Enter the estimated amount of the organization's bad debt expense (at cost) attributable to patients eligible under the organization's charity care policy.

This question and its instructions would benefit from further clarification by the IRS.

DISCUSSION:
The question is intended to solicit what amount of bad debt would likely be classified as charity care if there were sufficient information available about the financial situations of the patients.

The instructions request: the "estimated amount of the organization's bad debt expense (at cost) that reasonably could be attributable to patients who likely would qualify for financial assistance under the organization's charity care policy, but for whom sufficient information was not obtained to make a determination of their eligibility."

Estimates of the amount attributable to charity care may be made using any reasonable methodology. IRS instructions include examples such as record reviews, an assessment of charity care applications that were denied due to incomplete documentation, analysis of demographics, or other analytical methods.

A report by the Congressional Budget Office cited a study in one state that found most uncompensated care was attributable to uninsured patients and the great majority of bad debt was attributable to patients with incomes below 200% of the federal poverty level.

Approaches to consider for determining how much bad debt would likely be attributable to charity care include -

Estimates based on demographics
  • identification of patients whose addresses are listed as homeless shelters, subsidized housing or who have no address listed
  • identification of individuals from zip codes where the median income would qualify a patient for the hospital's charity care program
  • Identification of individuals who are potentially undocumented (e.g. invalid or missing social security number)

Population-based estimates
  • As part of a community needs assessment, gather information on the income characteristics of the uninsured population. Use that data to analyze what portion of uninsured individuals in the hospital's service area would be eligible for the hospital's financial assistance policy. This percentage could reasonably be applied to the total amount of bad debt for self-pay patients to estimate the portion of self-pay bad debt that was likely attributable to individuals eligible for the hospital's financial assistance policy. The actual amount of financial assistance provided would be deducted from this figure and the remainder would be the estimate.
  • A similar analysis could be used to estimate the portion of uncompensated care related to under-insured patients within the hospital's charity care policy based on the income characteristics of the under-insured population in the hospital's service area.

NARRATIVE REQUIRED: Yes. Part VI, line 1, Also see line 4. The explanation of the method used to estimate the amount of bad debt likely attributable to charity care should be provided.

SAMPLE NARRATIVES:

Amount attributable to community benefit:

It is our belief that xxx amount of bad debt should be included as community benefit. As a tax-exempt hospital, we must provide necessary services regardless of the patient's ability to pay for the service provided.

As a not-for-profit, patient care is provided to all, regardless of ability to pay for that care. Making quality patient care available to all in our community, regardless of their economic means, qualifies bad debts as a community benefit.

As part of our community needs assessment, we studied the income characteristics of the uninsured population in our community. As part of this study, we also looked at what portion of uninsured individuals in the hospital's service area would be eligible for the hospital's financial assistance policy. We applied this percentage to our total amount of bad debt for self-pay patients to estimate the portion of self-pay bad debt that was likely attributable to individuals eligible for the hospital's financial assistance policy. We subtracted the actual amount of financial assistance provided from this figure. The remainder is the estimated amount entered on Part III, line 3 and should be counted as community benefit.



INSTRUCTIONS
To access the instructions for Schedule H click here.

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