TAKE NOTE: There is a new Form 990 reporting requirement for tax-exempt hospitals that nonprofit owners/operators of Inpatient Rehabilitation Facilities (IRFs) and Long-Term Acute Care Hospitals (LTACs) should be aware of – and begin preparing for very soon.
The Patient Protection and Affordable Care Act, Section 9007, Additional Requirements for Charitable Hospitals, created Section 501(r) of the Internal Revenue Code. Section 501(r), in turn, imposes new requirements on 501(c)(3) (i.e., tax exempt) organizations that operate one or more hospital facilities. Hospital facilities as defined by the IRS include IRFs and LTACs.
Nonprofit providers of aging services, senior housing and non-hospital post-acute/long-term care – while not impacted directly by this mandate – will still want to be educated on the reporting requirements, as it will very likely have a significant impact on future community partnership opportunities with those care provider types.
On June 26, 2012, the Internal Revenue Service published in the Federal Register proposed regulations and a detailed preamble regarding the Section 501(r) requirements. In general, the proposed regulations require each hospital to meet four requirements on a facility-by-facility basis:
1. establish written financial assistance and emergency
medical care policies,
2. limit amounts charged for emergency or other
medically necessary care to individuals eligible for
assistance under the hospital’s financial assistance
3. make reasonable efforts to determine whether an
individual is eligible for assistance under the
hospital’s financial assistance policy before engaging
in extraordinary collection actions against the
4. conduct a Community Health Needs Assessment
(CHNA) at least once every three years (see Timing,
- In July 2011, the IRS issued Notice 2011-52, which provided conceptual guidance regarding the Section 501(r) CHNA requirement. The Treasury Department and the IRS are in the process of drafting proposed final regulations regarding the CHNA requirements. Hospitals preparing to meet the reporting requirements can look to Notice 2011-52 for CHNA guidance as if those proposed regulations were already in effect up until six months after the issuance of the final regulations.
Notice 2011-52 appears to permit the collaborative development of CHNA reports for individual facilities (i.e., to the extent plausible, utilize the same market knowledgebase). Care must be taken, however, to distinguish the unique community needs of those facilities where appropriate: including uniquely defining each hospital’s targeted market (community). Separate implementation plans reflecting the individual operational characteristics of each hospital must be developed as well.
The IRS is also currently seeking comment on the portended advantages and efficiencies of allowing organizations with multiple hospital facilities to prepare a single CHNA for those properties. Each hospital will still be responsible for developing a unique community needs assessment. I believe the prudent approach at this juncture is to assume individual reports must be produced but to be cognizant of how those reports could be combined and integrated into a single report pending further guidance from the IRS.
The first assessment and adoption strategy (i.e., implementation plan) must have been completed within a three-year period that ends with the fiscal year commencing on or after March 23, 2012. For nonprofit organizations operating IRFs and/or LTACs this means having separate CHNAs and implementation plans completed and available to the public not later than that organization’s fiscal year-end date in 2013. Failure to complete a timely CHNA for each facility could result in an excise tax of $50,000 per hospital facility and the risk of losing 501(c)(3) status.
Compliance with this new reporting requirement should be taken very seriously. The undertones driving the mandate reflect largely bipartisan support of the Treasury Department’s challenging the reasonableness and plausibility of organization’s maintaining their charitable status in lieu of being able to evidence community benefit. This is a phenomenon which largely exists outside of Healthcare Reform if you will.
For many nonprofit organizations, the consequences of losing tax-exempt status would be financially devastating – so there is a strong incentive to develop a CHNA that aggressively seeks to address identified community needs. But those organizations must also be aware of the reality that programs created to address identified community needs will be scrutinized by the IRS in subsequent years to determine compliance with representations made in the plans of implementation.
Given what’s at stake and the inherent nature of work effort involved in creating the knowledgebase necessary to complete the CHNA, I believe it makes tremendous sense to integrate the CHNA process into organizational strategic planning. For many organizations – though likely an unwelcome requirement – it nonetheless offers the opportunity to complete a strategic planning effort where budgetary constraints had previously prevented such effort from being a priority.
In addition – and of critical importance – whatever service and care delivery programming is planned for as a result of the CHNA process should be incorporated into the organization’s long-range and strategic planning. At a minimum, such planning should be viewed as risk mitigation in assessing whether programs created through the CHNA process are economically feasible and sustainable. I have previously written a white paper outlining a strategic planning framework that can be integrated with the CHNA reporting mandate (White Paper).
As always, I welcome any comments and questions.