Exempt health care providers: Boost compliance strategies to elevate your community impact
House Committee members held a meeting this week to address tax-exempt hospital spending on expenses unrelated to community benefits.
Tax-exempt status, once considered somewhat a given for mission-driven providers, is now frequently questioned as policymakers seek to ensure that hospitals and health systems sufficiently demonstrate their value and contributions to their communities. As a result, for many organizations, rigorous compliance practices and transparent reporting are required to address this growing need.
Building a strong foundation for compliance
In response, some leading health care organizations are investing in infrastructure and consistency to reinforce their mission and defend their tax-exempt status.
One effective strategy is the establishment of an in-house system for community benefit reporting. By unifying data sources and standardizing processes across facilities, organizations can ensure accurate and compliant reporting that meets both state and federal requirements.
Centralized community benefit calculation processes, comprehensive staff education at the facility and local levels, and the integration of decision-support systems allow teams to monitor the financial impact of service lines and adjust operations as needed. In addition, regular reviews and redesigns of community benefit structures provide opportunities for improvement, such as enhancing local staffing, refining the capture of activities, and aligning with internal definitions of activities that qualify as community benefit.
These efforts foster a continuous cycle of improvement, driving deeper engagement across hospital chief financial officers, public health departments, board members and advisory partners. By embedding community benefit into governance and executive oversight, organizations can establish it as a core function rather than a compliance afterthought.
Defending tax-exempt status through documentation
While some organizations may not maintain an explicit strategic plan solely to defend their tax exemption, many embed these efforts within their broader mission to serve patients and communities. Detailed, transparent external reporting, particularly through Schedule H narratives, serves as both evidence and advocacy, showcasing the organization’s commitment and impact.
Storytelling is a crucial component of this endeavor. By proactively capturing and communicating authentic community benefit-related activities, including those not externally reported, organizations ensure that stakeholders understand the full value of their community efforts and advocacy. Preparation is also key to external reporting, such as conducting mock 501(r) audits and coordination with internal audit teams to identify strengths and weaknesses, educate new facilities, and to keep leadership alert to emerging regulations and hot topics, like charity care and financial assistance.
The takeaway
Transparent, accurate community benefit reporting not only demonstrates compliance, but it also helps health care organizations articulate their mission, defend their tax-exempt status and maintain the trust of the communities they serve. In the face of scrutiny and regulatory change, organizations that prioritize consistency, infrastructure and reporting to stakeholders will be best positioned to thrive and fulfill their purpose.
Learn more about what’s happening in health care in our industry outlook.
