The Internal Revenue Service has proposed guidelines detailing how tax-exempt hospitals can conduct a Community Health Needs Assessment (CHNA), as required in the 2010 Patient Protection and Affordable Care Act (PPACA). Although this new requirement is not effective until taxable years commencing after March 23, 2012, the IRS issued its guidance now because hospitals may choose to start the process of conducting CHNAs and implement strategies in advance of the effective date. Despite the guidance, some questions remain about how hospitals, and especially health systems that have multiple hospitals, will implement the CHNA. Hospitals that fail to conduct a CHNA face an annual excise tax of $50,000 and loss of their tax-exempt status. The public is invited to submit comments on the proposed IRS guidelines before September 23, 2011.

Proposed Elements of a CHNA

All tax-exempt hospitals will be required to conduct a CHNA at least once every three years. The following is very brief outline of the requirements tax-exempt hospitals face:

  • The CHNA must take into account input from persons who represent the broad interests of the community served by the hospital facility, including those with special knowledge of or expertise in public health. Specifically, the CHNA must document the following:
    • A description of the community served by the hospital facility;
    • A description of the process and methods used to conduct the assessment;
    • A description of how the hospital took into account the broad interests of the community served by the hospital, whether through meetings, focus groups, interviews, surveys, etc.;
    • The name of the "leader" or "representative" of medically underserved, low-income and minority populations, and populations with chronic disease needs within the community served by the hospital;
    • A prioritized description of all the community health needs identified through the CHNA; and
    • A description of the existing health care facilities available within the community to meet the needs identified in the CHNA.
  • The CHNA must be made widely available to the public (i.e., posted on the hospital's website);
  • Tax-exempt hospitals must adopt an implementation strategy to meet each community health need identified in the CHNA. The implementation strategy must:
    • Be in writing;
    • Describe how the hospital plans to meet the health need; or
    • Identify the health needs the hospital facility does not intend to meet and explain why.
  • Tax-exempt hospitals will face a $50,000 excise tax and loss of their tax-exempt status if they fail to meet the CHNA requirement in any taxable year.
  • Hospital systems with multiple facilities will have to conduct a CHNA for each facility they operate. However, hospital organizations will be able to collaborate with other organizations in conducting the CHNA and developing implementation strategies.  

Remaining Questions About CHNAs

The IRS proposed guidance answers many questions about the CHNA requirement contained in PPACA. However, many issues remain unanswered. In contemplation of this, the IRS seeks public comment on or before September 23, 2011. These questions remain at the top of the list of areas needing further clarification:

  • Will government hospitals that also have 501(c)(3) status be required to conduct a CHNA?
  • What happens if a hospital system fails to comply with the CHNA requirement with respect to a single facility? Will the entire system be at risk of losing its tax-exempt status?
  • Exactly how will the IRS define a "community?" Will it be based on geography, target populations (e.g., children, women, the aged), or other factors?
  • What specific credentials will an individual be required to have in order to qualify as one with knowledge of or expertise in public health for purposes of providing community input for a hospital?
  • What happens if hospitals fail to execute their implementation strategy?  

Further Guidance and Additional Mandates

Tax-exempt hospitals should stay alert for final guidance implementing the CHNA requirement. Additionally, the same provision in PPACA requires tax-exempt hospitals to:

  • Develop written policies on providing financial assistance to patients;
  • Limit charges for emergency medical care to no more than the lowest amounts charged to individuals with insurance; and
  • Refrain from engaging in extraordinary collection efforts before reasonable efforts have been made to determine if a patient is eligible for financial assistance.  

The effective date for these additional requirements was the taxable year beginning after March 23, 2010. Tax-exempt hospitals face a $50,000 excise tax and loss of their tax-exempt status if they fail to meet any of these requirements in any taxable year.