Question: We have classes and support groups that we hold virtually. Staff are facilitating from the hospital, but participants are in the community. I've been applying the "hospital-based" indirect rate to the program costs, is this the correct way to record the indirect cost?
Recommendation: The hospital-based indirect rate would be the best rate since it is the hospital’s resources that are being used to host the event. Caution: Consider what shared costs are included in your hospital-based and community-based indirect rates. If your hospital-based rate includes clinical service area supports, and the program does not utilize those shared services, the community-based indirect rate may be more representative of the indirect costs for the program.
(Updated May 2025)
Question: Is there a common approach to calculating indirect costs for community benefit activities?
Recommendation: Yes, there is a common approach, however, the calculation of indirect costs depends on the category of community benefit and the location of the community benefit program.
For community health improvement services programs and community building programs, we recommend using indirect cost rates that reflect the shared services utilized by the program. Hospitals may have a hospital-based indirect rate for clinical programs based in the hospital and a community-based rate for all other programs. Indirect costs for research programs should be based on guidelines and definitions established by the National Institutes of Health (NIH).
For the categories of financial assistance, Medicaid, other means-tested government programs, and subsidized health services, direct and indirect costs are generally included in a hospital’s ratio of patient care cost to charges or in its cost accounting system. Graduate medical education indirect costs are allocated in the Medicare cost report.
Community benefit operations are overhead functions. A reasonable indirect cost rate that accounts for space used and the administrative oversight may be appropriate. The indirect cost rate for cash and in-kind contributions for community benefit should be minimal or zero. Accordingly, CHA generally recommends not adding an indirect rate to activities or programs in this category.
Hospitals may impose a cap on indirect cost rates, particularly if/when indirect costs exceed direct costs). It is important to use a consistent method of determining and applying indirect rates, and to use reasonable and reproducible processes in doing so. Whatever indirect cost rates are used, the rate(s) should be reasonable, supportable, and documented. Please note: CHA does not recommend or suggest a specific rate for indirect costs.
For additional guidance on how to calculate indirect rates, see CHA's resource, Community Benefit Reporting: Indirect Costs
(Updated May 2025)