On July 19, the Internal Revenue Service (IRS) issued an interim report on its Hospital Compliance Project, its ongoing effort to study the practices of nonprofit hospitals and their community benefits. The IRS hopes through the Project to better understand how hospitals report and attempt to meet the community benefit standard, which must be met in order to qualify as tax-exempt charities under section 501(c)(3) of the Federal tax code. The interim report summarizes data received by the IRS in response to a compliance questionnaire sent to approximately 500 hospitals in 2006. The questionnaire's 81 questions covered hospital type, patient demographics, governance, medical staff privileges, billing and collection practices, and types of programs that might constitute a community benefit, such as uncompensated care, medical education and training, medical research, and other community programs. 

Some preliminary findings were that uncompensated care accounted for 56% of the total community benefit expenditures reported by responding hospitals, with the remainder including medical education and training (23%), research (15%), and community programs (6%). However, as the interim report points out, the questionnaire did not provide a definition of uncompensated care for hospitals to use, so there was considerable variation among hospitals in the types of expenditures included in the uncompensated care category, making true comparisons among hospitals difficult. 

According to the IRS, the next step for the Project is to analyze the data summarized in the report to better understand differing definitions of uncompensated care—including the extent to which some hospitals counted bad debt and funding shortfalls from Medicare and Medicaid in the uncompensated care definition—and to determine the extent to w hich these differences may be isolated and adjusted "to allow more meaningful comparisons across the respondents." The Project will also conduct additional research on community benefit differences among hospitals based on varying demographics and location (urban versus rural), and will follow up with individual hospitals to further examine answers to the questionnaire and to check on hospitals whose data made them outliers compared with respondents overall. 

In the meantime, the IRS continues to work with hospitals to refine the new proposed Schedule H that it is proposing as part of its reform of Form 990, which tax-exempt entities must submit annually to the IRS. The IRS used questionnaire responses outlined in the interim report when it designed the proposed Schedule H, which was released on June 14, 2007. The proposed Schedule H, designed just for hospitals, would require reporting charity care and other community benefits provided, as well as a hospital's charity care policies, revenue profile, bad debt expense, collection practices, and other activities.