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GAO Report on Nonprofit Hospitals: Variation in Standards and Guidance Limits Comparison of How Hospitals Meet Community Benefit Requirements
The U.S. Government Accountability Office (GAO) today released to the public a report on the community benefit requirements of nonprofit hospitals. The GAO report—Nonprofit Hospitals: Variation in Standards and Guidance Limits Comparison of How Hospitals Meet Community Benefit Requirements (GAO-08-880, dated September 2008 and posted today on the GAO Web site)—concludes that the IRS community benefit standard gives nonprofit hospitals:
…broad latitude to determine the services and activities that constitute community benefit. Furthermore, state community benefit requirements that hospitals must meet in order to qualify for state tax-exempt or nonprofit status vary substantially in scope and detail. For example, 15 states have community benefit requirements in statutes or regulations, and 10 of these states have detailed requirements.
Issues Concerning Uniform Definitions, Consensus
The GAO found that among the standards and guidance used by nonprofit hospitals, consensus exists to define:
- Charity care
- The unreimbursed cost of means-tested government health care programs (programs for which eligibility is based on financial need, such as Medicaid)
- Many other activities that benefit the community as community benefit
However, consensus does not exist to define bad debt (the amount that the patient is expected to, but does not, pay) and the unreimbursed cost of Medicare (the difference between a hospital’s costs and its payment from Medicare) as community benefit.
Variations in the activities nonprofit hospitals define as community benefit lead to substantial differences in the amount of community benefits they report.
The GAO explained that even if nonprofit hospitals define the same activities as community benefit, they may measure the costs of these activities differently—which can lead to inconsistencies in reported community benefits. For example, standards and guidance vary on the level at which hospitals may report their community benefit (e.g., at an individual hospital level or a health care system level) and the method hospitals may use to estimate costs of community benefit activities. State data demonstrate that differences in how nonprofit hospitals measure charity care costs and the unreimbursed costs of government health care programs can affect the amount of community benefit they report.
The GAO report notes that with the added attention to community benefit has come a growing realization of the extent of variability among stakeholders in what ought to count and how to measure it. Currently, determination and measurement of activities as community benefit for federal purposes were noted by the GAO to be still largely a matter of individual hospital discretion.
The GAO concluded that given the large number of uninsured individuals, and the critical role of hospitals in caring for them, it is important that federal and state policymakers and industry groups continue their discussion addressing the variability in defining and measuring community benefit activities.
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Background
Senator Grassley, the ranking member of the Senate Finance Committee, requested that the GAO examine: (1) the IRS’s community benefit standard and the states’ requirements; (2) the guidelines nonprofit hospitals use to define the components of community benefit; and (3) the guidelines nonprofit hospitals use to measure and report the components of community benefit.
To address these objectives, the GAO analyzed federal and state laws; the standards and guidance from federal agencies and industry groups; and 2006 data from California, Indiana, Massachusetts, and Texas. GAO also interviewed federal and state officials, and industry group representatives.
For an electronic version of the GAO report (76 pages):
GAO Nonprofit Hospitals
For more information, contact Rick Speizman, National Partner-In-Charge, KPMG’s Exempt Organizations Tax Practice (ExoTax), at (202) 533-3084 or
rspeizma@kpmg.com
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