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Form 990 Schedule H and a Global Pandemic

As part of filing Federal Form 990, “Return of Organization Exempt from Income Tax,” with the Internal Revenue Service, hospitals have long been required to complete Schedule H “Hospitals,” included within the 990. This Schedule is publicly available and provides financial and non-financial information regarding a hospital’s financial assistance policies, community benefit assessment and reporting, and community benefit activities. The IRS, by statute, performs a desk audit of Schedule H every three years to monitor compliance and perform a desk audit of hospital 990s.

Schedule H is one of the most important schedules a hospital attaches to Form 990. Through qualitative and quantitative questions and responses, a hospital can demonstrate accountability to their tax-exempt mission.

In May 2020, the American Hospital Association (AHA) published a report on the financial assistance and benefits to the community provided by hospitals based on 2017 filed Form 990s. Based on this report, the average financial assistance and community benefit reported as a percentage of total expenses was 6.4% financial assistance, unreimbursed Medicaid, unreimbursed costs from means-tested government programs and 13.8% total benefit to the community. This is consistent, within .1% of the May 2019 AHA report.

As part of this study, we reviewed a cross section of our clients and other NYS hospitals’ most recent filed Form 990 and noted that the average financial assistance provided was 7.8% of total expenses, ranging from 1.27% to 15.26%, and average total benefit to the community was 11.77% ranging from 2.42% to 19.99%. Another metric reported on Schedule H is community building activity expense. The same cross section reported an average of .28% of total expenses were community building activities, ranging from 0% to .9%. One-third of this cross section reported $0 for these activities. We did not note any trends that showed similarity between affiliated hospitals, critical access hospitals, or rural versus urban hospitals.

Schedule H filings that include the months of the COVID-19 pandemic (most commonly calendar 2020) will look much different than previous years. Many community building activities did not occur as they would have in the past, due to safety limitations. Additionally, hospitals received additional offsetting revenue, required to be reported on Schedule H, Part I, line 7. Funds received, either generated through the community benefits program, or through restricted grants or contributions, are required to offset the community benefit expense. To the extent that Provider Relief Funds received through HHS were used to fund community benefit expenses, these should be reported on Schedule H, Part I, Line 7.

We, and other stakeholders (regulatory bodies, advocacy agencies), have long encouraged hospitals to ensure that they are capturing all community building and community benefit activities and programs to ensure the most accurate representation of the benefit and critical role they play in their communities.

Like many schedules in the 990, Schedule H requires the collaboration of the accounting and finance teams and program departments, including the communications department and clinical departments.

Everyone is aware of the benefits the hospitals played to assist their communities in response to the COVID-19 pandemic. As you start the process of information gathering to complete schedule H, we recommend you reflect on how to best present the role and tell the hospital’s story.

If you need assistance related to Form 990 reporting for the 2020 filings, please contact a member of the Bonadio team.

The information and advice we are providing for this matter relates to COVID-19 legislative relief measures. Because legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that could modify some of the advice and information provided to you, after the conclusion of our engagement. We, therefore, make no warranties, expressed or implied, on the services provided hereunder.