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Tax-exempt hospitals can view the new community health needs assessment (CHNA) regulations as a bureaucratic burden, or as an opportunity for growth and improvement in operations and community relations.

Navigating health reform

How Tax-Exempt Hospitals Can Turn the CHNA Into a Growth Opportunity

  • 9/6/2012

How Tax-Exempt Hospitals Can Turn the CHNA Into a Growth Opportunity

By Kurt Bennion

Charitable hospitals have a choice: they can view laws and regulations as bureaucratic burdens, or as organizational opportunities. This is especially true of a provision in the Affordable Care Act requiring hospitals to conduct a community health needs assessment (CHNA). The U.S. Supreme Court has upheld the health care reform law that created the requirement, so it’s time for charitable hospitals to understand what the CHNA is all about.

Community health needs assessment

The CHNA requirement is a very small piece of the health care reform law passed in 2010. Now that the Supreme Court has upheld the law, tax-exempt hospitals should be looking closely at their policies and procedures. Although compliance with the CHNA requirement is generally not required until a hospital’s 2013 year-end, the law applies to every hospital that is tax-exempt under Section 501(c)(3) of the Internal Revenue Code (IRC). According to the American Hospital Association, that’s more than half of the hospitals in America.

The government’s goal in requiring the CHNA is simple: as a condition of exempt status, hospitals should be working to meet their community’s health needs. The CHNA will be used by the government to determine if hospitals are actually fulfilling that obligation.

Three steps in the CHNA process

  • Identify the major health needs in the hospital’s community through a community health needs assessment.
  • Document the process and make a CHNA report available to the public.
  • Document the hospital’s planned response to the identified health needs in an implementation strategy.

The CHNA process must be conducted at least every three years. Penalties for failing to complete the process include a $50,000 excise tax and possible loss of the hospital’s tax-exempt status under Section 501(c)(3).

Doing the bare minimum

Since the CHNA requirement is so new, detailed regulations have not yet been issued. However, it is becoming clear that compliance with IRC Section 501(r) will be neither cheap nor quick. The timeframe could range from four months to over a year. Since the regulations are currently incomplete, the government should be willing to give hospitals latitude in how they respond to the identified health needs.

For example, a hospital may say in its implementation strategy why it will make no efforts at all to alleviate the identified community health needs. A hospital might also create an implementation strategy full of solutions, but actually implement none of them.

Both of these approaches are fairly common when complying with what may be perceived as burdensome government regulations. If that’s a hospital’s perspective, then its most logical approach would be to do, and spend, the bare minimum to achieve compliance. However, the government could conclude that this approach is inadequate, placing exempt status at risk.

Taking it to the next level

Although some hospitals are making the minimum amount of changes to comply with the law, others are using this as an opportunity to make broader changes in their operations. The health care industry faces a shift in technology. Costs are skyrocketing for individuals, hospitals, and the government in a system that is designed to treat rather than prevent problems. One way the government hopes to change health care is by moving away from fee-for-service models and toward a payment system that encourages hospitals to implement preventive care strategies.

The CHNA is an opportunity for hospitals to face — and embrace — this stay-healthy model. A hospital in a rural Minnesota community did just that, turning the table on heart attacks in its community through a comprehensive heart health program. Although very few of the program’s expenditures would normally be considered health care, the overall program had an effect on the health and well-being of the community. There was a corresponding boost in community goodwill, with the hospital being seen as an active, positive participant in the lives of individuals.

The most important question

To remain tax-exempt, hospital must ask: “How do we implement the CHNA?” The answer depends upon whether the hospital desires a bare minimum compliance, or utilizes the requirement as a tool to further grow and develop.

The CHNA is an embodiment of the challenges facing the health care industry. If the CHNA works as envisioned by the government, hospitals will simultaneously improve the health of the individuals and organizations in their community, the health of the U.S. health care system, and the health of the hospital itself.

New regulations on financial assistance policies

Hospitals that are required to conduct the CHNA are also required to have several policies and procedures in place related to financial assistance and treatment of those who qualify for financial assistance. On June 26, 2012, the IRS released proposed regulations (IRS Regulation 130266-11) relating to these policies. Compliance is required for the hospital’s year that starts after June 26, 2012.

These proposed regulations are extremely detailed, so it’s important for a hospital to begin adjusting its policies and procedures as soon as possible.

Kurt Bennion, Health Care Engagement Director
kurt.bennion@cliftonlarsonallen.com or 612-397-3072