As 2013 winds to a close, some Indiana hospitals already have completed their first Community Health Needs Assessments (“CHNAs”) and related Implementation Strategies required under the Affordable Care Act, while others are putting the finishing touches on those documents. Although the Internal Revenue Service (“IRS”) has clarified what most tax-exempt Hospital Organizations must do to prove that they have met their obligations concerning the CHNA and Implementation Strategy, the requirements will apply differently for certain governmental hospitals. Each Indiana county hospital therefore must ensure that it completely understands the precise requirements applicable to it to ensure full compliance and avoid potential sanctions.
The Statutory and Regulatory Scheme
As a refresher, Section 501(r)(3) of the Internal Revenue Code of 1986, as amended (the “Code”), generally requires every Hospital Organization to complete a CHNA and adopt an implementation strategy for each Hospital Facility it operates. (The term “Hospital Facility” refers to any facility licensed as a hospital under state law, and the term “Hospital Organization” means any Code Section 501(c)(3) organization that operates one or more Hospital Facilities.) More specifically, the Code and other guidance from the Internal Revenue Service (“IRS”) – including Notice 2011-52 and the Proposed Treasury Regulations on Community Health Needs Assessments for Charitable Hospitals (the “Proposed CHNA Regulations”) – clarify that each Hospital Facility’s CHNA must be made “widely available” by being posted on its website and that each Implementation Strategy generally must be filed with the Hospital Organization’s Form 990, Return of Organization Exempt from Income Tax (“Form 990”) or equivalent form. An organization that fails to satisfy these requirements is subject to financial penalties and may jeopardize its Code Section 501(c)(3) status (although the Proposed CHNA Regulations suggest that loss of status is only a risk in extreme cases).
Application of Requirements to Indiana County Hospitals
These new requirements apply to any governmental Hospital Organization that has “dual status,” meaning that, in addition to being exempt from federal income taxation under Code Section 115, the organization has applied for and received recognition of exemption from federal income taxation under Code Section 501(c)(3). Accordingly, if an Indiana county hospital has dual status, it must complete a CHNA and adopt an Implementation Strategy to address the needs identified through that CHNA. More specifically, Indiana county hospitals generally must meet the same requirements as any other Code Section 501(c)(3) hospital in completing and approving these documents; as discussed below, however, the requirements differ with respect to how certain county hospitals will prove their compliance with the new laws.
Making the CHNA Widely Available: Same Core Requirement for All
Code Section 501(r)(3) mandates that, in addition to completing a CHNA, a Hospital Organization must make the CHNA “widely available.” Both Notice 2011-52 and the Proposed CHNA Regulations generally state that a Hospital Organization will satisfy this requirement by posting the CHNA on the website of the Hospital Organization or the Hospital Facility. While there are subtle differences between these two regulatory regimes, the key takeaway point for each dual status Indiana county hospital is that it must meet the same requirements as any other Code Section 501(c)(3) Hospital Organization in providing its CHNA to the public.
Filing the Implementation Strategy: Not Necessary for Some County Hospitals
Both Notice 2011-52 and the Proposed CHNA Regulations state that a Hospital Organization generally will be required to file its most recent Implementation Strategy with its Form 990. With respect to dual status hospital, the IRS has made plain that the Affordable Care Act did not change the requirement regarding who must file a Form 990. Both Notice 2011-52 and the Proposed CHNA Regulations affirm that, if a dual status hospital is exempt from the requirement to file a Form 990, then it also is relieved from the requirement to file its Implementation Strategy with the Form 990. To date, the IRS has not identified any alternative form that a dual status hospital should file instead, so the key takeaway point here for each dual status Indiana county hospital is that, if it is not required to file a Form 990, then it is not required to file its Implementation Strategy with the IRS.
Is the County Hospital Required to File a Form 990?
As noted in a prior IHA article, a dual status hospital is not automatically excused from the requirement to file the Form 990. Each dual status Indiana county hospital therefore should verify that it has a letter from the IRS explicitly confirming that the hospital is not required to file that form. This may be stated in the hospital’s determination letter (the letter recognizing the hospital under Code Section 501(c)(3) or in a separate letter, such as a Code Section 115 letter (a letter specific to the hospital stating that its income is exempt because the hospital is governmental) or a Revenue Procedure 95-48 letter (a letter specific to the hospital stating that the hospital is not required to file Form 990 because it is an affiliate of a governmental unit). If the hospital cannot locate any of these letters, it should contact its tax advisors to discuss next steps. (Special caution is necessary, though, because if the hospital does not already have such a letter, the very act of requesting one may trigger adverse IRS action.)
Summary and Action Items
In sum, a dual status Indiana county hospital must satisfy the various requirements of Code Section 501(r), including the requirement to complete a CHNA and adopt an Implementation Strategy. Such a hospital likewise must make its CHNA widely available by posting the document on its website, and if the hospital is required to file a Form 990, then it must attach its most recent Implementation Strategy to that form. If the hospital is not required to file Form 990, however, there is no current requirement that the hospital file the Implementation Strategy with the IRS. We do recommend that such a hospital make its Implementation Strategy widely available in the same manner as the CHNA (i.e., by posting the document on the hospital’s website). The hospital also should continue to monitor IRS guidance on these issues (such as the final CHNA regulations) to ensure compliance if the IRS imposes a separate filing requirement for dual status hospitals. Hall Render likewise will continue to monitor these issues and will publish future guidance, as appropriate.
Should you have any questions, please contact Jeffrey L. Carmichael at 317.977.1443 or jcarmichael@wp.hallrender.com or your regular Hall Render attorney.
