By Sara Rosenbaum

Introduction

On July 7, 2011, the Treasury Department and the Internal Revenue Service (IRS) published a Notice and Request for Comments on a proposed policy regarding the Affordable Care Act’s new requirements related to tax exempt hospitals’ community health needs assessment (CHNA) obligations. Section 9007 of the Act added new Section 501(r) to the Internal Revenue Code, which delineates a series of statutory requirements, outlined in a previous implementation brief, applicable to nonprofit hospitals that seek tax-exempt status under Section 501(c)(3). The purpose of the Treasury/IRS Notice is to both describe the agencies’ approach to implementing hospital organizations’ CHNA obligations and to invite comments regarding their proposals. The CHNA requirements are effective for taxable years beginning after March 23, 2012. However, the Notice specifies that hospitals currently engaged in conducting CHNA-related activities — including development and wide publication of a needs assessment and adoption of an implementation strategy — can rely on the policies contained in the Notice as they move forward.

Elements of the proposed CHNA policy

The Affordable Care Act addresses a range of issues: the scope of the obligation and the hospital organizations affected, including its impact on each facility owned by an organization; the methods to be used in developing a CHNA and implementation strategy; the public consultation process that will be required; the methods used to conduct the assessment; the adoption of an implementation strategy; penalties for failing to comply with the new requirements; and reporting requirements and effective dates. The Notice indicates that the IRS rule will address policies on the full range of matters related to the law.

Hospital organizations required to meet CHNA requirements. The Notice indicates that all hospital organizations operating state-licensed health care facilities will be covered, regardless of whether they are the sole operators or operate hospitals in partnerships or joint ventures that are treated as activities of the tax-exempt partner. The policy also reaches government hospitals operated under Section 501(c)(3) while inviting comments on alternative approaches to CHNA that might be used in the case of government facilities. The Notice also indicates that should the IRS determine that other types of organizations should be covered because their principal function or purpose is the provision of hospital care, its policies will apply only after formal notice and opportunity to comment through the rulemaking process.

Hospital organizations with multiple facilities. The IRS Notice provides that in the case of hospital organizations with one or more hospital facilities, the organization will be required to satisfy the CHNA requirements for each separate hospital facility. Thus, an organization with 20 hospitals will have to satisfy CHNA requirements for each hospital. Although a hospital organization will be permitted to collaborate with other entities and organizations in conducting CHNA activities, the organization will also be expected to demonstrate CHNA compliance for each facility.

Documenting the CHNA. Under the ACA, a hospital organization must “conduct” a CHNA once every 3 years. The Notice defines a CHNA as a:

“written document developed for a hospital facility that includes a description of the community served by the hospital facility; the process used to conduct the assessment including how the hospital took into account input from community members and public health experts; identification of any persons with whom the hospital has worked on the assessment; and the health needs identified through the assessment process.”

A hospital organization will be required to prepare a written report:

(1) describing the community served and how the community was determined;

(2) describing the process and methods used to conduct the assessment including “a description of the sources and dates of the data and other information used in the assessment and the analytical methods applied to identify community health needs”;

(3) describing how the organization took into account input from persons representing the broad interests of the community served by the hospital facility, including a description of when and how the hospital consulted with these persons or the organizations they represent. The organization must “identify any individual providing input who has special knowledge of or expertise in public health by name, title, and affiliation and must provide a brief description of the person’s special knowledge.” The organization also must identify any individual providing input who is a “leader” or “representative” of certain populations;

(4) describing prioritized community health needs identified through the CHNA “as well as a description of the process and criteria used in prioritizing such needs;”

(5) describing the existing health care facilities and other resources within the community and available to meet community health needs. The organization must specify each of the community health needs identified through a CHNA for a hospital facility in its implementation strategy.

How and when a CHNA is conducted. The Notice provides that an organization must conduct a CHNA in the taxable year in which it is due or in the two immediately preceding years. A CHNA will be considered “conducted” in the taxable year that the written report of its findings, as described above, is “made widely available to the public,” as defined in the Notice. A CHNAs will be considered “conducted” only if it identifies and assesses the health needs of, and takes into account input from persons who represent the broad interests of, the community served by a specific hospital facility. Thus, while hospital organizations may base a CHNA on information collected by other organizations or to develop CHNAs in collaboration with other organizations (e.g., public health agencies, other hospital organizations), a separate CHNA report must be written for each hospital facility that covers all required information. The agencies request comments on the circumstances under which documenting CHNAs for multiple hospital facilities together in one written report “might improve the quality of the CHNAs while still ensuring that the information for each hospital facility is clearly presented and easily accessible.”

