The American Health Law Association held their “Tax Issues for Health Care Organizations” conference last week. Attendees focused on health care tax topics and engaged in a lively and informed conversation about the taxation-related challenges facing nonprofit health care organizations today. Discussion included commentary from U.S. government and IRS staff members, and representatives from health systems across the United States.
Key takeaways
I attended the event and noted the following key topics:
- Regulatory scrutiny on hospitals providing sufficient community benefit and positioning the hospital for a favorable view to stakeholders was top of mind, along with mitigating regulatory risks. There was also commentary from attendees related to past media attention surrounding community benefit, in addition to the recent discussion from Congress regarding the perception that hospitals may not be earning their tax-exempt status.
- Representatives from the House Committee on Ways and Means and the Senate Committee on Finance commented that there is a focus on making health care more affordable. Charity care, which is a component of community benefits provided by hospitals, is a means to accomplish this. Although the broader focus is on medical debt, site neutral payments and 340B payments, expanding charity care will contribute to this effort.
- The IRS announced this year that it would conduct examinations to verify the IRC 501(c)(3) tax exempt status of hospitals, including the community benefit standard and section 501(r).
- The IRS director or exempt organizations and government entities, Rob Malone, commented that they started the examinations of hospitals, but it was too early to report any results from those examinations. Malone also indicated that the IRS had hired several new agents to conduct the examinations.
- Several participants commented about their experience with these IRS examinations. Agents are analyzing details, walking through all hospital facilities and researching hospital websites to ensure compliance with 501(r).
What health care organizations should do now
To address anticipated regulatory scrutiny and IRS examinations, health care organizations should consider the following actions:
- Conduct a mock 501(r) IRS examination.
- Review website links to confirm the community health needs assessment (CHNA) and financial assistance policies (FAP) and related documents are easily accessible.
- Review the CHNA and FAP for 501(r) requirements.
- Assess the CHNA and implementation strategy to identify and document accomplishments in addressing the community needs identified through the CHNA.
- Review Form 990 Schedule H for completeness and compare to content on external communication.
- Verify that the CHNA and FAP have received required approvals from the board.
- Conduct a walkthrough of all facilities to ensure that required signage is displayed and that the patient intake process for FAP applicants is properly implemented.
- Calculate differentials between community benefit and value of tax-exempt status.
- Numerous conference participants indicated they perform this calculation annually to evaluate their standing regarding community benefit. This analysis helps identify any modifications in their community benefit activities and initiatives.
- Focus on outcomes for the community.
- Several attendees commented that more focus should be on the outcomes from community benefit activities. The benefits provided back to the community are not always quantifiable. The prevention of illnesses and improvements in community health resulting from outreach efforts are often not captured expenses in the annual community benefit report. It is important to communicate these outcomes to stakeholders in addition to fortifying the value of the hospital’s community benefit.
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