T.J., a partner in the Health Law Practice Group, discussed, “Community Benefit, Community Health Needs Assessment” – number nine on the list.
2012 is the year in which many tax-exempt hospitals will have to conduct and report on their first ACA-required Community Health Needs Assessment (CHNA), or at least get ready to do so for their next tax year.
T.J. discussed the requirements and implications of New Code Sections 501(r) and Section 6033(b)(15)(a). He noted that “Conducting CHNAs and filling out an ever-expanding Schedule H may seem an expensive burden, but the time may come when they earn their keep.”
#9 Community Benefit, Community Health Needs Assessment –
One of the top developments for tax-exempt hospitals is that 2012 is the year in which many will have to conduct and report on their first ACA-required Community Health Needs Assess- ment (CHNA), or at least get ready to do so for their next tax year. This is only one of the provisions Senator Charles Grassley (R-IA) has sought to apply to the nonprofit hospital community, although he ultimately did not vote for the healthcare reform bill that enacted these new requirements into law. Grassley’s idea was not new. New York and California were among pioneering states that required community benefit needs assessments and plans in the early 1990s. The Health Plans and Provider Networks Working Group of the White House Task Force on Health Reform proposed such a require- ment in 1993 as part of President Clinton’s failed Health Security Act. The Catholic Health Association of the United States did much to translate the idea into a practical planning activity through their Social Accountability Budget documents. Senator Grassley and his staff, however, made a national CHNA requirement and more detailed reporting of community benefit a reality.
New Code Section 501(r) requires each licensed hospital to conduct a CHNA at least once every three years and adopt an implementation strategy to meet the needs identified through such assessment. The CHNA must take into account input from those who represent the broad interests of the community served by the hospital, including those with expertise in public health, and must be made widely available to the public. Section 6033(b)(15)(a) requires a hospital to describe how it is addressing the needs identified in its CHNA on its Form 990. The CHNA requirement is effective for tax years beginning after March 23, 2012.
Much of the controversy surrounding CHNAs stems from the fact that Congress specified in Section 501(r)(2)(B) that, if an organization operates more than one hospital facility, it must meet the Section 501(r) requirements, including the CHNA requirement, separately for each facility. The Internal Revenue Service (IRS), in Notice 2001-52, signaled its intention to issue regulations requiring that hospitals must document separately the CHNA and implementation strategy for each facility, although they can collaborate with other organizations when conducting CHNAs and developing implementation strategies. One requirement in Notice 2011-52 that has been criticized as unduly restrictive is the IRS statement that it expects to require in regulations that an implementation strategy be adopted by the hospital’s governing board by the end of the same year in which the CHNA is conducted.
The other big development that kicks off in 2012, but relates back to 2011, is that all hospitals will have to answer new ACA-driven questions on Form 990, Schedule H. In Notice 2012-4, the IRS notified tax-exempt hospitals that, beginning with the 2011 tax year, Schedule H, Part V, Section B is no longer optional, with the exception of lines 1-7. That means hospitals will have to answer detailed new questions about their financial assistance policy, billing and collections practices, and emergency medical policies. The questions are designed to establish whether each hospital meets the new requirements in Section 501(r). Perspectives vary, and there will always be some who criticize developments like these. “CHNAs signal the beginning of the end for hospital tax exemption,” some say while others believe that’s not likely. The IRS has neither the resources nor the interest to do much with CNHA data and has never seriously questioned hospital exemption, only behaviors. The real audience for community benefit information is and always has been the public. By avoiding transparency, the hospital community may allow weaknesses to go unchecked. Tax-exempt hospitals in Illinois probably now wish that some hospitals had not been left to engage unabated in some of their most inventive collection practices. Now, all Illinois property tax exemptions are in jeopardy. Recent news, though, is encouraging. Statewide, tax-exempt hospitals recently doubled the amount of community benefit they provide. They now will have an opportunity to work with the legislature to enact clear standards for exemption. Hospitals in Pennsylvania and Texas who did so years ago are largely happy with the standards they hammered out and with the decreased challenges to exemption.
For those who would prefer not to parse community need and benefit in the harsh light of day, the 1986 loss of exemption by Blue Cross organizations provides a cautionary tale. Many in Congress merely wanted to guide them back to their historical social welfare practices, such as open enrollment and community rating, but it was too late. In the context of overall tax reform, someone needed a revenue raiser and the Blues exemption was gone. Conducting CHNAs and filling out an ever-expanding Schedule H may seem an expensive burden, but the time may come when they earn their keep.
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