Part III is about your bad debt and collections practices, and some information about work you bill to Medicare. For all lines, if your organization is a part owner of a joint venture, report the proportionate amount that’s allocable to your organization.
Line 1 asks if you use Healthcare Financial Management Association Standard #15. This isn’t required, and hasn’t been adopted by the AICPA as a requirement under GAAP. It provides details for recordkeeping, valuation, and disclosure related to bad debts.
On line 2, report your total bad debt expense, and in Schedule H, Part VI, report the methodology you use to value bad debt expense. This should reflect how you track discounts and payments on patient accounts and their impact on calculating bad debt expense.
On line 3, report the portion of bad debt reasonably attributed to patients who you believe would qualify for financial assistance under your financial assistance policy reported in Part I, lines 1-4, but you didn’t have enough information about the patients to determine their eligibility. Don’t include this amount in Part I, line 7, since that would double-count it. You may identify patients as possibly eligible for assistance based on record reviews, assessing financial assistance applications that were denied due to incomplete documentation, analyzing demographics, or other reasonable methods. Describe in Schedule H, Part VI the method you use to estimate this amount and the rationale if you included some bad debt as community benefit.
Line 4 asks you to include in Schedule H, Part VI the footnote from your audited financial statements related to bad debt expense or, if applicable, accounts receivable, allowance for doubtful accounts, or similar items. If you’ve attached your financial statements to your Form 990, you can just report the page number(s) where the footnote is. If you don’t have such a footnote in your financial statements, report this fact in Part VI, but still disclose how you account for bad debt.
For lines 5-8, only include the allowable costs and Medicare reimbursements that are reported on your Medicare Cost Report(s) for the year. Leave out Medicare-related revenue and expenses that you reported in Schedule H, Part I, line 7f and 7g. in Part VI, you’ll report what portion of your Medicare shortfall you believe falls under the definition of community benefit, and the rationale for this amount. You can also include in Part VI your Medicare revenue and expenses that aren’t in your Medicare Cost Report(s) and reconcile them to what’s in line 5-8. In the instructions to Schedule H, worksheets 5 and 6 on pages 20-21, and a supplemental worksheet A on page 6, will help you with the numbers you report on these lines.
Check yes on line 9a if you had a written debt collection policy in place during the fiscal year you’re reporting on your Form 990 that includes actions you’ll take if a patient doesn’t pay for services billed to him or her, including collection actions and reporting to credit agencies. On line 9b, check yes if the debt collection policy that applied to the largest number of patients during the fiscal year had provisions for patients who qualify for financial assistance. If you check yes, report in Schedule H, Part VI the practices you use for these patients, and whether they apply specifically to these patients, or also cover other types of patients.
Schedule H can be found here, and more detailed instructions for filling it out are provided here. I am covering other parts of Schedule H in additional posts. (Part I | Part II | Part IV)