On April 5, 2013, the Internal Revenue Service (IRS) and the Treasury Department provided additional guidance for 501(c)(3) hospitals conducting community health needs assessments (CHNAs) as required by the Affordable Care Act, available here in the Federal Register (Proposed Rule). Hospitals are required to conduct and complete their first CHNA and implementation strategy for their first tax year that begins on or after March 23, 2012 (e.g., tax year July 1, 2012-June 30, 2013 for July 1 fiscal year hospitals). Both the CHNA and the implementation strategy must be completed by the end of such year.
Proposed Rule With Safe Harbor-Like Effects
While the guidance is still not finalized, the statutory requirement that a hospital must conduct a CHNA is already in effect for all hospitals. Although the Federal Register’s April 5, 2013, guidance is in the form of a proposed rule, hospitals are entitled to rely upon it to fulfill the statutory requirement already in effect. Moreover, the Proposed Rule replaces the previous guidance upon which hospitals were allowed to rely, IRS Notice 2011-52. Thus, it is a Proposed Rule with safe harbor-like effects.
IRS Notice 2011-52, issued in July, 2011 (Notice), provided guidance on the requirements for conducting a CHNA and the corresponding implementation strategy. In that notice, Hospitals were informed they could rely upon that guidance until six months following the issuance of additional guidance. With the April 5, 2013, issuance of such additional guidance in the form of the Proposed Rule, hospitals may only rely upon the Notice through October 5, 2013, at which point that guidance is rendered obsolete. Consequently, hospitals that have conducted and completed the CHNA and implementation strategy by October 5, 2013, are not required to apply the guidance provided in the April 5, 2013, Proposed Rule to that CHNA or implementation strategy.
Similarly, hospitals are entitled to rely upon the guidance provided in the Proposed Rule for up to six months following the issuance of the final rule on CHNA requirements.
Interplay with Other 501(r) Requirements
Section 9007 of the Affordable Care Act created new statutory section, IRC 501(r), that added four new requirements for 501(c)(3) hospitals, including the CHNA requirement. Unlike the two-year delayed effective date for the CHNA requirement, the other three requirements became effective March 23, 2010. Those three requirements were: (1) hospitals must have financial assistance policies and policies requiring emergency care regardless of financial resources; (2) hospitals are prohibited from using gross charges and must limit charges for those eligible for financial assistance to the lowest amount charged to any other payor; and (3) hospitals are prohibited from engaging in extraordinary collection efforts before making reasonable efforts to determine eligibility for financial assistance.
The IRS and Treasury Department issued a proposed rule regarding the other three 501(r) requirements on June 26, 2012. The April 5, 2013, Proposed Rule regarding CHNA requirements includes some provisions that borrow from a proposed rule issued on June 26, 2012, which also modifies some of those provisions. The IRS and Treasury Department intend to issue one final rule containing the requirements for all four elements of 501(r).
Notable Guidance from Proposed Rule
For the most part, the April 5, 2013, Proposed Rule adopts the guidance and the theme of flexibility incorporated in the Notice. Among the notable pieces of new or modified guidance from the Proposed Rule are:
- Board Approval of CHNA Now Required – Throughout the preamble discussion of the Proposed Rule, the IRS and Treasury Department presumptively assume the prior Notice contained a requirement that the CHNA report must be approved by the hospital’s “authorized body” (i.e., its Board). The Notice clearly did not require or even imply that was required of the CHNA, although such approval is required for the implementation strategy resulting from the CHNA. The Proposed Rule now makes clear that the CHNA must also be approved by the Board, and the preamble discussion might also mean that such approval was required by the Notice. (We were recommending this practice anyway.)
- Only “Significant” Health Needs Must Be Identified and Prioritized – The Proposed Rule makes clear that hospitals can limit the potentially endless list of health needs in a community to those that are “significant” as determined by the hospital “based on all of the facts and circumstances present in the community it serves.” The Proposed Rule also provides suggested criteria that may be used to prioritize the significant health needs it identifies, including the burden, scope, severity or urgency of the health need; the estimated feasibility and effectiveness of possible interventions; the health disparities associated with the need; or the importance the community places on addressing the need.
- New Minimum Standards for Including Input from “Persons Representing the Broad Interests of Community” – The Proposed Rule modifies and clarifies the minimum requirements for a CHNA’s input from persons outside of the hospital. The minimum requirements include: (1) at least one representative of a state, local, tribal or regional governmental public health department with knowledge, information or expertise about the community’s health needs; (2) members of medically underserved, low-income and minority populations or organizations serving or representing the interests of such individuals; and (3) written comments received from the hospital’s most recently conducted CHNA and implementation strategy. While the first two requirements are similar to requirements in the Notice, the third is new and requires hospitals to develop mechanisms to solicit and receive such comments.
- Required Elements of the Written CHNA – The Proposed Rule reiterated and largely clarified the six required elements in a written CHNA: (1) the definition of the community served; (2) the process and methods used to conduct the CHNA; (3) a description of how the hospital took into account input from persons who represent the “broad interests of the community served” as a part of the CHNA process; (4) the prioritized description of the significant health needs of the community; (5) a description of the process and criteria used to identify certain health needs as significant and prioritize them; and (6) a description of the possible measures and resources for addressing the identified needs. The Proposed Rule sets forth circumstances as to how the elements are deemed to be satisfied.
- Each Hospital Must Conduct Its Own CHNA, with One New Exception – The Proposed Rule reiterated its prior guidance that hospitals can collaborate with other hospitals and organizations to conduct the CHNA, but must ultimately adopt its own CHNA. However, the IRS and Treasury Department did create an exception that allowed for a joint CHNA if (1) all hospitals adopting the joint CHNA are clearly identified; (2) the CHNA process is conducted jointly; (3) each hospital defines the community it serves in the same terms; and (4) each hospital’s authorized body adopts the joint CHNA.
- New Requirement to Make Prior Year CHNAs Available – The Proposed Rule adds a new requirement that hospitals must post on their websites not only their current CHNA, but also their prior two CHNAs.
- New Requirements for Implementation Strategies – In addition to the previous requirement that a hospital describe its plans for addressing an identified health need in its implementation strategy, the hospital must also describe the “anticipated impact” of such actions and how it will monitor and evaluate such impact. As with the exception permitted for joint CHNAs, a hospital may also have a joint implementation strategy under certain circumstances.
- Changes to Reporting Requirements – Two important changes are proposed for the reporting requirements related to the implementation strategy that must be attached to the annual Form 990 tax return. First, hospitals are permitted to provide a URL link to their web page in lieu of attaching a written document. Second, even though hospitals are only required to conduct CHNAs once every three years, they are required to annually provide information setting forth “a description of how the organization is addressing the needs identified” in each CHNA.
- Correction and Disclosure of Errors – The Proposed Rule provided some guidance, and promised future guidance concerning the effects of a CHNA or implementation strategy that does not meet the statutory or regulatory requirements. “Minor and inadvertent omissions and errors” will not result in an excise tax or revocation if corrected promptly after discovery of the error. For other errors or omissions, the IRS intends to issue future guidance for circumstances when non-compliance is neither willful nor egregious and therefore excused from non-compliance so long as the hospital corrects the error and discloses the error and its correction.