IRS seeks comments on proposed rules for community health needs assessments

May 15, 2013

The Affordable Care Act of 2010 requires nonprofit hospitals to assess community health needs and take an active role in improving the health status of their communities. In proposed rules issued last month, the Internal Revenue Service and Treasury Department added specificity to that requirement, by telling hospitals they must get input from a local, regional, or state health department and members of low-income populations or their representatives.

The ACA requires a hospital to involve the community in a community health needs assessment at least once every three years, and to adopt an implementation strategy to meet the health needs identified through that assessment. It requires a hospital to describe on its 990 Schedule H its investments in and progress toward addressing the needs identified in the community health assessment. (Nonprofit hospitals must file a 990 Schedule H to report their community benefits activities and charity care.)

Although tax-exempt hospitals are legally required to publicly release community health needs assessment reports this year containing health improvement priorities and strategies, IRS regulators are still writing and refining the rules on how those assessments should be conducted.

However, last month the IRS assured hospitals they can rely on the April rule proposal or earlier guidance from the agency and be in compliance with the new law for any community health assessment "made widely available to the public, and any implementation strategy adopted, on or before Oct. 5, 2013."

The IRS also clarified the consequences for noncompliance with the community benefit regulations — which range from an opportunity to correct an inadvertent error to a loss of nonprofit tax status for an egregious violation.

CHA held a May 7 webinar with Preston Quesenberry, an IRS lawyer who is one of the principal authors of the community benefit reporting regulations. The association is requesting feedback on the proposed rules, input it will incorporate in its formal comments on the proposed regulations. The IRS comment period closes June 4. The rules are expected to be finalized this year, according to a blog post by Sabrina Siddiqui, Treasury Department spokesperson for tax, budget and economic policy.

Julie Trocchio, CHA's senior director of community benefit, said Catholic health care providers have long recognized the value of conducting community health needs assessments in collaboration with local health departments in order to conserve resources, pool information, and invest in a manner that can best benefit the medically underserved and the vulnerable. CHA has worked with the IRS and public health organizations for several years to help shape the IRS reporting requirements for information related to maintenance of tax-exempt status, including the community health needs assessments and the 990 Schedule H.

The refined rules published last month make minor tweaks from the 2012 version of the proposed rules, including a clarification that hospitals that collaborate with sister facilities or competitors in the community assessment must file separate reports, but those reports may be "substantively identical."

The refined rules also establish that minor or inadvertent compliance failures such as omissions of information or data errors will not be penalized, provided the hospital facility reports the issue promptly after discovering it, and corrects it.

The proposed rules establish that regulators intend to be circumspect in their authority to revoke nonprofit 501c3 status and only wield it in the case of egregious or willful violations. Even then, one hospital's loss of its tax exempt status will not necessarily jeopardize the tax-exempt status of its parent hospital organization or sister institutions.

Before assessing the health needs of its community, a reporting hospital must define "community." The IRS expects that in most cases, a community will be defined by its geographic service area. But the proposed rules also allow for a community to be defined by target populations, such as women or children, or a target disease, provided that this approach does not purposefully exclude the needs of minorities, medically underserved people, the chronically ill, or people with low incomes.

The proposed rules do not set out a specific process for the hospital to use in prioritizing the identified health needs, but they require the filer to explain how it set community health priorities. Too, while reporting hospitals are not required to develop a strategy for addressing each significant health need, they must explain why they are excluding any major health needs in their community health betterment plan. Resource constraints, a lack of competency or lack of identified effective interventions could justify exclusions, according to the proposed regulations.


Copyright © 2013 by the Catholic Health Association of the United States
For reprint permission, contact Betty Crosby or call (314) 253-3477.

Copyright © 2013 by the Catholic Health Association of the United States

For reprint permission, contact Betty Crosby or call (314) 253-3490.