Community Benefit

Government-Sponsored Means Tested Health Care - Archive

Topics List

Topic: High Risk Pools (2007)
Topic: Losses on CHAMPUS/TRICARE (May 2012)
Topic: Medicaid Losses (December 2009)
Topic: Medicaid Revenues Greater than Expenses (April 2011; November 2015)
Topic: Medicare Losses (2007)
Topic: Medicare Revenues (June 2012)
Topic: Provider Taxes (April 2009)
Topic: Sales Tax (2007)
Topic: Uncompensated Care Pools (January 2008)

Please Take Note: The information provided above 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: High-Risk Pools

Question: We pay taxes into a state pool for persons who are unable to obtain medical insurance coverage due to pre-existing health conditions (e.g., heart disease, cancer, diabetes). People pay premiums (capped at 135 percent of the standard medical premium in the state) but there is a shortfall because medical spending by policy holders exceeds premiums paid (premiums typically cover about one-half of medical spending). Insurers in the State are assessed (annually) an amount to cover the shortfall. Our insurance company contributes approximately $900,000/annually. Approximately 1,700 persons are served. Is this a community benefit?

Recommendation: Taxes paid by health care organizations into a pool can be included as community benefit if you can document that the patients (members) that benefit from the pool receive improved access to care. If these consumers would have difficulty accessing coverage (especially if they would have qualified for charity care as medically or financially indigent patients) but for the payments to the pool, then the case can be made that these dollars are community benefit.

Topic: Losses on CHAMPUS/TRICARE

Question: Can losses on CHAMPUS be reported as community benefit?

Recommendation: Since CHAMPUS is not a means-tested public program, losses should not be reported as community benefit?

Topic: Medicaid Losses

Question: Can each organization within a system count its Medicaid shortfall and not net out shortfalls and gains at the system level?

Recommendation: CHA's community benefit guidelines recommend that Medicaid shortfalls and gains from all multiple organizations within a system be netted out when reporting at the system level.

Question: Should the losses from Medicaid managed care be reported as community benefit?

Recommendation: Yes, the IRS Instructions for Form 990, Schedule H say to report "revenue associated with Medicaid recipients enrolled in managed care plans." Therefore, in Part I, line 7b of Schedule H you should report the expense of Medicaid (including managed care plans) in column (c) and report the revenue in column (d). The net of revenue and expenses (usually a loss) is reported in column (e). Instructions for Worksheet 3 provide detailed instructions on how to calculate Medicaid expense and revenues.

Topic: Medicaid Revenues Greater than Expenses

Question: We are working on our 2010 community benefit report and have a question related to "Unreimbursed Medicaid." Due to higher than normal UPL reimbursements, coupled with our having to record 18 months of UPL reimbursement in 2010, Medicaid was actually profitable for us in 2010. Should this profit be netted against our community benefit expense?

Recommendation:  A Guide for Planning and Reporting Community Benefit (Guide) provides guidance on this question. The Guide states, "If revenue is greater than cost, then Worksheet 3 [of the Guide] will yield a negative net community benefit expense. This may occur for organizations with substantial amounts of Medicaid Disproportionate Share Hospital revenue, Large Delivery System Reform Incentive payments (DSRIP), or with significant prior-year revenue.. To be consistent with Schedule H accounting, CHA recommends applying GAAP when accounting for patient revenue (i.e., recording prior-year revenue when collection is reasonably assured and in alignment with amounts included in audited financial statements). Including a footnote in community benefit reports (and statements in Part VI of Schedule H) explaining why the organization is reporting any negative net community benefit expense is important.  Worksheet 3 thus includes a row for recording prior-year revenue."

(Updated November 2015)

Topic: Medicare Losses

Question: Why are Medicare shortfalls (losses) not counted as a community benefit?

