Community Benefit: A Matter of Accountability: One Organization's Approach
By Julie Trocchio, The Catholic Health Association of the United States, Washington, DC
It seems like "deja vu all over again."
In September, Senate Finance Committee Chairman Charles Grassley (R-IA) held a hearing, "Taking the Pulse of Charitable Care and Community Benefits at Nonprofit Hospitals." In his opening statement, Chairman Grassley said, "non-profit hospitals receive billions in tax breaks at the federal, state and local level. The public has a right to expect significant, measurable benefits in return." He went on to ask, "Can (hospital tax exemption) be justified by everyone else having to pay taxes?" (http://finance.senate.gov/hearings/statements/091306cg.pdf).
In May 2005, a Ways and Means Committee hearing on the tax-exempt hospital sector raised similar issues. In announcing the hearing, Chairman Bill Thomas (R-CA) said, "Congress needs a better understanding of the subsidy for tax-exempt hospitals. Tax-exemption is an important benefit and the Congress has a responsibility to assure the American taxpayer that the tax-exempt hospitals sector is living up to its community responsibilities." ( http://waysandmeans.house.gov/hearings.asp?formmode=view&id=2683).
If this sounds familiar, it should. In the late 1980's and early 1990's, several House committees were asking similar questions:
- Is there a difference between for-profit and not-for-profit healthcare?
- Do not-for-profits continue to deserve tax-exemption?
- Should there be a level of effort test?
When these issues arose nearly two decades ago, the Catholic Health Association (CHA) became alarmed. How could anyone question whether their hospitals, as faith-based nonprofit healthcare organizations with a tradition of serving the poor, were charitable? After doing some research and soul searching, the CHA Board of Trustees determined that yes, their members provide charity care and other community benefits but could probably do better, and definitely needed to tell their story better.
CHA made a concerted effort to find the most successful practices among its members for conducting community needs assessments, planning community benefit programs, and tracking progress. These were assembled into CHA's Social Accountability Budget, published in 1989.
Throughout the years, CHA has revised and augmented the original Social Accountability Budget with editions for non-Catholic hospitals and for long-term care organizations. In conjunction with VHA, Inc and Lyon Software, CHA developed a computer program for tracking community benefits known as CBISA. On an on-going basis it has convened community benefit leaders to exchange information on new and innovative approaches to addressing community need.
So, when Chairmen Thomas and Grassley started asking about community benefit, the Catholic Health Association felt better prepared than when questions were raised nearly two decades ago. Hospitals could describe an organized approach Catholic and other not-for-profit healthcare organizations were using to address community need and for working in collaboration with others to improve access to healthcare and the health in their communities.
Hospitals were able to provide a credible and conservative definition of community benefit which is rooted in IRS revenue rulings, audit guidelines and other documents. CHA could report that it was working with the Health Care Financial Management Association (HFMA) and the American Institute of CPAs to develop professionally recognized accounting standards and promoting them for use among all not-for-profit healthcare organizations.
New CHA Guide
In the final months of the 109th Congress, CHA, in cooperation with VHA, Inc. published a Guide for Planning and Reporting Community Benefit, which revised the Social Accountability Budget and pulled together what had been learned and developed in the area of community benefit. It describes six steps for building a sustainable community benefit program: building an infrastructure; planning; determining what counts; accounting; evaluating community benefit programs; and communicating.
The Guide presents a definition of community benefit, developed by CHA and others that includes specific categories of services with recommendations for what should and should not be counted. The three main categories of community benefit are charity care (reported at cost); the unpaid cost of indigent care programs such as Medicaid (but not Medicare); and other community services. The other community services categories include:
- Community Health Services: clinics, support groups, support services, and prevention and health promotion activities.
- Health Professional Education: training for physicians, nurses, and other health professionals to address unmet community needs.
- Subsidized Services: trauma services, hospice and palliative care programs, and behavioral health.
- Health Research: clinical research and studies on community health and healthcare delivery.
- Donations: cash, grants, and in-kind services.
- Community-Building Activities: neighborhood improvements, housing programs, coalition building, and advocacy for community health improvement.
The Guide’s accounting principles stress the need to report charity care and other benefits at cost (not charges), and provides a method for converting charges to cost.
Another Question From Capitol Hill – And a Good Answer
It's one thing to have standard guidelines, but who is using them?
Soon after the guide was published, CHA asked its members to commit to using the Guide and to publicly post the availability of financial assistance policies. As of now, 95 percent of the all Catholic healthcare systems have made this commitment. And as boards meet, more commitments are coming in. VHA is undergoing a similar process.
CHA and VHA are committed to encouraging meaningful community benefit programs and standardized accounting and reporting of community benefit throughout nonprofit healthcare. They are working with many national and state hospital organizations and with auditing and accounting firms and have speakers who are available to teach the guidelines and promote standardization.
So the short answer is: soon, most hospitals may be using the guidelines.
The Final Question
From the hearings in the late 1980s until Senator Grassley's hearing in September of this year the underlying question has been whether the IRS community benefit standard, defined in the IRS's 1969 Revenue Ruling, is appropriate or whether nonprofit healthcare organizations should have to meet a specific charity care standard.
CHA's work with community benefit has shown that community benefit is – and should be - much more than charity care. Local needs require local strategies. It is likely that a national level of effort requirement would not serve communities well.
Every day, not-for-profit hospitals demonstrate ingenuity in uncovering community needs and working with others to find solutions to community health problems. Often they actually prevent the need for charity care by reaching out to uninsured persons, helping them find primary care and managing chronic conditions so that visits to the emergency room and admissions to the hospital can be avoided.
In one community, the need for charity care and other financial assistance may be dominant, but in others the greatest need may be subsidizing Medicaid or keeping a service such as a mental health program going when no other organization can meet the need.
Experience has shown that the community benefit standard is appropriate. Now it is up to all hospitals to make it work.
For Information about CHA's Guide and other community benefit resources, visit www.chausa.org/communitybenefit.