Tax exemptions for nonprofit hospitals cost states billions of dollars in lost tax revenue each year. In return, hospitals are required to invest in activities and services that benefit their communities. Some states, including Oregon and Connecticut, are going beyond federal requirements by holding hospitals accountable for making meaningful investments in the community’s health and well-being that meet genuine community needs — determined by the community itself — and align with state health priorities.
The Internal Revenue Service (IRS) defines certain hospital investments as community benefit activities. Examples include providing financial assistance to patients (also called charity care), covering shortfalls resulting from Medicaid participation, funding health professionals’ education programs, and subsidizing services such as neonatal intensive care and trauma services. Hospitals can also count “community health improvement services,” or hospital programs that don’t generate revenue, as community benefits.
Of particular interest to states seeking to bolster population health by improving their residents’ social and economic conditions, is the fact that hospitals can also count some “community building” activities toward their community benefit investments, although some experts have identified a need to clarify the process by which those activities are counted as community benefit. The IRS defines “community building” activities as activities that “protect or improve the community’s health or safety,” including investments in:
- Housing (the IRS addressed these investments in a short update on Dec. 18, 2015);
- Economic development;
- Community support, such as child care and mentoring programs;
- Environmental improvements, such as addressing air or water pollution or protecting the community from other environmental hazards; and
- Leadership development, coalition building, community health improvement advocacy, or workforce development.
Some states — such as Oregon and Connecticut — are using the federal requirements for tax-exempt hospitals to invest in community benefit activities as a springboard to ensure robust and meaningful hospital investments that address the needs of the community.
On June 25, 2019, Oregon Gov. Kate Brown signed HB 3076, which strengthens that state’s community benefits requirements in two ways:
- It requires hospitals to expand the range of income levels that qualify for charity care; and
- It establishes a minimum community benefit spending floor for nonprofit hospitals, set every two years by the Oregon Health Authority (OHA), in collaboration with the hospital or health system.
The law specifies that hospitals reduce to zero the cost to patients of medically necessary care for people whose incomes do not exceed 200 percent of the federal poverty level (FPL) guidelines. For people earning up to 400 percent of FPL, the law establishes a sliding scale – the hospital must reduce charges by at least 75 percent for people earning up to 300 percent of FPL, implement at least a 50 percent reduction for people earning up to 350 percent of FPL, and at least a 25 percent reduction for people earning under 400 percent of FPL. The law allows hospitals to seek reimbursement for those patient costs from other payers, such as those with third-party liability, and requires patients to share information to help hospitals collect payment from other payers.
This financial assistance standard is new for Oregon. Previously, state law did not mandate a minimum threshold that required hospitals to reduce eligible patients’ costs, although some hospitals had their own financial assistance policies.
In addition to the new standard for financial assistance, the law also holds hospitals accountable for investing in community benefits. The OHA must consider several factors when establishing the new community benefit spending floor, including:
- The community needs identified by the community needs assessment (CHNA);
- Community health improvement plans by regional Coordinated Care Organizations (CCOs);
- Current and historical expenditures on community benefits;
- The overall financial situation of the hospital; and
- The hospital’s spending on social determinants of health.
This requirement would make Oregon the sixth state to require a minimum level of community benefits spending, and the only one to tailor the minimum level for each hospital or health system according to a methodology. Another innovative facet of the law is that it requires the state to consider the needs identified in the CHNA when establishing the spending floor. This represents a step toward holding hospitals accountable for tying their community benefits spending to identified community needs, which is not currently an IRS requirement.
The OHA will convene a workgroup to define the methodology used to determine the minimum spending floors, which will be subject to the rule-making process and take effect in January 2021. The spending floors for each hospital or health system will be made public, and enforcement of the provision will largely rely on public scrutiny.
The Oregon bill had strong support from some key state legislators, including bill sponsor state Rep. Andrea Salinas, who participated in extensive stakeholder engagement leading up to the bill’s passage. Additionally, the bill had the support of the Service Employees International Union (SEIU), a union of hospital and other employees. The success of the bill’s champions put the spotlight on Oregon as the OHA crafts and implements a groundbreaking methodology for establishing the minimum for community benefits spending.
