To maintain a not-for-profit hospital’s tax-exempt status, it must conduct a Community Health Needs Assessment (CHNA) every three years; develop an implementation strategy based on identified health needs; measure the impact of its community benefit programs; and report annually to the IRS on Form 990, Schedule H. It’s a mandate in the Affordable Care Act (Section 4959) that doesn’t get as much attention as it should and the subject of an ongoing debate in the industry.
Background: What constitutes a community benefit essentially falls into three broad categories of activity: 1-free and discounted care to those unable to afford health care (not including bad debt), 2-care provided to low-income beneficiaries in Medicaid, CHIP and other programs and 3-services that improve community health and increase access to health care. In the Affordable Care Act’s guidance (December 14, 2014), activities to prevent illness, ensure adequate nutrition, address social, behavioral, and environmental factors are included in category three along with emergency preparedness and other efforts. But the majority of activity (85%) reported to the IRS is in categories 1 and 2—financial adjustments and operational procedures useful to helping low income individuals address their hospital or medical bills. Only 15% goes toward improvement of the public’s health per the Hilltop Institute’s analysis of filings from the 2,845 tax-exempt hospitals and health systems. Though the IRS does not have a required community benefit threshold requirement, it can assess a $50,000 excise tax as a penalty for those that do not show significant investment in these activities.
The current debate: Tax exemption for our not-for-profit hospitals is an important benefit: since inception in 1954 until 2008 when Schedule H was added to the Form 990 required of all tax-exempt organizations, it remained a loosely regulated standard subject to voluntary reporting by hospitals. The result was wide variation in what and how much was reported. In a Health Affairs Brief, February 25, 2016, the evolution of the community benefit standard since 2008 and its inclusion in the Affordable Care Act is well-chronicled: what’s evolved are expanded categories for inclusion and increased reporting requirements for hospitals. But there is no set standard for its measurement.
A feisty debate has simmered for years pitting the 1,034 investor-owned hospitals against the tax exempts around the issue of tax exemption. A 2013 study placed the value of that exemption at $24 billion—a significant advantage in competing for managed care contracts against investor-owned facilities that pay corporate taxes after their costs. The tax exempts, especially private academic and teaching hospitals, counter that they offer services that most investor-owned hospitals don’t—like trauma, neonatal intensive care, et al—and attract sicker and less well-insured patients. It’s a debate that’s likely to heat up as margins in the acute sector are threatened by uncertainty about insurance coverage, expected cuts in Medicare and Medicaid, declining funding for public health programs, higher costs for drugs, hospital wages and capital. Every nickel helps! So, the IRS will be watching for infractions of the community benefit mandate closely and advocacy efforts by the respective hospital trade groups will likely posture their positions aggressively.
Beyond these daunting challenges facing the acute sector, there’s a second reason the community needs requirement will get more attention: the status of the public’s health is eroding. While progress has been made in reducing smoking, alarming pandemics around obesity, mental health, opioid addictions and many others have increased at alarming rates. And the hardest hit hospitals are tax exempts located in communities where our most vulnerable demographic cohorts reside. Research shows clear causality between social determinants of health and substandard care and suboptimal outcomes, so for many tax-exempt hospitals, it’s an uphill battle to improve their community’s health. That’s why the Community Health Needs Assessment (CHNA) is so complicated.
So, hospital leaders and directors must take a fresh look at their community needs assessment plan: here are some considerations:
- The Community Health Needs Assessment Plan (CHNA) needs high level attention by hospital leaders and boards in tax-exempt organizations. It will be scrutinized closely by competitors and the IRS as challenges to tax exemption increase. It should be a priority for tax-exempt hospital boards.
- Strategic investments in addressing category three community needs require thoughtful measurement of how social, clinical and structural elements of the hospital’s services are designed. Organizations should investigate trends and correlations between local social determinants and outcomes and access. Written policies about Financial Assistance is inadequate: providing mechanisms whereby underserved patient populations can become aware and participate in programs is necessary.
- Tax-exempt organizations should monitor the IRS filings of other tax-exempt organizations and measure needs assessment investments in competing settings. Insight about the investment levels, programs and results of competitor CHNA efforts is valuable.
- Increasing the recognized value of public health improvement efforts by community leaders, policy-makers and regulators at the state and local levels is vital. Tell the story and show results. Tax exemption is certain to get more attention as systems consolidate, regionalize and diversify.
- Connecting local public health programs and resources with the hospital’s population health, accountable care and primary care strategies is important. The patchwork of state and federal public health programs should be inventoried and integrated.
Lest it be forgotten, 1 in 4 in our population and 4 in 10 of our kids are in need of healthcare services that are inaccessible due to their social or economic circumstances. And 6 in 10 adults struggle with one or more chronic ailments. The public’s health is not good nor improving. That’s why the Community Health Needs Assessment mandate needs fresh attention by hospitals! It’s not getting the attention it needs.
P.S. This week marks the tragic one year anniversary of the Pulse Night Club mass shooting in Orlando that claimed the lives of 50 and sent scores to nearby hospitals. Saturday night’s London Bridge killing of 7 likewise sent 48 to hospitals, and similar stories can be told for first responders and care givers called into action in Manchester, England, Portland Oregon and others. Every hospital, not-for-profit and investor-owned, is required to practice these responses for tragedies like these, or pandemics, natural disasters and more. They’re the backbones of how communities respond--