive tax exemption or achieve  nonprofit status, hospitals must provide benefit to the community. In  contrast to the 10 detailed states, these 5 states typically either require the  provision of a certain amount of charity care without mentioning other  categories of community benefit or do not give guidance as to what counts  as a community benefit. For the latter states, such as Wyoming, it is not  always clear what types of community benefit activities would fulfill a  hospital’s obligations.
section_title: States without Community Benefit Requirements
paragraphs: The remaining 36 states do not have community benefit requirements in  codified statutes or regulations that hospitals must meet to qualify for tax- exempt or nonprofit status. Among these states are three groups of states  that address community benefit in some way but do not have “community  benefit requirements” as we define that term. Some states apply their  community benefits provisions to all hospitals, such as in the context of  hospital licensure, rather than to tax exemption or nonprofit status (see  app. V). Examples of states that fall into this category are Massachusetts,  New Mexico, and Rhode Island, and they require all hospitals, both for- profit and nonprofit, to provide some form of community benefits. A  second group requires that hospitals periodically report to the relevant  authority the community benefits that they provide but do not require that  hospitals actually provide any community benefits (see app. VI). A third  group discusses community benefit in sources other than codified statutes  or regulations, such as attorney general guidelines or property tax  exemption standards (see app. VII). One state, Utah, discusses community  benefit in a set of standards of practice for property tax exemptions and  through its case law. Although Massachusetts has a statute requiring  community benefits for licensure purposes, the bulk of its community  benefit discussion is found in a set of attorney general guidelines. We did  not include these groups of states in our count of states with community  benefit requirements, and we provide information on these states as  examples rather than as the product of a comprehensive analysis of state  sources.
section_title: Penalties
paragraphs: Hospitals may be penalized if they fail to comply with community benefit  requirements. Of the 15 states with community benefit requirements, 4  have explicit penalties for failure to comply and 11 states do not specify a  penalty. Examples of states with explicit penalties include Indiana,  Maryland, and Texas, where civil penalties may be assessed against  nonprofit hospitals that fail to submit their annual reports in a timely  fashion. Of the 11 states that do not specify a penalty, if the requirement  is tied to tax exemption, a nonprofit hospital could be denied tax  exemption for a period of time.
For states without community benefit requirements but with community  benefit provisions tied to hospital licensure requirements, a hospital that  has not complied with the community benefit provisions will not be  licensed (or its license may be suspended or revoked). In addition, states  may include explicit penalties for failure to comply with community  benefit provisions tied to hospital licensure requirements. For example, in  Rhode Island, a state that applies its community benefits provisions to all  hospitals through licensure requirements, failure to comply with statewide  standards for community benefits may result in criminal penalties: the  Superior Court may, after notice and opportunity for a prompt and fair  hearing, impose a prison term of up to 5 years for a person who knowingly  violates or fails to comply with the requirements or willingly or knowingly  gives false or incorrect information in connection with its licensure  requirements.
section_title: Quantity
paragraphs: Most states do not specify a minimum quantity of community benefits that  must be provided in order to satisfy requirements. Five states require that  hospitals provide a specified amount of community benefit. Alabama  requires that “o be exempt from ad valorem taxation, the treatment of  charity patients must constitute at least 15 percent of the business of the  hospital,” while Texas requires that its hospitals comply with one or more  of three standards: a level reasonable in relation to community needs; at  least 100 percent of its tax-exempt benefits, excluding federal income tax;  or at least 5 percent of its net patient revenue (in which case charity care  and government-sponsored indigent care must be at least 4 percent of net  patient revenue). In other states, the required minimum quantity is not a  specified dollar amount or percentage. For example, Mississippi requires  that, to be exempt from property tax, hospitals must maintain at least one  ward for charity patients. West Virginia requires that charitable hospitals  provide free and below-cost necessary medical services in an amount  determined by their boards of trustees consistent with their ability to do  so.
