New Guidance for Tax-Exempt Hospitals on Community Health Needs Assessment and Other Section 501(r) Requirements


On April 5, the Treasury Department released proposed regulations that provide guidance on the community health needs assessment (“CHNA”) and other requirements for tax-exempt hospitals under section 501(r) of the Internal Revenue Code, enacted as part of the Patient Protection and Affordable Care Act (the “Affordable Care Act”) in 2010. The requirement to conduct a CHNA applies to taxable years beginning after March 23, 2012. As such, all tax-exempt hospitals are now subject to this requirement and must have either already conducted a CHNA pursuant to preliminary guidance issued by the IRS in 2011 or must act promptly in order to comply. Although the regulations prescribe a number of very detailed requirements for the conduct of a CHNA, and threaten the imposition of substantial taxes and/or loss of tax-exempt status for noncompliant hospitals, they provide various relief provisions for hospitals that make a reasonable effort to comply with these rules.

Section 501(r) requires all tax-exempt “hospital organizations” to have certain policies and procedures in place for each “hospital facility” they operate, with failure to comply potentially resulting in loss of tax-exempt status. A hospital facility is defined to include a facility that is required by a state to be licensed, registered, or similarly recognized as a hospital. Proposed regulations released last year (the “2012 proposed regulations”) address the requirement that each hospital facility establish financial assistance and emergency care policies, and meet certain requirements with respect to limitations on charges and billing and collections activities (for a summary of the 2012 proposed regulations, see our prior Alert). The new proposed regulations address the remaining component of section 501(r) not covered by the 2012 proposed regulations, namely the requirement that for each of their hospital facilities, hospital organizations conduct a CHNA, prepare and make publicly available a corresponding CHNA report, and adopt an implementation strategy to address the community health needs identified in the CHNA. The new proposed regulations also make important changes to the definitions of “hospital organization” and “hospital facility” and provide guidance on the consequences of failing to comply with section 501(r).

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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