Capping a year of heightened scrutiny of not-for-profit hospitals' care for needy patients, two high-profile hospital groups released revised accounting guidelines last week for charity care and other expenses that benefit the public.
The Catholic Health Association, St. Louis, and Irving, Texas,-based VHA published a 48-page report that instructs tax-exempt hospitals on how to itemize various costs and aims to bolster the ease and credibility of compiling a price tag for not-for-profits' charity endeavors.
How hospitals calculate and publicly report spending on community benefits varies widely, which has fueled criticism from patient advocates, lawmakers and regulators who say the mishmash of policies obscures how not-for-profits fulfill their charitable missions. Such details are crucial in light of lawsuits and congressional hearings on not-for-profit business practices, such as pricing and bill collection for uninsured patients, experts say.
Julie Trocchio, the CHA's senior director for continuing-care ministries, said a previous version of the association's charity reporting guidelines created confusion as hospital officials struggled to interpret less-detailed instructions. Combined, the CHA and VHA represent 617 Catholic and 1,400 not-for-profit hospitals, respectively. Members do not have to report findings to the CHA, Trocchio said.
Without standards, hospitals made "apples-to-oranges, oranges-to-pears, pears-to-peaches" comparisons that hampered a system's ability to monitor or promote its charitable investments, explained Natalie Dean, director of social accountability for Trinity Health, Novi, Mich. Dean, who oversaw the effort to revise the guidelines, said yearly minor revisions will keep them current with a changing industry.
Broadly speaking, the clarified guidelines define community benefit expenses as: money-losing or barely profitable services; those services likely to be discontinued were the decision purely financial; or services that meet the needs of vulnerable populations. It includes formulas for calculating indirect costs and lists of ex-penses that do and do not qualify.
"We try to give some hints along the way," Trocchio said. For example, the guidelines advise hospitals to put questionable spending to the "laugh" test before itemizing it as a community benefit. Marketing efforts, routine services and bills that patients don't pay-bad debt-don't count.
Not everyone discounts bad debt as a community benefit, although the American Institute of Certified Public Accountants deems bad debt an expense, not charity. The American Hospital Association publicly reports charity care and bad debt each year as "uncompensated care," which totaled 5.5% of hospital expenses in 2003 (Dec. 6, p. 12).
AHA members are encouraged to consider the VHA- and CHA-produced guidelines a valuable resource, an AHA spokeswoman said. The group has produced its own set of principles that address a range of issues, including charity care, financial counseling for patients, employee and community education and defining standards for bill collection.
Hospitals' assistance for low-income or uninsured patients varies and may not always account for patients' ability to pay medical bills, despite their income or insurance. "It's not always crystal clear what's bad debt and what's charity care," said Doug Anning, an attorney with Polsinelli, Shalton & Welte and Suelthaus, and chairman of the American Health Lawyers Association tax and finance group.