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Protecting the Hospital Tax Exemption Part II: The Community Health Needs Assessment

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Gary J. McRay and Julie C. LaVille
Foster Swift Health Care Law E-News
March 4, 2015

On December 31, 2014, the Internal Revenue Service (“IRS”) published final regulations providing guidance on how to keep a hospital’s tax exemption by complying with Section 501(r) of the Internal Revenue Code. Section 501(r), which was added by the Patient Protection and Affordable Care Act (“ACA”) in 2010, introduced four new sets of requirements each hospital must meet in order to maintain its 501(c)(3) tax exemption. Earlier this month, we published an overview of these regulations. In this installment, we will comment on the first set of 501(r) requirements – the community health needs assessment (“CHNA”) requirements of Section 501(r)(3).

Section 501(r)(3) requires a hospital facility to conduct a CHNA every three years and to adopt an implementation strategy to meet the community health needs identified in the CHNA.

Conducting the CHNA

The final regulations require that a hospital complete the following steps in conducting a CHNA:

  • Define the community the hospital serves.
  • Assess the health needs of that community.
  • In assessing the community’s health needs, solicit and take into account input received from people who represent the broad interests of that community, including those with special knowledge of or expertise in public health.
  • Document the CHNA in a written report (“CHNA report”) that is adopted for the hospital facility by an authorized body of the hospital facility (i.e. the hospital’s board of directors).
  • Make the CHNA report widely available to the public.

1. Define the Community Served by the Hospital
The final regulations allow hospitals to define their communities as long as the community definition does not exclude medically underserved, low-income, or minority populations.

2. Assess Community Health Needs
To complete this step, a hospital facility must (1) identify significant health needs of the community, (2) prioritize those health needs, and (3) identify resources available to address those needs. The final regulations provide the following examples of community health needs: the need to address financial barriers to accessing care, prevention of illness, provision of adequate nutrition, or the need to address social, behavioral, and environmental factors.

3. Representation of Community Interests
The final regulations provide that the hospital facility must take into account input from all of the following sources in assessing community health needs:

  • At least one state, local, tribal, or regional governmental public health department;
  • Members or representatives of medically underserved, low-income, and minority populations in the defined community; and
  • Written comments received on the hospital facility’s most recently conducted CHNA.

4. CHNA Report
The CHNA report must include the following information:

  • A definition of the community served by the hospital facility and a description of how the community was determined;
  • A description of the process used to conduct the CHNA;
  • A description of how the hospital facility solicited and took into account input from people who represented the broad interests of the community it serves; 
  • A prioritized list of the significant health needs of the community identified through the CHNA;
  • A description of the resources potentially available to address those health needs; and
  • An evaluation of the impact of any actions that were taken to address the health needs identified in the hospital facility’s prior CHNA.

One cost-saving provision of the final regulations allows hospitals with identical community definitions to conduct a joint needs assessment and develop a joint strategy for addressing the identified community needs. Hospitals that have overlapping, but not identical, communities must file separate CHNA Reports, but may collaborate in preparing portions of their CHNA Reports.

5. Make Available to the Public
In order to fulfill the public availability requirement, a hospital facility must (1) publish its CHNA report online and (2) make a paper copy of the CHNA report available for public inspection upon request and without charge at the hospital facility. The hospital must make the reports available under both methods until at least two subsequent CHNA reports have been made available.

Implementation Strategy

In addition to the CHNA report, the hospital facility must also publish a written implementation strategy. With respect to each health need indicated in the CHNA report, the implementation strategy must either (1) describe how the hospital facility plans to address the health need or (2) indicate that the hospital facility does not intend to address the health need and explain its rationale. Reasons that the hospital facility does not intend to address a health need might include resource constraints, other facilities in the community addressing the need, or a lack of competency to address the need.

If the hospital facility plans to address a significant health need in its CHNA report, it needs to describe the actions it intends to take to identify the resources it plans to commit to address the health need and to describe any planned collaboration with others to address the need.

The final regulations give hospitals an extra four and a half months to adopt the implementation strategy. While the regulations originally required adoption of the implementation strategy within the same taxable year as the CHNA’s completion, the final regulations require adoption before the 15th day of the fifth month after the end of the taxable year in which the CHNA was conducted.

Stay tuned for our next article discussing the financial assistance policy (“FAP”) requirements of Section 501(r)(4). In the meantime, please contact a member of our health care team with any questions regarding these regulations.