Community Benefit

Subsidized Health Services - Archive

Topic List

Topic: Emergency Services (February 2010; Updated November 2015)
Topic: Ground Ambulance Service
Topic: Hospice (February 2008)
Topic: Hospital Departments (February 2010; Updated November 2015)
Topic: Hospital Losing Money (April 2009; Updated November 2015)
Topic: Mammograms (February 2010)
Topic: Medical Practices (February 2010)
Topic: Organ Harvesting (May 2009; Updated November 2015)
Topic: PACE (December 2014)
Topic: Palliative Care (January 2008)
Topic: Paying Physicians to be On-Call (Updated June 2012)
Topic: Paying Physicians to Serve Low Income/Uninsured (Updated June 2012)
Topic: Services for Veterans (February 2010; Updated November 2015)
Topic: Specialty Hospital Services (April 2009)
Topic: Telehealth Services (2007)
Topic: Telemonitoring (May 2008)
Topic: Topic: What Qualifies as a Subsidized Service?

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: Emergency Services

Question: What is the relationship between the emergency department, trauma center and air ambulance? How should expenses for these services be separated or combined to determine if there is a loss, to count as a community benefit Subsidized Health Service? Example: if the hospital is a level 1 trauma center, should trauma services be separated from other emergency department expenses or considered as one entity?

Recommendation: The following should be considered when reporting emergency services as a subsidized health service:

  1. Review IRS instructions on what qualifies as a subsidized health service. (See Community Benefit Categories and Definitions in CHA's A Guide to Planning and Reporting Community Benefit).
  2. When determining what information to use to calculate the subsidized loss, consider regulatory or practice standards for the service. For example, if operating a trauma center requires operating an emergency department, include the losses of both the emergency department and trauma center. If operating an air ambulance service requires having a trauma center, combine losses of those two programs.
  3. Consider income that is generated from the service before reporting as a community benefit. For example, if a specific service (such as air ambulance) operates at a loss, but generates revenue (for example in the trauma center) it should be considered a cost of doing business, not a subsidized health service.
  4. If an air ambulance is used to transport patients to other facilities and therefore is operated as a community service, those costs (expense minus fees collected) can be reported as community benefit.

(Updated November 2015)


Topic: Ground Ambulance Service

Question: The CHA guidelines mention that air ambulance services may be counted as a community benefit but they do not mention ground ambulance services. Should ground ambulance services that are not covered by EMS be included as community benefit?

Recommendation: If your organization loses money on its ambulance service you can consider it a subsidized service and report the appropriate expenses in that category. Be careful, however. Even though the service loses money, does it bring in revenue to the hospital because of admissions it brings in? If it does, it is a cost of doing business and should not be reported as community benefit.


Topic: Hospice

Question: We've had some questions about our residential hospice. One thought is to report it as a subsidized program for the community and report the year end loss. Others want to treat it like any other health system facility and calculate charity care, losses to public program (such as Medicaid and/or Medicare), etc. Do you know how others report it?

Recommendation: We recommend reporting as charity care, the expenses for patients eligible for financial assistance. Report as Medicaid shortfall the losses due to Medicaid. If you still need to subsidize your hospice program, and you can document a community need for the service, report that loss as community benefit subsidized services. In assessing whether there is a community need, ask: does the hospice provide access to care for patients who otherwise would have difficulty accessing this service? If the program was closed, would access to hospice become a problem in the community?


Topic: Hospital Departments

Question: Can clinical service lines be reported as subsidized health services? Examples include ICU, CCU, Med/Surg/Cardiac surgery (for example certain procedures) and orthopedic surgery.

Recommendation: The Internal Revenue Service instructions for Form 990, Schedule H note the following regarding subsidized health services:

  1. In order to qualify as a subsidized health service, the service must meet an identified community need. Criteria for demonstrating community need include:
    1. If the organization no longer offered the service, it would be unavailable in the community;
    2. If the organization no longer offered the service, the community's capacity to provide the service would be below the community's need; or
    3. If the organization no longer offered the service, the service would become the responsibility of government or another tax-exempt organization.
  2. For qualifying services, the subsidized loss reported as community benefit must not include the cost of charity care, bad debt and losses from Medicaid and other means-tested government programs

