Community Benefit: What Counts

1
Community Benefit What Counts How to
Count
1230 pm session
2
Basic Steps in Community Benefit Planning and
Implementation
Determining What Counts
Building a Sustainable Infrastructure
Interrelated Interdependent Simultaneous
Accounting For Costs
Planning
Evaluating
Communicating
3
Definition

• Community benefits are programs or activities
  that provide treatment and/or promote health and
  healing as a response to identified community
  needs. They are not provided for marketing
  purposes and must meet at least one of the
  following criteria
• Generate a low or negative margin
• Respond to needs of special populations
• Supply services or programs that would likely
  be discontinued (or would need to be provided by
  another not-for-profit or government provider)
  if the decision were made on a purely financial
  basis
• Respond to public health needs
• Involve education or research that improves
  overall community health

4
Community Benefit Categories

• Charity care
• Government-sponsored indigent health care
  unpaid costs of (means tested) public programs
• Medicaid
• State Childrens Health Insurance Program
• Medically indigent programs
• Community Benefit Services (Categories A
  G)

5
Community Benefit Categories

• A. Community Health Improvement Services
• Community Health Education
• Lectures, presentations, support groups,
  self-help programs if open to the public
• Community-based Clinical Services
• Screenings, one-time or occasionally held
  clinics
• Free clinics, mobile units
• Health Care Support Services
• Enrollment assistance in public programs
• Information and referral
• Transportation programs

6
Community Benefit Categories

• B. Health Professions Education
• Physicians/medical students
• Nurses/nursing students
• Other health professional education
• Internships for pastoral care, social service,
  dietary, other
• Medical translator training
• Job shadowing, mentoring projects
• Scholarships/funding for professional
  education

7
Community Benefit Categories

• C. Subsidized Health Services
• Emergency and trauma services
• Neonatal intensive care (if subsidized)
• Hospital outpatient services
• Burn unit
• Womans and childrens services
• Renal dialysis services
• Subsidized continuing care
• Behavioral health services
• Palliative care

8
Community Benefit Categories

• D. Research
• Clinical research
• Community health research
• Innovative health care delivery models
• E. Financial Contributions
• Cash donations
• Grants
• In-kind donations
• Cost of fund raising for community programs

9
Community Benefit Categories

• F. Community Building Activities
• Physical improvements/housing
• Economic development
• Community support
• Environmental improvements
• Leadership training for community
• Coalition building
• Community health improvement advocacy
• Workforce enhancement

10
Community Benefit Categories

• G. Community Benefit Operations
• Dedicated staff
• Community health needs/health assets
  assessments
• Other resources

11
Criteria for What Counts

• Does the activity address an identified
  community need?
• Does the activity support an organizations
  community-based mission?
• Is the activity designed to improve health?
• Does the activity produce a measurable
  community benefit?
• Is it of a questionable nature that, if
  reported as community benefit, could jeopardize
  the creditability of your community benefit
  report?
• Does an activity require subsidization creating
  a net financial loss after applying grants and
  other supplemental revenue?
• Is the activity accessible to uninsured and
  low-income people? Do these people comprise a
  comparatively large proportion of those served?
• Does the activity relieve government of a
  burden?

12
Do Not Count

• What is not counted and reported as community
  benefit?
• Bad debt
• Medicare shortfall
• Contractual allowances
• Programs designed to benefit the organization
• Marketing
• HR

13
What Counts E-mail Hotline
If you have a question about whether a program
should count as community benefit, use this
resource. The What Counts E-mail Hotline at
www.chausa.org/whatcounts
14
Basic Steps in Community Benefit Planning and
Implementation
Determining What Counts
Building a Sustainable Infrastructure
Interrelated Interdependent Simultaneous
Accounting For Costs
Planning
Evaluating
Communicating
15
Accounting for Community Benefit

• Accounting principles and approaches
• Issues considered in new Guide
• Walk-through of accounting guidelines in A Guide
  for Planning and Reporting Community Benefit
• Additional topics
• Value of exemption
• Community Benefits in the Spotlight seven
  recommendations
• Role of finance in community benefit

16
Accounting Principles and Approaches

• There is great value in standardizing community
  benefit accounting practices
• Allows organizations reliably to assess
  activities over time
• Improves comparability across organizations
• Allows health care systems to consolidate or
  roll up community benefit amounts
• Improves acceptance of reported numbers, both
  internally and externally

17
Accounting Principles and Approaches

• Current Disparities in Community Benefit
  Accounting
• Charity care
• Charges or costs?
• Medicaid allowances included?
• Who qualifies for financial assistance?
• Medicare in or out?
• What counts
• Subsidized health services
• Community health services

