Chicago - May 11, 2005 - On May 2, the Healthcare Financial Management Association’s (HFMA’s) Principles and Practices (P&P) Board released a new issue analysis to provide increased clarity on the wide range of charitable attributes that merit tax-exempt status for healthcare providers and address how to effectively communicate those attributes to stakeholders. The monograph, P&P Board Issue Analysis 05-01: The Relationship of Community Benefit to Hospital Tax-Exempt Status, consolidates IRS positions to date on the role of community benefit in determining tax-exempt status, describes the wide array of charitable community benefits, and recommends practices on how to quantify and communicate those benefits.
"The P&P Board developed this paper because recent increased scrutiny in the courts and in Congress have made it evident that hospitals need to tell their story better, and it is indeed a good story to tell,” comments Lawrence A. Laddaga, Esq., FHFMA, of Laddaga-Garrett PA, North Charleston, SC, and leader of the issue analysis work group. “Tax-exempt hospitals provide benefits to their communities in a large variety of ways, and this issue analysis provides a road map for the different ways to properly tell that story and account for it."
“This analysis seeks to illustrate an important but often overlooked point: community benefit needs – including charity care needs – differ by community,” added P&P Board Chair Kelly A. Barnes, CPA, a partner with PricewaterhouseCoopers LLP, Dallas. “As mission-based organizations, tax-exempt hospitals carefully evaluate the range of services they offer to best serve the needs of the patients and communities they serve.”
Attributes of Tax-Exempt Healthcare Providers
Free or discounted care is an important component of many hospitals’ tax-exempt mission, but is not the only function that hospitals perform to merit tax-exempt status. In 1969, IRS Revenue Ruling 69-545 affirmed that charity care is not the sole justification of tax-exempt status for hospitals; the promotion of health care is in itself a charitable activity.
Because tax-exempt healthcare organizations are formed to address needs within their specific communities, the exempt organization’s attributes that merit tax-exemption are not standard across all institutions. In 1991, an HFMA Chairman’s Task Force released a report identifying the major attributes of tax-exempt organizations. The P&P Board built on these attributes in light of the current environment. These attributes are:
- Mission to provide community benefit
- Use of financial surpluses to further the organization's charitable purpose
- Board accountability to the community
- Provision of charity care
- Reduction of government healthcare burden
- Provision of essential healthcare services
- Provision of unprofitable services
- Public education
- Serving related, unmet human needs
- Goodwill
The P&P Board believes healthcare providers should identify, measure, and prominently disclose all the attributes of their organizations that warrant tax-exempt status. Many critics of tax-exemption focus on only one attribute, ignoring the cumulative effect of activities that make tax-exemption appropriate. Therefore, it is important that government officials, the media, community leaders, and the public understand all the reasons why an organization qualifies for tax-exemption and the progress that is being made toward achieving its mission.
About HFMA
HFMA is the nation's leading membership organization for nearly 34,000 healthcare financial management professionals employed by hospitals, integrated delivery systems, managed care organizations, ambulatory and long-term care facilities, physician practices, accounting and consulting firms, and insurance companies. Members' positions include chief executive officer, chief financial officer, controller, patient accounts manager, accountant, and consultant. HFMA offers educational and professional development opportunities, information on key issues, technical data and networking opportunities, with the ultimate goal being to create a more supportive environment in which members do their business.
For more information, visit the Association’s web site at www.hfma.org.
For More Information
HFMA
Bridget Vrba
312.596.3479
bridget_vrba@chi.bm.com
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