In addition to states that specify a minimum quantity of community  benefits that must be provided in order to satisfy community benefit  requirements, the remaining states—those without minimum quantity  requirements and those without community benefit requirements as we  define that term—tend to require the submission of community benefits  plans, annual reports, or both to relevant state authorities. Even without  an explicit requirement to provide community benefits, these provisions  may bring a measure of accountability as to quantity, since relevant  authorities have an opportunity to review hospital activities. An example  of a state without a minimum quantity requirement is California, which  provides that hospitals must annually report on the economic value of  community benefits provided in furtherance of their community benefits  plans.
section_title: Appendix IV: States with Community Benefit Requirements Related to Hospitals
subsections: section_title: Description of requirements
paragraphs: To be exempt from ad valorem  taxation on property up to $75,000,  the treatment of charity patients must  constitute at least 15 percent of the  business of the hospital.
Charity.
None specified. (Ala. Code § 40-9-1)
None specified. assessment at least once every    3 years. costs of health care services.
2.  Annually adopt and update a  health promotion services. community benefits plan, including   mechanisms to evaluate its    effectiveness, measurable    objectives, and community    benefits categorized into a    specified framework.
Prevention service (screenings,  immunizations, disease  counseling, education).
Adult day care and child care.
3.  Annually submit the community   education. benefits plan, including activities    undertaken and economic value of  community benefits provided. training. (Cal. Health & Safety Code   §§ 127350, 127355) homebound.
Sponsorship of free food, shelter,  and clothing to the homeless.  socioeconomically depressed  areas.
Financial or in-kind support of  public health programs.
Donations that contribute to a  community priority.
Health care cost containment.
Enhancement of access to health  care.
Services offered without regard to  financial return.
Goods or services that help  maintain a person’s health.  (Explicitly not limited to this list of  activities.)  (Cal. Health & Safety Code § 127345)
Property must be owned and used  solely and exclusively for strictly  charitable purposes.
None specified. (Colo. Rev. Stat. Ann. § 39-3-108) number of persons by relieving  their bodies from disease, by  assisting them to establish  themselves in life, or by erecting or  maintaining public buildings or  works, or otherwise lessening the  burdens of government.  (8 Colo. Code Regs. 1304-2)
Charity care.
None specified. organized as a nonprofit  corporation in Idaho or another  state and has received an  exemption from taxation from IRS  pursuant to § 501(c)(3) of the  Internal Revenue Code.
Bad debt. through government programs.  below actual cost.
2.  Exempt hospitals with at least 150  patient beds must prepare and file  an annual community benefits  report that itemizes the community  benefits provided and indicates the  process the hospital used to  determine general community  needs.
Donated time, funds, subsidies,  and in-kind services.
Additions to capital.  (Idaho Code § 63-602D)
Charity care.
Language assistant services.  health care.
Donations.
The Attorney General may assess a  late filing fee against a nonprofit  hospital that fails to file the annual  report. The fee must not exceed  $100; the Attorney General may  grant extensions for good cause. report is public information.
Volunteer services. (210 Ill. Comp. Stat. 76/25)
Education. community information.
Other rights and remedies available  to the state are retained. (210 Ill. Comp. Stat. 76/15, 76/20) services. (210 Ill. Comp. Stat. 76/30)
Research.
Subsidized health services.
Bad debt.
Does not include the cost of paying  taxes or other governmental  assessments.   (210 Ill. Comp. Stat. 76/10)
Charity care.  health care. assessments in aid of community    benefits plan.
Donations.
Education.
The state department may assess a  civil penalty against a nonprofit  hospital that fails to submit its  annual report. The penalty may not  exceed $1,000 for each day a report  is late.
4.   Annual report of the community   (Ind. Code § 16-21-9-8) services.
Research. the annual report is public    information.
Subsidized health services.
Does not include the cost of paying  taxes or other governmental  assessments. (Ind. Code §§ 16-21-9-4, -5, -6, -7) (Ind. Code § 16-21-9-1)
1.   Identify community health care   2.   Annual community benefits report, vulnerable or underserved  populations, such as Medicaid,  Medicare, or Maryland Children’s  Health Program enrollees. which includes the hospital’s    mission statement, a list and costs   of each community benefit    initiative, a description of efforts    undertaken to evaluate the    effectiveness of each initiative,     and a description of gaps in     availability of specialist providers    to serve the uninsured.
