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Readying Hospitals' Charity Care for the IRS 990

Is Your Hospital’s Charity Care Program Ready for the IRS 990? 

On December 20, 2007, the Internal Revenue Service (IRS) unveiled its updated Form 990 for tax-exempt organizations, with a new schedule designed specifically for hospitals, IRS Form 900 Schedule H. The timing of the new schedule is not surprising. Hospitals have come under more and more scrutiny by the IRS and the Senate Finance Committee to justify their tax-exempt status by demonstrating how they benefit their community.   

Form 990 is forcing hospitals to reassess their charity care programs, if they haven’t already. The evaluation should be two-fold, examining the process itself and the measurement of a successful program.  

1. Process: Is the correct charity care process in place? Is it non-discriminatory and defensible?  

Non-discriminatory. A charity program cannot discriminate by age, race, sex or any other personal characteristic. Unfortunately, people are human and biases do exist, even under the best of circumstances.  Hospitals need to demonstrate that their process identifies every patient who would qualify for charity care under their specific guidelines. Only by automating the screening process using technology, without human intervention and natural subjectivity, can the process be truly objective.

Defensible. The process of identifying a qualified charity patient must be defensible. Screening must be performed on every patient who could potentially qualify for a charity discount based on the hospital’s specific guidelines at the point of registration using a third-party or neutral service. The independent service’s audit trail validates that the screenings took place and that the patient was directed to the appropriate financial arrangement based on the data provided.  

2. Measurement: Is the hospital near the recommend 5%? Should some bad debt be reclassified? 

Too often bad debt accounts should have been enrolled in the charity care program from the beginning. In Part III of the Form 990, bad debt can be included but smart hospitals realize there is more benefit to reclassifying them to charity.

When re-classified, many hospitals determine that they are providing more charity care than first reported. Correcting this error could improve a hospital’s standing with their community and the IRS. 

Additional Resources from SearchAmerica:

 Press Release - 1/22/08 SearchAmerica's Payment Advisor Suite Aids
 Compliance to New IRS Form 990 for Hospitals

 Readying Your Charity Care for the IRS 990

 Article - IRS 990 Viewpoint

 Press Release - 8/1/07 IRS Section H 990 Form Requires New Reporting
 on Charity and Bad Debt

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