american health lawyers association community benefits ….… · –community building...

American Health Lawyers Association Community Benefits 101

May 11, 2017|11AM EST

This webinar is sponsored by The

Enterprise Risk Management taskforce and

the Health Care Liability and Litigation,

Hospitals and Health Systems, In-House

Counsel and Business Law and

Governance Practice Groups

Priscilla Keith, JD, MS

Community Health Network

[email protected]

mailto:[email protected]

OVERVIEW

• Federal Tax Exemption Requirement

– Community Benefit Standards

– Affordable Care Act Requirements

– IRS 501(r) Requirements

• Tax Exempt Challenges

• Questions

FEDERAL TAX EXEMPTION REQUIREMENTS

• IRS Code Section 501(c)(3)

– An entity organized and operated exclusively for charitable, scientific, educational, religious, or literary purposes is exempt from federal income tax.

– Two-prong test

• Organizational

• Operational


• Additional requirements

– Complete ban on private inurement • Prevents charity from distributing any of its assets as

profits to shareholders or individual

– Compliance with ban on private benefit • Must serve a public rather than private interest

• Must benefit the broader public rather than particular individual or narrowly defined small group


• Additional Requirements cont'd.

– Limits on political activities

– Mandate compliance with "public policy" doctrine

– Charities must not act contrary to public policy

– Charity activities may be overly commercial


• Roots of charity care can be traced to the time of antiquity.

• Code of Hammurabi decreed that the community must take care of the poor, widows and children.

• Alms houses provided care for the poor.

• Hospitals were originally religious charities that provided medical treatment and related care for those unable to afford private doctors. The middle and upper class treated at home.

• This changed as hospitals discovered that they could rely on paying patients.


• 1894 - Federal government allowed certain charitable

organizations to become exempt from income tax.

• 1913 - Hospitals are designated charitable organizations

– Exemption from income tax

– Allows deductions for charitable donations


• 1953 - IRS Rev. Rul. 56-185 – Hospitals could be exempt from tax as long as they

operated to extent financial ability for those not able to pay for services rendered and not exclusively for those who are able and expected to pay.

• 1965 - Medicaid and Medicare – Thought - did this make the then existing tax law

obsolete?

FEDERAL TAX EXEMPTION REQUIREMENTS • IRS Rev. Rul. 69-545 – Hospitals can qualify for

tax exempt status if they engaged in the "promotion of health" in the community they served.

• Compliance with the "community benefit standard."

COMMUNITY BENEFIT STANDARD

• Hospitals satisfy the "community benefit standard" if they -

– Operate an emergency room without regard to ability to pay

– Maintain a governance board of civic leaders

– Maintain an open medical staff

– Participate in Medicare and Medicaid

– Use surplus funds to improve quality of patient care, expand facilities, and advance education and training programs.

CATHOLIC HEALTH ASSOCIATION GUIDANCE

• A community benefit must respond to an identified

community need and meet at least one of the following criteria:

– Improve access to health care services

– Enhance public health of the community

– Advance medical or health knowledge

– Relieve or reduce the burden of government or other community efforts


• Community benefits are programs or activities that provide treatment and/or promote health and healing as a response to identified community needs. They increase access to health care and improve community health.

• A community benefit must respond to an identified community need and meet at least one of the following criteria


• A program or activity should not be reported as community benefit if it is:

– Provided for marketing purposes

– Restricted to hospital employees and physicians

– Required of all health care providers by rules or standards

– Unrelated to health or the mission of the organization


• What can be included-

– Community health improvement services

– Health professional education

– Research

– Charity care/unpaid cost of Medicaid

– Community building (housing/economic dev.)

– Financial contributions to community


• 1983 – IRS clarified the ruling stating that hospitals do not have to provide emergency care to qualify for tax-exempt status

• 2002 - IRS (internal document) indicated that absent an emergency room, a hospital policy regarding charity care is a "highly significant factor" in determining whether the hospital meets the community benefits standard

SCHEDULE H

• 2008 - Schedule H is a schedule that all tax-exempt hospitals must file as part of their annual obligations to file tax returns.

