Proposed rule offers leeway on community needs assessments

Tax-exempt hospitals that must conduct community needs assessments under the health reform law would get some leeway from penalties for minor missteps and got clarification about how to satisfy new rules under new draft regulations from the Obama administration.

Julie Trocchio, senior director of community benefits and continuing care for the Catholic Health Association, said the trade group's membership welcomes the latitude to collaborate on needs assessments. She said the proposed rule appears to emphasize transparency and allows providers some welcome flexibility.

On Wednesday afternoon, the Internal Revenue Service issued a 97-page proposed rule that carries out new requirements for not-for-profit hospitals to conduct and submit community health needs assessments (PDF).

The draft regulations address how the agency would treat small errors as hospitals seek to comply with the new community assessment rules and other rules for tax-exempt hospitals under the Patient Protection and Affordable Care Act.

Under the reform law, not-for-profit hospitals must meet new criteria to earn tax exemption. The law requires hospitals to have a written financial aid and emergency medical-care policy; limit charges for patients who qualify for financial aid; make an effort to find out which patients need financial aid before undertaking some billing and collection efforts; and conduct a community health needs assessment, which must be publicly reported.

Michael Fine, a healthcare attorney with McDermott, Will & Emery, said the proposed rule will allow hospitals some room to correct minor infractions without the threat of losing their tax-exempt status.

Hospitals can also incur a $50,000 excise tax for failing to deliver an adequate community health needs assessment as well as losing their tax-exempt status.

According to the proposed rule, the IRS won't construe minor omissions and errors as failures to meet the requirements. Problems that are “neither willful nor egregious” will be excused if they're promptly disclosed and corrected.

Fine said the proposed rule also clarifies how hospitals can satisfy a requirement to include input in the community needs assessment from people who broadly represent the community's interest. Input must be considered from a local public health department; representatives of the low-income, underserved and minority populations; and written comments from the hospitals' most-recent needs assessment and implementation plan. The ability to accept written comment is a new avenue to accept feedback from the community, he said.

Hospitals and health systems can also collaborate to jointly produce a community health needs assessment if they serve the same community and each governing board independently approves the assessment, Fine said.

The regulations also clarify requirements for organizations that operate a hospital under a joint venture agreement, Elizabeth Mills, a healthcare attorney with Proskauer Rose in Chicago, said in an e-mail. Organizations are not subject to the Affordable Care Act's rules for tax-exempt hospitals if the joint venture's income is treated as unrelated business income.

The American Hospital Association and the Healthcare Financial Management Association lobbied heavily to persuade the IRS that its earlier guidance would have buried hospitals in duplicate reporting requirements and may have penalized them for minor infractions and omissions, ultimately discouraging transparency.