On July 7, 2011, the Internal Revenue Service ("IRS") issued a notice (Notice 2011-52) regarding the community health needs assessment ("CHNA") requirements imposed under section 9007(a) of the Patient Protection and Affordable Care Act (Pub. L. No. 111-148, 124, March 23, 2010, as amended by the Health Care Education Affordability Reconciliation Act of 2010, Pub. L. No. 111-152, March 30, 2010) ("PPACA"). The notice provides an overview of certain key CHNA requirements that the IRS and the Treasury Department ("Treasury") anticipate will be included in forthcoming regulations. Certain key considerations addressed in the notice include the following:
- Background: Hospital organizations must comply with the CHNA requirements established under PPACA in order to qualify for or maintain exemption from taxation under section 501(c)(3) of the Internal Revenue Code (the "Code"). The notice emphasizes that hospital organizations that fail to comply with the CHNA requirements set forth under section 501(r) of the Code will not be treated as section 501(c)(3) entities.
- Scope: The notice indicates that until such time as additional guidance is issued by the IRS and Treasury, the CHNA requirements are applicable only to hospital organizations that operate a facility required by a state to be licensed, registered or similarly recognized as a hospital. In order to assist the IRS and Treasury in clarifying the nature of arrangements that will trigger the CHNA requirements, the notice also requests comments regarding the circumstances that should warrant an exclusion from the CHNA requirements for operations of a hospital conducted through a disregarded entity, joint venture, limited liability company or other entity treated as a partnership.
- Separate Reporting Requirements: The notice indicates that the Treasury and IRS intend to require a hospital organization operating multiple hospital facilities to document separately the CHNA and the implementation strategy for each of its hospital facilities. The separate reporting requirements may require certain hospital systems to modify current state reporting processes (e.g., California) that authorize the filing of a consolidated community needs assessment report for entities under the common control of a single parent entity. Thus, the Treasury and IRS are requesting comments as to whether and how the inclusion of multiple CHNAs in one written report might improve the quality of CHNAs while still providing clear and accessible information for each hospital facility.
- Process and Documentation: The notice indicates that hospitals are required to document the CHNA process pursuant to a written report. The written report must include a description of specified items, such as: (i) the community(ies) served by the hospital, (ii) the methods used to conduct the CHNA, (iii) the nature of input received by the hospital from persons who represent the broad interests of the community, (iv) the prioritized community health needs, and (v) the existing facilities and resources within the community that are available to meet the identified community health needs. The CHNA must be made "widely available" to the public (e.g., available on a web-site of the hospital or the entity that operates the hospital).
- Implementation Strategy: An authorized governing body of the hospital (i.e., board of directors or authorized committee) must adopt an implementation strategy that describes the hospital’s plan for meeting the identified health needs or the rationale for the lack of intent to meet the health need. The most recently adopted implementation strategy for each of the facilities is also required to be attached to the Form 990.
- Excise Taxes: The notice emphasizes that the $50,000 excise tax for the failure to comply with the CHNA requirements is imposed at the hospital level and not the parent entity level (i.e., a hospital system that fails to meet the CHNA requirements is subject to separate fines of $50,000 for each hospital facility in its system that fails to meet the CHNA requirements)
- Timing: The CHNA requirements are effective for taxable years beginning after March 23, 2012. Thus, a hospital must assure that the CHNA requirements are satisfied (i.e., the CHNA report is widely distributed and the implementation strategy is adopted for each of its hospital facilities) by the last day of its first taxable year beginning after March 23, 2012.
The notice indicates that the Treasury and IRS are seeking comments on key aspects of the CHNA, including: (i) the definition of certain key terms, (ii) the required content of the CHNA and the implementation strategy, and (iii) various procedural requirements (e.g., timing of the conduct of the CHNA and approval of the implementation strategy). Thus, the CHNA requirements set forth in the notice are subject to revision through the comment process and the subsequent issuance of regulations. The comments on the notice must be submitted on or before September 23, 2011.
Notwithstanding the potential further modification of the CHNA requirements, the notice is noteworthy because it indicates that hospital organizations may rely on the provisions set forth in the notice until the expiration of a six-month period following the date of the subsequent issuance of further guidance. The notice also gives valuable insight as to current view of the IRS and Treasury relating to the CHNA requirements that need to be followed by hospitals in order to avoid potential exposure to the $50,000 excise tax. Thus, hospitals should carefully evaluate the requirements set forth in the notice in order (1) to identify potential issues or concerns and (2) to assess the hospital’s ability to demonstrate its community benefit activities to the IRS, the community and other key stakeholders in accordance with the requirements set forth in the notice. Such evaluation should also include an assessment of the key processes impacted by the CHNA requirements, including:
- The hospital’s current community benefit programs and activities
- The hospital’s current community benefit planning, reporting and measurement processes, including those that may be required under various state laws (e.g., California SB 697)
- The existence of potential gaps between the expectations of the IRS described in the notice and the hospital’s current processes
- The existence of potential gaps between the actual needs of the community and/or expectations of hospital stakeholders and the actual level of community needs activity conducted by the hospital which will be reported through the CHNA process
- The need for any additional action to comply with the CHNA requirements or otherwise enhance the community benefit planning, reporting, measurement, programs or activities to meet the expectations of the IRS and the hospital stakeholders
- The availability of hospital resources to conduct the CHNA and execute the implementation strategy