Topic: Approach to Indirect Costs (2007)
Topic: Capital Costs (November 2015)
Topic: Changing Target Populations of Current Community Benefit Programs (June 2014)
Topic: Counting Persons Served (April 2009; Updated November 2015)
Topic: IT Costs (October 2008)
Topic: Joint Ventures and For-Profit Entities
Topic: Lost Revenue (January 2008)
Topic: Paying Expenses on Behalf of Individuals (January 2011)
Topic: Reporting Program with No Expenses (November 2015)
Topic: Reporting Telemedicine/Telehealth Programs and Activities (January 2015)
Topic: Reporting Restricted Grants (June 2014)
Topic: Splitting Costs between Community Benefit and Marketing (February 2008)
Please Take Note: The information provided below does not constitute legal or tax advice. The material is provided for informational/educational purposes only. Please consult with counsel regarding your organization's particular circumstances.
Topic: Approach to Indirect Cost
Question: Is there is a common approach to calculating indirect cost for community benefit activities?
Recommendation: Health care organizations are advised to develop anywhere from one to three indirect cost rates.
- The highest rate would apply to community benefit programs that are based in the hospital, receive support services (e.g., housekeeping, utilities) and take up space. One approach for an indirect cost rate for hospital-sited programs is to use the Medicare Cost Report (sum of costs for general service cost centers, divided by total operating expenses). This rate also could apply to clinic-based services that rely on the hospital for management, support, information technology, etc.
- A second rate would apply to research, and should be based on any federally-approved rates from the National Institute of Health.
- The third rate would apply to activities like a health screening program, other community-based services that don't rely on hospital space, support services, and the like. That rate could be relatively low.
- For the three different rates, the range can be variable — perhaps 35-45 percent for hospital-based, higher rates for research (depending on how research is accounted for), and 10-15 percent for community-based programs. Whatever rate is used, there should be an auditable basis for the number.
Additional advice on this topic from A Guide for Planning and Reporting Community Benefit.
Question: Can our organization count donations to other organizations for capital costs.
Recommendation: The CHA A Guide for Planning and Reporting Community Benefit , Chapter 2 discusses contributions to the capital needs of other entities.
Topic: Changing Target Populations of Current Community Benefit Programs
Question: "At this time, my hospital is considering changing the target populations of current CB programs from the community at-large to the Accountable Care Organization (ACO) and medical groups. As we explore these ideas, I would like to know any negative outcomes for our community benefit programs and their financial impacts."
Recommendation: We do not recommend that a hospital define its population, for community benefit purposes, as persons served by its ACO because the ACO may exclude persons who are uninsured. IRS proposed rules for community health needs assessments prohibits defining the community in a way that excludes vulnerable populations.
Topic: Counting Persons Served
Question:We use TV, radio and the press to reach the metro area on the causes and prevention of childhood obesity. Because we are in a major metro area the number of people reached per the various media outlets is over two million people. If this activity can be counted, can (or should) we use the two million plus people served when reporting community benefit under Category A1. Community Health Education?
Recommendation: Reporting "persons served" is an optional item in the CHA, IRS and Community Benefit Inventory for Social Accountability (CBISA) reporting frameworks.
If reporting, count as the number of persons served only those who actually respond to the media coverage. This could be the number who call for more information or the number who attend a session that is referenced in the media content. We recommend taking a very conservative approach to counting persons served through general media coverage. It may be better to report these activities in the narrative report only. Regarding whether the activity itself can be counted, the case is strongest if the programming lets people know about community-wide prevention/treatment resources rather than only about your hospital.
A Guide for Planning and Reporting Community Benefit gives examples of how to count programs/activities and persons served.
(Updated November 2015)
Topic: IT Costs
Question: A lot of work is being done on the community benefit infrastructure, specifically IT type of activity in our free clinics and telemedicine project. There is no subcategory in G to account for infrastructure activity and it really doesn't fit in the C category.
Recommendation: In reporting costs of IT for community benefit activities, the task force recommends reporting costs of IT for the community benefit activity as an indirect cost of the activity or as an operating cost. In the case of subsidized services, IT costs will be included in the shortfall requiring subsidization. Organizations should be sure that the reported program or service meets requirements for subsidized community benefit.
Topic: Joint Ventures and For-Profit Entities
Question: If we own 50 percent or more of a joint venture and the proceeds are rolled into our consolidated financial statements, should we require the venture to report community benefit?
Recommendation: If the hospital or system owns more than 50 percent, it is not accounting for the entity using the equity method. That means revenues and expenses are consolidated in with the hospital and community benefits should be as well.
The inclusion of a joint venture in consolidated financial reporting for not-for-profits is determined based on control — therefore, if an organization has control the joint venture would be consolidated. Control implies responsibility on how the joint venture carries out the mission, and it should be included in the joint venture documents that the joint venture must meet the needs of the underserved. Since meeting the needs of the underserved is driven by the organization and a community benefit, the joint venture community benefit activities should be included in the hospital's community benefit.
