Worksheet 2

Ratio of Patient Care Cost to Charges

Worksheet 2 may be used to calculate the organization's ratio of patient care cost to charges.

Line 1. Enter the organization's total operating expenses (excluding bad debt expense) from its most recent audited financial statement.

Line 2. Enter the cost of non-patient care activities. "Non-patient care activities" include health care operations that generate "other operating revenue" such as non-patient food sales, supplies sold to non-patients, and medical records abstracting. The cost of non-patient care activities does not include any total community benefit expense reported on Worksheets 1 through 8.

If the organization is unable to establish the cost associated with non-patient care activities, the organization can use other operating revenue from its most recent audited financial statement as a proxy for these costs. This proxy assumes no markup exists for other operating revenue compared to the cost of non-patient care activities. Alternatively, if other operating revenue provides a markup compared to the cost of non-patient care activities, the organization can assume such a markup exists when completing line 2.

Line 3. Enter the Medicaid provider taxes paid by the organization included on line 1, so this expenditure is not double-counted when the ratio of patient care cost to charges is applied.

Line 4. Enter the sum of the total community benefit expenses reported by the organization in Part I, lines 7e, 7f, 7h, and 7i, column (c), so these expenses are not double-counted when the ratio of patient care cost to charges is applied.

Also include in line 4 the total community benefit expense reported on Part I, lines 7a, 7b, 7c, and 7g, column (c), if the organization has not relied on the ratio of patient care cost to charges from this worksheet to determine these expenses, but rather has relied on a cost accounting system or other cost accounting method to estimate costs of charity care, Medicaid or other means-tested government programs, or subsidized health services.

Line 5. Enter the gross expense of community building activities reported in Part II of Schedule H (Form 990).

Line 9. Enter the gross patient charges for any community benefit activities or programs for which the organization has not relied on the ratio of patient care cost to charges from this worksheet to determine the expenses of such activities or programs. For example, if the organization uses a cost accounting system or another cost accounting method to estimate total community benefit expense for Medicaid or any other means-tested government programs, enter gross charges for those programs in line 9.

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