Draft Bill Would Expand Hospital Form 990 Reporting

A draft bill released on May 12 would amend Section 6033 to require tax-exempt hospital organizations described in Section 501(r)(2) to provide substantially more detailed annual return information to the IRS. The proposal does not create hospital reporting from scratch. Rather, it expands the existing Form 990, Schedule H framework with more standardized, quantitative, and facility-specific disclosures. Its central aim is to make it easier for policymakers, regulators, and the public to compare the value of tax exemption with what hospitals provide in charity care, community benefit, and related activities, while also bringing much greater visibility to hospitals’ participation in the drug discount program under Section 340B of the Public Health Service Act. If enacted, the changes would apply to taxable years beginning more than six months after the date of enactment.

Background

Under current law, Section 501(r) imposes special requirements on hospital organizations, including community health needs assessments (CHNAs), financial assistance policy requirements, emergency medical care rules, and limits on certain billing and collection practices. Form 990, Schedule H requires reporting on community benefit, financial assistance and billing policies, CHNA compliance, and other narrative and quantitative information. Current reporting can make it difficult to distinguish facility-level performance because disclosures are often presented at the organization level or otherwise do not provide consistent facility-by-facility detail.

That reporting structure has long drawn criticism. Some policymakers and outside observers argue that current Schedule H reporting is too broad and too flexible to permit clear comparisons across hospital systems. They also question whether existing disclosures adequately show whether tax-exempt hospitals provide sufficient measurable charity care and community benefit relative to the value of exemption. Another area of concern is the Section 340B Drug Pricing Program, a federal program administered by the U.S. Department of Health and Human Services that allows eligible hospitals and other healthcare providers to purchase certain outpatient drugs at discounted prices. Current tax filings do not require hospitals to report detailed information on the financial benefit they derive from the Section 340B Program participation.

Highlights of the draft bill

New disclosures

The draft legislation would add a new Section 6033(p) requiring each organization described in Section 501(r)(2) that files an annual return to include several new categories of information. At both the organization and hospital-facility level, the new law would require disclosure of Centers for Medicare & Medicaid Services (CMS) certification numbers, which identify healthcare providers participating in the Medicare program, as well as how much is spent on community benefits, charity care, advertising, quality improvement, and nonclinical programming. These categories appear to distinguish between traditional community benefit spending and more operational or promotional expenditures.

The proposed legislation also would require disclosure of the three highest-priority health needs hospitals identified in the CHNA, together with the amount spent during the taxable year on programs designed specifically to address each need, tying CHNA findings more directly to actual spending.

Additionally, hospitals would need to report the number of financial assistance applications received, granted, and denied during the taxable year under their financial assistance policy. This information would move reporting toward a more operational measure of how hospitals administer financial assistance.

Tax reporting of information related to Section 340B of the Public Health Service Act

One of the draft’s most significant provisions is tax reporting of Section 340B information. A hospital organization that is a covered entity under Section 340B(a)(4) would have to report the total number of individuals who were dispensed or administered covered outpatient drugs under a Section 340B agreement during the taxable year. It also would have to report aggregate net revenue from those drugs. For this purpose, net revenue is based on total payments received from any payor, reduced by the 340B ceiling price or lower acquisition cost, and then further reduced by costs necessary to participate in and comply with the program, including legal, educational, administrative, compliance, third-party administrator, and contract pharmacy costs.

Crowe observation

The draft legislation is designed to measure not just participation in Section 340B, but also the financial gain hospitals receive from it.

Facility-level reporting

Another important feature of the draft legislation is the facility-level reporting requirement. Except as otherwise provided by the U.S. Department of the Treasury, the new community benefits, charity care, advertising, quality improvement, and nonclinical programming disclosures as well as information related to CHNA priorities, financial assistance applications, and Section 340B participation, would be required to be reported both in the aggregate for the organization and separately for each hospital facility operated by the organization.

Crowe observation

If enacted, the draft legislation’s requirement for facility-level reporting could require organizations to apply more refined allocation methods for shared expenses, service-line costs, community benefit spending, and Section 340B-related economics than many systems currently maintain.

Provisions of the bill still under discussion

The draft also includes two provisions in bracketed text, indicating that they have not yet been finalized. One would require disclosure of the tax that would have been imposed if exempt status did not apply, effectively quantifying the value of exemption for each filer. The other would require a description of each subsidized health service line, together with revenue and cost data for each line as reported to CMS.

The draft bill includes placeholders for definitions for several key terms, including “charity care,” “advertising,” “quality improvement,” “nonclinical programming,” and “health service line.” Those definitions will matter because they will determine how much flexibility hospitals retain in classifying expenditures and how comparable the resulting data will be across organizations.

Looking ahead

Whether this draft legislation will advance is unclear, but it reflects a broader congressional interest in more detailed reporting by not-for-profit hospitals. Even if the legislation is not enacted in its current form, it signals continued scrutiny of how not-for-profit hospitals justify tax exemption, how they measure community benefit, and how much value they derive from Section 340B participation.

Hospitals and health systems should evaluate whether they would be able to produce reliable facility-level data to meet these potentially new reporting requirements. They also should assess whether current internal definitions and cost-allocation methods would support the more granular reporting contemplated by the draft. The proposal is still early-stage legislation, but it points toward more standardized, quantitative, and facility-specific oversight.