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Affordable Care Act Medicaid expansion

Starting in 2014, the Affordable Care Act (ACA) makes several key changes regarding Medicaid eligibility that will effectively allow more people to become qualified for coverage under the program. This will be achieved by expanding the minimum income eligibility threshold to 133 percent of the federal poverty level (effectively 138 percent of the federal poverty level) for all non-elderly adults and eliminating the categorical eligibility standards. Not all US states have implemented Medicaid expansion.

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Bad debt

Bad debt consists of services for which a tax-exempt hospital anticipated but did not receive payment. Bad debt differs from financial assistance/charity care in which the hospital did not expect to receive payment because the patient met the hospital's financial assistance policy criteria and was deemed unable to pay.

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Cash and in-kind contributions for community benefit

These are contributions made by the tax-exempt hospital to health care organizations and other community groups restricted to one or more of the community benefit activities.
In-kind contributions refer to donations of items or services. In-kind contributions for community benefit include the cost of staff hours donated by the organization to the community while on the organization's payroll, indirect cost of space donated to tax-exempt community groups, and the financial value or donated food, equipment, and supplies.
Cash contributions should not include donations made by employees; loans, advances or contributions to the capital of another organization; or unrestricted gifts to another organization that not be used to provide community benefit.
Cash or in-kind contributions should not be reported if they are payments the organization makes in exchange for a service, facility, or product, or that the organization makes primarily to obtain an economic or physical benefit.

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Collection techniques

Under the ACA, a 501(c)(3) tax-exempt hospital facility (or its affiliates) may not undertake extraordinary collection actions (even if otherwise permitted by law) against an individual without first making reasonable efforts to determine whether the individual is eligible for assistance under the tax-exempt hospital's financial assistance policy. Such extraordinary collection actions include lawsuits, liens on residences, arrests, body attachments, or other similar collection processes.

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Community Benefit

Community benefit is programs or activities that provide treatment or promote health and healing as a response to identified community needs. Community benefit programs have a special focus on the disadvantaged populations and must be available to the broad community. According to the IRS, to count as a community benefit, a program or activity must respond to a demonstrated health-related community need and seek to achieve at least one community benefit objective:

  • Increase access to health services
  • Enhance public health
  • Advance knowledgeable through education or research
  • Relieve or reduce a burden of government to improve health

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Community Building

Hospitals report Community Building activities on the IRS 990 Schedule H in Part II. Community Building is activities that protect or improve the community's health or safety and cannot be reported on Schedule H as a Community Benefit under Part I. Beginning with the 2011 Schedule H, the IRS clearly indicated that some Community Building activities may also meet the definition of Community Benefit. Activities that demonstrate evidence- based results in improving health better meet the definition of Community Benefit.

Community Building activities help build the capacity of the community to address health needs and often address the "upstream" factors and social determinants that impact health such as education, air quality, and access to nutritious food. It should be noted that the financial reporting of community building activities may be imbedded under community health improvement.

The IRS subcategories of Community Building are:

  • physical improvements and housing, such as housing rehabilitation for vulnerable populations, removing harmful building materials (e.g., lead abatement), neighborhood improvement and revitalization, housing for vulnerable populations upon inpatient discharge, housing for seniors, and parks and playgrounds to improve physical activities;
  • economic development activities such as assisting in small business development and creating employment opportunities in areas with high joblessness rates;
  • community supports such as child care, mentoring programs, neighborhood support groups, violence prevention, disaster readiness and public health emergency preparedness and community disease surveillance "beyond what is required by accrediting bodies or government entities";
  • environmental improvements to address "environmental hazards that affect community health such as alleviation of water or air pollution," the safe removal or treatment of garbage and waste products, and other activities to protect the community from environmental hazards (other than expenses made to comply with legal requirements);
  • leadership development and training for community members such as training in conflict resolution, civil, cultural, or language skills, and medical interpreter skills;
  • coalition building such as community coalitions to address health and safety issues;
  • community health improvement advocacy such as efforts to support policies and programs to safeguard or improve public health, access to health care services, housing, the environment, and transportation; and
  • workforce development, including recruiting physicians and other health professionals to underserved areas.
  • other activities, such as community building activities that protect or improve the community's health or safety that are not described in the categories above.

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Community benefit operations

Community benefit operations are activities associated with Community Health Needs Assessments (CHNA), community benefit program administration, and the organization's activities associated with fundraising or grant-writing for the organization's community benefit programs. Activities or programs cannot be reported if they are provided primarily for marketing purposes or if they are more beneficial to the organization than to the community. To be reported, community need for the activity or program must be established. The IRS says this need can be demonstrated through:

  • a CHNA conducted by the tax-exempt hospital;
  • documentation that demonstrated community need or a request from a public health agency or community group was the basis for initiating or continuing the activity or program;
  • the involvement of unrelated collaborative tax-exempt or government organizations as partners in the activity or program carried out for the express purpose of improving community health.