Financial or in-kind support of  public health programs.
Donations that contribute to a  community priority.  activities.
For failure to file the community  benefits report: civil penalty of $100  per day unless an extension is  granted. The Health Services Cost  Review Commission may refuse to  grant a rate increase to any hospital  that does not file a required report.  Any substantially incomplete or  inaccurate report may not be  considered timely filed. Institutions  may request reasonable extensions  of time to file required reports.
Health education, screening, and  (Md. Code Ann., Health-Gen. § 19- 303) prevention services. (Md. Regs. Code tit. 10, § 37.01.03) (Md. Code Ann., Health-Gen. § 19- 303)
Must maintain one or more charity  wards for charity patients.
Charity.
None specified. (Miss. Code Ann. § 27-31-1) (Miss. Code Ann. § 27-31-1(f))
Charity care.
None specified. benefits plan, which includes a  mission statement, community  needs assessment, community  benefit activities expected to be  undertaken or supported,  community benefit activities  undertaken in the previous year  and a description of results or  outcomes, means used to solicit  community views, an evaluation  of the plan’s effectiveness, an  estimate of the cost of each  activity expected, and a report on  the unreimbursed cost of  activities undertaken in the  previous year.
Financial or in-kind support of  public health programs, including  support of recommendations in any  state health plan.  promote or support a healthier  community, enhanced access to  health care or related services,  health education and prevention  activities, or services to a  vulnerable population.  and training of health care  practitioners, including the pooling  of funds with other providers.
2.  Community needs assessment.  3.  Make the community benefits  (Explicitly not limited to the listed  activities.) plan available to the public. (N.H. Rev. Stat. Ann. § 7.32-d) (N.H. Rev. Stat. Ann. §§ 7.32-e, -f, -g)
Issue an organizational mission  statement.
None specified. needs.
Charity care.
Improving access to health care  services by the underserved.  (N.Y. Pub. Health Law § 2803-l) -demonstrate operational and    financial commitment to meeting  community health care needs,    and  -prepare and make available to    the public a statement of the   hospital’s financial resources and  allocation to hospital purposes,   including the provision of free or   reduced charge services.  3.    Annually prepare and make      available to the public an      implementation report.  4.    File with the Commissioner of      Health its mission statement,      annual implementation report,      and 3-year report.  (N.Y. Pub. Health Law § 2803-l)
To receive sales and use tax  exemptions, must be organized and  operated exclusively in providing  services for the purposes of  preventing and alleviating human  illness and injury.
Education.
None specified.
Research.
Community service.
Direct patient services, income  (N.D. Cent. Code §§ 57-39.2-04, 57- 40.2-04) being derived solely from private  donations with some exceptions of  a minimal membership fee.  (N.D. Cent. Code §§ 57-39.2-04, 57- 40.2-04)
Charity care.
None specified.
Goods or services to individuals  2.    Must donate or render   eligible for government programs. gratuitously a substantial portion     of its services.
Donations to institutions of purely  3.    Must benefit a substantial and   public charity or government  agencies. indefinite class of persons who      are legitimate subjects of charity.  4.    Must relieve the government of      some of its burden.  (10 Pa. Cons. Stat. § 375) services, including the difference  between full cost and fee received  for all goods or services provided,  education and research programs,  and unreimbursed costs of  government programs, including  Medicare and Medicaid, and  unreimbursed community services. assistance.
Cost of goods or services provided  to individuals who are unable to  pay, provided that reasonable and  customary collection efforts have  been made.
Services to the public that directly  or indirectly reduce dependence on  government programs or relieve or  lessen the burden borne by  government for the advancement  of social, moral, educational, or  physical objectives.  (10 Pa. Cons. Stat. § 375)
Charity care.
2.  Comply with all federal, state, and  local government requirements for  tax exemption in order to maintain  such exemption. health care.
Donations.
Education.
3.  Provide a specified minimum   services. amount of community benefits.
A nonprofit hospital that fails to  make a report of the community  benefits plan is subject to a civil  penalty not exceeding $1,000 per  day. No penalty may be assessed  against a hospital until 10 business  days have elapsed after written  notification to the hospital of its  failure to file a report.
