Question: We provide a 30 percent discount to all patients with no insurance. We include the cost associated with this discount on our unaudited community benefit footnote as a separate line item. Should we include this community benefit activity on Schedule H of the 990?

Recommendation: This discount appears to be a contractual adjustment and does not meet the IRS definition of financial assistance/charity care and should not be reported on Schedule H.

IRS definition of financial assistance: Financial assistance means free or discounted health care services provided to persons who meet the organization’s criteria for financial assistance and are unable to pay for all or a portion of such services. Financial assistance does not include (1) debt or uncollectible charges that the hospital recorded as revenue but wrote off due to failure to pay by patients who did not qualify for charity care, or the cost of providing such care; (ii) the difference between the cost of care provided under Medicaid or other means-tested government programs or under Medicare and the revenue derived therefrom or (ii) contractual adjustments with any third party.

(November 2015)


Question: Section 501(r)(5) requires tax-exempt hospitals to limit the amounts they charge for emergency and other medically necessary care provided to individuals eligible for assistance under the hospital's financial assistance policy to not more than amounts generally billed to individuals who have insurance covering such care. Hospitals can further discount, if warranted. The question is: Even though the new law mandates a limit on charges, can additional discounts be counted as financial assistance (assuming the discount drops the net bill below the cost of care)?

Recommendation: Yes, discounts for a person who qualifies for financial assistance should be reported as community benefit on Schedule H if the bill is below the cost of care.

(June 2011)

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.