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Community benefit plan

A community benefit plan describes the actions the hospital will take to address identified community needs. The Implementation Strategy can be another name for the Community Benefit Plan.

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Community health improvement services

Community health improvement services are activities or programs subsidized by the tax-exempt hospital, carried out or supported for the express purpose of improving health. Such services do not generate inpatient or outpatient revenue, although there may be a nominal patient fee or sliding scale fee for these services.

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Community health needs assessment

Each tax-exempt hospital facility is required to conduct a Community Health Needs Assessment (CHNA) at least once every three taxable years, beginning after March 23, 2012 (tax-exempt hospitals that use calendar years as their tax year were not required to conduct a CHNA until 2013). Tax-exempt hospitals are also required to adopt an Implementation Strategy to address the significant community needs identified through such assessment. The assessment may be based on current information collected by a public health agency or non-profit organizations and may be conducted together with one or more other organizations. The assessment process must take into account input from persons who represent the broad interests of the community served by the tax-exempt hospital facility, including those with special knowledge or expertise of public health issues. The tax-exempt hospital must disclose in its annual information report to the IRS (i.e., Form 990 and related schedules) how it is addressing the needs identified in the assessment and, if all identified needs are not addressed, the reasons why (e.g., lack of financial or human resources).

Each tax-exempt hospital facility is required to make the assessment widely available. Failure to complete a CNHA in any applicable three-year period results in a penalty on the organization of up to $50,000. For example, if a facility does not complete a CHNA in taxable years one, two or three, it is subject to the penalty in year three. If it then fails to complete a CHNA in year four, it is subject to another penalty in year four (for failing to satisfy the requirement during the three-year period beginning with taxable year two and ending with taxable year four). An organization that fails to disclose how it is meeting needs identified in the assessment is subject to existing incomplete return penalties.

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Federal Poverty Thresholds

The Department of Health and Human Services issues the poverty guidelines for administrative purposes — for instance, to determine whether a person or family is eligible for assistance through various federal programs.
The poverty guidelines (unlike the poverty thresholds) are designated by the year in which they are issued. For instance, the guidelines issued in January 2014 are designated the 2014 poverty guidelines. However, the 2014 HHS poverty guidelines only reflect price changes through calendar year 2013; accordingly, they are approximately equal to the Census Bureau poverty thresholds for calendar year 2013.

  • Poverty thresholds are used for calculating all official poverty population statistics — for instance, figures on the number of Americans in poverty each year. They are updated each year by the Census Bureau
  • The poverty guidelines are a simplified version of the federal poverty thresholds used for administrative purposes — for instance, determining financial eligibility for certain federal programs

The example chart below provides 2014 federal poverty guideline calculations from FamiliesUSA and GWU based on data from the US Department of Health and Human Services.

Household Size100%133%138%

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Federal poverty guidelines (FPGs)

The federal poverty guidelines (FPG), is the standard set by the government used to determine eligibility for many federal financial assistance programs

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Financial assistance/Financial assistance policy

Financial assistance (also known as charity care) includes free or discounted health services provided to persons who meet the organization's criteria for financial assistance and are unable to pay for all or a portion of the services. Financial assistance does not include bad debt, self-pay or prompt pay discounts; or contractual adjustments with any third-party payors. Under the Affordable Care Act and as of March 2010, the Internal Revenue Code requires tax-exempt hospitals to have both a written Financial Assistance Policy (FAP) and a Debt Collection policy. The FAP must include:

  • Eligibility criteria for receiving financial assistance and whether the assistance includes free or discounted care;
  • The basis for calculating the amounts charged to patients
  • The method for applying for financial assistance;
  • If the tax-exempt hospital does not have a separate billing and debt collection policy, the actions the tax-exempt hospital may take to collect payment,
  • Measures to publicize the policy widely in the community served by the tax-exempt hospital

Either the FAP or a separate written billings and debt collection policy must describe the actions requiring a legal or judicial process that a hospital may take upon non-payment, including reporting to credit agencies, filing lawsuits, placing liens against homes, or garnishing wages

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Health professions education activities

Educational programs that result in a degree, certificate, or training necessary to be licensed to practice as a health professional, as required by state law, or continuing education necessary to retain state license or certification by a board in the individual's health profession specialty. It does not include education or training programs available exclusively to the organization's employees and medical staff or scholarships provided to those individuals. However, it does include education programs if the primary purpose of such programs is to educate health professionals in the broader community.

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Hospital's bed size categorization

Bed size categories are used to report the size of a given hospital based on the number of hospital beds, and are specific to the hospital's location and teaching status.

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Implementation Strategy

Tax-exempt hospitals must develop and adopt an Implementation Strategy (often called a Community Benefit Plan) to meet the significant health needs identified in their CHNA by the end of the same tax year in which the CHNA is conducted. The Implementation Strategy has to be attached to the tax-exempt hospital's annual IRS Form 990 which is a public document. Some tax-exempt hospitals have their Implementation Strategies available on their websites, however it may be necessary to reach out to the tax-exempt hospitals directly if not on the website.