• It asks hospitals for detailed information regarding the financial assistance and other community benefits they provide - – Community building activities

– Bad debt and collection policies

– Individual facilities

AFFORDABLE CARE ACT REQUIREMENTS

• Section 501(r) requirements applicable to tax-exempt hospitals include- – Conducting Community Health Needs Assistance

(CHNA) every three years – Provide written financial assistance and emergency

care policies – Establish limitations on charges for emergency or

medically necessary care – Set policies and procedures related to billing and

collections actions

IMPACT OF 501(r) Reporting

Organization Number

U.S .Community Hospitals 4,985

Non-government/Non-profit Hospitals 2,904

Investor-owned (For profit) 1,013

State and Local government Hospitals 1,068

Number of Federal Government Hospitals 213

Number of Rural Community Hospitals 1,987

Number of Urban Community Hospitals 2,998

Source: American Hospital Association 2010 Annual Survey

PENALTIES FOR NON-COMPLIANCE

• $50,000 Excise Tax

• Loss of tax-exempt status

• Implications for those that issue tax-exempt bonds

CHNA – IRS REGULATORY REQUIREMENTS

• Process – In defining the community to assess, consider geographic area served, and the hospital’s target populations and principal functions – Community may include populations in geographic areas

outside of those in which patient populations reside – Community may not be defined in a way that excludes

certain populations served by the hospital (for example, low income persons, and minority groups)

– CHNA must take into account input from a variety of stakeholders like public health, members of medically underserved populations or their representatives and may include input on financial and other barriers to care

CHNA – Post Assessment

• Section 501(r) requires that specific information must be included in the CHNA report – Description of community served – How “community” was determined – Process and methods used to conduct the assessment

• Publicizing the CHNA – Hospital’s website – Hospital’s parent website – Inform that report is available

IMPLEMENTATION STRATEGY

• Implementation strategy must address the following: – How the hospital plans to meet the significant need

– The actions the hospital intends to take to address the significant health and the anticipated impact of those actions

– A plan to evaluate the impact

– Programs and resources the hospital plans to commit to address the health need

– Planned collaboration between hospital and other organizations or facilities

Additional 501(r) Requirements

• Have a financial assistance policy

– Written policy must include eligibility criteria for financial assistance

• Free or discounted care

• Basis for calculating amounts charged

• Method of applying for financial assistance

– Must be “widely publicized” to community


• Emergency medical care policy

– Hospital must have written policy stating that hospital will provide care for emergency medical conditions without discrimination and regardless of an individual’s qualifications under the financial assistance policy


• Limitation on charges

• Ensure appropriate billing and collection practices

SUMMARY

• Conducting community health needs assessment (CHNA) every three years

• Implement a strategy to address needs adopted by governing board

• Widely communicate financial assistance policies

• Limit charges for indigent patients

• Follow certain billing/collection practices

TAX-EXEMPT CHALLENGES

• Provena Covenant Medical Center v. Department of Revenue (IL) – Response – Illinois legislature passed new laws (2012)

• Blue Shield of California loss of State tax exemption

• Alternatives to Loss of State Tax Exemption – Payments in Lieu of Taxes (PILOT)

– Legislative Changes to Property State Tax Exemptions

Questions

Title © 2017 is published by the American Health Lawyers Association. All

rights reserved. No part of this publication may be reproduced in any form

except by prior written permission from the publisher. Printed in the United

States of America.

Any views or advice offered in this publication are those of its authors and

should not be construed as the position of the American Health Lawyers

Association.

“This publication is designed to provide accurate and authoritative information

in regard to the subject matter covered. It is provided with the understanding

that the publisher is not engaged in rendering legal or other professional

services. If legal advice or other expert assistance is required, the services of a

competent professional person should be sought”—from a declaration of the

American Bar Association.

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