Research. the admission of financially    indigent and medically indigent    persons.
Subsidized health services.
Does not include the cost of paying  taxes or other governmental  assessments. (Tex. Health & Safety Code Ann.   §§ 311.047, 311.048)  1.  Subject to a civil penalty of not  more than $1,000 for each day  of noncompliance.
5.  Organizational mission statement.  6.  Community benefits plan.  7.  Communitywide needs   (Tex. Health & Safety Code Ann.   § 311.042; 25 Tex. Admin. Code   § 13.13)
2.    If a nonprofit hospital/system    assessments to develop the    community benefits plan.  8.  Annual report of the community    benefits plan, including amount    and types of community benefits    provided. does not submit a report of the     community benefits plan within     the established reporting      period, the Department of      Health may institute the      following procedures:  A.    Notify the entity that it is in   (Tex. Health & Safety Code Ann.   §§ 311.043, 311.044, 311.045) noncompliance with the    Department of Health’s    reporting requirements and    that the Commissioner of    Health may request that the   Attorney General institute   and conduct a suit in the   name of the state to recover   civil penalties if the hospital   fails to submit the report to   the Department of Health   within 10 days of receipt of   the letter.
B.    If the Department of Health    does not receive the report   of the community benefits plan  from the nonresponding   hospital within the specified   time frame, the   Commissioner of Health   may notify the Attorney   General in writing of the   entity’s noncompliance. The   Department of Health will   send a copy to the hospital.  (25 Tex. Admin. Code § 13.18)
Charity care.
None specified. and below-cost necessary  medical services as determined  by its board of trustees,  consistent with other provisions,  to those who are unable to pay.
Activities that promote the health   of the community and/or decrease  the burdens of state, county, and  municipal governments.
2.  Charitable use (determined by an  examination of several factors,  including charity care, promotion  of health, relief of burdens of  government, and volunteer and  community services). charges and payments received  from Medicaid and similar  governmental programs.
Volunteer and community services.
Public education programs.
Donations. specified minimum criteria.
Free, low-cost, or below-cost  4.  Review charity care plan not less  than every 2 years. health screenings and  assessments. (W. Va. Code St. R. § 110-3-24) assistance/counseling.  clinics.  centers.
Free or below-cost blood banking  services.
Free or below-cost assistance,  material, equipment and training to  emergency medical services and  ambulance services.
Disaster planning.  and training.  (W. Va. Code St. R. § 110-3-24)
Activities included in the definition  of community benefit  1.  The fundamental basis for ad  valorem tax exemption is the  benefit conferred upon the public  and the consequent relief, to  some extent, of the burden upon  the state to educate, care, and  advance the interests of its  citizens. Such institutions thus  confer a benefit upon the general  citizenry of the state and render  an essential service for which  they are relieved of certain  burdens of taxation.
Benefit conferred upon the public.
None specified.
Consequent relief of the burden  upon the state.
Indigent care.
Promote health care.  to the general public.  (W.S. 1977 § 39-11-105; Wyo. R. &  Regs. Rev Gen Ch. 14 § 10)
Indigent care shall be afforded  through admission to the  institution based on the clinical  judgment of the physician, not  upon the patient’s financial ability  or inability to pay.  (Wyo. Stat. Ann. § 39-11-105; Wyo.  R. & Regs. Rev Gen Ch. 14 § 10)
section_title: Appendix V: Examples of States with Licensure-Related Community Benefit Provisions
subsections: section_title: Description of requirements
paragraphs: Massachusetts  Applicants for a license to establish or  maintain an acute-care hospital must   agree to maintain or increase the  percentage of revenues allocated to free  care and submit a plan for the provision of  community benefits.
Identification and provision of  essential health services.
