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Allocating Bad Debt and Charity Care to Better Meet
IRS 990 Schedule H Compliance

Executive Summary:

The IRS Form 990 is designed to increase transparency for all organizations that receive tax-exempt status. IRS Form 990 includes 16 schedules; Schedule H applies specifically to non-profit hospitals. Perhaps the most challenging aspect of the Schedule H is the requirement that healthcare providers must properly allocate bad debt and charity care, as well as maintain efficient, detailed reporting on bad debt and charity care provided. This requires time and resources that many hospitals simply don’t have.

This white paper explores the main challenges hospitals may face in complying with the reporting requirements for IRS Form 990 Schedule H. Some of the potential challenges include subjectivity and external data deficiency; operational inefficiency; segmentation of bad debt and charity care; reporting issues; and the qualification and recertification of patient eligibility for charity care.

To accommodate these challenges, hospitals are encouraged to properly account for charity care throughout the year; establish a revenue cycle that calculates charity care both in costs and charges; evaluates their patient mix and adjusts charity care policies to fit any changes; establishes measureable goals to ensure that their charity care reporting processes are meeting compliance with IRS Form 990 as well as the hospital’s patient population mix; and implement s an automated revenue cycle solution.

Finally, a case study summarizes the positive impact of automating the charity care program at North Shore/Long Island Jewish, a 5,965 bed system with 15 hospitals in New York.