Tax-exempt hospitals have long been a cornerstone of the healthcare delivery system. However, questions about community benefit and some organizations’ collection practices have drawn scrutiny from Congress and state legislators. Given this increased scrutiny, nonprofit hospitals should consider the level of community benefit they provide, how they report it on Schedule H of IRS Form 990, and how they communicate their reported benefit to elected officials and other stakeholders in the community.
Nonprofit Status Under Increased Scrutiny
Based on an American Hospital Association (AHA) analysis of hospitals’ Form 990 filings from 2020, tax-exempt hospitals provided $129 billion in community benefit compared to $13.2 billion in forgone federal taxes.1 However, analysis from the Lown Institute suggests that most nonprofit hospitals spend less on community benefits than they receive in tax breaks.2 Despite noted flaws,3 Lown’s analysis continues to command the attention of Congress. This, coupled with media scrutiny of the collection practices and accessibility of financial assistance at some nonprofit hospitals, has led to calls from senators for the IRS to increase oversight of tax-exempt hospitals.4,5 As a result, the IRS is auditing 35 hospitals, focusing on their compliance with Section 501(r) reporting and, inherently, their level of community benefit.
The results of the IRS audit are expected later this year. While the specific timing is uncertain, if they are released before Congress passes legislation extending the Tax Cuts and Jobs Act of 2017 (TCJA), it could impact the contents of the package. The House’s list of savings options for reducing the federal deficit and offsetting the cost of extending TCJA includes eliminating tax-exempt status for 501(c)(3) hospitals and the tax-deductibility of charitable contributions to health organizations. These changes would save $260 billion and $83 billion over 10 years, respectively.6
Scrutiny of tax-exempt hospitals is not limited to Washington, D.C. At least 10 states considered 13 pieces of legislation related to nonprofit hospital community benefits during the 2024 legislative session. Three bills—two requiring the exclusion of monetary assets from the determination of eligibility for financial assistance and one related to community health needs assessment reporting requirements—were enacted. Similar activity continues in 2025. For example, a bill has been introduced in at least one state that would strip tax-exempt status from hospitals with commercial rates that exceed 200% of Medicare payments.7
As long as medical costs outstrip wage growth and commercially insured patients are asked to pay for more of their care through coinsurance and deductibles, policymakers will continue to scrutinize the value of community benefit provided by tax-exempt hospitals. This dynamic makes legislation that limits tax-exempt status a matter of when, not if. To prepare for this likelihood, tax-exempt hospitals should take proactive steps to protect their nonprofit status, including:
- Reviewing financial assistance policies (FAPs) to confirm they continue to meet the needs of the communities served.
- Reviewing processes used to capture community benefit expenses reported on IRS Form 990 Schedule H.
- Amplifying efforts to educate stakeholders on the value their organization provides.
Below, we explore how tax-exempt hospitals can address each of these three areas.
Review FAPs
A comprehensive review of FAPs includes studying the qualifying criteria for assistance, the processes for communicating the availability of assistance, and the processes used to qualify individuals. This review should involve all levels of the organization, including the board of directors (IRS audits review board minutes discussing and approving FAPs), the CFO (to understand the financial impact of changes), and the executives responsible for community benefit, the revenue cycle team, and the registration and discharge teams. Including individuals responsible for self-pay collections, registration, and discharge can help identify operational challenges with the existing policy and speed the implementation of updated policies.
Reviewing the yield from self-pay accounts just above the qualifying threshold for a hospital or health system’s FAP can indicate whether the federal poverty level (FPL) threshold is set appropriately based on the community’s needs. For example, if the qualifying threshold is 200% FPL, what is the yield on accounts for individuals who, based on publicly available data, are at 250% and 300% FPL? If yields for these tranches of patients are low relative to the cost to collect, an organization may want to consider increasing the qualifying threshold or applying sliding scale discounts, which could help shift dollars from bad debt to community benefit.
In addition to the FPL, hospitals should re-evaluate any other qualification criteria for financial assistance. For example, some FAPs require that individuals reside in certain areas to qualify. However, it may be worth reconsidering this criteria if a significant amount of bad debt is from individuals who live outside of the eligible areas. In addition, hospitals may want to consider requiring patients to apply for Medicaid or other coverage if it appears they might be eligible. This can address concerns that some patients may forgo insurance if FAPs are expanded.
Once they have reviewed FPL levels, organizations should evaluate the effectiveness of efforts to communicate the availability of assistance and qualify eligible individuals. One approach to this analysis is a review of bad debt attributed to patients who were otherwise eligible for the organization’s FAP but did not apply. This figure is reported in Part 3, Section A, Line 3 of Schedule H. Significant amounts on this line can indicate opportunities for improvement in both areas.
Organizations that aren’t using presumptive eligibility should consider incorporating it into the FAP to qualify individuals who otherwise qualify for assistance but do not complete an application. Those that already are using presumptive eligibility may want to consider expanding the presumptive attributes that will qualify an individual, e.g., homelessness, address in subsidized housing, eligibility for supplemental nutrition assistance program (SNAP), a vendor algorithm, etc. The FAP should clearly define how the organization uses presumptive eligibility and the attributes that qualify an individual for financial assistance.