Recommendation: CHA recommends that hospitals not include Medicare losses as community benefit. The reasons for this are as follows:

  • Serving Medicare patients is not a differentiating feature of tax-exempt healthcare organizations. There are for-profit specialty hospitals that specifically focus on attracting patients with Medicare coverage, e.g., specialty heart and orthopedics facilities.
  • The CHA community benefit framework allows community benefit programs that serve the Medicare population to be counted in other categories. If hospitals operate programs for patients with Medicare benefits that respond to identified community needs, generate losses for the hospital, and that meet other criteria, these programs can be included in the CHA framework in Category C as "subsidized health services."
  • Significant effort and resources are devoted to assuring that hospitals are reimbursed appropriately by the Medicare program. The Medicare Payment Assessment Commission (MedPAC) carefully studies Medicare payment and the access to care that Medicare beneficiaries receive. MedPAC recommends payment adjustments to Congress accordingly.
  • Medicare losses are different from Medicaid losses which are counted in the CHA community benefit framework because Medicaid reimbursements generally do not receive the level of attention paid to Medicare reimbursement. Medicaid payment is largely driven by what states can afford to pay.
  • Not including Medicare losses makes the overall community benefit report more credible given the above reasons.

Medicare losses can be reported on the IRS form 990 H (Part III) and in other reports, but not as community benefit.

Topic: Medicare Revenues

Question: We received funds from the Medicare Rural Floor Settlement which encompassed approximately seven years of Medicare activity. The question has arisen as to whether we should be netting the settlement amount against our current 2012 unpaid cost of Medicare programs.

Recommendation: We recommend following GAAP (Generally Accepted Accounting Principles) unless IRS rules override those principles. That means accounting for revenue on Schedule H the same way that you account for those revenues for financial statement purposes.
Regarding Medicare revenue, the tax year 2014 Schedule H instructions for Part III state the following: "If the organization received any prior year settlements for Medicare-related services in the current tax year, it can provide an explanation in Part VI, line 1." Therefore, the revenue is to be included — but then be sure to provide an explanation in Part VI, line 1 so readers of the information know why the numbers are different from one year to the next.

(Updated November 2015)

Topic: Provider Taxes

Question: Can provider taxes that go to an uncompensated care pool be counted as community benefit?

Recommendation: The recommendation is to count provider taxes and assessments that are deposited into uncompensated care pools as community benefit, but then also offset the payments with any receipts from the pool (after the funds are matched typically with Federal Medicaid DSH resources).

Ohio operates the HCAP (Hospital Care Assurance Program) program, for example — and there are many hospitals that are "net beneficiaries" of these funds — they get more back than they put in. So a portion of their charity care is paid for by the HCAP program. In other states, these pools are designed to offset Medicaid losses (low payment rates), so any "gains" coming from the provider tax system are booked as net Medicaid revenue.

Topic: Sales Tax

Question: Can I count the sales tax that our hospital pays as a community benefit?

Recommendation: The task force recommends not counting sales tax as a community benefit because in some (but not all states) it is paid by both for-profits and not-for-profits. This does not necessarily differentiate a not-for-profit from a for-profit organization. Conversely, given this reasoning, we also do not recommend including the amount paid in sales tax in the calculation of how much taxation the organization would have to pay if it lost exempt status — that is, unless in your state for-profit hospitals pay sales tax while tax-exempt hospitals do not.

Sales tax paid could be included in a statement about the economic impact of the organization.

Topic: Uncompensated Care Pools

Question: We are confused as to where we should report our bad debt and charity care receipts from the state. Should the receipts be reported as traditional charity care under 'revenue received' to support charity or under Unpaid Costs of Medicaid and Other Public Programs as 'reimbursement and other support'?

Recommendation: The amounts you receive from an uncompensated care pool often are a mix of dollars provided by hospital contributions to the pool and also Medicaid Disproportionate Share Hospital funds. CHA's guidance is to assign the contributions to these pools and the receipts from the pools based on the intent of the legislature that set up the program. If the policy intent was to help hospitals defray the cost of charity care, then the cost of the pool payments and the offsetting revenue should go there. If the intent of the pool was to offset Medicaid losses, then amounts are counted as part of that community benefit. If the policy intent is unclear or "split" between these two purposes, then the revenue can be split between charity care and Medicaid — using the losses as the basis for the allocation. So, if charity care cost is $10 million and the Medicaid losses (before this revenue) are another $10 million, then the pool contributions and receipts get allocated 50/50.