1). The community benefit standard specified that  nonprofit hospitals were not required to provide charity care to qualify for  federal tax exemption, but they must provide a benefit to the community. IRS’s Standard Provides Broad Latitude for Nonprofit Hospitals to Determine Community Benefit Activities; State Requirements Vary Substantially in Scope and Detail

IRS’s community benefit standard to qualify for tax-exempt status allows  nonprofit hospitals broad latitude to determine the services and activities  that constitute community benefit. State Community Benefit Requirements That Nonprofit Hospitals Must Meet Vary Substantially in Scope and Detail

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. Specifically, 15 of the states have community benefit  requirements in statutes or regulations and 36 do not (see fig. Differences in the Activities Nonprofit Hospitals Define as Community Benefit Substantially Affect the Amount of Community Benefits They Report

Variations in the activities nonprofit hospitals define as community benefit  lead to substantial differences in the amount of community benefits they  report. Community Benefits May Include Charity Care, Bad Debt, Government Health Care Programs, and Other Activities That Benefit the Community

Activities that benefit the community and their associated expenses, as  defined by the community benefit standards and guidance that nonprofit  hospitals use, generally fall into one of four categories: charity care, care  for patients whose accounts result in bad debt (referred to as bad debt for  the rest of the report), care for beneficiaries of government health care  programs and their associated unreimbursed costs, and other activities  that benefit the community. While Consensus Exists to Define Means-Tested Programs, Such as Medicaid, as Community Benefit, the Unreimbursed Cost of Medicare, Which Is a Sizable Cost for Hospitals, Remains Contentious

Consensus exists among the standards and guidance nonprofit hospitals  use to define the unreimbursed cost of means-tested government health  care programs, such as Medicaid, as community benefit. Consensus does not, however, exist to define the unreimbursed cost of  Medicare as community benefit. Differences in How Nonprofit Hospitals Measure Costs of Community Benefit Activities Can Affect the Amount of Community Benefits They Report

Nonprofit hospitals may use a variety of practices to measure the costs of  community benefit activities, and differences in these practices can affect  the amount of community benefits they report. For example, standards  and guidance used by nonprofit hospitals specify a variety of levels at  which hospitals can report their community benefit. With the added attention to community benefit has come a growing  realization of the extent of variability among stakeholders in what should  count and how to measure it. 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. CMS stated that it did not  have any comments. IRS commented that in the concluding observations section, the phrase “at  present, determination and measurement of activities as community  benefit for federal purposes are still largely matters of individual hospital  discretion” was unclear as to whether the statement that follows “at  present” refers to the state of things before or after IRS released the new  Schedule H. IRS further stated that while in the years prior to IRS’s   Form 990, Schedule H, the determination and measurement of community  benefit was largely a matter of individual hospital discretion, the new  Schedule H provides clear standards. We interviewed officials from the Internal Revenue  Service (IRS) and the Centers for Medicare & Medicaid Services (CMS). To  examine the effects of these standards and guidance on reported  community benefit, we analyzed 2006 state data from California, Indiana,  Massachusetts, and Texas. Bad debt is generally defined as the uncollectible payment that the  patient is expected to, but does not, pay. needs. 3. 2.
Why GAO Did This Study

Nonprofit hospitals qualify for federal tax exemption from the Internal Revenue Service (IRS) if they meet certain requirements. Since 1969, IRS has not specified that these hospitals have to provide charity care to meet these requirements, so long as they engage in activities that benefit the community. Many of these activities are intended to benefit the approximately 47 million uninsured individuals in the United States who need financial and other help to obtain medical care. Previous studies indicated that nonprofit hospitals may not be defining community benefit in a consistent and transparent manner that would enable policymakers to hold them accountable for providing benefits commensurate with their tax-exempt status. GAO was asked to examine (1) IRS's community benefit standard and the states' requirements, (2) guidelines nonprofit hospitals use to define the components of community benefit, and (3) guidelines nonprofit hospitals use to measure and report the components of community benefit. To address these objectives, 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. IRS stated that the report in general was accurate, but noted several concerns regarding the description of the community benefit standard. CMS did not have any comments.

What GAO Found

IRS's community benefit standard allows 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. 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), and 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. 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. With the added attention to community benefit has come a growing realization of the extent of variability among stakeholders in what should count and how to measure it. At present, determination and measurement of activities as community benefit for federal purposes are still largely a matter of individual hospital discretion. 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.