Describe the extent to which any shortfall reported in line 7 should be treated as community benefit and the costing methodology or source used to determine the amount reported on line 6.

DISCUSSION:In addition to checking the boxes provided to describe the costing methodology or source used to determine the amount reported as Medicare allowable costs for the actual Cost Report, a filing organization must describe the methodology used.

The IRS has also provided an opportunity for hospitals to report all or some of its Medicare shortfall as community benefit and to explain the reasons for doing so.

NARRATIVE REQUIRED: Yes. Part VI, line 1, to describe the costing methodology used for the Cost Report and to report Medicare shortfall as community benefit.

SAMPLE NARRATIVES:

Costing Methodology:
Medicare allowable costs were calculated using a cost-to-charge ratio.

Community Benefit:
The hospital believes that all of the $X million shortfall should be considered as community benefit. The IRS Community Benefit Standard includes the provision of care to the elderly and Medicare patients. Medicare shortfalls must be absorbed by the hospital in order to continue treating the elderly in our community. This year, Medicare accounted for XX% of hospital revenues. The hospital provides care regardless of this shortfall and thereby relieves the federal government of the burden of paying the full cost for Medicare beneficiaries.

Caring for Medicare patients fulfills a community need and relieves a government burden as these patients typically have low and/or fixed incomes. Medicare does not provide sufficient reimbursement to cover the cost of providing care for these patients and that shortfall of $X should be counted as community benefit.

Our state requires non-profit hospitals to provide a minimal level of community benefit to obtain exemption from state and local taxes. According to our state law, the unreimbursed cost of Medicare is considered to be community benefit - that amount was $X

Medicare shortfall should be considered a community benefit because our mission is to promote health in the community and we do not limit the care available to any patients, including those covered by Medicare. We are relieving a government burden by providing care to Medicare patients even though reimbursements exceed cost by $X. Tax-exempt hospitals are expected to participate in the Medicare program.

For many of the medical services provided by the hospital, Medicare does not provide sufficient reimbursement to cover the cost of providing care to the patients forcing the hospital to use other funds to cover the deficit of $X.

INSTRUCTIONS
To access the instructions for Schedule H click here.

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