Community benefit activities of private, nonprofit hospitals

Abstract

The definition of hospital community benefits has been intensely debated for many years. Recently, consensus has developed about one group of activities being central to community benefits because of its focus on care for the poor and on needed community services for which any payments received are low relative to costs. Disagreements continue, however, about the treatment of bad debt expense and Medicare shortfalls. A recent revision of the Internal Revenue Service's Form 990 Schedule H, which is required of all nonprofit hospitals, highlights the agreed-on set of activities but does not dismiss the disputed items. Our study is the first to apply definitions used in the new IRS form to assess how conclusions about the adequacy of nonprofit hospital community benefits could be affected if bad debt expenses and Medicare shortfalls are included or excluded. Specifically, we examine 2005 financial data for California and Florida hospitals. Overall, we find that conclusions about community benefit adequacy are very different depending on which definition of community benefits is used. We provide thoughts on new directions for the current policy debate about the treatment of bad debts and Medicare shortfalls in light of these findings.