AHA Seeks Changes to IRS Form Detailing Charity Care, Debt Collection Practices

The American Hospital Association is asking the Internal Revenue Service to modify its new reporting form for non-profit hospitals – just one year after hospitals first began complying with the new mandate. The trade group says the Schedule H that non-profit hospitals must complete in its entirety for the 2009 tax year does not fully reflect all the community benefit provided by multi-hospital systems.

Melinda Hatton, AHA’s senior vice president and general counsel said in a letter requesting a meeting with the IRS that nearly 60 percent of nonprofit hospitals are part of systems. She told insideARM that a study AHA commissioned from the Urban Institute found that nonprofit multi-hospital systems will face consequential reporting issues because many will file multiple and seemingly unconnected Schedule H forms.

Specifically, Hatton said that Schedule H can’t show all the free and discounted services provided by non-profit multi-hospital systems because it requires hospitals to file under a single employer identification number.  Hatton said most hospital systems use more than one EIN and the IRS requirement that hospitals use one EIN provides no way to connect contributions and subsidies a hospital makes to another hospital in the system.

“Not even the IRS has a way to match up the separate filings so it can get a view of what the systems are doing in their entirely,” Hatton said.

Hatton said Schedule H requirements for reporting revenue also can distort the amount of community benefit provided by a hospital because the form groups hospitals revenues in with other revenue-generating business owned by the system such as pharmacies and skilled nursing practices that do not have a community benefit requirement. She said the aggregated revenues may make a hospital’s community benefit appear less than it is.

The addition of Schedule H to Form 990 for tax-exempt organizations stems largely from Iowa Sen. Charles Grassley’s demand that non-profit hospitals disclose more detail about their charity care and debt collection practices. Grassley and critics of the tax breaks non-profit hospitals receive have questioned if non-profit hospitals provide enough free and discounted care to warrant the billions in tax breaks they receive each year.

For the 2008 tax year, non-profit hospitals were only required to complete the facilities section of Schedule H. For the 2009 tax year, all non-profit hospitals must complete all sections of the Schedule H form, which also requires detailed information about charity care and discounted care, how hospitals govern and compensate directors, key employees and independent contractors. The IRS said it will make the information provided available to the public.

Hatton said AHA is not seeking the changes to Schedule H because it is concerned that some hospitals are in jeopardy of losing their tax-exempt status.  She said AHA wants the changes because it does not provide an accurate picture of the community benefit non-profit hospitals provide in their community.

Kaulkin Ginsberg Analyst Michael Klozotsky said it is understandable that hospitals wouldn’t like anything that downplays the publicity that comes around their good news. He said hospitals likely fear that in the current environment where consumers are hyper sensitive about health care costs, any misinformation that stems from the tax reporting process could damage their relationship with their communities.

“Even folks who are not in favor of health care reform agree health care costs are spiraling out of control,” Klozotsky said. “(The reporting requirements) absolutely complicates what are already difficult relationships in communities given the current focus on health care.”

IRS Spokesman Eric Smith said reporting forms often are revised because of changes to the law or feedback from users. He said that any changes must take into consideration what the law requires and the agency’s administration role.

Hatton said the IRS has been amiable to AHA’s request for a meeting and is trying to schedule a date.  Though she knows that changes, if any, would not come in time for the 2009 tax filing year, Hatton said the easy fix to capture all community benefit by non-profit hospitals would be to allow systems to file a single Schedule H form.

“One form solves the problem about cross subsidiaries. But we are open to any good ideas,” she said.