October 4, 2011
Last week, a story in Kaiser Health News (Nonprofit Children’s Hospitals Get Valuable Tax Exemptions But Many Provide Little Free Care) caught my eye. The story discussed how many of the largest children’s hospitals in the country actually spend a very small portion of their revenue on charity care. The story notes that “some children’s hospitals have exaggerated the amount of free care by reporting their retail charges instead of the actual cost of the care. Others have lumped charity care together with bad debt or Medicaid shortfalls, which some financial analysts consider misleading.”
Cited in the story was Children’s Hospital of Boston – which spends less than 1% of its annual expenditures on free medical care annually. The hospital notes on their website that “their charitable contributions go well beyond free care, including tens of millions for research, training doctors, clinics and other community benefits.”
So what is “charity care” anyway and why does it matter? The second question is easier to answer than the first. Charity care matters because the U.S. (and local tax code) grants tax-exempt status to organizations that provide charity care. The question of charity care—and its parallel concept of ‘community benefit”—are key to this issue.
To learn more, check out our article in this month’s edition of OPEN MINDS Newsletter, The Taxman Cometh: How To Demonstrate Your Charity Care & Protect Your Tax-Exemptions . We provide an update on some of the current thinking about tax-exempt organizations in the health and human service field.
My take away on this issue? The only sure way to protect tax-exempt status if you’re a non-profit organization is to provide charity care – defined as free care provided to community members through a structured application process with no charge and no intention of billing – and be able to document what you provide. For additional information, check out:
- Protect Your Organizations Most Valuable Financial Asset: Understanding Federal Tax Exempt Status
- Can You Defend Your Tax-Exempt Status? all members
- States, Federal Agencies, & Industry Guidance Disagree About Defining Bad Debt as Charity Care
- Non-Profit Health Care Provider Organizations Facing New Challenges to Maintain Tax-Exempt Status
Stay tuned for our team’s continued coverage on this issue and in the meantime, please send us your thoughts at email@example.com.
Monica E. Oss
Chief Executive Officer, OPEN MINDS
For more, see: Can You Defend Your Tax-Exempt Status? all members
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