What and How To Count Community Benefits

1
What and How To Count Community Benefits

• Julie Trocchio, Catholic Health Association
  Natalie Dean, Trinity Health
• Barbara Potts, Ascension Health
• Mary DeMois, Catholic Health Partners
• Community Benefit Conference
• March 15, 2006
• Phoenix, Arizona

2
Goal Consistent Reporting

• Through
• Standard definition
• Standard accounting policies

3
Strategies

• Consensus process for developing standard
  definitions and policies
• Consensus building with partners
• Education for field

4
National Partner Organizations

• Catholic Health Association
• VHA, Inc.
• Lyon Software
• Premiere
• American Hospital Association
• American Institute of CPAs
• Healthcare Financial Management Association
• Others?

5
Education Strategy

• Community Benefit Reporting Guidelines and
  Standard Definitions for the Community Benefit
  Inventory for Social Accountability
• National Meetings
• Web casts
• Community Benefit 101
• Others?

6
Want To Count

• Community Benefit A Definition
• Community benefits are clinical or
• non-clinical programs or activities
• providing treatment and/or
• promoting health and healing that
• are responsive to identified community and
  public health needs and are not provided for
  marketing purposes.

7
What To Count

• Criteria
• Community benefits respond to an identified
  community need and meet at least one of the
  following criteria
• -- Generate a low or negative margin
• -- Respond to needs of special populations,
  such as minorities,
• frail elderly, poor, persons with
  disabilities, chronically
• mentally ill, and other disenfranchised
  persons.
• -- Supply services or programs that would
  likely be
• discontinued if the decision were made
  on a purely financial
• basis.
• -- Respond to public health needs
• -- Involve education or research that improves
  community
• health

8
What To Count

• Some questions to ask
• -- Does the activity address an identified
  community need?
• -- Does the activity support an organizations
  community-based
• mission?
• -- Is the activity designed to improve health?
• -- Is the activity accessible to uninsured and
  low-income
• people?
• -- Does the activity produce a measurable
  community benefit?
• -- Is it of a questionable nature that could
  jeopardize the
• credibility of the inventory?
• -- Others?

9
What To Count

• Report in a quantifiable inventory services that
• -- Result in a financial loss to the
  organization,
• requiring subsidization of some sort.
• -- Best be quantified in terms of dollars spent
  or
• numbers of persons served.
• -- Not be of a questionable nature that
  jeopardizes
• the credibility of the inventory.
• -- Have an explicit budget.
• -- Others?

10
What To Count

• Report in a narrative summary, services that
• -- Are of significant community benefit, but
  break
• even or involve minimal cost.
• -- Are better described in terms of benefit
  provided
• rather than dollars spent (including low
  cost or
• grant supported programs).
• -- Are provided entirely by volunteers or
  involve staff
• donating their own time to the program.
• -- Maybe questionable as to whether they
  represent
• a true community benefit.

11
What To Count

• Categories of Community Benefits
• Charity care
• Unreimbursed costs of public program
• -- Medicaid
• -- State Childrens Health Insurance Program
• -- Medically indigent program
• -- Days, visits, or services not covered by
• Medicaid or other indigent care program
• Community benefit programs and services

12
What To Count

• Community Benefit Programs and Services
• Community Health Improvement Services
• -- Community health education
• -- Community-based clinical services
• -- Support groups
• Health Professional Education
• -- Physicians, medical students
• -- Nursing education
• -- Scholarships

13
What To Count

• Subsidized Health Services
• -- Emergency and trauma services
• -- Neonatal intensive care
• -- Behavioral health
• Research
• -- Clinical research
• -- Community health research
• -- Health care delivery innovation

14
What To Count

• Financial Contributions
• -- Cash donations
• -- Grants
• -- In-kind donations
• Community Building Activities
• -- Physical improvements/housing
• -- Economic development
• -- Environmental improvements
• Community Benefit Operations
• -- Dedicated staff
• -- Community health needs/assets assessments

15
How To Count Principles for Accounting for
Charity Care and Community Benefit

• Issues related to
• -- Charity care
• -- Community benefit services
• -- All community benefits

16
Principles for Accounting for Charity Care and
Community Benefit

• Related to Charity Care
• Charity care should be separated from bad debt
  (per facility written policy)
• Bad debt should not be counted as community
  benefit
• To be considered charity care, patients must be
  notified and no further attempt to collect
  portion determined charity care
• Determination should be made as early as
  possible, but can be made at any time during the
  revenue cycle.