The task force recommends that all of the following be considered when deciding if clinical service lines should be reported as subsidized health services:

  1. Community need is paramount in determining whether to report a service as a subsidized health service. Organizations should not identity services that operate at a loss and then try to justify community need. Rather the decision to provide (or continue) a service despite financial losses should be based primarily on a documented need for the service in the community.
  2. The cost of the full service line — not just a portion — should be considered when calculating the loss. For example, consider cardiology as a service line, not medical and surgical cardiology separately and do not report specific procedures as a subsidized health service.
  3. If a service, other than an emergency department, is required by the state's licensing law it should not be reported as a subsidized health service. For example, it is likely that without a basic Med/Surg service, the hospital would not be licensed as a hospital.
  4. When assessing whether the service would be unavailable in the community unless the hospital provided the service, consider the driving time to the nearest hospital that has the same services. One hour drive time seems to be a reasonable benchmark.
  5. Before providing the service in need of subsidization, hospitals should consider their capacity to provide the service; including whether there will be sufficient volume to offer quality care.

(Updated November 2015)


Topic: Hospital Losing Money

Question: Our entire hospital loses money. Can we count the entire hospital as a subsidized service?

Recommendation: We recommend that individual programs/service lines within a hospital be assessed to see if they meet the community benefit definition of Subsidized Health Services, not the overall institution.

(Updated November 2015)


Topic: Mammograms

Question: Our hospital maintains a mammography van that goes into the community — venues can be churches, community center, employers — to offer mammograms to both insured and uninsured women. We are having a hard time determining what can be counted as a community benefit. To date, we have only counted as community benefit expense the staff time at the site and not the cost of the operating the van. However, most of these mammograms are covered by insurance or grants. It is predominantly a service of convenience for insured women and a means of diagnosis and follow-up care for the indigent. Although it serves more insured than uninsured patients, it is still a financial loss to the hospital.

Recommendation: To determine if this service qualifies as a subsidized service it will be important to ask "if we did not provide it would there be a shortage of this service to meet an identified health need in the community?" If there isn't a shortage of providers, are there other aspects of offering this service that makes it unique to a special population? If you responded yes to either of these two questions the expenses for the service may be reported in Category C3, "Subsidized Health Services."

If the program does not qualify to be reported in the C3 category, you may report free and discounted services as charity care.


Topic: Medical Practices

Question: Under what circumstances, if any, would the subsidized losses of a medical practice (owned by the hospital) qualify as a subsidized health service?

Recommendation: The Internal Revenue Service instructions for Form 990, Schedule H note the following regarding subsidized health services:

  1. In order to qualify as a subsidized health service, the service must meet an identified community need. Criteria for demonstrating community need include:
    1. If the organization no longer offered the service, it would be unavailable in the community
    2. If the organization no longer offered the service, the community's capacity to provide the service would be below the community's need; or
    3. If the organization no longer offered the service, the service would become the responsibility of government or another tax-exempt organization.
  2. For qualifying services, the subsidized loss reported as community benefit must not include the cost of charity care, bad debt and losses from Medicaid and other means-tested government programs

In addition to the IRS criteria, the task force recommends the following if medical practices are reported as subsided health services:

  1. The organization can justify that the medical practice benefits the community more than it does the organization. For example, it is not operated primarily to increase referrals of patients with 3rd party coverage, and
  2. The medical practice is operated efficiently and payment to physicians is reasonable. Use benchmarks from the Medical Group Management Association to assess efficiency and prevailing community rates to assess reasonable payment.

Additional considerations:

  1. Schedule H requires that if services or care provided by physician clinics are included as subsidized services, the hospital must describe that it has done so and report in Part VI such costs included in Part I, line 7g, line 1.
  2. Only medical practices that are part of the hospital’s EIN may be included as part of the hospital’s subsidized services on the Schedule H.
  3. Faculty practices that are part of academic medical centers may have special considerations. Contact Ivy Baer at the AAMC for guidance.

Topic: Organ Harvesting

Question: Should we report as community benefit the cost of organ donations (harvesting the organs and ensuring arrival)?

Recommendation:It is our understanding that the cost of harvesting organs generally is recovered through reimbursements from Organ Procurement Organizations (OPO) or through insurance and other resources provided by organ recipients. Accordingly, the cost associated with organ donation/harvesting should not be reported as community benefit. If reimbursement is inadequate, we suggest that hospitals seek to negotiate better payment terms.