None specified. care services.  (Mass. Gen. Laws Ann. ch. 111,   § 51G) (Mass. Gen. Laws Ann. ch. 111, § 51G)  1.  Acute-care or general hospitals can   be licensed only if they agree to  provide emergency services and  general health care to nonpaying  patients and low-income reimbursed  patients in the same proportion as   the patients are treated in acute-care  general hospitals in the local  community. The annual cost of this  care shall not exceed 5 percent of the  hospital’s annual revenue. health care provided to nonpaying  patients and low-income  reimbursed patients.  (N.M. Stat. Ann. § 24-1-5.8(C);   N.M. Admin. Code tit. 7, § 7.2.8(D))
Failure to provide proportional  services to nonpaying and low- income reimbursed patients in  any year following licensure may  result in the Department of  Health’s imposition of one or  more of the following penalties:  1.  an approved plan of  2.  These hospitals must annually report  correction that remedies the  failure through the additional  provision of services in  subsequent years,  the cost of care for emergency and  general health care to nonpaying and  low-income reimbursed patients and  the number of nonpaying and low- income reimbursed patients treated.
2.  a civil monetary penalty not  to exceed $500,000,  3.  suspension or revocation of  the hospital’s license, and  (N.M. Stat. Ann. § 24-1-5.8(C);   N.M. Admin. Code tit. 7, § 7.2.8)
4. referral to CMS for  sanctions under the  Medicare and Medicaid  programs.  (N.M. Admin. Code tit. 7,   § 7.2.8(L))
Charity care.
Uncompensated care.
Bad debt.
Medicaid shortfall.
Programs, procedures, and  protocols that meet the needs of  the medically indigent.
Linkages with community partners  that focus on improving the health  and well-being of community  residents.
5.    not encourage persons who cannot      afford to pay to seek essential medical     services from other providers;  made available to the community,  such as fitness programs, health  screenings, or transportation  services.
If any person knowingly violates  or fails to comply or willingly or  knowingly gives false or  incorrect information the Director  of the Department of Health  may, after notice and opportunity  for a prompt and fair hearing,  deny, suspend, or revoke a  license, or may order the  licensee to admit or provide  health services to no additional  persons to the facility or to take  corrective action necessary to  secure compliance under the  act; or the Superior Court may,  after notice and opportunity for a  prompt and fair hearing, impose  a fine of not more than  $1,000,000 or impose a prison  term of not more than 5 years.
Public advocacy on behalf of  community needs.
Scientific or medical research, or  (R.I. Gen. Laws § 23-17.14-30) educational activities.
7.    must have a formal, Board-approved   (R.I. Gen. Laws §§ 23-17-43, 23- 17.14-15; R.I. Code R. 14 090 007,  14 090 028) plan for the provision of community      benefits. The plan shall be updated      and Board-approved at least every      3 years.  (R.I. Gen. Laws §§ 23-17-43, 23-17.14-15;  R.I. Code R. 14 090 007, 14 090 028)
If the Department of Health  receives sufficient information  indicating that a licensed  hospital is not in compliance with  this section, the Director of the  Department of Health shall hold  a hearing upon 10 days notice to  the licensed hospital and shall  issue in writing findings and  appropriate penalties.  (R.I. Gen. Laws § 23-17.14-15)
section_title: Appendix VI: Examples of States with Only Community Benefit Reporting Provisions
subsections: section_title: Description of requirements
paragraphs: Preventive care. has in place a community benefits  program. If the hospital has chosen to  have a community benefits program, the  report shall include a number of specified  elements.
Programs that improve the health  status for working families and  populations at risk in the community.  (Conn. Gen. Stat. Ann. § 19a-127k) (Conn. Gen. Stat. Ann. § 19a-27k)
The Commissioner of Public  Health may, after notice and  opportunity for a hearing,  impose a civil penalty on any  hospital that fails to submit the  required report by the specified  date. Such penalty shall be not  more than $50 a day for each  day after the required submittal  date that such report is not  submitted.  (Conn. Gen. Stat. Ann. § 19a- 127k(f))
Nonprofit hospitals must file an annual  community benefit report disclosing the  cost of indigent and charity care provided  during the preceding year not later than 90  days after the close of the fiscal or  calendar year. The report shall include a  statement of the cost and type of indigent  and charity care provided by the authority,  including the number of indigent persons  served, categorization of those persons by  county of residence, as well as the cost of  indigent and charity care provided by the  authority, including the number of indigent  persons served, categorization of those  persons by county of residence, as well as  the cost of indigent and charity care  provided in dollars.
