The Internal Revenue Service’s community benefit standard allows nonprofit hospitals broad latitude to determine the services and activities that constitute community benefit. Furthermore, state community benefit requirements that hospitals must meet in order to qualify for state tax-exempt or nonprofit status vary substantially in scope and detail. For example, 15 states have community benefit requirements in statutes or regulations, and 10 of these states have detailed requirements.
A new report by the Government Accountability Office, based in part on HFMA sources, finds that among the standards and guidance used by nonprofit hospitals, consensus exists to define charity care, the unreimbursed cost of means-tested government health care programs, and many other activities that benefit the community as community benefit. However, consensus does not exist to define bad debt and the unreimbursed cost of Medicare as community benefit. Variations in the activities nonprofit hospitals define as community benefit lead to substantial differences in the amount of community benefits they report.
Even if nonprofit hospitals define the same activities as community benefit, they may measure the costs of these activities differently, which can lead to inconsistencies in reported community benefits. For example, standards and guidance vary on the level at which hospitals may report their community benefit (e.g., at an individual hospital level or a health care system level) and the method hospitals may use to estimate costs of community benefit activities. State data demonstrate that differences in how nonprofit hospitals measure charity care costs and the unreimbursed costs of government health care programs can affect the amount of community benefit they report.