(November 2015)


Topic: PACE

Question: We are in the development phase of a PACE (Program of All-inclusive Care for the Elderly) program and will not open until spring, 2015. Even though most PACE programs break even once fully operational can we count expenses incurred during the long ramp up period to breaking even? The PACE program is part of our needs assessment priority areas and implementation strategies.

Recommendation: We recommend reporting start-up costs for establishing a PACE program as a subsidized service as long as there is an identified community health need for the program. For example, some organizations have been asked by legislators or government agencies to start a program. Unmet needs of persons dually eligible for Medicare and Medicaid being identified in the CHNA would be another indication of need. Once the program is operational, unreimbursed costs or shortfalls may also be reported as community benefit under the Subsidized Services category.

(December 2014)


Topic: Palliative Care

Question: What Palliative Care services should count as a community benefit?

Recommendations: We do not recommend counting as community benefit palliative care that is part of total care delivered to inpatients. The reason is that palliative care programs have become the expected standard of care for hospital and nursing home quality care. However, there are aspects of the palliative care program which we do recommend be counted as community benefit:

In the category of Community Health Improvement Services, count:

  • Community health education including programs on palliative care, spirituality and health, and advance directives
  • Support groups and bereavement groups
  • Palliative care case management

Do not count: Presentations made for marketing purposes

In the category of Health Professional Education, count:

  • Palliative care internships and fellowships
  • Professional education offered to physicians and others in the community

Do not count:

  • Continuing medical/professional education for employees and the medical staff
  • Orientation to palliative care to new staff and physicians

In the category of Subsidized Health Services, count:

  • Outpatient palliative care programs

Do not count: The organization's inpatient palliative care program


Topic: Paying Physicians to be On-Call

Question: Our specialty physicians (including surgeons, orthopedists, neurologists) no longer accept emergency department on-call responsibilities as part of being on the medical staff. This cost was not budgeted and we are not adjusting the cost of emergency department visits to cover the cost. If we did not pay for emergency on-call physicians, patients would not have access to specialty care or would have to travel considerable distances to access the services. Can we count paying specialist for emergency on-call? (Note, our state permits counting.)

Recommendation:
The task force realizes this is a growing problem for many hospitals, but recommends not counting physician payments for on-call as community benefit for the following reasons:

  • It does not distinguish a hospital as a not-for-profit organization because all hospitals in an area must bear the same cost.
  • Paying for on-call is increasingly a cost of doing business.

If, however, the emergency room as a whole qualifies to be counted as a subsidized health service and these costs are counted as part of the cost to operate the emergency room, then the cost of these payments would be counted.

(Updated June 2012)


Question: Can we count the on-call costs for trauma care?

Recommendation: The task force recommends including the cost of physician on-call for a trauma program when the overall trauma program must be subsidized and on-call costs contribute to the need to subsidize the program. The cost of subsidizing the overall program should be reported, but not individual costs, such as the expense of on-call.


Topic: Paying Physicians to Serve Low Income & Uninsured

Question: We pay independent physicians for covering our financial assistance patients (no insurance/under insured) in the ER and inpatient setting. The program meets the medical needs of the poor and vulnerable. Can we count the payment to physicians for services to financial assistance patients in our hospital? This would relate to paying the hospital's clinic doctors and other independent physicians for covering our charity ER and inpatients.

Recommendation: We recommend that payments to physicians for services in the hospital and ER for patients who meet the organization's financial assistance policy count as community benefit because it meets the community benefit objective of improving access to care. Be sure to have a letter or contract that specifies that the funds paid specifically are for the purpose of covering costs for patients receiving financial assistance and be careful not to double count with ER subsidized service (if applicable) or with what you report as the cost of financial assistance.

(Updated June 2012)


Topic: Services for Veterans

Question: Our community asked us to develop services for Iraq and Afghanistan returning veterans and their families. We renovated space in a facility, dedicated the space to let the community know it was available, and began an outpatient service line to care for this population. This work is supported by grants from our foundation and the VA.

  1. Can the care of these persons (physician and other clinical services) be reported as community benefit, or only the staff time spent to coordinate their care?
  2. Can we include the cost of the renovation as part of the community benefit?
  3. Can we include the costs associated with the dedication ceremony?

