July 13, 2011

Section 501(c)(3) Requirement: Community Health Needs Assessments

The Affordable Care Act included provisions relating to nonprofit hospitals' qualification for federal tax-exemption under Section 501(c)(3) of the Internal Revenue Code contained in a new Section 501(r). It requires Section 501(c)(3) hospital organizations to, among other things, conduct a Community Health Needs Assessment (CHNA) every three years beginning with tax years after March 23, 2012.

The hospital must take into account input from persons who represent the broad interest of the community served by the hospital, including those with special knowledge of or expertise in public health and must adopt an implementation strategy to meet the health needs identified through the assessment. The CHNA must be made widely available to the public. The hospital's annual reporting on the IRS Form 990 must include a description of how the hospital is addressing the needs identified and a description of any needs not being addressed together with the reason why those needs are not being addressed.

To implement this new requirement, the Internal Revenue Service (IRS) recently issued Notice 2011-52. It provides information that the IRS and the Treasury Department anticipate will be included in regulations implementing the new provision for Section 501(c)(3) hospitals to conduct community health needs assessments (CHNA). Hospitals may rely on the guidance in this Notice until six months after any further guidance on CHNAs is issued.

Outlined below are highlights of the topics covered in the Notice.

Those Required to Conduct Needs Assessments
The Notice defines a hospital organization as one that is a State-licensed hospital facility. This also includes any state-licensed hospitals operated through a disregarded entity or joint venture, limited liability company, or other entity treated as a partnership for federal income tax purposes. Government hospitals, that have also obtained Section 501(c)(3) status, must comply with these new requirements.

Section 501(r) provides that if a hospital organization operates more than one hospital facility, the organization must meet the requirements separately for each hospital facility. This is also true for the community health needs assessment.

Documentation for a CHNA
The CHNA needs to be a written report that includes the following:

1. Description of community served by hospital and how it was determined.

2. Description of process and methods used, including the sources and dates of data used in the assessment and the analytical methods applied to identify needs. Identify all organizations the hospital collaborated with and the identity and qualifications of any third party that assisted in conducting the CHNA.

3. How the hospital took into account input from persons representing the broad interests of the community served, including a description of when and how the hospital consulted with them. If input from an organization, identify the name and title of at least one individual consulted within the organization. Identify by name, title and affiliation and provide a brief description of the individual's special knowledge or expertise for any individual providing input who has special knowledge or expertise in public health.

4. A prioritized description of all community health needs identified through the CHNA, as well as description of the process and criteria used in prioritizing.

5. Description of existing health care facilities and other resources in the community available to meet the needs identified through the CHNA.

How and When a CHNA is "Conducted"
The IRS will consider a CHNA as being "conducted" in the taxable year that the written report of its findings (outlined above) is made widely available to the public. A hospital may base a CHNA on information collected by other organizations, such as a public health agency or non-profit organization. It can be conducted in collaboration with other organizations, including other hospitals, but a separate written report must be developed for each hospital.

Community Served by a Hospital
A hospital may take into account all relevant facts and circumstances in defining the community served by the hospital. Generally, it is expected that the community will be defined by geographic location. However, it may also take into account target populations served and/or the hospital facility's principal functions. The community may not be defined by excluding, for example, certain groups such as medically underserved populations, low-income persons, minority groups, or those with chronic disease needs.

Persons Representing Broad Interests of Community
The CHNA must, at a minimum, take into account input from:

1. Persons with special knowledge of or expertise in public health;

2. Federal, tribal, regional, State, or local health or other departments or agencies with current data or other information relevant to the health needs of the community; and

3. Leaders, representatives or members of medically underserved, low-income and minority populations and populations with chronic disease needs.

Some people may fall into more than one of the above categories and so satisfy more than one category.

Making the CHNA Widely Available
"Widely available" is as currently defined for making the IRS Form 990 widely available. The hospital should post the written report on its web site or on the web site of the organization that operates the hospital. The report instead can be posted on another organization's web site as long as the hospital's web site provides a link to the web site where it is posted or if the hospital does not have its own web site, the person requesting the report is provided with the web site address where it can be found. The report must be widely available to the public until the date a subsequent report is made available.

Posting on a web site will be considered "widely available" only if:

1. The web site clearly informs readers that the report is available and includes instructions on how to download it;

2. The document is posted in a format that when printed in hard copy exactly reproduces the image of the report;

3. Any person with access to the Internet can access, download, view and print without any special computer hardware or software and without any fee to the hospital;

4. The hospital provides any person requesting a copy with the direct web site address, or URL, where the report can be accessed.

Implementation Strategy
The implementation strategy is a written plan that addresses each of the health needs identified through the CHNA for the hospital and describes either how the hospital plans to meet each need or not meet the need and with an explanation of why not. The strategy must tailor the description to the individual hospital, taking into account its specific programs, resources and priorities. This written plan will be attached to the annual Form 990 each year until a new CHNA is conducted. The implementation strategies can be developed in collaboration with other organizations.

How and When Implementation Strategy is Adopted
An implementation strategy will be considered to be adopted on the date it is approved by an authorized governing body, meaning: the governing body of the hospital, a committee of the governing body, or other parties authorized by the governing body. Such adoption of the implementation strategy must be done by the end of the taxable year in which it conducted the CHNA.

Failure to Meet CHNA Requirements
If a hospital fails to meet the CHNA requirements in any taxable year, a $50,000 fine will be imposed for that year and for any subsequent year in which it still does not meet the requirements. The fines will be assessed on a per hospital basis for multi-hospital organizations.

Staff Contact: Sandy Kraiss; 630.276.5522. Links to free guides and resources to assist with conducting CHNAs are on IHA's web site, in the Tax Exemption section.