How healthcare tells its community benefit story

“You often have to work within the restraints of policies developed by other departments, and you get data from those departments after the fact. You are working to complete a puzzle with pieces missing and bent.”

Mary Torretta

Grant Thornton Principal and Healthcare Tax Leader

“You often have to work within the restraints of policies developed by other departments, and you get data from those departments after the fact. You are working to complete a puzzle with pieces missing and bent,” said Grant Thornton Principal and Healthcare Tax Leader Mary Torretta.

To capture the real and tangible facts, you need to explore several key strands of information. For instance, your system may have offered additional community benefit services during COVID-19 or changed its Financial Assistance Policy (FAP).

Healthcare heroes — how you served during COVID-19

“For your current Form 990, it’s the first full year of COVID-19 reporting,” said Erin Couture, Grant Thornton Healthcare Tax Managing Director. “It can’t be business as usual. Ask ‘how did COVID-19 impact our reporting, and what areas of focus on Schedule H should we examine?’” Consider some key questions, like: 

1. Did COVID-19 change who was served by your FAP?
2. Are the numbers you’re seeing really covered by your FAP or by an ad hoc COVID-19 program? 
3. What caused any fluctuations? 
4. What other actions did COVID-19 prompt? These could include government-mandated data collection, public education around health services, testing initiatives, contact tracing programs, vaccination efforts and community service messaging. 
5. What programs are you offering for Community Health Improvement Services? Are they free or at nominal cost? How are they documented? 

“It’s the first full year of COVID-19 reporting. It can’t be business as usual. Ask ‘how did COVID-19 impact our reporting, and what areas of focus on Schedule H should we examine?’”

Erin Couture

Grant Thornton Healthcare Tax Managing Director

Many healthcare services are particularly valuable because they proactively improve health rather than reactively treating illness. Make sure to capture your expenses in all of these areas.

Revenue is also part of this story, especially for new COVID-19-related programs. Look at reimbursements like Provider Relief Funds and FEMA, paying attention to the revenue and expense timing under your accounting year. The practice should follow the accounting method you use for the rest of your returns.

As it impacts community benefit expense percentage, Form 990, Part I, Line 7 should always be the first consideration in reporting activities on Schedule H. However, don’t force what doesn’t fit. Schedule H, Part II, which is also publicly disclosed, is a great place to explain anything that doesn’t fit in Part I. It’s another forum to tell the story of what the hospital has done for the community.

Remember that the IRS is not your only audience. Be transparent. Frame the revenue in a way that your donors and other sophisticated constituents will find clear and credible.


 

Don’t forget subsidized services

In addition to those services that clearly are provided for community benefit, many systems offer “subsidized health services” — clinical services at a financial loss to the organization. The financial loss is measured after removing losses associated with bad debt, financial assistance, Medicaid and other means tested government programs. Subsidized health services must meet an identified community need and must not be available to the extent needed unless provided by the health system.

These can be inpatient/outpatient services, but also look at specialized ICU services, mental health programs, COVID-19-related clinics and physician clinics in certain rural or remote areas that wouldn’t be present otherwise. This loss may be reportable on Schedule H, Part I, Line 7 as community benefit expense.

Finally, take a look at your research activities. Even if there will be offsetting revenue, document both the revenue and expense in your community benefit reporting.


 

Clarify your story

Look at ways that you can clarify your report and capture clearer information in the future.

For example, consider if bad debt is included in functional expenses you can remove from the denominator of total expenses, giving you a higher community benefit ratio. You simply have to disclose what you’ve done in the narratives.

Then, going forward, push your systems teams to document charity care. Make sure patients go through the FAP process at intake. Although you can arrive at the same accounting result by using a bad debt write-off, you won’t get credit for it as a community benefit unless they are determined as FAP eligible.

Medicare shortfalls can sometimes be positioned as a community benefit. In 2019, 72% of 2,900 hospitals reported Medicare shortfalls. The federal government reimbursed less than the cost for treating these patients. You can sometimes describe this shortfall as a community benefit, provided the facts support it and you note in your narrative.