Obamacare rule has hospitals targeting health improvement

When 193-bed Advocate Trinity Hospital began five years ago to assess the health needs of residents in its service area on Chicago's South Side, it found the rate of stroke was among the highest in Illinois. Deaths from heart disease and cancer made up half of the more than 2,700 deaths that occurred in the hospital's service area in 2011.

“We mapped out a plan of what those (health) gaps were,” said Michelle Gaskill, president of Trinity. “Then we started identifying investments we were going to make over a period of time to start filling those gaps.”

Over the next few years, Trinity, part of 11-hospital Advocate Health Care, developed a primary stroke center, which won the hospital a Gold Seal of Approval from the Joint Commission in 2010. Without that designation, “Patients who were having an active stroke would have had to leave this ZIP code to travel to the closest primary stroke center,” Gaskill said.

Other initiatives included adding a second heart catheterization lab and new equipment for the radiology department. Gaskill said those investments grew out of the findings of the hospital's community needs assessment. The total cost for this new infrastructure was nearly $80 million over five years, she said.

All not-for-profit hospitals are now required by the Patient Protection and Affordable Care Act to conduct and publish similar community needs assessments once every three years. They also must draft a strategic plan on how they will address identified needs. Under the law, hospitals face a $50,000 penalty per year and the potential loss of their federal tax-exempt status for failing to complete the assessments. The first assessment was due no later than the first tax year after March 23, 2012, to be submitted as a part of the IRS Form 990 report.

In April 2013, the IRS issued proposed guidelines to provide greater clarity on the requirements for needs assessments. Under the proposed rule, for instance, hospitals cannot define their service areas to exclude underserved, low-income and minority groups. That rule has not yet been finalized.

The requirements grow out of criticism that not-for-profit hospitals have not provided enough charitable benefits to their communities to justify their federal and state tax-exempt status. Questions over community benefits have grown as not-for-profits have consolidated into larger systems with billions in annual revenue that act like big businesses. No federal rules govern the amount of community benefit hospitals must provide to keep their tax-exempt status, which was estimated to carry a value of $13 billion annually for all not-for-profit hospitals in 2008.

In 2007, the IRS redesigned its Form 990 for not-for-profit organizations to include Schedule H, on which tax-exempt hospitals must report the total amount of charity care and community benefits they provide. Only five states have set a minimum amount of community benefit for retaining state tax-exempt status.

Controversy over the hospital tax exemption has erupted in various communities across the country. Last year, the city of Pittsburgh sued the UPMC system, claiming the system should lose its payroll and property tax-exempt status because it allegedly spends about 2% of its net patient revenue on charity and discounted care.

An article in the New England Journal of Medicine last year reported that among more than 1,800 not-for-profit hospitals studied, providers allocated an overall average of 7.5% of their operating expenses toward community benefit services and programs, with the share ranging from as much as 20% to as low as 1.1%.

“The current standards and approach to tax exemption for hospitals is raising concerns about a lack of accountability for hospitals,” said Gary Young, a professor and director of the Center for Health Policy and Healthcare Research at Northeastern University, who authored the study. “It creates a problem in the sense that hospitals don't really know what's expected of them.”

Traditionally, not-for-profit hospitals have allocated the bulk of their community benefit spending on free or discounted charity care to the poor and uninsured, or writing off bad debt from unpaid patient bills. Young's study found that more than 85% of community benefit spending went to charity and discounted care and services not fully reimbursed by Medicaid and Medicare. Only 5.3% went toward community health improvement initiatives such as health screenings and health education. Some say hospital spending on population health initiatives is likely to increase as providers face growing financial incentives to improve health outcomes and reduce costs under value-based payment models.

Experts hope that the healthcare reform law's requirement that hospitals make their community needs assessments “widely available” to the public will provide greater transparency so community stakeholders and local governments can better hold them accountable for providing community health improvement programs and other benefits.

There are no data available on how many of the nearly 2,900 not-for-profit U.S. hospitals have complied with the law's requirement to conduct and publish community needs assessments and strategic plans, experts say. So far, there are no known cases of hospitals being fined for failing to comply. Many hospitals and health systems see the requirement as an impetus to shift their focus from strictly providing acute care to a greater emphasis on public and preventive health initiatives.

