Hospitals and Community Health — Is the Game Changing?

Under the Patient Protection and Affordable Care Act, most tax-exempt hospitals are now required to assess the health needs of the community they serve in order to obtain and keep their tax-exempt status. A Community Health Needs Assessment must be conducted once every three years and it must take into account the needs of and feedback from the medically underserved, low-income and minority populations in the community served. As charitable organizations, tax-exempt hospitals are being held to new standards by Congress and the IRS. 

CHNA requirements under PPACA
A state licensed hospital facility that is operated by a tax-exempt organization described in Internal Revenue Code section 501(c)(3) must conduct a CHNA once every three years. To do so, a hospital facility must complete the following steps:

1.    Define the community served by the facility;
2.    Assess the health needs of that community;
3.    In performing the assessment, take into account input from persons who represent the broad interest of that community, including those with special knowledge in public health;
4.    Document the CHNA in a written report; and
5.    Make the CHNA widely available to the general public.


In addition, with respect to each significant health need identified through this process, in a written document the hospital facility must describe how it intends to address each health need; or, if the health need will not be addressed, the report must provide an explanation for the decision not to address it. For those health needs that will be addressed, the written plan must not only describe the actions the hospital facility intends to take, but also indicate the anticipated impact of each action and develop a plan to evaluate this impact.

What do these regulations mean for charitable hospitals? Is the game changing?
Currently, these regulations mean that charitable hospitals can no longer qualify for tax-exempt status simply by operating an emergency room that provides emergency care to anyone regardless of their ability to pay the cost of such care. Under the community benefit standard, nonprofit hospitals were granted exemption by the IRS for operating an emergency room in this manner on 24/7/365 basis and for satisfying the following requirements:

1.    Having an open medical staff;
2.    Having a board of directors comprised of community leaders;
3.    Providing medical care to those able to pay the cost of such care (except for emergency care); and
4.    Reinvesting any net earnings into the hospital programs, facilities, equipment, medical training and research.

Now hospital organizations seeking to obtain or maintain exemption must satisfy the community benefit standard; conduct a CHNA and adopt implementation strategies with respect to the identified health needs once every three years; and satisfy certain other requirements under PPACA relating to financial assistance policies, emergency care policies, limitations on amounts billed individuals eligible for financial assistance, and restrictions on billing and collection activities.

The CHNA requirements are intended to incentivize hospitals toward the goal of managing the health of their communities, not just the health of their patients. Over time, CHNAs will require hospitals to no longer look primarily at the profitability of non-emergency room services in determining whether to begin a new service or to terminate an existing one. Instead, the CHNA requirements will encourage (or require) charitable hospitals to operate certain services that benefit those most in need of assistance. Return on investment to the community rather than to the hospital will become a key metric in deciding which programs to begin or to continue.    

Stated another way, hospitals will need to design and invest in healthcare initiatives that keep people healthy rather than only those that treat the sick. Keeping people with limited resources healthy and, therefore, out of high cost departments such as the emergency room through early interventions, improved access to primary care, health education and outreach is the intended new paradigm. The same holds true for programs that manage diseases and chronic conditions. To succeed, hospitals will have to operate these services effectively, efficiently and in coordination with other stakeholders.   

The obstacles in the game — resources, expertise and cooperation
Most hospitals lack the resources and expertise to manage community health. To successfully manage the health of large populations, the commitment and cooperation of other providers, public health officials, nonprofit organizations and governmental agencies, and also the people of the community including the underserved, is necessary.

Successfully managing community health involves changing behaviors of both organizations and individuals. Such change is likely to occur very slowly, if at all. Hospitals can begin to support the needed change with their own employees. For example, wellness initiatives linked to the cost of employee health insurance can provide incentives for healthy lifestyles. Other employers within the community can be encouraged to adopt similar wellness initiatives.  

Additionally, the government can increase the likelihood of success toward the goal of managing community health. Several pilot programs, including bundled payment initiatives, accountable care organizations and Medicare Shared Savings Program, are currently underway. As the results of these programs become known and understood, reimbursement changes should result which will influence the direction and pace of change.

Changing the health behavior of individuals will be more difficult. The environment and culture existing within a community substantially influences an individual's behavior. Hospitals and other community stakeholders can provide outreach services, provide health/wellness education, coordinate available resources to provide access, and make other improvements. However, accountability for behavior rests with each individual.   

W. Edward "Eddie" Phillips is a principal in the Tax practice at Draffin & Tucker where he focuses on the healthcare industry. With more than 32 years of experience, he specializes in providing tax compliance and tax advisory services to multi-entity healthcare systems and large physician group practices. He has also represented several organizations in IRS examinations, including two successfully appealed tax exempt revocation cases.

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