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The IRS recently finalized the revised Form 990, effective for the 2008 tax year (filed in 2009). The new Form presents a major change in the way that hospitals report information to the IRS regarding their operations, corporate governance, compensation arrangements, charity care, community benefit, joint ventures and excess benefit transactions.
The following provides a brief overview of the most important changes to the Form, and offers practical recommendations for hospitals.
Corporate Governance
Part VI of the Form requires hospitals to: (1) identify written polices that address conflicts of interest, whistleblowers, document retention and joint ventures; (2) describe the process for determining compensation of its top management officials and key employees; (3) disclose whether its governing documents, conflicts of interest policy, and/or financial statements are made available to the public; and (4) indicate whether a copy of the Form was provided to governing body members for review prior to completion.
Compensation
Hospitals (including their parents, subsidiaries and affiliates) must now report, in Part VII of the Form, compensation paid to: (i) all current officers, directors and trustees (regardless of amount); (ii) its five mosthighly compensated employees; (iii) any “key employees,” meaning employees who receive annual compensation exceeding $150,000, have significant responsibilities or influence, and are one of the 20 highest compensated employees; and (iv) any former director or trustee in excess of $10,000, and any former officer or key employee in excess of $100,000.
Community Benefit Reporting
Schedule H of the Form requires detailed information regarding hospitals’ community benefit policies and practices, and the identity of each of its licensed health care facilities (regardless of whether operated directly or indirectly through an affiliate or a joint venture).
Hospitals must demonstrate how they provide a significant charitable benefit to patients in their service area, including: (a) their charity care policies; (b) the availability of annual written reports regarding their community benefit programs; (c) the cost of such programs; and (d) information regarding their bad debt, collection policies, and Medicare costs and payments.
Hospitals can report additional information regarding community benefit activities in a narrative. Although Schedule H is optional for the 2008 tax year, it will be required for 2009.
Joint Ventures
On Schedule R hospitals must provide information regarding their related organizations (i.e., joint ventures) and certain transactions with such entities. Further, as part of Schedule H, hospitals must disclose any joint venture for which: (1) more than 10% is owned by an officer, director, trustee, key employee, or physician who is employed by or has staff privileges at the hospital; and (2) the hospital provided either management services, medical care, or property used to provide medical care.
Excess Benefit Transactions
On Schedule L hospitals must report the details of any excess benefit transaction with a “disqualified person.” A “disqualified person” is a person who has substantial influence over the affairs of the hospital during a period of five years preceding the transaction. Hospitals also must report business transactions with current or former officers, directors, trustees or key employees, and certain other interested persons, including contracts of sale, leases, licenses, service contracts, and certain joint ventures.
The IRS cautions that reporting an excess benefit transaction may have “serious implications” for the disqualified person and any hospital manager who knowingly approved the transaction, and the IRS thus recommends that hospitals seek advice regarding the implications thereof.
Practical Recommendations
1. Engage the hospital’s leadership in the Form 990 process by both:
- conducting trustee education activities regarding all aspects of the new Form; and
- providing governing body members with an opportunity to review and comment on the Form prior to submission.
2. Adopt a procedure for routinely collecting information from officers, trustees and key employees regarding arrangements and affiliations that must be reported on the new Form. This can be accomplished by distributing to each officer, trustee and key employee:
- a reminder notice at the beginning of each year, and on a quarterly basis, as
- to the types of information that must be collected throughout the year; and
- an annual questionnaire in which all required information which was collected must be reported.
Also consider conducting a mid-year audit to confirm that appropriate information is being collected.
3. Review all policies related to conflicts of interest, charity care, debt collection practices, whistleblowers, document retention and joint ventures. These policies should be in writing, updated annually and approved by the governing body.
4. Use the Form as an opportunity to demonstrate your hospital’s commitment to providing community benefits during the year and the costs incurred by the hospital in connection therewith.
5. Revisit the size and composition of your hospital’s board; consider reducing membership to only those directors whose background serves the hospital’s needs.
© Sills Cummis & Gross P.C.
© Copyright 2012 Sills Cummis & Gross P.C.
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