IRS releases Notice 2011-52 on requirements to meet the community health needs assessment (CHNA) required by the Patient Protection and Affordable Care Act (P.L. 111-148).
As expected, the Notice requires that the assessment standard will be required for each hospital facility in a system of hospitals. The Notice substantially tracks the legislation under section 501(r) but leaves open several important issues. It also allows hospitals to rely on this initial guidance until six months after further guidance is issued. The IRS has asked for comments on the new requirements.
Hospital Organizations Required to Meet CHNA
A state-licensed hospital facility operated through a disregarded entity, like an LLC or other joint venture treated as a partnership will be subject to section 501(r) when one party is a section 501(c)(3) organization. This also means that government hospitals that are (or seek to be) recognized under section 501(c)(3), even if they have a dual status under section 115 and section 501(c)(3), will be subject to alternative methods of complying with section 501(r)(3) even if they are not required to file information return Form 990, but are required to file a business income tax Form 990T. Moreover, hospital facilities located outside of the United States will not be considered a state-licensed facility.
Hospital Organizations Operating Multiple Hospital Facilities
The Notice requires that hospital organizations operating more than one hospital facility must meet the requirements of section 501(r) separately with respect to each hospital facility and will not be treated as an organization described in section 501(c)(3) with respect to any hospital facility for which the requirements of section 501(r) are not separately met. The IRS and Treasury intend and require that a hospital conduct and adopt an implementation policy for each hospital facility it operates.
Documentation of a CHNA
Written report including:
- A description of the community served.
- Process and methods used to conduct the assessment including collaboration with other hospital organizations.
- Identification of organizations with whom hospital organizations consulted.
- Prioritized description of all of the community health needs identified by the CHNA.
- Description of existing healthcare facilities within the community available to meet the community health needs identified in the CHNA.
- An implementation strategy that is separate from the written report specifically addressing each of the community health needs. The implementation strategy must be approved by an authority or governing body of the hospital organization.
Conducting the CHNA
The CHNA must be conducted in the tax year that a written report is made widely available to the public. Hospitals can use information collected by public health agencies or other nonprofit organizations including collaboration with other nonprofit or for profit hospital organizations and local public health departments.
What Guidance Did The IRS Fail To Provide?
The effect on a hospital system when one hospital as part of a system fails to meet the 501(r) requirements. It had been suggested by various commentators that the system should still be able to qualify under 501(c)(4) until all the individual hospitals are in compliance. We will have to await further guidance on that issue because the IRS and Treasury have deferred to future guidance the consequences of a failure to meet the CHNA requirements.
What Issues Are Causing Hospitals Concern?
- Requirement that hospitals adopt an implementation strategy and have it approved by the board of directors or committee of a board before the end of the tax year. The perceived problem is that hospital boards only meet once a quarter and the assessment has to be conducted in the same tax year.
- Requirement for hospitals to address “all identified needs” in the implementation study when section 501(r) only contemplated that a hospital could choose those priorities which need to be addressed.
- “Community severed” under the proposed Notice is defined by its geographic locations and target populations. It does not mention teaching and research activities which are important activities for hospitals that draw international patients.
For a further discussion of section 501(r) and initial concerns raised by the nonprofit community, see “IRS Offers Three-Month Filing Extension of Form 990 for Exempt Hospital Entities,” “Nonprofit Health Lawyers Present Unique Approach to Section 501(r),” “IRS Addresses Hospital Concerns Regarding Section 501(r),” “Nonprofit Hospitals in Need of an Aspirin.”