Item #1. If he’s 73, why do you think there *is* a 10% penalty on his IRA or 401K? Usually there isn’t one once he’s past 59.5 years of age. (Off the top of my head, the only thing I can think of is a ROTH IRA that hasn’t been open for 5 years.)
Income tax always applies unless he had non-deductible contributions (the 1099-R will split any out) or this was an eligible distribution from a ROTH IRA.
His ability to deduct the medical expenses on his schedule A (and thus reduce the tax bill) depends on whether or not you are his dependent for medical purposes (you can be a dependent if he supported you, even if you made more than $4000). You need to be a dependent at the time the services are rendered *or* when paid. The schedule A is calculated for the year the expenses are paid.
In the UNLIKELY event the 10% penalty applies to him there is an exception to the 10% if you are a) his dependent for medical purposes and b) the amount spent on medical expenses exceeds 7.5% of his income (including the taxable amount he pulls out of the retirement account). If these are the only medical expenses, the first
7.5% won’t be counted and he’d owe 10% of that in penalty. In the unlikely event the penalty applies, he’d want to ensure the year the money was distributed AND the year the expenses are paid are the same.