Indigent care.
None specified.
Charity care.  (Ga. Code Ann. § 31-7-90.1) (Ga. Code Ann. §§ 14-3-305; 31-7-90.1)
Annual report of services provided to  benefit the community.
None specified. reduced fee to patients unable to pay. (Minn. Stat. §§ 144.698, 144.699)
Teaching and research activities.
Community care.  under state health care programs.
Research.
Community health services.
Financial and in-kind contributions.
Community building activities.
Community benefit operations.
Activities included in the definition of  community benefit    Education.
Subsidized services.
Does not include bad debt and  underpayment for Medicare services.  (Minn. Stat. Ann. §§ 144.698, 144.699)
Each hospital with at least 100 beds must  file as required by the Director of the  Department of Health and Human  Services but at least annually the  expenses incurred for providing  community benefits, a statement of its  policies and procedures for providing  discounted services to persons without  health insurance, and a statement of its  policies regarding collection.
None specified. provided by a hospital to a community  to address the specific needs and  concerns of that community.
Services provided by a hospital to  uninsured and underserved persons.
Training programs for employees.
Health care services provided in areas  that have a critical shortage of such  services. (Nev. Rev. Stat. § 449.490) (Nev. Rev. Stat. § 449.490)
Within 90 days of filing a Medicare cost  report, a hospital must submit a  community benefit report to the Office for  Oregon Health Policy and Research of the  community benefits provided by the  hospital.
Charity care.
Losses related to Medicaid, Medicare,  State Children’s Health Insurance  Program, or other publicly funded  health care program shortfalls. (2007 Or. Laws 3290 (effective Jan. 1,  2008)) services.
Research.
Financial and in-kind contributions to  the community.  health in the community.
Any health care facility that fails  to comply may be subject to a  civil penalty, not to exceed  $500 per day of violation,  determined by the severity of  the violation. Civil penalties  may be remitted or mitigated  upon such terms and conditions  as the Administrator of the  Office for Oregon Health Policy  and Research considers proper  and consistent with the public  health and safety. (2007 Or. Laws 3290 (effective Jan. 1,  2008)) (2007 Or. Laws 3290 (effective  Jan. 1, 2008))
section_title: Appendix VII: Examples of States with Community Benefit Provisions Located Outside of Statutes and Regulations
subsections: section_title: Description of requirements
paragraphs: Activities included in the definition of community benefit    Community health education. (The Attorney General’s  Community Benefits Guidelines  for Non-Profit Acute Care  Hospitals at 1)
Free preventive care or health screening services.
Mobile health vans.
None specified  (program is  voluntary).
Home care consistent with the definition of net charity care.
Medical and clinical education and research.
Support for and participation in community-oriented training  programs.
Low- or negative-margin services offered in response to an  identified community need.
Violence-reduction education and counseling.
Anti-smoking education.
Substance abuse education, prevention, and treatment.
Domestic violence reduction education and training.
Early childhood wellness programs.
Expanded prescription drug programs.
Volunteer services.
Net financial assistance to community health centers.
Unfunded services ancillary to Medicaid or Medicare  services.  (The Attorney General’s Community Benefits Guidelines for  Non-Profit Acute Care Hospitals at 10–11) “Gift to the community” standard  for property tax exemption: the  hospital must establish that its  total gift to the community  exceeds on an annual basis its  property tax liability for that year.
Indigent care.
None specified.
Community education and service, including research and  professional education.
Medical discounts, including unreimbursed care covered by  Medicare, Medicaid, or other similar government entitlement  programs. (Property Tax Exemptions  Standards of Practice at 2-35)
Donations of time.
Donations of money.  (Property Tax Exemptions Standards of Practice at 2-35–2-36)
section_title: Appendix VIII: GAO Contact and Staff Acknowledgments
subsections: section_title: Acknowledgments
paragraphs: In addition to the contact named above, Jenny Grover and Thomas Walke,  Assistant Directors; Joanna L. Hiatt; Xiaoyi Huang; Jessica T. Lee;   Drew Long; Kevin Milne; and Lisa Motley made major contributions to this  report.