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Update for
Not-For-Profit Hospitals
Please read page 4 of Technical
Letter 10 (released June 2003), released by OSHPD, for
criteria of Charity Care.
Overview
of Senate Bill 697
Senate Bill 697
(SB697) was sponsored by the California Association of Catholic
Hospitals (CACH) and the California Healthcare Association
and passed by the Legislature and signed by the governor in
September 1994. It became effective January 1, 1995.
It required not-for–profit
hospitals to r eaffirm its mission statement by July 1995
and to begin conducting a community needs assessment every
three years, beginning in 1995. Each hospital is responsible
to develop and adopt a community benefits plan by April 1996,
and annually update the plan. They must annually submit a
copy of the plan to the Office
of Statewide Health Planning and Development (OSHPD) within
150 days after the hospital’s fiscal year end.
Background*
In exchange for
favorable tax treatment, not-for-profit hospitals assume a
social obligation to provide community benefits in the public
interest. While it is important that not-for-profits generate
a surplus in order to operate successfully, the surplus is
invested back into the organization, to enhance performance
and community services. Hospitals operating as not-for-profit
facilities are expected to meet a “community benefit standard.”
Internal Revenue
Service’s Community Benefit Standard
The community benefit
standard was originally defined in 1969 by U.S. Internal Revenue
Service Ruling 69-545 and subsequently revised in 1983. Ruling
83-157 provides the current IRS view of the charitable obligations
of not-for-profit hospitals. The ruling states that “the promotion
of health . . . is deemed beneficial to the community as a
whole” and the criteria set forth by the IRS is quite broad
and could be construed to include virtually any hospital activity
as “promoting health.” Increasingly, not-for-profit hospitals
across the nation have been asked to articulate and measure
the value of the benefits they provide in exchange for the
privilege of tax exemption. This is understandable. In 1990,
these exemptions were estimated at $8.5 billion in the United
States , for all non-profit hospitals (Tax Notes, 1990). In
1996, the estimated annual federal and state income tax exemption
for all SB697 hospitals (excluding Kaiser Foundation hospitals)
was $380 million. This estimate is based on a State corporate
tax rate of 9.3% and an average federal tax rate of 35%, and
it does not include property tax exemptions or the value of
savings associated with tax-exempt financing.
The Office of Statewide
Health Planning and Development (OSHPD)is the administrative
agency in State government responsible for the implementation
of SB697. The Office provides reporting formats and guidelines
and various other services to facilitate the requirement.
Overall, OSHPD has approached implementation of SB697 with
the understanding that the bill called for a process of meaningful
collaboration between hospitals and other local entities focused
on community health improvement.
*OSHPD, Community
Benefit Legislation, SB697 Report to the Legislature, January
1998.
SB697
Glossary
Community
Benefits Plan – The written document
prepared for annual submission to the Office of Statewide
Health Planning and Development that shall include, but shall
not be limited to, a description of the activities that the
hospital has undertaken in order to address identified community
needs within its mission and financial capacity, and the process
by which the hospital developed the plan in consultation with
the community.
Community
– The service areas or patient
populations for which the hospital provides health care services.
Community
Benefit – A hospitals activities
that are intended to address community needs and priorities
primarily through disease prevention and improvement of health
status.
Community
Needs Assessment – The process
by which the hospital identifies, for its primary service
area as determined by the hospital, unmet community needs.
Community
Needs – Those requisites for improvement
or maintenance of health status in the community.
Hospital
– A private not-for-profit acute hospital licensed
under subdivision (a), (b), or (f) of Section 1250 and is
owned by a corporation that has been determined to be exempt
from taxation under the United States Internal Revenue Code.
Mission
Statement – A hospital’s primary objectives for
operation as adopted by its governing body.
Vulnerable
Populations – Any population that is exposed to medical
or financial risk by virtue of being uninsured, underinsured,
or eligible for Medi-Cal, Medicare, California Childrens Services
Program or county indigent programs.
back to Overview of Senate Bill 697
Not-For-Profit
List of Hospitals in Orange County Participating in OCHNA
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us today.
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