Connecticut is using a different, more specific and short-term approach to increase the effectiveness of community benefits investments. In recent hospital mergers and acquisitions, Connecticut used the certificate of need (CON) process to ensure that community benefit spending addresses community social needs and is directly tied to the CHNA and aligns with the State Health Improvement Plan (SHIP).
In a CON agreement tied to the transfer of assets from Milford Health to Bridgeport Hospital between Yale New Haven Health Services Corp. and Health Quest Systems Inc., the Connecticut Office of Health Strategy (OHS) mandated that the Connecticut hospitals:
- Submit to OHS their CHNAs and CHNA Implementation Strategy, which require input from key community stakeholders, health organizations, and local health departments, as well as the use of data and priorities from the SHIP as a framework for the CHNA.
- Adopt evidence-based interventions detailed in the Centers for Disease Control and Prevention’s 6/18 initiative and provide information about how patient outcomes directly related to the Implementation Strategy will be measured and reported to the community.
- Increase the total dollars spent on community benefits by at least 1 percent every year for the next five years, and ensure that spending and activities directly address the health needs identified by the hospital’s CHNA. The five-year annual 1 percent increase in community benefits spending cannot go towards hospital expenses or include spending on Medicaid, but must be used to address the social determinants of health and the population health needs identified in the CHNA.
The hospital is required to submit documentation to OHS showing “how its community benefit and community building activity expenditures addressed each element identified in the applicable CHNA, with brief narrative explanation of relevant activity for that element, and dollars spent.” These CON requirements require hospitals to show in a public document how they are directly tying community benefit spending to community needs. While CON conditions are time-limited, they demonstrate what is possible when states use their policy levers to maximize community benefits investments. In this way, Connecticut’s CoN work may inform broader state community benefits work beyond the CON process.
Oregon and Connecticut provide examples of how states can go beyond the federal requirements to ensure that hospital community benefit spending is substantial, meets community needs, and addresses state goals in exchange for tax exemptions. To support states in this work, the National Academy for State Health Policy (NASHP) has convened a hospital community benefits workgroup of state officials, supported by the Robert Wood Johnson Foundation and the New England States Consortium Systems Organization. Additional NASHP resources are available in this chart, Hospital Community Benefits Comparison Table for Six New England States, and this infographic, How 10 States Keep the ‘Community’ in Hospitals’ Community Health Needs Assessments.
For information detailing how much specific hospitals invest in community benefits and community building activities, explore this Community Benefit Insight tool.
Support for this work was provided by the Robert Wood Johnson Foundation. The views expressed here do not necessarily reflect the views of the foundation.
Non-profit hospitals are federally required to conduct community health needs assessments (CHNAs) every three years and develop a plan to meet those needs in exchange for their tax exempt status. Many states have laws or guidelines that are more detailed than the federal requirements. Scroll down to see 10 states’ guidelines for involving community members in the CHNA process, as well as their enforcement levers. This infographic draws on state documents, as well as CHNA statutes identified in the Hilltop Institute’s Community Benefit State Law Profiles Comparison.
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Tax-exempt hospitals receive billions of dollars in tax exemptions each year. In exchange, they are required to invest in the health of their communities. But to do that, hospitals must first identify the health needs of the communities they serve. States can work to make sure hospitals truly seek out and act on meaningful input from a wide range of community representatives — not just community members on a hospital’s board or leaders from one or two high-profile community groups.
State Requirements Can Exceed Federal Standards
To identify community needs, federal legislation requires tax-exempt hospitals to conduct community health needs assessments (CHNAs) every three years, and develop a plan to meet those needs. The US Internal Revenue Service (IRS) requires tax-exempt hospitals to solicit and take into account input from at least one state, local, or tribal public health department as well as from medically underserved, low-income, and minority populations in their communities. It also says that hospitals may solicit input from consumer advocates, community organizations, academics, local governments, school districts, providers, health plans, business, and labor representatives.