Organizations should also improve communications to potentially eligible individuals to increase awareness of the availability of financial assistance. As required by the IRS, organizations generally place signage in their facilities and provide plain language summaries at intake, discharge, and in billing notices. However, our experience working with hospitals and health systems indicates there are frequently opportunities to collaborate with free clinics and other organizations that serve FAP-eligible individuals to provide education and materials related to the availability of financial assistance. These collaborations also help satisfy the “widely publicized” requirements included in Section 501(r).
Review Community Benefit Offerings
Financial assistance is only one piece of the community benefit story. Organizations should also consider processes for capturing the costs associated with all activities that qualify as community benefit so they can include them on Schedule H.
Finance and community benefit leaders should partner to provide ongoing education to clinicians and other operational leaders on what qualifies as a community benefit. A key focus should be the data that must be captured to support the inclusion of community benefit activities on Schedule H. Education can help improve the accuracy of data captured for known services that qualify as community benefit, as well as surface additional items that should be included.
Beyond capturing existing services that count as community benefit, many organizations are expanding community benefit offerings by addressing needs identified in the community health needs assessment (CHNA), with specific strategies outlined in their strategic plan. Alignment between an organization’s CHNA implementation plan and strategic plan is typically found in increasing access to health services and providers and addressing social determinants of health that impact the organization’s performance in value-based contracts and fee-for-service operational and strategic goals.
To further strengthen and demonstrate an organization’s commitment to community benefit, we encourage approaching the CHNA implementation plan with the same rigor and best practices as its strategic plan implementation road map. This is characterized by cascading objectives, strategies, and tactics; clear assignment of accountability owners and measures; and specific timelines for execution. For organizations with more mature community health capabilities, making the extra effort to clearly tie budgeted spend and document staff’s time allocation to CHNA initiatives in the implementation plan can help strengthen and ease the burden of community benefit reporting.
Like a strategic plan, and in alignment with the Form 990 timeline, we encourage organizations to revisit and consider refreshing their CHNA implementation plan annually, noting what has been accomplished, what has fallen off the priority list, and what has emerged as a strategy to address the community health needs. An annual cadence positions the organization for greater strategic agility in meeting the community’s current and emerging health needs, maintaining alignment with strategic and leadership priorities, and crafting a more robust and comprehensive narrative demonstrating the fiscal, clinical, and operational impact of the organization’s efforts to improve community health.
Amplify Efforts to Educate the Community
Organizations should take steps to educate community leaders and other stakeholders about the community benefit they provide and how they address otherwise unmet needs in the populations they serve.
First, organizations should focus on engaging and educating community leaders and political representatives about Schedule H of IRS Form 990. The education can be packaged as talking points and reference materials for use by hospital executives, board members, and leaders at community organizations supported by funds from the tax-exempt organization.
Materials should address the estimated forgone taxes compared to the value of community benefit the nonprofit hospital provides and drill into losses on specific services that support access to care and address community needs. Our experience working with tax-exempt organizations has shown that those that invest more time developing a robust narrative on Schedule H to support the reported dollars and activities are better prepared for these conversations. Organizations may also want to consider footnoting Schedule H to include the Medicare shortfall, which is significant for many hospitals.
In addition to congressional representatives, hospitals should engage and educate district office staff. Providing staffers with resources to help connect constituents with services supported by the hospital’s community benefits helps reinforce the value the tax-exempt organization provides to the community.
It is also important to show how the organization is investing in action and resources to complement the educational piece. Organizations should invite community leaders and elected officials to tour clinics or sites of services supported by the organization’s community benefit dollars, e.g., prenatal clinics for uninsured or underinsured expectant mothers. Tours should be facilitated by the clinicians or other providers who are leading these efforts. This approach can make the impact of the organization’s investments tangible for community leaders.
How Forvis Mazars Can Help
Our professionals at Forvis Mazars are committed to helping healthcare organizations develop regulatory excellence and strategic agility to understand, comply with, and navigate evolving IRS and state requirements, as well as maintain financial discipline by preparing for the financial impact of changing policies. If you have questions about upcoming policy changes related to community benefit and tax-exempt status and how they may affect your organization, please reach out to a professional at Forvis Mazars.
- 1“Report: Nonprofit Hospitals’ Value to Communities 10 Times Their Federal Tax Exemption,” aha.org, September 24, 2024.
- 2“Hospital Fair Share Spending,” lowninstitute.org, 2023.
- 3“There Is Nothing ‘Fair’ About the Lown Institute’s ‘Fair Share’ Report,” aha.org, March 25, 2024.
- 4“Grassley, Colleagues to TIGTA and IRS – Nonprofit Hospital Tax Exemption,” grassley.senate.gov, August 7, 2023.
- 5“Letter to IRS on Nonprofit Hospitals,” warren.senate.gov, November 19, 2024.
- 6“Ways and Means Committee,” politico.com.
- 7“Indiana Bill Seeks to End Tax Breaks for Nonprofit Hospitals That Overcharge Patients,” theguardian.com, January 22, 2025.