The coming tax year will bring significant new challenges for tax-exempt hospitals, which must comply with a new requirement to prepare a community health needs assessment (“CHNA”) and adopt a corresponding implementation strategy. Preparing and publicizing these documents will take extensive effort, and hospital leadership should expect that the Congress, the IRS, the media and the general public all will be looking closely to see how (and whether) hospitals actually are providing benefits for their communities and “earning” their tax-exempt status.
The need to move forward is urgent, as hospital facilities with a July 1 fiscal year only have until June 30, 2013 to complete their first CHNA and implementation strategy. Calendar year organizations have until December 31, 2013. As for what exactly must be done, the Internal Revenue Code contains few specifics. According to new Code Section 501(r)(3), as added by the Patient Protection and Affordable Care Act, every hospital facility operated by a Code Section 501(c)(3) organization must conduct a CHNA at least once every three years and must adopt an implementation strategy for meeting the health needs identified through that assessment. According to the statute, the organization must take into account “input from persons who represent the broad interests of the community served by the hospital facility, including those with special knowledge of or expertise in public health” and must make the CHNA “widely available to the public.” New Code Section 4959 imposes a $50,000 penalty per facility for failure to comply, and Code Section 501(r) implies that an organization’s tax-exempt status also may be at risk if it does not satisfy these requirements. (For more detail, please review Hall Render’s previous article on Code Section 501(r), including the CHNA requirement.)
Beyond these basics, the Code offers no detail, and the IRS has not yet issued regulations interpreting the new requirements. Helpful guidance is available, however, from other sources. In Notice 2011-52, the IRS addressed many important issues pertaining to the CHNA, including which elements must be present in the document, which specific people’s input must be taken into account by the hospital and how a hospital must make the document widely available to the public. This Notice also provides detail about the implementation strategy and specifically states that, as to each need identified through the CHNA, the hospital facility either must describe how it plans to meet the need or must identify the need as one that the hospital does not intend to meet and explain why. Additional insights are available through the Form 990, which now contains an entire section devoted to monitoring compliance with Code Section 501(r). While not authoritative, this Form’s questions about the CHNA suggest the positions the IRS may take when it eventually issues regulations. (For more information, please see Hall Render’s previous articles on Notice 2011-52 and the 2011 Form 990.)
From the Code and outside authorities, it is clear that completing the CHNA will be an enormous undertaking that will stretch hospital resources and require creative thinking as to how to obtain the necessary information, compile it into a functional document and prioritize among the various identified needs in a way that will not generate criticism of the hospital’s dedication to its charitable mission. Ideally, hospitals are well on their way to developing effective plans, communicating with their board members about these new requirements and even starting to gather data. Hall Render attorneys stand ready to assist clients in understanding and implementing these new requirements. In the weeks ahead, we will be providing additional written guidance and will be presenting a webinar with practical planning recommendations.
If you have any questions or would like additional information about this issue, please contact Jeffrey L. Carmichael at 317.977.1443 or jcarmichael@wp.hallrender.com, Calvin R. Chambers at 317.977.1459 or cchambers@wp.hallrender.com or your regular Hall Render attorney.