17
Principles for Accounting for Charity Care and
Community Benefit

• Related to Charity Care (continued)
• Patient bills that are discounted because of an
  inability to pay should be considered charity
  care
• Contractual allowances and quick pay are not
  community benefit
• Policies on charity care and discounted billing
  should be clear, uniformly applied, and easily
  accessible

18
Accounting for Charity Care and Community Benefit

• The rationale for granting financial assistance
  should be documented in the patients financial
  record.
• Medicaid shortfall should be reported as the
  difference between reimbursement and cost
• The unpaid cost of Medicare is not considered
  community benefit but could be reported in other
  financial reports.

19
Accounting for Charity Care and Community Benefit

• We suggest all organizations should report at
  least
• -- Charity care
• -- Unpaid cost of Medicaid and other government
• indigent care programs
• -- Total of other community benefit programs
  and
• services
• _____________________________________________
• Total community benefit contribution
• We do not recommend including the unpaid cost of
  Medicare as community benefit. However, it could
  be reported in other financial reports.

20
Principles for Accounting for Charity Care and
Community Benefit

• Charity care and other community benefits should
  be expressed as the cost of providing the
  service, not charges
• It is preferable to use a cost accounting system
  to report charity care and community benefit
• If cost accounting is not used, a standardized
  cost-to-charge ratio should be utilized
• Financial statements should disclose how costs
  were established (cost accounting or
  cost-to-charge ratio)
• Financial statements should describe charity care
  policy
• All community benefits should be reported on IRS
  Form 990
• Direct and indirect costs should be included in
  community benefit financial reports

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Cost-To-Charge Ratio

• Total Operating Expenses (including Bad Debt
  Expenses)
• minus other Operating Revenue
• minus Medicaid taxes
• minus Operating Expenses for Subsidized Health
  Services
• minus other Programs for the Poor Expenses
• minus other Programs for the Broader Community
  Expenses
• _________________________________________________
• Gross Charges (including Bad Debt Charges)
• Minus Gross Charges for Subsidized Health
  Services
• Intent is to offset non-patient-care related
  costs included in Total Operating Expenses

22
How To Count

• Calculating tax liability
• To determine the value of tax exempt status,
  calculate the following taxes
• Payroll Tax. Payroll tax represents federal and
  state unemployment tax (SUTA/FUTA) that the
  organization would be required to pay if it was
  not an IRC Section 501(c)(3) charitable
  organization. Sec. 501(c)(3) organizations are
  exempt from FUTA.
• Sales Tax. Sales tax would be incurred on
  supplies and equipment, at rates prevailing in
  your state and local jurisdiction.
• Real Estate Tax. Real estate tax would be paid
  based on the current valuation of all real estate
  owned by the organization.
• Personal Property Tax. Personal property tax is
  assessed on tangible personal property (fixed
  assets and inventory) used in a trade or
  business. Each taxing district has its own tax
  rate.
• Income Tax. Federal, state and local income
  taxes should be estimated based on the
  organizations excess of revenue over expenses
  (book net income) after adjusting for the
  effect of the loss of tax-exempt status
  (elimination of contributions and additional
  taxes).
• Higher Interest Costs. The interest rate
  differential between tax-exempt debt and taxable
  corporate debt would increase interest costs.
• Incremental Depreciation Expense. The hospital
  would incur higher depreciation expense on
  equipment since sales tax would be added to
  equipment and other capital purchases.

23
How To Count

• Special Issues
• Foundation supported program
• Accounting for disproportionate share (DSH)
  funding
• Accounting for medical education
• Physician recruitment
• Subsidized services (not double counting)
• Addressing unmet needs
• Others?