Recommendation:

  1. We recommend that the service be reported as a subsidized service because it was developed as a result of a documented community need and the costs must be subsidized. Be sure to subtract the cost of charity care, bad debt and losses from Medicaid and other means-tested government programs. You also have to subtract grants from the VA and any separately incorporated foundation as offsetting revenue, according to IRS instructions.
  2. The depreciation and interest costs of the renovation should be included as part of your costs for subsidizing the program.

If the primary purpose of the dedication ceremony was to publicize the availability of the community benefit service (and not primarily for marketing purposes), those costs can be reported as community benefit.

(Updated November 2015)


Topic: Specialty Hospital Services

Question: We are a large not-for-profit hospital specializing in research, medical care, rehabilitation, and advocacy for people with brain and spinal cord injury and disease and other neuromuscular problems. We offer a number of services not provided by others: for example, complimentary housing for families, family education from day one, animal assisted therapy, vocational services including job placement. We raise funds in the community to support these programs. Please advise if this constitutes community benefit under the CHA/VHA guidelines.

Recommendation: We commend your excellent program, but do not recommend reporting these services as community benefit. These services seem to be part of delivering what have become typical services in your hospital, and therefore are the standard of care in your facility and the reason that patients seek out your services.


Topic: Telehealth Services

Question: Our telehealth program serves multiple purposes. We provide clinical encounters and educational events such as smoking cessation support groups as well as other general health education events for the public for little or no charge to the participants. It is addressing access on the clinical side (bring needed specialties to rural locations) and access on the educational side. Without this delivery mechanism patients would have to travel a good distance to receive the care or education they need. Some would choose to forgo the travel and thus end up in a worse state. The only issue has been trying to decide if it counts or not, and then if so, how to track it so it doesn't get double counted such as by education or some other means on the clinical side.

Recommendation: We recommend counting telehealth programs as you would any other program. That is, if it is part of basic care of your patients; do not count unless you must subsidize the service to cover costs, in which case you can report as a Subsidized Health Service. When you use telemedicine as a health education and promotion tool, it counts as long as you can document that it responds to a community need and that it is available to uninsured as well as insured persons. Deduct any revenue you collect for these programs. The cost should be the true net cost to the hospital, not the time of physicians unless the hospital has a contract with them to perform this service.

Click here for more examples of telemedicine/telehealth activities that may be reported in the different categories of community benefit. 


Topic: Telemonitoring

Question: Our home care service has contracted to provide home-based telemonitoring for its congestive heart failure patients. There is a monthly fee that our organization has assumed for each patient. The patients are not billed for this service. Through the program, patients' symptoms are monitored daily (namely weight gain and breathing ability) and avoiding unnecessary hospitalizations due to heart failure complications. The program provides chronic disease management in the home and avoids acute care hospitalizations. Approximately 70 percent of home care agencies provide some type of telemonitoring service for their patients, and I assume the other agencies do not bill for these services, either. Would that place this service as more of a "standard of care," and not qualify for community benefit? There is no Medicare requirement to provide telemonitoring services.

Recommendation:
The task force recommends not counting this telemonitoring program as community benefit for the following reasons:

  • Monitoring home care patients by phone has become a standard of care.
  • Offering telemonitoring could be considered a marketing tool.
  • In the question, it appears that access to home care is not a problem. If this is true, subsidizing home care should not be counted as community benefit. However, if access was a problem for vulnerable populations, home care, if the overall program lost money, could be considered a subsidized service community benefit.

Topic: What Qualifies as a Subsidized Service?

Question : What do the IRS instructions say about subsidized services?

Response : The Internal Revenue Service instructions for Form 990, Schedule H direct that to be reported as a subsidized service, the service must:

  1. Meet an identified community need. Criteria for demonstrating community need include:
    • If the organization no longer offered the service, it would be unavailable in the community
    • If the organization no longer offered the service, the community's capacity to provide the service would be below the community's need; or
    • If the organization no longer offered the service, the service would become the responsibility of government or another tax-exempt organization.
  2. The expense of the service must be subsidized after subtracting the cost of charity care, bad debt and losses from Medicaid and other means-tested government programs.