Washington County Health System, Inc

BUSINESS INTEGRITY PROGRAM Policy Manual

APPROVED: May 14, 1998 by BOARD OF DIRECTORS WASHINGTON COUNTY HEALTH SYSTEM formerly titled “Legal Compliance Program”

Revised 1/2001

9. Tax-Exempt Organizations

Washington County Hospital is organized as a non-profit hospital serving charitable purposes. This means the Hospital has federal tax-exempt status and does not have to pay federal income tax on most of its revenue. The Hospital also may accept contributions from members of the community. Donors may take a tax deduction for making a contribution to a charity. If the Hospital lost its exempt status, it would have to pay significant penalties and interest.

The Hospital must be operated solely for charitable purposes to maintain its tax exemption. The Hospital must provide community benefits like promotion of health and the operation of an emergency department open to everyone. Private individuals may not profit from any of its earnings. Such private profits are called “inurement”. Any "private inurement" could cause the Hospital to lose its tax-exempt status. A person may not receive more than a casual benefit from Hospital assets. The amount allowed is measured against the total community benefit provided by the Hospital.

Because the Hospital is dedicated to its charitable purposes, all contracts and agreements must be negotiated fairly. Compensation provided to employees and physicians for recruitment, retention, employment, and personal services must be reasonable for the services provided and the need for them. Reasonableness is based on overall compensation and benefits. Areas of particular concern are bargain rents, incentive compensation, income guarantees (especially where there is no obligation to repay), bargain-rate loans, and loan guarantees. Any contract or arrangement involving one of these benefits must be reported to the Director of Business Integrity. If an employee is concerned that payments by the Hospital may violate these standards, these circumstances should be reported to the employee's supervisor or to the Director of Business Integrity.

The Hospital must report any income earned from activities not related to its charitable purposes. Appropriate federal and state income taxes must be paid. Failure to report accurate compensation information may be seen as fraud. Fraud charges could result in criminal prosecution and loss of exempt status for the Hospital.