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Mandatory reporting statutes

To meet federal requirements, all 501(c)(3) tax-exempt hospitals are required to report community benefit expenditures to the IRS on Schedule H of Form 990. Schedule H also requires tax-exempt hospitals to provide specific information about their policies and practices relating to community health needs assessment, financial assistance, billing and collections, and the other new federal requirements for charitable tax-exempt hospitals.

For more information on state requirements, please visit The Hilltop Institute "Community Benefit State Law Profiles" tool.

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Medicaid is the United States health program for individuals and families with low incomes and resources. Primary oversight of the program is handled at the federal level, but each state:

  • Establishes its own eligibility standards,
  • Determines the type, amount, duration, and scope of services,
  • Sets the rate of payment for services

For community benefit purposes, the hospitals report the amount incurred by tax-exempt hospitals on the difference between what care costs and what is paid by Medicaid.

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Medicare Provider Number

The Medicare Provider Number is also known as the CCN (CMS Certification Number)

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Medicare or Medicaid Disproportionate Share Hospital

Medicare or Medicaid Disproportionate Share Hospitals (DSH) serve a significantly disproportionate number of low-income patients and receive payments from the Centers for Medicaid and Medicare Services (CMS) to help defray the costs of providing care to uninsured patients.

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Nonprofit (not for-profit)

A nonprofit hospital is considered a charitable organization, conducting business for the benefit of the general public without a profit motive.

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Other means-tested programs

Other means-tested programs are government-sponsored health programs where eligibility for benefits or coverage is determined by income or assets.
Ex: State Children Health Insurance Program (CHIP): a federal government program that gives funds to states in order to provide health insurance to low-income families with children.

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Patient Care-related expenses vs. Non-Patient Care-related expenses

Patient care-related expenses include both direct costs of providing inpatient and outpatient services and indirect overhead costs such as administration, patient accounting, information technology, environmental services, utilities, etc. These types of costs represent the majority of a tax-exempt hospital's expenses.
Non-patient care-related expenses are costs not associated with direct patient care, such as the costs of running cafeterias, parking lots, and gift shops.

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Any study or investigation designed to increase general knowledge and which is made available to the public. For example, research can include behavioral or sociological studies related to health, delivery of care, or prevention, or studies related to changes in the health care delivery system. The organization can include the cost of internally funded research as well of the cost of research it conducts funded by a tax-exempt or government entity. The organization cannot report research that is funded by a for-profit entity. As previously indicated, starting in tax year 2013, tax-exempt hospitals can no longer report restricted grants as a community benefit expense.

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Sole community hospital

Sole community hospitals are hospitals that are located at a geographic distance from other like hospitals, and serve communities that, for a variety of possible reasons, do not otherwise have access to such a hospital facility. Hospitals are designated as such by meeting certain criteria as set forth by the Centers for Medicare and Medicaid Services (CMS).

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Subsidized health services

Subsidized health services are clinical services provided despite a financial loss to the tax-exempt hospital. A service meets an identified community need if it is reasonable to conclude that if the organization no longer offered the service,

  • the service would be unavailable to the community and
  • the community's capacity to provide the service would be below the community's need, or
  • the service would become the responsibility of government or another tax-exempt organization.

Depending on the individual community, examples could include inpatient programs such as neonatal intensive care or addiction recovery, and outpatient programs such as satellite clinics designed to serve low-income communities or home health programs.

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Teaching hospital criteria

A "teaching hospital" provides training to medical students, interns, residents, fellows, nurses, or other health professionals and providers, provided that such educational programs are accredited by the appropriate national accrediting body. Teaching hospitals can include hospitals that received payment for Medicare direct graduate medical education (GME), inpatient prospective payment system (IPPS) indirect medical education (IME), or psychiatric hospital IME programs.

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Total operating expenditures

Total operating expenses include all expenses associated with operating the tax-exempt hospital, such as salaries, employee benefits, purchased services, supplies, professional fees, depreciation, rentals, interest, and insurance. It does not include bad debts or income taxes. On Schedule H, hospitals are required to use the total operating expense as listed on their IRS Form 990, Part IX, line 25, column A.

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Widely available to the public (for CHNA)

A tax-exempt hospital is required to make its Community Health Needs Assessment (CHNA) widely available to the public for review. A tax-exempt hospital organization will be considered to have made a tax-exempt hospital facility's CHNA widely available to the public by posting the written report of the CHNA findings on the tax-exempt hospital facility's website or, if the tax-exempt hospital facility does not have its own website separate from the tax-exempt hospital organization that operates it, on the tax-exempt hospital organization's website. Alternatively, the written report may be posted on a website established and maintained by another entity as long as either —

  • the tax-exempt hospital organization or facility's website provides a link to the website on which the report is posted, along with clear instructions for accessing the report on that website; or
  • if neither the tax-exempt hospital organization nor the tax-exempt hospital facility has a website, the tax-exempt hospital organization or facility provides any individual requesting a copy of the written report with the direct website address, or URL, where the document can be accessed.