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Dry Run Lets Hospitals Take the Plunge on New IRS Filing

 |  By HealthLeaders Media Staff  
   November 05, 2008

Nonprofit hospitals—big and small—should heed the suggestions of the American Hospital Association and the Internal Revenue Service and compile a "dry run" on their complete Schedule H tax forms. People involved with the process believe that a lot of headaches and stress can be reduced next year with a little practice and a little extra effort this year.

"It's a pretty prudent strategy," says Ron Schultz, a senior advisor at the IRS. "It makes good sense to me for organizations to practice on this and work within the transition period."

This year, hospitals must file only one section of the six-part Schedule H: Section 5, which asks for a list of facilities. Schultz says the IRS wants the list to get a better estimate on what it can expect for future Schedule H filings, and to introduce hospitals to the new schedule. "We picked facilities over other information because we felt it was by far the least burdensome for them to deal with," he says.

The AHA has been encouraging the Form 990 Schedule H dry runs and in September began hosting teleconferences and sessions to prepare rural hospitals for the new filing requirements. "Given the breadth and depth of the new IRS requirements, we see it as a member value to help (rural hospitals) understand and prepare for them," says John Supplitt, senior director of AHA's Section for Small or Rural Hospitals, in a media release.

Next year, the entire Schedule H must be completed, including Section 6, which asks nonprofit hospitals to write an essay assessing the healthcare needs in their communities. "It's hard to assert that you are providing a community benefit if you have not assessed the community needs," says Keith Hearle, president of Verite Healthcare Consulting, LLC, in Alexandria, VA, and a longtime consultant to the Catholic Health Association. "If a hospital has never done a needs assessment or read one done by a local health department it's probably time to put some effort into that process."

Hearle says there is nothing in Section 6 that prevents hospitals from starting work on those questions today. For some hospitals, it can be done with existing staff. Other hospitals may need to hire new people to direct the process.

"It depends on the extent to which they have been reporting community benefits historically and have built an infrastructure around all of this stuff," Hearle says. "Does it already exist or are they starting from scratch?"

Hospitals should consider a team approach to compiling Schedule H information, perhaps with staff from finance, legal, planning, public relations, and technical services. "If you look at the questions in Schedule H, there isn't going to be one place in any organization that has all the answers," he says. Because rural hospitals may not have the infrastructure for a team approach, Hearle says, it's even more important to get started now. "Often, that 'team' is one person," he says.

Scott Duke, CEO of Glendive Medical Center in eastern Montana, says his 25-bed, acute-care hospital has been gathering community benefit data for more than a decade. He says hospitals that have yet to take the plunge on Schedule H should jump in as soon as they can.

"They can be overwhelmed by these changes and they don't have to be," Duke says. "It takes time to set up the gathering process and incorporate the new changes, but the secret is after that there isn't a lot of work. The real message is that a rural hospital can do this and you don't have to have a fulltime department staff designated to do it."

Duke says the key is to have community benefits indicators set up not only from the financial side of the house, such as charity care, but also with leadership as it develops community benefit-building activities. It also helps to have a good software program—ala TurboTax—that tracks and classifies community benefits.

It's also a question of attitude. Duke says hospitals shouldn't look at Schedule H as an undue burden. "It's actually our sacred responsibility as nonprofit hospitals to tell our story," he says.

Hearle says hospitals should look at Schedule H as an opportunity. "This will allow every hospital to tell the story of the community benefits they provide," he says. "That could be effective in attracting new board members and philanthropy and communicating with all stakeholders that we are effective in the way we are meeting community needs."

"That is an important story to be told these days because the expectation of legislators and others is not abating," Hearle says. "One of the big benefits is slowing down legislative initiatives that would make all of this, shall we say, more taxing."


John Commins is the human resources and community and rural hospitals editor with HealthLeaders Media. He can be reached at jcommins@healthleadersmedia.com.
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