Forthis weeks assignment, please make sure you are reviewing and understand the example given at the end of chapter 9. You need to understand the terminology to accurately complete this assignment. Go

Michael Rosenbaum, CBS Broadcasting Inc. Cost efficiency at hospital facilities in California Report shows hospital costs and charges vary widely throughout the state; healthcare purchasers call for standardized reporting, more transparency Milliman/CalPERS Hospital -acquired superbug infections soar in newborn babies Sherry Baker, Health Sciences Editor – Natural News Originally Reported in:

Pediatric Infectious Disease Journal What is happening? Background 1. Court cases on tax - exempt status 2. State efforts  Detailed community - benefit requirement: 10 states  Less - detailed community - benefit requirements: 15 states  Illinois Supreme Court upheld denial of property tax exemption — March 2010 • IRS recognized five factors that would support a nonprofit hospital’s tax exempt status: 1. The operation of an emergency room open to all members of the community without regard to ability to pay 2. A governance board composed of community members 3. The use of surplus revenue for facilities improvement, patient care, medical training, education, and research 4. The provision of inpatient hospital care for all persons in the community able to pay, including those covered by Medicare and Medicaid 5. An open medical staff with privileges available to all qualifying physicians 3. The 1969 IRS Community Benefit Standard Revenue Ruling 69 - 545 1. Meets the community needs assessment requirements  Conducts the assessment at least once every 3years  Adopts an implementation strategy  Input from community  Makes available to public 2. Establishes a financial assistance policy for medically necessary and emergency care  Develops, follows, and communicates a formal charity care policy 4. Patient Protection and Affordable Care Act (ACA) of 2010: Additional Requirements for Charitable Exemption 3. Meets the required limitations on charges  Limits charges to emergency and other medically necessary care to lowest amount for individual with insurance (prohibits use of gross charges) 4. Meets the billing and collection requirement  Does not engage in extraordinary collection efforts until financial assistance policy eligibility is exhausted 4. Patient Protection and Affordable Care Act (ACA) of 2010: Additional Requirements for Charitable Exemption, cont. 5. Schedule H of IRS Form 990 • Released in December 2007 • Mandatory filing is tax year 2009 due in 2010 • Complete data may not be available until 2011 at the earliest What are the biggest lightning rods? Background What community benefits are provided? Background 1. Charity Care 2. Bad debt  Included by AHA  Not included by CHA/VHA/HFMA  No position by IRS – reported in Part III of Schedule H 3. Unreimbursed costs of means - tested programs such as Medicaid  Included by IRS/AHA /CHA/VHA/HFMA  Included by IRS/AHA/CHA/VHA/HFMA 4. Unreimbursed costs of Medicare  Included by AHA/HFMA  Not included by CHA/VHA  No position by IRS – reported in Part III of Schedule H 5. Other activities  Cash and in - kind contributions  Health professions education  Community health improvement services  Community benefit operations  Medical research  Subsidized health services 6. Where Are the Current Dollars? FIGURE 5 -1 State Analysis of Charity Care Costs Reproduced from GAO Analysis of 2006 California, Indiana, Massachusetts, and Texas data. What benefits are received? Background 1. Income tax • Federal • State 2. Property tax 3. Sales tax 4. Tax - exempt financing 5. Other Estimating Benefits Provided: Case Study Background Community Benefit Includes* *These categories are in accordance with CHA/VHA guidelines. Medicare shortfall is excluded from the Community Benefit Report under these guidelines. Traditional Charity Care Unpaid Cost of Medicaid Medical Education Subsidized Health Services Community Health Services Cash/In -Kind Donations to the Community Research Traditional Charity Care Calculation (in millions): Charity Charge Write -offs $120.0 x Cost to Charge * Ratio 38.0% Cost of Charity Care $45.6 – Charity Care HCAP ** Receipts 9.0 Net Cost of Traditional Charity Care $36.6 * Actual cost to charge calculated by hospital. This represents a weighted average cost to charge.

** HCAP is the State of Ohio’s Medicaid Disproportionate Share Program and is an additional payment to hospitals in Ohio that provide a disproportionate share of uncompensated services to the indigent and uninsured.

