Academic journal article Inquiry

The Accountability of Nonprofit Hospitals: Lessons from Maryland's Community Benefit Reporting Requirements

Academic journal article Inquiry

The Accountability of Nonprofit Hospitals: Lessons from Maryland's Community Benefit Reporting Requirements

Article excerpt

Under Internal Revenue Service requirements, nonprofit hospitals will begin filing new community, benefit reports in 2010. Maryland has had similar requirements since 2004. This paper, based on interviews at 20 hospitals, describes how Maryland's requirements affected hospitals and their activities. Increases in reported community benefit expenditures since the program began are due to both changes in activities and better data capture. Charity care accounts for one-third of community benefit dollars. A key distinction concerns whether hospitals take an accounting or managerial approach to community benefit. The Maryland experience suggests the issues that will arise when the national requirements are implemented.


A new era of accountability has begun for nonprofit organizations in the United States. Growing concerns culminated in 2008 when the Internal Revenue Service (IRS) adopted a major revision of its Form 990, the return that tax-exempt organizations must file annually. Health care has been a particular focus of criticism about nonprofit accountability, with some 20 states adopting reporting requirements in the past two decades for nonprofit hospitals (and, in some cases, other nonprofit health care organizations) and with the IRS establishing a specific reporting requirement for hospitals regarding their charitable activities. Hospitals will have to begin filing the new Schedule H in 2010, reporting on a defined set of community benefit expenditures including charity care.

Experience with similar reporting requirements at the state level may be useful in anticipating how hospitals will meet the new reporting requirement, what their reports may show, and what issues may arise. That is the premise of this paper.

The various new reporting requirements for hospitals have sprung from perceptions that some hospitals were insufficiently charitable, from hopes of increasing the ability of uninsured patients to obtain needed services, and, at a more general level, from the belief that more public information is needed about what these tax-exempt organizations are actually doing as charitable entities--that is, in language used by the IRS since a 1969 revenue ruling about nonprofit hospitals, what "community benefits" they provide.

Community benefit originally was defined by the IRS in terms of structures and policies (e.g., an emergency department open to the community). By contrast, state reporting requirements and the new IRS Schedule H focus on what hospitals are actually doing. A common limitation of states' reporting requirements has been a lack of clarity about what should be counted as a community benefit (U.S. Government Accountability Office 2008). In the absence of standardization regarding what activities should be included and how their value should be calculated, it has been difficult to use reported information to compare hospitals' community benefit expenditures against those of other hospitals, over time, or against some standard.

It is in this regard that the Maryland experience is of interest because for several years that state has required hospitals to report on community benefits, using a standardized set of categories and accounting rules. The reporting requirements are similar, though not identical, to the requirements of Schedule H.

Maryland Community Benefit Reporting Requirements

In 2001, Maryland enacted "An Act concerning Nonprofit Health Entity Accountability," which requires nonprofit hospitals to submit annual community benefit reports to the Health Services Cost Review Commission (HSCRC), the rate-setting agency in the state's unique all-payer hospital system. Defining community benefit as activities "intended to address community needs and priorities primarily through disease prevention and improvement of health status," the legislation gave the HSCRC responsibility for developing the actual reporting requirements. …

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