On another level there is the "matching" principle in accounting which says if we are including the revenues and expenses (consolidating) of the joint venture, then the community benefit should also be included. Otherwise as you look at community benefit as a percent of net revenues or as a percent of operating expenses, you will have the joint venture in the denominator (either revenues or expenses) but not have the joint venture's community benefit in the numerator possibly creating a distortion.
There is one more reason to require the joint venture to account for its community benefit: the IRS Form 990 is being substantially revised, and may allow "permissive aggregation" of community benefit — meaning that the hospital can include in its 990 the amount of community benefit provided by related corporate entities. That suggests that all related entities should account for the community benefit they provide.
Topic: Lost Revenue
Question: A successful community benefit program of visiting older persons in their homes to manage their chronic lung problems results in fewer hospital admissions. Can the loss of revenue to the hospital be considered community benefit?
Recommendation: We recommend not counting the loss of revenue to the hospital as community benefit. The CHA community benefit guidelines explicitly recommend not counting as community benefit "opportunity costs" — for example the amount of revenue that could have been collected if this community benefit were not being provided. While this program is likely to be having a very positive impact on the community, establishing that it actually prevents admissions is very challenging without a rigorous evaluation. The cost of the program should be counted as community benefit, and the program could be highlighted in the narrative portion of the community benefit report.
Topic: Paying Expenses on Behalf of Individuals
Question: When my organization pays for services for an individual patient, do I count the expense under Category E. Cash and In-kind or under A3. Health Care Support Services?
Discussion: The IRS Schedule H instructions define Cash and In-kind Donations as: "contributions made by the organization to health care organizations and other community groups that are restricted to one or more of the community benefit activities described [as community benefit]."
Recommendation: We recommend that when payment is made to another organization on behalf of an individual patient or nonpatient and when the gift is restricted to community benefit purposes, this expense can be reported as a cash contribution under Category E. When the organization pays the individual directly, report the expense under Category A3.
Question: If a health need has been identified in a community health assessment and a grant (state, federal or local funding) has been received to fully fund programs and staff to address the health need, since there is no expense to the hospital, what if anything can a hospital count for community benefit?
Recommendation: We recommend that you describe the program in Part VI of the Schedule H since there are no expenses to report as community benefit.
Topic: Reporting Restricted Grants
Question: The IRS now requires that restricted grants or contributions be included as offsetting revenue. What is meant by restricted? Do we account for the revenue when it is received or when the program expenses are incurred?
Recommendation: We recommend that organizations follow generally accepted accounting principles on what constitutes a restricted grant. According to FASB Accounting Standards Codification (ASC) 958-605-25 Not-for-Profit Entities Revenue Recognition a donor-imposed restriction "specifies a use that is more specific than broad limits resulting from the nature of the organization, the environment in which it operates, and the purposes specified in its articles of incorporation or bylaws or comparable documents... A restriction on an organization's use of the assets contributed results either from a donor's explicit stipulation or from circumstances surrounding the receipt of the contribution that make clear the donor's implicit restriction on use."
Accounting principles also direct that the revenue should offset expenses when the restrictions are met (i.e., when the funds are spent for their designated purpose as opposed to when the funds are received and are recognized as revenue in the income statement.
The task force also recommends questions related to this topic be directed to the organization’s finance and fund raising staff with consultation from legal counsel.
Topic: Reporting Telemedicine/Telehealth Programs and Activities
Question: What telemedicine/telehealth activities can be reported as community benefit?
Recommendation: Telemedicine/telehealth activities may be reported as community benefit as long as the activity meets the definition of a community benefit (responds to a community health need and addresses a community health objective of improving public health, increasing health access, advancing knowledge and/or relieving government burden.)
Access this document for examples of telemedicine/telehealth activities that may be reported in the different categories of community benefit.
Topic: Splitting Costs Between Community Benefit and Marketing
Question: Can we split the cost of an activity if it serves both a community benefit and marketing purpose?
Recommendation: Yes, it is possible to assign some cost to community benefit if an activity is designed primarily to achieve a community benefit objective. Any marketing objectives should be secondary. Here are some things to consider:
- Activities or programs should not be counted as community benefit if a "prudent layperson" would not agree that they benefit the community more than the organization, for example if a newsletter is published primarily and clearly for marketing purposes.
- If the original purpose of the program was to achieve one or more community benefit objectives, then the entire program cost can be assigned to community benefit, even if the program also has a marketing side effect. Ways to determine if meeting community need was the original purpose include (a) meeting notes that the program was developed in response to community need, and/or (b) the idea for the program came from a community group or the community benefit team — rather than the marketing department.
- If the original purpose of the program was marketing and/or if the program originated from the marketing department, we recommend caution in including any portion of the program as community benefit. However, in some cases a portion can be counted. For example, if a facility held an open house with health screening, the cost of the open house such as food and publicity would not count, but the cost of screening materials and staff conducting the screening could count.
- If the program is truly a joint marketing and community benefit activity, then the cost could be split. Program records should describe the rationale for how the split was determined.