On July 7, 2011, the Internal Revenue Service (IRS), together with the Treasury Department, issued a Joint Notice (#2011-52) of proposed regulatory provisions regarding community health needs assessments (CHNA) which are described in IRS Code Section 501(r)(3). These proposed regulatory provisions: (i) are required under Section 9007(a) of the Patient Protection and Affordable Care Act of 2010 (PPACA); (ii) will become effective in tax years beginning after March 23, 2012; and (iii) describe related excise tax and reporting obligations.  According to this notice, hospital organizations will not be treated as described in IRS Code Section 501(c)(3) unless they satisfy the requirements specified in IRS Code Section 501(r), including the CHNA requirements described in that section.

Hospital Organizations Required to Meet the CHNA Requirements

Under IRS Code Section 501(r)(2)(B), a hospital organization that operates more than one hospital facility: (i) must meet the requirements of Section 501(r) [to conduct a CHNA and adopt an implementation strategy] separately with respect to each hospital facility; and (ii) shall not be treated as described in Section 501(c)(3) with respect to any hospital facility for which the requirements of Section 501(r) are not separately met. In addition, the hospital organization operating multiple hospital facilities must separately document the CHNA and the implementation strategy for each of its hospital facilities.

A hospital organization will be required to conduct a CHNA that meets the requirements of Section 501(r)(3)(B) at least once every three (3) taxable years.  The Treasury Department and the IRS intend to consider a CHNA as being “conducted” in a taxable year that the written report of its findings is made widely available to the public.  Additionally, the Treasury Department and the IRS require that the CHNA will satisfy the requirements with respect to any hospital facility only if it identifies and assesses the health needs of, and takes into account, input from persons who represent the interests of, the community served by that specific hospital facility.  However, a hospital organization may rely on information collected by other organizations such as public health agencies or non-profit organizations and intends to allow a hospital organization to conduct a CHNA in collaboration with other organizations, including related organizations, other hospital organizations, for-profit and government hospitals, and state and local agencies, such as public health departments. 

Community Served by a Hospital Facility

The Treasury Department and the IRS intend to provide that a hospital organization may take into account all of the relevant facts and circumstances in defining the community a hospital facility serves.  Generally, the Treasury Department and the IRS expect that a hospital facility’s community will be defined by a geographic location.  However, in some cases, the definition of a hospital facility’s community may also take into account the target population served and/or the hospital facility’s principal functions.  Additionally, the CHNA must take into account input from persons who represent the broad interests of that community served by the hospital facility, as defined, including those individuals with special knowledge or expertise in public health.

Making a CHNA Widely Available to the Public

Another aspect of this CHNA process is that a hospital organization will only be considered to have “conducted” the CHNA in the taxable year in which the CHNA findings of the hospital’s facilities are made widely available to the public.  A hospital organization will be considered to have made a hospital facility’s CHNA widely available to the public by posting a written report of the CHNA findings on the hospital facility’s website or, if the hospital facility does not have its own website separate from the hospital organization that operates it, on the hospital organization’s website.  In addition, the Treasury Department and the IRS intend to require that: (i) the website clearly informs readers that the document is available and provides instructions for downloading; (ii) the document is posted in a format that exactly reproduces the image of the report; (iii) any individual with access to the Internet can access the CHNA and they do so without payment of a fee to the hospital organization; and (iv) the hospital organization can provide to any individual requesting a copy the direct website address.  A CHNA through a hospital facility must remain widely available to the public until the day on which a subsequent CHNA of that hospital facility is available.

Implementation Strategy

A hospital organization must meet the requirement to adopt an implementation strategy separately with respect to each hospital facility it operates.  An “implementation strategy” is a written plan that addresses each of the community health needs identified through a CHNA for that facility.  This implementation strategy should describe how the hospital facility plans to meet the health needs identified through the CHNA and identify and explain how a hospital does not intend to meet any particular health need.  This implementation strategy is considered adopted on the date that it is approved by the authorized governing body of the hospital organization.

Excise Tax on Failures to Meet CHNA Requirements and Reporting Requirements Related to CHNAs

Any hospital organization that fails to meet the CHNA requirements with respect to any taxable year would be assessed a $50,000 excise tax in any three (3) year period.  The IRS may impose this excise tax on a hospital organization separately with respect to each hospital facility’s failure to meet the CHNA requirements.  A hospital organization is required to report on its annual information return (Form 990) the amount of the excise tax imposed on the organization, if any. Additionally, a hospital organization must report on its annual Form 990 a description of how the organization is addressing the needs identified in each CHNA and provide the description of any such needs that are not being addressed together with the reasons why such needs are not being addressed. The IRS has added new questions to Schedule H, Hospitals, of Form 990 to reflect these new reporting requirements.

This Notice is available at:  http://www.irs.gov/pub/irs-drop/n-11-52.pdf