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The IRS releases updated guidance on CHNA

By Freed Maxick on November, 4 2013
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By: Freed Maxick Healthcare: Carol Cassell, Barbara Losi, Sandra DeSimone

As part of the Affordable Care Act, the IRS has released proposed regulations, in addition to section 501 (r), that provide updated guidance to charitable hospitals on the Community Health Needs Assessment (CHNA.) Requirements under the Affordable Care Act include reporting requirements and the consequences of noncompliance. The regulations loosen the CHNA-related penalties and grant some waivers for minor infractions, among other things. Hospitals can rely on the proposed regulations for guidance until the final rules are released. Hospitals, such as duel status government hospitals, that can’t file form 990 are still required to comply with section 50 (r).

Understanding the requirements

Tax-exempt facilities must conduct, document, and implement a CHNA at least every three years. They also need to gather input from people “representing the broad interests of the community served” by the hospital, including those with special knowledge or expertise in public health. The facility’s authorized body must then adopt an implementation strategy that will meet the community health needs identified through the assessment. In addition, a CHNA must be made widely available to the public. This requirement can be met when the tax exempt hospital puts its CHNA on its website.

IRS Notice 2011-52 provided previous guidance on compliance with the CHNA requirements. The proposed regulations make some important changes to that guidance. Take note that CHNAs and related implementation strategies completed after Oct. 5, 2013, may no longer rely on Notice 2011-52.

Understand the changes

Facilities should be aware of the following changes from previous IRS guidance, per IRS bulletin 2013-21:

Definition of “medically underserved”- Previous guidance required facilities to get input from “medically underserved populations” but failed to define the term. The proposed regulations define it as populations experiencing health disparities or at risk of not receiving adequate medical care as a result of being underinsured or uninsured or because of financial, geographic, language or other barriers.

Relevant community health needs- Under the proposed regulations, facilities now must identify, prioritize and then address all “significant” community health needs, as opposed to every community health need. Hospitals have some flexibility in determining whether a health need is significant, and the regulations don’t require a specific method for prioritizing significant health needs (although examples of the criteria are provided). Facilities are simply advised to identify and prioritize needs based on all the relevant facts and circumstances in the community. The hospital will, however, need to explain their processes and criteria in the CHNA.

Implementing the strategy- Under the proposed regulations, the implementation plan describing how a facility will meet significant community health needs (and, for those it doesn’t intend to address, why) must provide a lot more detail than previously. For example, the hospital must describe:

·         Any actions the facility plans to take,

·         Any programs and resources the hospital plans to commit to address those actions, and

·         Any plans to evaluate the effects.

The good news in all of this is this; the regulations extend the deadline for a hospital’s first implementation strategy. In general, it must be adopted by the end of the same taxable year in which the CHNA was conducted, but the regulations allow more time for the first strategy.

Reporting requirements- The proposed regulations require a facility to attach their most recent implementation strategy to its Form 990 each and every year. It must also describe any actions taken during the taxable year to address the significant health needs. If no actions were taken, the hospital must provide reasons why. The IRS has also added questions to Form 990 to reflect the new reporting requirements.

Safe harbors- The proposed regulations include two “safe harbors” that will protect a facility in violation of the requirements from any negative consequences. Some minor and inadvertent errors or omissions of reasonable cause aren’t considered failures, so long as they’re corrected promptly. And certain non-willful or non-egregious failures will be “forgiven” if hospitals correct them promptly and disclose them.

Watch out for the penalties

The Affordable Care Act calls for a $50,000 excise tax per facility per taxable year of noncompliance with the CHNA requirements. The tax should be disclosed on Form 990. If a charitable hospital is liable for the excise tax, it must file a return on Form 4720.

Any hospital that doesn’t comply may also lose its tax-exempt status. If only a single facility within a health organization doesn’t comply, the organization and its other hospitals will keep their status, but the noncompliant facility may be subject to taxation.

Work with your financial and healthcare advisors

While the proposed regulations don’t carry the weight of law, they do provide valuable protections to those facilities that adhere to them. The regulations also give a pretty reliable preview of the final rules. The bottom line is- make sure you talk to your financial and health care advisors about CHNA compliance.


Sidebar: What if you want to collaborate?

The proposed regulations regarding CHNA allow facilities to collaborate on both the implementation strategies and the reports themselves in some circumstances. Previous guidance required every hospital to create its own CHNA and implementation strategy. Now, a joint CHNA is allowed if:

·         The facilities conduct a joint CHNA process,

·         They use the same definition of “community,”

·         The joint report is identified as applying to each hospital, and an authorized body from each hospital adopts the report. (An “authorized body” is a facility’s governing body or a committee or individual authorized by the governing body.)

A facility can also develop joint implementation strategies if certain conditions are satisfied. But, each hospital must document its own strategy in a separate written plan that takes into account its specific resources and programs, or provide the URL(s) of the web pages where it has made each implementation strategy on Form 990.

Freed Maxick’s Healthcare Practice is the leader in Upstate New York; providing comprehensive assurance and advisory related services to the healthcare provider industry. We assist a broad spectrum of clients including large multi-state integrated healthcare delivery systems, free standing acute care hospitals, skilled nursing facilities, long-term care facilities, home healthcare agencies, physician practices, senior housing facilities, mental health clinics, hospice and more.

Our services include traditional assurance services (financial statement, cost report and A-133 compliance audits) as well as a wide range of innovative advisory services that range from regulatory compliance matters to strategic planning and operations improvement. Our Upstate New York Healthcare practice of over 20 full time professionals is augmented by our national resource capabilities.


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