Report: Minimize Distinction Between Hospital Community Benefit and ‐Building

• DOI: http://doi.org/10.1002/npc.30289
• Published date: 01 February 2017
• Date: 01 February 2017

Bruce R. Hopkins’ NONPROFIT COUNSEL

5

February 2017

THE LAW OF TAX-EXEMPT ORGANIZATIONS MONTHLY

Bruce R. Hopkins’ Nonprofit Counsel DOI:10.1002/npc

wrong with that as a matter of law, however, with respect

to the existing facts or the revised factual scenario. ◆

REPORT: MINIMIZE

DISTINCTION BETWEEN

HOSPITAL COMMUNITY

BENEFIT AND -BUILDING

The Milken Institute School of Public Health at The George

Washington University, in early December, issued a report

calling for a realignment of tax-exempt hospitals’ com-

munity benefit policies with a “larger vision” of improve-

ments in health, for purposes of Form 990 reporting and

enhancement of health, on a community-wide basis.

Background

Form 990, Schedule H, filed annually by tax-exempt

hospital organizations, requires reporting on an array

of hospital activities, including their community benefit

expenditures. Hospital organizations that operate mul-

tiple facilities report their community benefit spending

in the aggregate.

Community benefit expenditures are reported in Part

I of Schedule H. Community benefit is defined to include

financial assistance to patients; shortfalls attributable to

participation in Medicaid and other means-tested gov-

ernment insurance programs; subsidized health services

to the community, such as trauma units, research, health

professions education and training; and “community

health improvement services.”

The phrase community health improvement services

means hospital-subsidized activities and programs “car-

ried out or supported for the express purpose of improv-

ing community health” and that “do not generate

inpatient or outpatient revenue,” other than nominal

fees. The report states that the implication is that this

term focuses on free or reduced-cost clinical care and

support to individual patients.

Part II of Schedule H pertains to community-building.

These expenditures are defined as activities that “pro-

mote” the health and well-being of communities, a range

of programs that are beyond the realm of clinical care

and individual patient support. The recognized categories

of community-building expenditures include physical

improvements and housing, economic development,

community support, and environmental improvements.

The IRS permits hospitals to report Part II community-

building activities as Part I community benefits related to

community health improvement. But, this report states,

the IRS “has failed to publish guidance on either the

circumstances under which such crossover reporting

is permissible or the categories of community-building

expenditures for which Part I reporting is a permissible

option.” Hospital community benefit expenditures “not

reportable” as community benefit spending remain

separate from the Part I community benefit definition.

The report continues: “Because federal and state regu-

lators, researchers—and most importantly perhaps, the

public—look to Part I in determining how hospitals sup-

port their communities, the ambiguity and uncertainties

created by the IRS policy regarding community building

may diminish hospitals’ willingness to spend on activities

that promote health on a community-wide basis while

encouraging them to focus their efforts on expenditures

devoted to specific patient care.”

A Prioritized Health Need

The report states that the “ambiguities and uncer-

tainties surrounding IRS community benefit policy come

at a time of growing recognition of the degree to which

the social conditions in which Americans grow, live,

work and age can affect health.” This policy also comes

at a time of “elevated hospital interest in developing

interventions that can promote health and wellness.”

Hospitals, it is said, “increasingly are looking to broaden

their missions to include partnerships and initiatives

designed to promote health and speed recovery.”

The report observes that this changing relationship

between hospitals and communities was “reinforced”

by enactment of the Patient Protection and Affordable

Care Act, which includes rules expanding the obligations

of tax-exempt hospitals and elevating their role beyond

patient care and into the “realm of community-wide

health actors” (IRC § 501(r)). The ACA, it is said, made

provision of community benefit a basic obligation of

exempt hospitals and made other changes to reduce

the burden on indigent patients. The report notes that

the ACA requires exempt hospitals to conduct periodic

community health needs assessments and to link their

assessments to annual implementation strategies that

indicate how hospitals will respond to high-priority

needs. The CHNA rules are said to “assign hospitals a

formal role in measuring, prioritizing, and responding to

broader community health needs, and implementing IRS

regulations [that] identify the social conditions of health

as falling within the scope of the assessment process.”

The report states that “[n]umerous hospitals are begin-

ning to take steps to reallocate a portion of their commu-

nity benefit spending toward activities that more broadly

promote community-wide health.” The school said its anal-

ysis of hospitals’ most recently available CHNAs “reveals

that the great majority have identified environmental

conditions, education, and physical activity as the most

significant challenges facing their communities and driv-

ing health outcomes.” Seventy-two percent of hospitals

identified obesity, 68 percent identified mental health, and

62 percent identified diabetes as the most prevalent health

conditions in their communities. In addition, just under

one-half of all hospitals studied identified substance abuse,