Community served by a hospital facility. The agencies propose that hospital organizations may take a “facts and circumstances” approach to the question of what community is served by a hospital. “Generally Treasury and the IRS expect that a hospital facility’s community will be defined by geographic location.” However, a hospital’s community may take into account target populations served. The agencies caution that “[n]otwithstanding the foregoing, a community may not be defined in a manner that circumvents the requirement to assess the health needs of (or consult with persons who represent the broad interests of) the community served by a hospital facility by excluding, for example, medically underserved populations, low income persons, minority groups, or those with chronic disease needs. The agencies seek comments on different geographic definitions of “community.”

Persons representing the broad interests of the community. The agencies set forth minimum criteria aimed at determining whether the persons consulted with represent the “broad interests” of the community. At a minimum, consultations must take into account input from (1) persons with special knowledge of or expertise in public health; (2) federal, tribal, regional, state or local health or other departments or agencies with current data or information relevant to the health needs of the community served by the facility; (3) leaders, representatives, or members of medically underserved, low income, and minority populations, and populations with chronic disease needs, “in the community served by the hospital facility.” The agencies also suggest categories of people and organizations including healthcare consumer advocates, academic experts, health care providers including community health centers and other providers focusing on medically underserved populations, and others.

Making a CHNA widely available to the public. In order to be considered widely available to the public, the written report documenting the CHNA must be posted on the hospital facility’s website or that of its parent organization if it does not have its own website. Hospitals may use another website if links and access instructions are clear. Individuals must be easily downloadable and must be posted in a format that “when accessed, downloaded, viewed and printed in hard copy, exactly reproduces the image of the report.” No fees may be charged. The CHNA must remain widely available until the date that a subsequent CHNA is made widely available. The agencies request additional comments on the question of how CHNAs can be made widely available.

Implementation strategy. The agencies make clear that a hospital meets its CHNA requirements only if it also has “adopted an implementation strategy to meet the community health needs identified through the CHNA.” Each hospital facility must have a separate implementation strategy, which is defined as “a written plan that addresses each of the community health needs identified through a CHNA for such facility.” For each identified health need therefore, there must be an implementation strategy. A strategy is considered as addressing a health need identified through a CHNA for a particular hospital facility “if the written plan either (1) describes how the hospital facility plans to meet the health need; or (2) identifies the health need as one the facility does not intend to meet and explains why the hospital facility does not intend to meet the health need.”

The description of how the hospital facility intends to meet a need must be “tailor[ed]” to the particular hospital facility, taking “into account its specific programs, resources, and priorities.” Hospital organizations must attach the most recent implementation strategy for each of their hospital facilities to their 990 forms, which are used to report their activities. The Notice allows an implementation strategy to be developed in collaboration with other organizations, in which case the strategy should list all collaborators. At the same time, the strategy must show the particular activities for the particular hospital facility covered by the strategy. The agencies seek comments regarding whether and under what circumstances a multi-hospital implementation strategy document might improve the quality of the strategy while “still ensuring that information for each hospital facility is clearly presented and easily accessible.”

How and when an implementation strategy is “adopted.” The agencies will consider an implementation strategy to be adopted on the date that it is approved by the hospital organization’s governing body. The strategy must be adopted “by the end of the same taxable year” in which the hospital organization conducts the CHNA.

Penalty for failure to meet CHNA requirements. The agencies will impose a $50,000 excise tax on any hospital organization that fails to satisfy the CHNA requirements with respect to “a” hospital facility. Each facility therefore will be subject to the tax in the case of a hospital organization with multiple facilities.

Reporting requirements related to CHNAs. Tax exempt organizations must file a 990 form annually and must respond to the CHNA questions already added to the form beginning March 23, 2012, attaching their “most recently adopted” implementation strategy for each hospital facility. (Government hospitals are not required to file form 990s or their implementation strategies, although the CHNA obligations apply to them).

Effective dates. The CHNA and implementation strategy requirements are effective the last day of a hospital’s first taxable year beginning after March 23, 2012. Hospitals working on CHNAs in advance of the mandatory effective date may rely on the Notice for federal policy to guide their efforts.