Hospital Community Benefit Takes Center Stage… Again

The Health Savers Initiative, a project of the Committee for a Responsible Federal Budget (CRFB), recently released a report on hospital community benefit spending by Not-For-Profit (NFP) hospitals. The report provides several policy recommendations to Congress, including establishing community investment thresholds, ramping up transparency reporting through the IRS Form 990, as well as issuing rules on estimating the value of tax-exemptions. Much of the report hinges on an estimated $260 billion of federal tax savings that an Arnold Ventures-funded research project expects NFP hospitals to incur over the next decade. While this is not the first time that recommendations like these are made, they are likely to capture the attention of policymakers because the CRFB is comprised of past heads of the House and Senate Budget Committees, the Congressional Budget Office, the Office of Management and Budget, and the Government Accountability Office.

Who is the Health Savers Initiative?

The Health Savers Initiative (HSI) is a collaborative project between the CRFB, Arnold Ventures, and West Health. Their stated aim is to make “bold and concrete policy options to make health care more affordable for the federal government, businesses, and households.” Arnold Ventures has been working to help fund academic research on hospital community benefit, which fail to take into consideration the full scope of hospitals’ community investments. For example, investments in critical services such as maternal care and oncology services. The report also argues that Medicaid shortfall should be excluded from the IRS’ definition of community benefit.

What are the policy recommendations the Health Savers Initiative is making?

The report makes five key policy proposals:

Refine Reporting and Require Greater Transparency: HSI recommends that the IRS revamp the Form 990, Schedule H, to require hospitals to provide more details about the nature and quantity of their community benefit spending. They also recommend that the IRS publish annual reports based on the aggregated data and make that data available to independent researchers.
Issuing Rules on Valuing Tax Exemption: The report also recommends that the IRS issue rules on how to calculate the value of a hospital’s tax exemption and reconcile the inconsistencies between their instructions for Schedule H and the Generally Accepted Accounting Principles (GAAP) of the Financial Accounting Standards Board. The report argues that GAAP-aligned rules would help eliminate methodological debates on valuing tax exemptions.
Define Community Benefit More Plainly: HSI argues that the current definition of community benefit is antiquated and too broad. They urge Congress to revise the tax code to redefine community benefit by: removing Medicaid shortfalls and health professions education entirely, and requiring hospitals to direct all their community benefit spending to address the needs of its community as identified in the Community Health Needs Assessments.
Set Minimum Levels of Community Benefit Spending: HSI also asks that Congress establish a minimum threshold for community benefit spending. Unlike many other policy recommendations floated in recent months which, for example, recommend a threshold of 5% of Net Patient Revenues (as seen in Texas), this report points to the community benefit threshold bill passed in Oregon in 2019 as a better model. The law directs state agencies to use a methodological approach to calculate a recommended threshold and then work with hospital and community stakeholders to make adjustments according to community needs.
Expand Enforcement: The report calls on Congress to direct the IRS to enhance its reviews of hospitals’ community benefit activities and to expand its reviews to include hospital billing and collections practices. Furthermore, the report asks that the IRS be given the authority to levy sanctions against noncompliant hospitals. Proposed sanctions include monetary penalties for intermediate noncompliance and revocation of the hospital’s NFP status for chronic noncompliance.