IRS Issues Community Health Needs Assessment Guidance for Nonprofit Hospitals


Is your nonprofit hospital required to conduct a community health needs assessment (CHNA)? Internal Revenue Code Sec. 501(r), as added by the Patient Protection and Affordable Care Act (PPACA) (P.L. 111-148), requires health care organizations that are tax-exempt to conduct a CHNA every three years and develop an implementation strategy (IS) for meeting those needs for tax years beginning after March 23, 2012. To provide preliminary guidance on the requirements, the Internal Revenue Service (IRS) published Notice 2011-52, which will apply for at least six months after the IRS publishes further guidance on CHNAs.

Hospitals required to comply. “Hospital organizations” required to conduct CHNAs include:

  • (1) an organization that operates a facility required by a state to be licensed, registered, or similarly recognized as a hospital (“a state-licensed hospital facility”), and
  • (2) any other organization that the IRS determines has the provision of hospital care as its principal function or purpose under Code Sec. 501(c)(3)Sec. 501(r) applies to hospital organizations on a facility-by-facility basis. Accordingly, if a hospital organization operates more than one hospital facility, the organization is required to meet the additional requirements of Sec. 501(r) separately with respect to each facility.  

The CHNA requirements also apply to government hospitals recognized under although the IRS has requested comments on alternative methods for government hospitals to satisfy the requirements. The IRS has not yet determined whether organizations other than state-licensed facilities that provide hospital care are subject to the requirement. The rules do not apply to hospitals outside the United States.

CHNA elements. The CHNA must describe the community served by the facility, the methods used to conduct the assessment and sources of information, organizations that the hospital collaborated with on the CHNA, and how the organization obtained input from the community and from experts. While the IRS expects the community to be based on geography, it also could take into account target populations such as children or the aged or the facility’s principal functions such as a specialty or a targeted disease. The CHNA cannot exclude medically-underserved populations, minorities and low-income groups, and those with chronic diseases. CHNAs must take into account the views of persons who represent the broad interests of the hospital’s community. Hospitals have broad discretion to identify persons who represent the community, including health agencies, consumer groups, experts, patients, health care providers, and insurers.

Written reportsPPACA also mandated reporting requirements for CHNAs. Under Code Sec. 6033(b)(15)(A) as added by PPACA the  IRS will require a hospital organization to document a CHNA for each hospital facility in a separate written report. Hospital organizations must include in their annual information return (i.e., Form 990) a description of how the organization is addressing the needs identified in each CHNA conducted and a description of any needs that are not being addressed, along with the reasons why the needs are not being addressed.

The CHNA must be made widely available to the public, which an organization can accomplish by posting the CHNA on the hospital facility’s website, the hospital organization’s website, or a website maintained by another organization. The IRS requested comments on combining CHNAs for multiple facilities in one written report.

Implementation strategy. The hospital organization’s governing body must adopt an implementation strategy by the end of the same tax year in which the organization conducts the CHNA. The implementation strategy is a written plan of how the organization will meet the community health needs identified that  includes an explanation of why it does not intend to meet a health need. A strategy must be adopted separately for each hospital facility. An organization may develop strategies in collaboration with other organizations, including related organizations, other hospital organizations, government hospitals, and government agencies.

Excise tax  for noncompliance. Code Sec. 4959 as added by PPACA, imposes a $50,000 excise tax on a hospital organization that fails to meet the CHNA requirements for any year. If the organization does not provide a CHNA for its first year or any subsequent year after March 23, 2012, it will be subject to the excise tax. The IRS did not address the consequences of one or more facilities failing to satisfy the CHNA requirements, but will address them in regulations or other future guidance.

Conclusion. The CHNA requirements for nonprofit hospitals are extensive. Hospitals will be impacted by the additional resources required to conduct the CHNA in terms of staff and costs.  The IRS has revamped Form 990 and Schedule H (Hospitals) to reflect the Code Sec. 501(r) requirements, including CHNAs and has issued Notice 2011-52. What issues has your health care organization encountered as you plan for and implement policies and procedures to meet the CHNA requirement?

This blog includes excerpts from Wolters Kluwer, “Exempt Organizations Reports,” Issue No. 445, Report 445, August 15, 2011.