Patient Protection and Affordable Care Act

March 23, 2010

Internal Revenue Code Section 501(r)

Internal Revenue Code Section 501(r)

CHNA Requirements 501(r)

Section 501(r)

Existing Guidance?

Comment Period

Comment Period

• Paperwork Reduction Act comments requested –– Is this proposed collection of information necessary for the IRS?– Will the information have practical utility?– How may the quality, utility and clarity of the information be

enhanced?– How can the burden of compliance be minimized?– What is your estimate of capital costs, start-up costs, additional

operational costs and the cost of purchased services to provide this information.

• Comments on the collection of information should be received by June 4, 2013.

Section 501(r) Failures

Loss of Exemption is Possible– IRS will consider:

• Previous failures, if any,• Size, scope nature and significance of the failure,• Multiple facilities,• Reason for failure,• Prior to failure, compliance practices and policies, and

whether they were routinely followed,• Implementation of safeguards• Correction of the failure by the organization

Minor Omissions and Errors

Omission or error if minor, inadvertent and due to reasonable cause will not be considered a failure to satisfy a section 501(r) requirement if the facility corrects the error or omission promptly after discovery.

Future Guidance

The IRS will release future guidance to excuse certain failures that are neither willful nor egregious if corrected and disclosed.

If failure is willful or egregious, the failure will not be excused even if correction and disclosure is performed in accordance with such guidance. Loss of exemption will result.

Special Rule for Multiple Facilities

If an organization operates more than 1 facility, failure at one (or more) may result in–• Income from the noncompliant facility being

subject to taxation, • Such income may not be aggregated with other

noncompliant facilities or other unrelated business income,

• The continued exemption of the organization.• Effect on tax-exempt bonds

Other Changes

The Proposed Regulations contain a number of changes affecting the other section 501(r) provisions, including:

– Minor change to the definition of “hospital facility”– Minor change to the definition of “hospital organization”– New definition of “operating” a hospital facility.– Consistent definition of “authorized body” for adoption of

CHNA and FAP

Definitional Changes

• Hospital Facility – multiple buildings under a single state license are considered a hospital facility.

• Hospital Organization - $50,000 excise tax will apply to a hospital organization that fails the CHNA requirements and loses its 501(c)(3) status.

Joint Venture Guidance

• General Rule – a hospital organization operates a hospital facility if it is a partner in a joint venture, limited liability company or other entity treated as a partnership that operates such a facility.

• Exceptions –1. Lack of control necessary to ensure the facility

furthers an exempt purpose.2. Grandfather rule (pre-March 23, 2010 agreement)

for minority interest owned by an educational or scientific organization.

CHNA Guidance

Proposed regulations are largely consistent with Notice 2011-52.

Modifications were a result of more than 80 comments made to the Notice.

Conducting CHNA

Proposed Regulations –Organization is still required to –

1. Define the community served,2. Assess the health needs of the community,3. Take into account input from the persons who

represent the broad interest of the community including those with special knowledge in public health,

4. Document the CHNA in a written report, and5. Make the CHNA widely available (current CHNA and

CHNA previous to current one should be available )

CHNA - Community Served

Proposed regulations -• Allow flexibility in allowing the organization to

define the community it serves.• Prohibit discrimination against medically

underserved, low-income or minority populations.

CHNA – Assessing Needs

Proposed regulations require the facility to –– Identify significant health needs of community,– Prioritize these needs, – Identify potential measures and resources

available to address the health needs,• But do not require specific criteria for

prioritizing the identified needs.

CHNA – Persons Representing the Broad Interest of the Community

Input must be taken into account from –1. At least one state, local, tribal or regional

governmental health department,2. Members or representatives of the underserved,

low-income and minority populations in the community,

3. Written comments received on the most recent CHNA (including the implementation strategies).

Broad Interest of the Community

• Proposed regulations no longer require input from both a governmental public health department and someone with special knowledge or expertise in public health since the governmental department should have such expertise.

• Organizations are granted flexibility with regard to choosing the jurisdictional level of governmental public health department is most appropriate.

• Posting a draft copy of the CHNA on the facility’s website for public review and comment is an option for seeking input .

Medically Underserved• Proposed regulations maintain the requirement to consider input

from the medically underserved, low-income and minority populations.

• Medically underserved is defined to include populations experiencing health disparities or at risk of not receiving adequate care due to financial, geographic language or other barriers.

• Chronic disease needs are not specifically mentioned. Medically underserved is defined in a manner that focuses on disparities in coverage, access and other barriers (that may include chronic disease).

• The facility may use direct input from such persons (surveys, focus groups, interviews, etc.) or from their representatives.

Documentation of the CHNA

CHNA report must include:• Definition of the community served and a description of how the

community was determined• Description of the process and methods used to conduct the CHNA

(data and collection methods used in the assessment, methods of analyzing data, collaborative partners used to conduct the CHNA and those hired to assist in the process),

• Description of how input from those representing the broad interest of the community was considered,

• Prioritized description of the significant health needs identified (including a description of the process and criteria used to identify such needs), and

• Description of potential measures and resources

Collaborative CHNA

Proposed regulation permit collaboration, but-1. Separate documentation for each facility’s CHNA

is required to be contained in a separate report (portions of CHNA may be identical where appropriate), or

2. Joint CHNA reports are allowed if community is defined the same and the joint CHNA clearly identifies each participating facility (and the authorized body of the facility adopts the joint report for each facility).

Implementation Strategies

• Describe how the facility plans to address a specific health need. Describe the actions to be taken, the anticipated impact of these actions and a plan to evaluate such impact.

• Identify the health need as one not intended to be addressed with an explanation as to why it is not being addressed (resource constraints, lack of experience or expertise, lack of effective interventions, other parties better suited to address the need, etc.).

• Generally required to be adopted by the end of the same taxable year during which the CHNA is conducted.

• Adoption by an authorized body is required.

Joint Implementation Strategies

If a joint CHNA is issued with collaborative partners, joint implementation strategies may also be adopted but the facility’s role and responsibilities in taking the actions identified must be stated clearly, and the programs and resources the facility plans to commit to such actions clearly identified.A summary or other tool must be developed for each facility subject to the CHNA requirement.

New Facilities

If subject to the CHNA requirement, a new facility must meet the requirements by the end of the second taxable year beginning after the date the facility is acquired, licensed, registered or similarly recognized as a hospital.

Transition Rules

Additional time for adoption of implementation strategies -

Reliance Period

QUESTIONS?

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