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.

Please Take Note: The information provided 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.