Definition: Free or discounted health services provided to persons who cannot afford to pay, as defined by the hospital and entity charity care policies and procedures (summarized on the previous slide) Unpaid Cost of Medicaid Calculation (in millions): Costs of Medicaid $ 38.0 – Medicaid Payments 31.0 Net Cost of Medicaid $ 7.0 Medical Education Calculation (in millions): Medical Education Costs $20.0 – GME Payments $10.0 Net Cost of Medical Education $10.0 Subsidized Health Services Calculation (in millions): Cost of Subsidized Health Services $1.8 – Revenues $0.1 Net Cost of Subsidized Health Services $1.7 Community Health Services Calculation (in millions): Community Health Services $1.0 Net Cost of Community Health Services $1.0 Cash/In - Kind Donations to the Community Calculation (in millions): Cash and In -Kind Donations $0.3 Net Cash / In -Kind and Other $0.3 Research Calculation (in millions): Net Unsubsidized Research Cost $0.1 Community Benefit (in Millions) FY2010 Charity care (net cost) $36.6 Net cost of Medicaid programs $7.0 Net cost of medical education $10.0 Subsidized health services $1.8 Community health services $1.0 Cash/in -kind and other $0.3 Research $0.1 Total $56.8 Estimating Benefits Received: Case Study Background Benefits Received Categories  Real property tax  Sales and use tax  Commercial activity tax  Postage  FUTA  Tax - exempt bond interest savings  Local income tax  State income/franchise tax  Federal income tax Real Property Tax Calculation (in millions): Fair Market Value of Land, Buildings & Building Improvements $500.0 x Assessment Percentage of 35% 35.0% Assessed Value $175.0 x Tax Rate of 7.0% 7.0% Real Property Taxes Due $12.25 Sales and Use Tax Calculation (in millions): Supply Expense* $125.0 x Tax Rate of 7.0% 7.0% Sales Tax Foregone $8.75 * Excludes drugs that are exempt in the State of Ohio Postage Calculation: Postage Rate (For -Profit) – 1 st Class $0.47 Postage Rate (Not -For -Profit) – 1 st Class $0.23 Difference in Postage Rate $0.24 Number of Items Mailed 3.5million x Difference in Postage Rate $0.24 Postage Foregone $840,000 Federal Unemployment Tax Calculation (in thousands): Wage Base $7.0 x Number of FTEs 6.0 Total Wages $42,000 x Tax Rate of 0.8% 0.8% Federal Unemployment Taxes Foregone $336.0 Definition: Federal unemployment taxes are 0.8% on the first $7,000 of wages for each employee Tax Exempt Bonds – Other Benefits Received Definition: Benefit received from payment of lower rates on tax -exempt borrowing Calculation (in millions): Taxable Bond Rate 6.75% Hospital Tax Exempt Rate 5.00% Differential 1.75% Hospital Bonds Outstanding $300.0 Tax -Exempt Benefit Received $5.25 City Income Tax Calculation (in millions): Federal Taxable Income Before State & Local IncomTaxe$45.390 x Tax Rate of 2.0% 2.0% City Income Tax Foregone $0.908 State Income Tax Calculations (in millions): Federal Taxable Income Before State Tax $44.482 x Tax Rate of 8.5% 8.5% State of Ohio Income Tax Forgone $3.781 Federal Income Tax Calculation (in millions): Taxable Income $40.701 x Tax Rate of 35% 35.0% Federal Income Tax Foregone $14.245 Value of Benefits Received FY2010 (in millions) Total Real Property Tax $12.250 Sales & Use Tax $8.750 Postage $0.770 Federal Unemployment Tax (FUTA) $0.336 Local Income Tax $0.908 State Income / Franchise Tax $3.781 Federal Income Tax $14.245 Tax Exempt Bonds $5.250 Total Benefit Received $46.290 Community Benefit Prov ided $56.800 Excess Community Benefit $10.510 Summary Community benefit analysis will become more important in the years ahead Comparisons of benefits provided in nonprofits with investor - owned hospitals will be closely reviewed Not - for - profit hospitals must begin to document the benefits they provide