Many states have aligned their state CHNA requirements or guidelines with IRS requirements and/or with standards set by the Public Health Accreditation Board (PHAB), which accredits state and local health departments.
Many states also have statutes or guidelines governing the CHNA process that go beyond federal requirements. For example,
- New Hampshire’s statute requires hospitals to consult with service providers and local government officials, as well as many of the same entities that IRS and the PHAB mention;
- A Texas statute requires hospitals to consider consulting with health science centers; and
- Massachusetts voluntary guidelines identify neighborhood associations, schools, churches and clergy, law enforcement, and housing authorities as possible sources of community input.
This state action is significant in light of a 2018 study that found that state CHNA requirements are associated with higher hospital spending on community benefits, and suggesting that state-level community benefits regulations are associated with greater hospital spending on community benefits. See the National Academy for State Health Policy’s How 10 States Keep the ‘Community’ in Hospitals’ Community Health Needs Assessments infographic for examples of 10 states’ statutes and guidance.
Table 1 shows states that address community involvement in the CHNA process either through state statute (California, Maryland, New Hampshire, New York, Rhode Island, and Texas), or through voluntary guidance documents (Maine and Massachusetts).
- Four states (California, New Hampshire, New York, and Rhode Island) statutorily require that certain communities or groups be represented in the CHNA.
- Two states (Maryland and Texas) explain in their statutes that hospitals “may consult with” (Maryland) or “shall consider consulting with” (Texas) certain groups or entities when assessing community needs.
- At least five states (Idaho, Illinois, Indiana, Vermont, Washington State) have state CHNA statutory requirements that do not specify any required representation.
Table 1. Representation Required (or Encouraged*) in the Hospital Community Health Needs Assessment Process
|Any appropriate person||√|
|Health care providers||√||√†||√|
|Health science centers||√|
|Local government officials||√||√||√||√†||√|
|Local health department or public health authority||√||√||√**||√†||√|
|Members of the public||√||√|
|Racial or ethnic minority groups||√||√|
|Disadvantaged populations, including low-income||√||√|
*State statute or guidance recommends but does not require representation in the CHNA process
**New Hampshire established Regional Public Health Networks
†Encouraged in the New York State Prevention Agenda
How States Enforce Community Benefits
While hospitals that fail to meet IRS community health needs assessment requirements may ultimately have their federal tax-exempt status revoked — as happened to a hospital in 2017— states have wide latitude to use other levers to enforce their own community benefits guidelines. Currently, few states codify enforcement levers in their statutes. Among those that don’t, some report success in gaining hospital compliance through transparency measures. For example, many states post hospitals’ community health needs assessments on state websites. An annual press release from the Massachusetts Office of the Attorney General also draws attention to the hospitals’ community benefits reports, which encourages hospitals’ timely compliance.
Table 2. State Statutory Levers for Enforcing Community Benefits
|Violators must provide an explanation||√|
With new governors recently taking office in 20 states in early 2019, states have an opportunity to consider hospital community benefits and community health needs assessment policies as part of a statewide, cross-agency effort to improve health using all the levers at a state’s disposal, including tax policy and enforcement. Meaningful investments in community health are possible when states hold hospitals accountable for keeping the community at the center of community health needs assessments.
The National Academy for State Health Policy convenes a Hospital Community Benefits Workgroup composed primarily of officials from state attorneys general offices and state Medicaid and public health departments. The workgroup is currently exploring how states can develop more meaningful hospital community benefits investments that align with state public health priorities and address the health-related needs of communities.
For more information about this initiative, or to share information on your state’s work in this area, please contact Amy Clary at firstname.lastname@example.org. Thanks to the following states’ officials for their help with these materials: California, Connecticut, Maine, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont.
Produced in partnership with the Robert Wood Johnson Foundation and the New England States Consortium Systems Organization.