“Hospitals are working very well to understand the needs of their communities, and they're working with communities and their key stakeholders to have an impact on the key health issues they want to address with their partners,” said Stephen Martin Jr., executive director of the Association for Community Health Improvement at the American Hospital Association.

Some independent experts agree that the law's needs assessment requirement has fostered a more collaborative approach between hospitals and their communities. “This has galvanized people to see the possibility for using the community health needs assessment process to improve community health improvement investments,” said Sara Rosenbaum, a professor of health law and policy at George Washington University.

But the law does not make clear whether hospitals are required to make their strategic plan for addressing the identified needs plan widely available. “The actual blueprint on how the hospital is going to spend its money is not public,” Rosenbaum said. “This is a big question.”

Like Trinity, Detroit-based Henry Ford Health System was conducting needs assessments prior to the reform law. Henry Ford leaders say these assessments helped them develop a plan for addressing gaps in community health. “It helped us address some of the nontraditional efforts such as social determinants of health and be more strategic and deliberate in our approach,” said Dr. Kimberlydawn Wisdom, the system's chief wellness officer.

Based on the findings of its latest assessment in 2011, Henry Ford found that community stakeholders identified heart disease, diabetes and infant mortality as the three most pressing health issues. The target area was Detroit, whose residents experienced higher rates of all three conditions compared with residents in other parts of Henry Ford's service community in southeastern Michigan. The assessment found Detroit residents had less access to regular healthcare services compared with the other areas. Another finding was a higher prevalence of unhealthy lifestyles, which led to Detroit having one of the highest infant mortality rates in the U.S.

In response, Henry Ford began a program in 2012 called Sew Up the Safety Net for Women and Children, a partnership with community organizations to address factors contributing to infant mortality such as premature birth weight and a lack of prenatal care. The program trains navigators who go into city neighborhoods and find at-risk women and link them with community resources. Wisdom said the program seems to have produced a reduction in infant mortality.

Such efforts to address population health issues are not new for safety net systems such as Henry Ford and Trinity. But for many other systems, it's not yet clear whether the needs assessments required under the law will lead to greater investments in community health initiatives. “There still tends to be a fairly narrow interpretation of how (hospitals) fulfill their charitable obligations,” said Kevin Barnett, senior investigator for the Oakland, Calif.-based research group Public Health Institute, who participated in an analysis of community needs assessments done by 51 hospitals in 15 regions. “Most of that is viewed as the provision of charity and public pay shortfalls.”

In conducting needs assessments, hospitals often rely on community partners such as government health departments, religious groups, local elected officials, schools and social service organizations to provide input and help compile health data. These assessments are usually overseen by a panel assigned by the hospital's board of directors. Barnett said the best assessments take a close look at smaller parts of the hospital's service area where there are particular health disparities rather than looking broadly at the entire county or service area. A common shortcoming is the failure to obtain input from an adequate range of organizations in the community, he added.

Engaging community stakeholders is only one of the challenges hospitals face in conducting a needs assessment or in developing a strategic plan. Factors causing poor health in a community are related to poverty, lack of quality affordable housing, unemployment, poor schools and a lack of public safety. Some observers say solutions to these problems go far beyond the resources and capabilities of even a large hospital.

“The reality (is) that hospitals cannot solve these problems, many of them complex and long-standing, on their own,” Barnett said. “The better assessments that we've seen have really made a commitment to this concept of shared ownership throughout the community health assessment process.”

Partnering with community groups doesn't solve every problem. Some hospitals, for instance, are working with their communities to address lack of exercise and physical activity leading to obesity, and part of the solution is to get people walking more. But “hospitals don't build sidewalks,” the AHA's Martin said, adding that it's important to have a strong governmental partner to help address a variety of community needs.

Nevertheless, experts say the requirement that hospitals regularly assess community needs is likely to increase the collaboration between hospitals and community partners and lead to stronger accountability for providing community benefits, said Julie Trocchio, senior director for community benefit for the Catholic Health Association.

“For those hospitals that didn't have a relationship before with their local or county health departments, they do now,” she said.

Follow Steven Ross Johnson on Twitter: @MHsjohnson