With reporting requirements for hospitals on Form 990 Schedule H evolving, we examine interactions with the Internal Revenue Service and congressional activity related to such topics.

1. 22nd Annual Health Sciences
Tax Conference
Financial assistance, other community benefits
and community health needs assessments:
telling your story effectively
December 3, 2012

2. Disclaimer
► Any US tax advice contained herein was not intended or
written to be used, and cannot be used, for the purpose of
avoiding penalties that may be imposed under the Internal
Revenue Code or applicable state or local tax law
provisions.
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3. Disclaimer
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Global Limited, each of which is a separate legal entity. Ernst & Young LLP is a client
serving member firm of Ernst & Young Global Limited operating in the US. For more
information about our organization, please visit www.ey.com.
This presentation is © 2012 Ernst & Young LLP. All rights reserved. No part of this
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Views expressed in this presentation are not necessarily those of Ernst & Young LLP.
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4. Presenters
► Ray Bunyard ► Howard Levenson
VP Tax Management Ernst & Young LLP
Baylor Health Care System Washington, DC
Dallas, TX + 1 202 327 8811
howard.levenson@ey.com
► Kathy Pitts
Ernst & Young LLP
Birmingham, AL
+ 1 205 254 1608
kathy.pitts@ey.com
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5. Why are community benefits important?
► Nonprofit hospitals must meet community benefit
requirements in order to qualify for federal and state
tax-exempt status.
► Community benefits demonstrate how nonprofit hospitals
serve the public, rather than a private interest.
► Nonprofit hospitals are under scrutiny by Congress, the
Internal Revenue Service (IRS), state legislatures, the
media and the general public.
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6. Agenda — telling your story effectively
► Results and trends
► Regulatory activity
► Process — challenges and tips
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7. Results and trends

8. Results and trends
► Financial assistance and certain other community
benefits, at cost
► Form 990, Schedule H, Part I, line 7 percentage
► Community building activities
► Form 990, Schedule H, Part II
► Bad debt, Medicare and collection practices
► Form 990, Schedule H, Part III
► Supplemental information (narrative disclosures)
► Form 990, Schedule H, Part VI
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9. American Hospital Association (AHA) 2009 Schedule H Project
Summary percentages
► Hospital benefit to community as percentage of total expense
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10. AHA Schedule H Project (cont.)
► Bad debt expense:
► Percent attributable to charity care — ≥ 70%
► Although the IRS provided little instruction, the average was 0.4%
of total expenses
► Average US$1.6 million per respondent
► Medicare surplus or shortfall
► Medicare reimbursement shortfalls — ≥ 75%
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11. AHA Schedule H Project
► Use of federal poverty guidelines (FPG) to determine free and
discounted care
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12. AHA Schedule H Project (cont.)
► Charity care, means-tested programs and other benefits
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13. Regulatory activity

14. Affordable Care Act § 9007 —
IRS community benefit reviews
► Identified 3,377 tax-exempt hospitals
► Using IRS, Medicare/Medicaid, DC websites
► Form 990, Schedule H, public records and other returns
► IRS ruling in 1969 on the community benefit standard:
► Charity care; use surplus to improve patient care, expand facilities,
advance medical training, education and research; community board
members accessible/open medical staff; and full-time emergency room
available to all
► Three annual phases beginning April 2011
► No notification of review
► Not looking just at the percentages
► Potential for enhanced penalties or loss of tax exemption
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15. Regulatory activity
► Oversight subcommittee of the Committee on Ways and Means of
United States House of Representatives
► Series of meetings on the tax-exempt sector and IRS oversight of tax-
exempt activities 5/16/12; 7/25/12
► Public concerns related to hospital sector
► Unduly burdensome or overly prescriptive
► Congressional intent
► Streamline and simplify
► Are states considering H as they regulate?
► Property tax rulings
► Acquisitions may impact types of entities
► IRS hearing on 501(r) proposed regulations originally scheduled for
October 29; rescheduled for December 5
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16. Process — challenges and tips

17. IRS financial assistance, at cost (Schedule H)
Excludes bad
debt expense
Worksheet #1
Gross patient charges written off
x cost to charge ratio
Estimated cost of care
Plus Medicaid provider taxes, etc.
Total community benefit expense
Less direct offsetting revenue
Unreimbursed cost of charity care
The IRS permits the use of cost accounting system in lieu of Schedule H Worksheets.
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18. Process — challenges and tips
► Correct calculation of cost-to-charge ratio
► Bad debt
► Avoid double counting of expenses
► Disallowed expenses (non-patient related)
► Direct offsetting revenue
► UPL Medicaid, uncompensated care pools, etc.
► Community benefits at cost — patient type challenges
► How much is reported as community benefit? Easy if no insurance
► Insurance: are waivers of co-pays charity? Medicare?
► Examples: by patient type
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19. How does patient type impact amounts?
Example basic assumptions:
► All patient types qualify for 100% financial assistance
► Cost of care = $500 or 50% cost to charge ratio
► Self pay discount = 35%
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20. Process — challenges and tips
► Identify types of community benefits
► Unreimbursed Medicare (Subsidized Services)
► Grants to related organizations
► Cash and in-kind contributions to other community groups
► Community education vs. marketing
► Staff education vs. broad based education
► Develop procedures and deadlines for collection, review
and correction of data prior to submission
► Create education plan for leadership, advocacy,
compliance, etc.
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21. Process — challenges and tips
► Medicare Shortfall — IRS may consider changes such as
adding Medicare to community benefit if positive
comments from Hospital community
► Impact of insurance exchange from PPACA. If everyone
has at least Medicaid, where is the charity care?
► Joint Ventures — Includes pro rata share of community
benefits
► Federal vs. State results and differences
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22. Narrative information — Form 990,
Schedule H, Part VI
► If the IRS asks, then it is important — don’t skimp/take lightly
► Needs assessment, assistance eligibility, community information,
promotion of community health, health care system, state filing of
community benefit report
► Prepare early — compare across all publicly available
documents for consistency
► Form 990, bond documents, cost reports, community benefit reports,
annual financial statements
► Required disclosures — Forms 24; Instructions 34
► Supplemental disclosures
► IRS tip — community benefit as a percent of total expenses
► If no group ruling, consider disclosing total for System
► Medicare revenue and costs not included in cost reports
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23. Process — challenges and tips
► Audited financial statements; Medicare cost reporting;
Form 990, Schedule H; and community benefit reporting
► Software limitation
► Financial assistance and certain other community benefits at
cost — percentages aren’t always automatic
► Instructions regarding negative percentages
► The IRS doesn’t expect changes to Form 990,
Schedule H until final regulations are issued
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24. One minute wrap up
Ray Bunyard
Kathy Pitts
Howard Levenson