18
Accounting Principles and Approaches

• Medicare Arguments to Keep it Out
• Serving Medicare patients does not differentiate
  tax-exempt organizations
• Specific programs for the Medicare population can
  be counted in subsidized health services
• Including Medicare not well received by federal
  policy makers
• Medicare losses inefficiency?
• If, at some point, access problems emerge for
  Medicare patients due to below-cost
  reimbursement, the rationale for including
  Medicare services as community benefit increases

19
Accounting Principles and Approaches

• Key concepts
• Avoid double-counting
• Rely on cost accounting systems, if available and
  if well maintained
• Disclose accounting methods in community benefit
  reports
• Maintain an audit trail
• When rolling up numbers as a system, offset gains
  against losses
• If in doubt, be conservative

20
Issues Considered in New Guide

• Methodology for establishing the cost of charity
  care
• Use cost accounting information for self-pay
  patients as proxy for charity care costs?
• Overall RCC (overall cost to charge ratio)?
• How to adjust RCC to avoid double counting?
• Impact of bad debts on RCC calculation

21
Issues Considered in New Guide

• What counts as charity care
• Use of estimates
• When accounts can be classified as charity
• Alignment with new (draft) HFMA Principles and
  Practices Board Statement 15 and AICPA guidance

22
Issues Considered in New Guide

• Treatment of foundation-supported programs
• Related versus Unrelated
• Restricted versus Unrestricted resources
• Accounting for DSH and provider taxes
• Measuring indirect cost
• Other issues
• Payments in lieu of taxes (PILOTs)
• How to differentiate marketing versus community
  benefit services
• Involvement of exempt (salaried) employees in
  community service

23
Issues Considered in New Guide

• Accounting for Subsidized Health Services
• Include or exclude Medicaid and charity care
  shortfalls as part of Subsidized Health Services
• Accounting for medical education
• Medicare Indirect Medical Education
  reimbursement and cost
• Medicaid GME reimbursement

24
Accounting Guidelines Section 1

• Adopt Standardized Methods and Policies to
  Account for Community Benefits
• Establish a reliable administrative process
• Account for total and net community benefit
  expenses
• Predominantly for persons living in poverty
• Primarily for the broader community
• Use a consistent, cost-based accounting method
• Account for indirect and direct costs
• Offset support provided by unrelated entities
• Establish effective financial assistance policies
• Report community benefit on IRS Form 990

25
Financial Assistance Policies

• The Guide highlights several principles
• Consider community need (and hospital financial
  health) when establishing policies
• Policies should be clear and visible
• Grant charity care/discounts as early as possible
  (preferably at or before time of service and
  before patient bills are transmitted)
• Determinations can be made at any time during the
  revenue cycle, but once a write-off decision is
  made, that decision should not be reversed
• Documentation should be maintained in patient
  records
• Patients should be informed regarding decisions
  as soon as possible

Except in states where charity care policies are
regulated, substantial variation exists in who
qualifies for financial assistance and the amount
of assistance they receive
26
Consider the CDM when establishing discounts
for uninsured (under insured) patients
In California, the average nonprofit hospitals
charges were 340 percent of cost in 2004
Charge Description Master
27
Discounts Offered In Relation to Cost or Average
Payment Rates
Discount Levels
28
Accounting Guidelines Section 2

• Account for Community Benefits
• Cost of charity care
• Unpaid cost of public programs (Medicaid and
  others)
• Net cost of community health services
• Net cost of health professions education
• Net cost of subsidized health services
• Costs of unsponsored research
• Financial contributions
• Value of community-building activities
• Cost of community benefit operations

29
Summary of Quantifiable Community Benefits
30
Ratio of Cost to Charge
31
Cost of Charity Care
32
Cost of Public Health Insurance Programs
33
Net Cost of Health Professions Education
34
Subsidized Health Services
35
Research
36
Template for Valuing Exempt Status
37
Taxable Income if No Longer Exempt
38
Online Accounting Resources
Quick Reference Guide Resources
www.chausa.org/communitybenefit/guide Accounting
Forms - www.chausa.org/communitybenefit/acctforms
990 Guide - www.chausa.org/communitybenefit/990inf
o
39
Seven Recommendations

• Quantify community benefit
• Integrate the community benefit perspective into
  strategic planning
• Move responsibility for demonstrating community
  benefit up the organization chart
• Understand how your key strategic decisions
  benefit the community
• Incorporate community benefit key indicators into
  dashboards
• Develop corporate policy for how much is enough
• Regularly review policies and procedures

40
The Role of Finance in Community Benefit

• Maintain cost accounting system and
  provide/review needed data
• Develop community benefit budget
• Develop/oversee implementation of financial
  assistance policies and procedures
• Help assess how much is enough
• Value of exemption
• Financial health

41
The Role of Finance in Community Benefit

• Assure IRS Form 990 includes community benefit
  information
• Review public CB reports for accuracy and
  completeness
• Assure CB is represented in management/board
  reporting
• Assist in evaluating program cost effectiveness
• Participate in steering committee