Defending Community Benefit

Topics: Finance, Undercompensated Care, Revenue Cycle, Uncompensated Care

Increased scrutiny into tax-exempt statuses from regulatory agencies has led many not-for-profit hospitals to feel a heightened level of stress in recent years. Instead of playing defense, this publication will help not-for-profit hospitals take an assertive stance on community benefit issues by:

• Using the 15 best practices outlined to preempt external scrutiny of community benefit programs to maneuver the political and legal challenges facing not-for-profit hospitals
• Ensuring the institution receives credit where it is due for community benefit efforts by improving hospital administration
• Enhance supervision of tax-exemption requirements through improved board oversight and clarified protocols and practices

Executive Summary

The question of community benefit and tax-exempt status continues to pose a unique challenge for hospital and health system leadership. On one hand, the charitable nature of America’s not-for-profi t hospitals is being routinely called into question by a wide swath of interests—from politicians, to unions, to patient advocates. Local flash fi res of hospital scrutiny arise consistently, if unpredictably. And the fundamental weaknesses of the health care economy that underlie much of this public consternation look unlikely to abate any time soon.

On the other hand is this simple fact: In the last five years, only four of the approximately 3,000 not-for-profit community hospitals in the United States have been stripped of their local property tax exemption. No hospital has lost its federal tax exemption. In terms of simple probability, the average hospital has less than two tenths of a percent chance of being judged uncharitable. Yet we worry. The resulting strategic calculus in board rooms across the country remains that the consequences to our reputation, bottom line, and fundraising efforts from an adverse ruling on charitable status is potentially so profound that there is little choice but to view the threat as a certainty. Every reasonable effort must be made to demonstrate community benefit, avoid undue external scrutiny, and retain the tax advantages of not-for-profit status.

Our intention with this brief is to both acknowledge this consensus position, while grounding our prescriptions in the reality that revocation of charitable status is highly unlikely. After opening with the ever-evolving political and legal context, Defending Community Benefit is centered on 15 principles for preempting external scrutiny. The emphasis on preemption is important, as such approaches have been shown through experience to be both more effective and less costly than reactionary strategies. Finally, two closing case studies of hospitals setting a visionary course in community benefit are presented.

As always, please feel free to contact the Council if you are in need of additional information or guidance. However, it should be noted that the legal nature of the issues contained herein also require careful consultation with your institution’s general counsel prior to taking action.

How Much is Enough?