Tax-exempt hospitals in the U.S. may soon be subject to one of the biggest reporting changes in recent times. The newly proposed House bill, Tax-Exempt Hospital Transparency Act, is expected to add to the existing requirements for tax-exempt hospitals by mandating disclosures related to community benefit, charity care, hospital expenditures, and 340B Drug Pricing Program. While supporters claim that the organizations enjoying tax exemptions should prove themselves to be beneficial to the communities, opponents argue that the new mandate will bring about more compliance efforts but will not cut healthcare costs.
This blog discusses what the proposed bill entails, how the new reporting requirements can impact various nonprofit hospitals, why healthcare organizations are concerned about the mandate, and what should be on the minds of finance, accounting, and compliance professionals if the bill passes into law.
How the Proposed Legislation Expands Hospital Transparency
The suggested Tax-Exempt Hospital Transparency Act aims at increasing control over nonprofit hospitals through additional reporting using IRS Form 990 Schedule H. Instead of addressing the conditions of tax exemption for hospitals, the bill aims at increasing the level of transparency regarding the benefits that hospitals receive from being non-profit institutions.
At the same time, there are varying levels of compliance according to the scale of operations and budget of hospitals. Consequently, larger health care providers will have to disclose significantly more information than smaller hospitals.
Expanded Community Benefit Reporting
A very important issue that is raised by this legislation is increased reporting on community benefits activities. Under the new law, hospitals would be obligated to report what measures are being taken by them to address issues that were determined in the most recent Community Health Needs Assessment under Section 501(r). In case some identified health needs go unmet, hospitals would be obligated to report the reasoning behind such actions.
Such requirements will not only include the reporting on the hospital’s activities. Rather, it would make them justify how they utilize their resources to solve the healthcare problems in the community.
Greater Detail on Charity Care Programs
Additionally, the law recommends increased reporting on financial aid programs. The hospitals will have to report on the amount of money involved in charitable activities, in relation to the number of financial aid applications received, accepted, and rejected.
Such reporting can lead to improved accountability regarding financial support for patients. But the medical institutions contend that charity is just one part of the total social benefit they deliver to the community, including Medicaid deficits, health educational campaigns, prevention, and other health investments.
Why the Proposal Is Generating Debate
Proponents think the extra reporting standards will increase the accountability for nonprofit hospitals that receive tax breaks under the federal tax code. These supporters feel that there should be more information on how hospitals are making use of their tax benefits in order to improve the health of their communities.
Critics of the measure, which include some healthcare groups, think that the extra reporting standards don’t actually deal with issues surrounding the affordability of healthcare. Also, industry groups feel that certain reporting requirements are just duplicating reports submitted by hospitals under current regulations.
New Reporting Standards Based on Hospital Size and Revenue
This piece of legislation would set various levels for the reporting requirements, and thus, as the hospitals grow bigger and make more money, the compliance burden is going to rise.
Though this set of requirements is not expected to be implemented right away, the executives of healthcare facilities can still require several years to develop their accounting services and other reporting systems.
Additional Reporting for Hospitals with More Than 100 Beds
Hospitals that are tax-exempt and have more than 100 staffed inpatient beds will be subject to expanded reporting regarding the hospital’s investments in the health of its communities. These hospitals must report on the spending done and steps undertaken for the hospital’s top three priorities related to the health of the community and measure the results.
One of the other requirements relates to the need to distinguish between the costs for quality improvement activities and non-clinical activities like billing, coding, administration, and IT.
Extensive Requirements for High-Revenue Hospitals
In case hospitals are earning revenues above $100 million from patients per year, the reporting requirements will be quite extensive. This set of organizations will have to report financial data on a service line basis, including the income, expenses and allocation methods.
The Department of Health and Human Services is expected to create a common reporting taxonomy following the adoption of the bill. This might enhance consistency among healthcare organizations, but the implementation of cost accounting systems will be expensive.
Proposed Reporting Requirements by Hospital Category
|
Hospital Category |
Proposed Reporting Requirements |
|
All tax-exempt hospitals |
Expanded community benefit reporting, charity care disclosures, Community Health Needs Assessment updates |
|
More than 100 staffed inpatient beds |
Community health spending, measurable outcomes, quality improvement versus nonclinical spending, system-level and facility-level reporting |
|
More than $100 million annual net patient revenue |
Service-line financial reporting, cost allocation methodology, 340B reporting, advertising cost disclosures |
Compliance Challenges and the Future of Hospital Financial Reporting
While the bill emphasizes transparency, the bill also brings into light new operational and financial issues that healthcare organizations will need to consider. The finance departments, compliance officers, and hospital management will have to revamp their reporting systems so that they meet the increased disclosure needs.
Various industry groups believe that this can increase administrative costs, while providing very little benefit since the information disclosed will be duplicated elsewhere.
Increased Focus on the 340B Drug Pricing Program
This bill calls for significant additional disclosures concerning involvement in the 340B Drug Pricing Program. For hospitals that meet the revenue threshold, disclosure will be required on the number of eligible patients by insurance type, total net payments, and associated costs of the program.
Hospitals and health care organizations have challenged the use of IRS tax forms as the correct method of gathering this data. The criticism is based on the premise that the 340B program has healthcare and policy goals that are separate from tax-related activities.
Financial and Administrative Burden on Hospitals
Another major challenge is related to the difficulty associated with collecting, verifying, and reporting more complex financial information. Large health care systems consist of numerous hospitals with centralized operations, so it becomes hard to allocate overhead expenses accurately per each facility.
Introducing new accounting principles, improving reporting practices, training personnel, and document maintenance can entail significant expenditures. Small non-profit hospitals might also face such challenges; however, the extent of their reporting requirements will not be so high compared to other organizations.
What Healthcare Organizations Should Expect Next
Despite the progress made by the bill in moving through the House Ways and Means Committee, the bill is yet to complete other legislative processes that will ensure its adoption as law. The political debate on the provision of healthcare funds, nonprofits, and the associated regulatory issues could determine whether the bill moves forward as it is currently drafted or whether changes are made.
In case the bill becomes law, most of the key reporting provisions will probably become effective after a transitional period of about two or three years.
The proposed Tax-Exempt Hospital Transparency Act is a major step towards increasing accountability in the non-profit hospitals sector, as it introduces numerous reporting requirements in the areas of financial performance and operations. In addition to improved reporting on charity care, community benefits, service line finances and 340B, this legislation is expected to impose a number of compliance requirements primarily on the part of the largest healthcare entities.
Although the proponents of the Tax-Exempt Hospital Transparency Act claim that it will enhance transparency within the non-profit hospitals sector, the opponents argue that increased reporting requirements will only raise the administrative costs without any impact on the quality of care or healthcare costs. Healthcare finance specialists should pay attention to the development of this legislation.
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