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IRS Requests Hospitals to Provide Community Health Needs Assessments

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Gary J. McRay
Foster Swift Health Care Law Report
September 2011

Under Section 501(r) of the Internal Revenue Code ("Code"), which was added by the Patient Protection and Affordable Care Act, hospitals are required to create a community health needs assessment ("Community Assessment") in order to be recognized, or continue being recognized, as a 501(c)(3) entity.  In the first week of July 2011, the Internal Revenue Service ("IRS") issued Notice 2011-52 (the "Notice") which guides hospitals on how to conduct Community Assessments.

Requirements for Community Assessments

The Community Assessment must include the following information:

  1. a description of the community served by the hospital facility and how the community was determined;
  2. a description of the process and methods used to conduct the assessment, including a description of the sources, dates of the data, other information used in the assessment and analytical methods applied to identify the community's needs;
  3. a description of how the hospital organization took into account input from persons who represented the community served by the hospital facility, including a description of how the hospital consulted with these persons (i.e. through meetings, focus groups, interviews, surveys, or written correspondence).  The hospital may take into account input from other third parties.  If it does so, the hospital's assessment should identify the organization and provide the name and title of at least one individual within the third party organization with whom the hospital consulted;
  4. a prioritized description of the community's health needs, identified through the assessment, and a description of the process and criteria used to prioritize such needs; and
  5. a description of the existing health care facilities and other resources within the community that are available to meet the community needs identified through the assessment process.

Implementation Strategy

Each hospital must respond to every identified community health need with an "implementation strategy."  In the implementation strategy, the IRS wants the Hospital to either (i) describe how the hospital facility plans to meet the community health need, or (ii) identify the health need as one the hospital facility cannot meet and then explain why the hospital facility cannot solve the problem. The implementation strategy is considered adopted on the date the strategy is approved by the board of directors of the hospital, which must be done by the end of the same taxable year in which the hospital conducts its Community Assessment.

Definition of Community

The hospital must make an assessment of the community's health care needs and has to take into account all of the relevant facts and circumstances in defining the community that the hospital serves.  Generally, the hospital will define its community by geographic location.  However, a hospital may also take into account target populations that are served, such as children, women or the aged; or focus on the hospital's principal functions, particular specialty areas or targeted diseases, in defining its community.  The community may not be defined in a manner that excludes medically underserved populations, low income persons, minority groups or those with chronic disease needs. 

Receipt of Input

Under Code Section 501(r)(3)(B)(i), the Community Assessment must take into account input from persons who represent the broad interests of the community served by the hospital.  For example, a Community Assessment must, at a minimum, consider input from (i) persons with special knowledge or expertise in public health; (ii) federal, tribal, regional, state, local health or other departments or agencies with current data or other information relevant to the health needs of the community; and (iii) leaders, representatives or members of medically underserved, low income, and minority populations and populations with chronic disease needs. 

Disclosure of Community Assessment

After collecting the input, the hospital must make the Community Assessment widely available to the public.  This can be achieved by posting the written report of the Community Assessment on the hospital's website or a website maintained by another entity.  The website must inform readers that the document is available and provide instructions for how an interested person  may download the document.  Plus, any individual who has access to the internet must be able to access, download, view and print the document without special computer hardware or software other than software readily available to members of the public without paying any special fee and without paying a fee to the hospital.  The hospital has to provide any individual requesting a copy of the written report with the direct website address or URL where the document may be assessed.  The IRS also intends to require each hospital to attach to its annual Form 990 the Community Assessment and the most recently adopted implementation strategy for each of its hospital facilities. 


Hospitals must prepare Community Assessments every three years beginning with the first tax year after March 23, 2012.  Therefore, if a hospital has a calendar-year tax year, January 1, 2013 is the first year a Community Assessment must be submitted.  The IRS concludes that a Community Assessment is conducted in the taxable year in which the written report of its findings is made widely available to the public. 


Each hospital facility owned by a health system must submit its own Community Assessment. However, hospitals will be allowed to collaborate with other organizations when conducting a Community Assessment and adopting implementation strategies, so long as each hospital maintains separate documentation.

Failure to Fulfill Requirements

For exempt hospitals, a Community Assessment and implementation strategies to meet the community's needs are certainly important, as they are requirements for hospitals to maintain their federal and state exemptions from taxation.  Additionally, under Code Section 4959, the IRS may impose a $50,000 excise tax on any hospital that fails to meet the Community Assessment requirements with respect to any taxable year. 

Additional Guidance

The Treasury Department and the IRS expect to issue proposed regulations to provide additional guidance under Code Section 501(r) regarding Community Assessments and have requested that the public submit comments on Community Assessments on or before September 23, 2011.  However, hospitals may rely on the guidance provided in the Notice, which are summarized above, until regulations are passed (and for 6 months thereafter).


Although the requirements for conducting a Community Assessment are imposed on hospitals for tax years following March of 2012, it is not too early to begin planning.  Now is the time to discuss how your organization will conduct its assessments and how it will develop procedures and implementation strategies to satisfy the needs identified through the assessment process.  Please contact us to discuss how to best integrate these requirements within your organization.