11 October 2017 EY report compares federal revenue forgone due to tax exemption for nonprofit hospitals to the community benefit they provide On October 10, the American Hospital Association (AHA) announced the release of two EY reports on tax-exempt hospitals prepared by EY's Quantitative Economics and Statistics (QUEST) group. One report compares the federal revenue forgone due to the tax exemption of nonprofit hospitals to the community benefit they provide (Report on federal revenue forgone for 2013). It estimates the federal revenue forgone due to tax-exempt hospitals as $6 billion, comparing it to the $67.4 billion in benefits to the community provided by those hospitals. Benefits to the community were calculated from data derived from a separate report on 2013 Form 990 Schedule H data collection (Schedule H community benefit report), released in May but announced concurrently with the Report on federal revenue forgone for 2013. The reports rely on information for 2013, which is the most recent year for which community benefit information is available for tax-exempt hospitals. 1. Estimated federal tax revenue forgone due to tax-exempt hospitals is estimated at $6 billion for 2013: $3.2 billion was for federal corporate income tax, $2.5 billion was for tax-exempt bond financing and $0.3 billion was for federal unemployment taxes. 2. The federal revenue forgone was compared with $67.4 billion in benefits provided to the hospital communities, based on estimates derived from the 2013 Schedule H effort detailed below. 3. Total benefit to the community is based on financial assistance, means-tested government programs and other benefits (Part I, line 7k of the Schedule H Form 990); community building activities (Part II of the Form 990 Schedule H); Medicare shortfall (Part III, line 7 of the Schedule H Form 990); and bad debt attributable to charity care (Part III, line 3 of the Schedule H Form 990). The report relied on financial data from the 2013 Centers for Medicare & Medicaid Services Medicare Cost Reports for approximately 3,000 hospitals. 1. Participating hospitals and systems reported an average total benefit to the community of 11.7% of their total annual expense. 2. Exempt hospitals and systems reported an average 6% of their total annual expense as charity care, unreimbursed Medicaid, and other unreimbursed costs from means-tested programs. 3. In 2013, 56% of responding exempt hospitals and systems reported an estimated amount of bad debt expense attributable to charity care on their Schedule H submissions, averaging 1.1% of total expenses. 4. Similar to prior years, approximately three-quarters of participating exempt hospitals and systems in 2013 had Medicare reimbursement shortfalls. 5. The Schedule H reporting does not include quantitative metrics for all of the tangible and intangible benefits hospitals provide to improve their communities' health and well-being. However, open-ended questions allow hospitals to provide additional information to the IRS. The report relied on 2013 IRS Form 990, Schedule H, responses from tax-exempt hospitals and systems, the most recent year of data available. The report was based on filings sent to EY from 788 hospitals and systems, representing more than 1,300 hospitals, approximately 45% of hospitals required to file a Schedule H. As tax reform discussions continue in Washington, tax-exempt hospitals continue to be closely scrutinized at the federal, state and local levels for the amount and type of benefits they provide to their communities to justify the tax revenue forgone. EY can assist hospitals with their Schedule H filings. In addition, EY has helped both state hospital associations and a number of tax-exempt hospitals estimate the value of their federal, state and local tax exemption for consideration by their management and boards of directors. — For more information about EY's Exempt Organization Tax Services group, visit us at www.ey.com/ExemptOrg
Document ID: 2017-1677 | |||||
