What Hospital Boards Should Know About Form 990

October 2016

Many not-for-profit hospital boards are comprised of non-healthcare executives and those that are not familiar with tax-exempt, nonprofit organizations. If your board members have been paying little to no attention to how the Form 990 is completed, we suggest they change their priorities.
Having tax-exempt status relieves the organization of most federal and state corporate income tax liabilities, and it confers the ability to receive tax-deductible charitable contributions. However, those benefits come with many restrictions on income, fundraising, meetings, educational programs, publications, lobbying and political action, standard setting, and other activities. Failure to comply with these restrictions can result in financial and administrative penalties – and can jeopardize an organization’s tax-exempt status altogether. As care providers continue to build new network partnerships along the care continuum and to branch into telehealth, medical device investment and other initiatives, they expose themselves to new potential breaches of tax-exempt restrictions.
The IRS’ principal tool for monitoring compliance is the very comprehensive Form 990. The Form 990 must be filed annually. To protect their organization’s tax-exempt status, board members should have a basic understanding of the restrictions imposed by the tax laws, and implement policies and procedures responsive to these requirements as well as the Form 990 reporting mandates.

For hospitals, the Form 990 is asking leaders to prove they are responsible stewards of public funds. The Form 990 is designed to enhance transparency through a clearer picture of the organization’s mission, finances, operations, and use of resources. The Form 990 specifically asks if all board members received a copy prior to it being filed with the IRS. While there is little personal responsibility if they did not receive a copy prior to filing, the board should be more concerned about the potential claims or appearance of poor governance associated with choosing to forego the receipt of this critically important and widely available public document.

As a publicly available document, many third parties will likely seek copies of your organization’s 990, including, but not limited to, grant makers, media, and potential donors. It is important that the 990 tells your organization’s story in a positive and accurate manner. Because of which, it may be important to have a board committee that reviews the Form 990 and adds scrutiny to certain areas. (For additional detail, see 11 Risks Hidden In Your Form 990.)
The Patient Protection and Affordable Care Act added additional requirements that a hospital organization must meet to qualify for tax exemption. These additional requirements cover a hospital’s financial assistance (charity care) policy, policies related to emergency medical care, billing and collection, and charges for medical care. Additionally, each hospital organization must conduct community health needs assessments at least once every three years. The health needs assessment may include a definition of the community served, demographics of the community, existing health care facilities that are available to respond to the health needs of the community, how the data was obtained, the health needs of the community, primary and chronic disease needs of the community’s uninsured and low income persons, the process for identifying and prioritizing the community health needs, the process for consulting with people representing the community’s interests, etc. This needs assessment generally should be made available to the public. (See Four Steps Nonprofit Hospitals Should Take to Help Retain Their Tax-Exempt Status.)
Although the Form 990 can be intimidating at first blush, its coverage of financials, programmatic achievements, executive compensation, and governance policies should be familiar territory for a board. Organizations that engage and educate their board members about the Form 990 will benefit from more constructive feedback that in turn results in a public document that best reflects the organization and its values.