Article Images

The Internal Revenue Service's release early this year of the 2012 Form 990 and Schedule H signals the beginning of tax season for tax-exempt hospitals. Many hospitals are or soon will be immersed in preparing their 2012 federal tax return, including the hospital-specific Schedule H. This is an ideal time for the board to review its role in the Schedule H process.

The Board's Role

The IRS is increasingly calling on trustees to play a direct role in overseeing a hospital's compliance with its tax-exempt responsibilities. Several years ago, for example, the IRS added a question on Form 990 that asked whether the organization provided a copy of the form to all members of the governing body before it was filed. While not a requirement for tax exemption, the IRS explained that its interest in governance practices was a belief that good practices would have a bearing on exempt organizations' compliance with the law.

In its proposed guidance for implementing the additional hospital requirements created by the Affordable Care Act, the IRS has stated its intent to require board approval for certain policies that must be adopted and action that must be taken by the hospital. Among other ACA requirements, a hospital must have financial assistance and emergency care policies that meet certain conditions, and must adopt an implementation strategy to address the needs identified through its community health needs assessment. It is anticipated that when the final regulations are issued, they will require that the two policies and the implementation strategy be approved by the board. While required board action can be satisfied directly or through a person legally authorized to act on its behalf, the ultimate accountability will rest with the board.

In reviewing Schedule H, it is important to keep in mind its two purposes. One is the IRS' attempt to collect information on the activities of tax-exempt hospitals and the community benefit they provide. The other, since 2010, is for the IRS to monitor hospital compliance with ACA requirements. By exercising oversight of the Schedule H process, the board will have an opportunity to examine the community benefit captured by the form and the hospital's compliance with the ACA requirements.

Community Benefit

In general, the updated Schedule H is the same as the 2011 version. There are no changes of note in the first two pages, which is where the form prompts for information about community benefits. While reviewing these parts of the form, it is important to keep in mind that Schedule H is a public document. It can be used by the community and other audiences as a window into what the hospital does to merit tax exemption. Many hospitals prepare and distribute an annual community benefit report to their communities. Because a hospital's Schedule H doesn't adequately explain the full breadth and scope of the benefits it provides through programs tailored to community needs, it is important to plan to share the hospital's story with the community.

ACA Requirements

To monitor organizations' compliance with the ACA requirements, the IRS added a new Part V, Section B to Schedule H. Completion of Section B has been required since tax year 2011, except for the section addressing the CHNA, which is required for tax years beginning after March 23, 2012.

The 2012 Schedule H has only minor changes to this part of the form. Unfortunately, this means that it will continue to be unnecessarily burdensome and require reporting of more information than necessary to demonstrate compliance with the ACA requirements. The American Hospital Association has provided extensive recommendations to the IRS to improve this section and is actively monitoring developments as Schedule H evolves. It will continue to press for more extensive changes that reduce tax-exempt hospitals' reporting burden while still permitting the IRS to monitor ACA compliance and ensure that hospitals are serving those in financial need. Informally, the IRS has stated that until final regulations are issued, there will be no significant changes to this part of the form.

The updated Schedule H does have one modest improvement that may reduce some of the burden for organizations with multiple hospital facilities. Previously, each hospital was required to complete the detailed section of the form addressing compliance with ACA requirements, even if all the facilities were implementing the same policies and providing identical answers. As recommended by AHA, these organizations are now permitted to file a single section of the form for all their facilities that have identical answers.

The only other noteworthy change is an update to the questions regarding CHNA. The 2012 schedule recognizes that for some hospitals, tax year 2012 will be the end of the three-year period for meeting their CHNA obligation. Under the ACA, the IRS imposes a $50,000 excise tax if a hospital is not in compliance. It added a question that asks if the organization incurred liability for an excise tax due to failure to conduct a CHNA. If so, there are additional follow-up questions.

To assist in the review of the status of the hospital's policies and procedures in meeting the ACA requirements, a description of each provision follows. A hospital organization must meet each requirement with respect to every hospital facility that it operates. If an individual facility fails to meet the requirements, that facility will lose tax-exempt status.

The Treasury Department and the IRS have issued several proposed guidance documents and solicited public input. The AHA submitted comments and recommended significant changes. Its overall concern is that the Treasury Department and the IRS are extremely detailed and prescriptive. Hospitals would be deprived of the flexibility to use existing efficient and effective means to meet the ACA requirements. AHA also is urging that a transition period be included in the regulations.

Community health needs assessment. Every three years, each hospital facility must conduct a CHNA and adopt an implementation strategy to address the identified needs. The CHNA must take into account input from persons representing the broad interests of the community, including those with special knowledge or expertise in public health. In addition, the CHNA must be made widely available to the public.

The ACA also called for a hospital to describe how it is addressing the needs identified in the CHNA and an explanation if not all needs are being addressed. The IRS is using the questions added to Schedule H to collect that information.

Financial assistance policy. Each hospital facility must establish a written policy that includes:

  • eligibility criteria for assistance and whether such assistance includes free or discounted care;
  • the basis for calculating amounts charged to patients;
  • the method for applying for financial assistance;
  • the actions that the hospital may take in the event of nonpayment, including collection actions and reporting to credit agencies;
  • measures to widely publicize the policy within the community served by the organization.
  • Emergency care nondiscrimination policy. A hospital must have a written policy requiring that care for emergency medical conditions be provided to individuals without regard to their eligibility for financial assistance.

The IRS' guidance, partly in response to recommendations submitted by the AHA, provides that a hospital meets this obligation if it has a policy requiring compliance with the federal Emergency Medical Treatment and Active Labor Act known as EMTALA.

Limitation on charges. For patients who are eligible for assistance under a financial assistance policy, a hospital must limit amounts charged for emergency or other medically necessary care to not more than the amount generally billed to individuals who have insurance. Under the IRS regulations this will be based wholly or partially on Medicare rates. In no instance may a hospital bill gross charges for care provided to an eligible individual.

Billing and collection. A hospital must make reasonable efforts to determine whether an individual is eligible for financial assistance before engaging in extraordinary collection actions.

The AHA has distributed a series of legal advisories to members regarding Schedule H and the ACA requirements, which are available at under "Advocacy Issues," Tax-exempt Status.

Maureen Mudron ( is deputy general counsel, American Hospital Association, Washington, D.C.

Sidebar - Key Questions for the Board