Hospital Community Benefits after the ACA: Building on State Experience

20 Pages·2012·0.33 MB·English

Issue Brief 
HHoossppiittaall  CCoommmmuunniittyy  BBeenneeffiitt  PPrrooggrraamm  
April 2011   

Hospital Community Benefits after the ACA: 
Building on State Experience  
Donna C. Folkemer, Martha H. Somerville, Carl H. Mueller, Avery L. R. Brow, 
Michelle A. Brunner, Cynthia L. Boddie‐Willis, Michael A. Nolin 
Introduction 
The Hospital Community Benefit Program, ers. Examining current state community ben-
established by The Hilltop Institute at the efit policies, the brief suggested that state
University of Maryland, Baltimore County policymakers consider whether existing state
(UMBC), is the central resource for state and policies should be modified to: ensure col-
local decision makers who seek to ensure that laborative, inclusive, and transparent ap-
tax-exempt hospital community benefit activ- proaches to identifying and prioritizing
ities are more responsive to pressing com- health needs; encourage nonprofit hospitals’
munity health needs. One of the program’s development of community benefit initiatives
functions is to publish a series of issue briefs that are effective and aligned with state pub-
on promising practices, new laws and regula- lic health policy; and develop or enhance ex-
tions, and study findings on community ben- isting accountability mechanisms to ensure
efit activities and reporting. that nonprofit hospitals’ community benefits
are responsive to community health needs.
The first issue brief in the series (Folkemer et
al., 2011) explored the expanded regulatory This is the second issue brief in a series,
framework for hospital community benefits funded by the Robert Wood Johnson Founda-
under the Affordable Care Act (ACA),1 out- tion and the Kresge Foundation, to be pub-
lining its new community benefit require- lished over three years. It takes a closer look
ments and exploring the challenges and op- at three aspects of community benefits af-
portunities these present for state policymak-
Donna C. Folkemer, MA, MCP, is a Senior Policy Analyst at The Hilltop Institute at UMBC and directs Hilltop’s Hospital 
Community Benefit Program. Martha Somerville, JD, is a Senior Policy Analyst at The Hilltop Institute at UMBC. Carl 
Mueller, MS, is a Policy Analyst at The Hilltop Institute at UMBC. Avery L. R. Brow is a Graduate Research Assistant at 
The Hilltop Institute at UMBC. Michelle Brunner is a Graduate Intern at The Hilltop Institute at UMBC. Cynthia L. 
Boddie‐Willis, MD, MPH, is Director of Health Services Policy and Research at The Hilltop Institute at UMBC. Michael A. 
Nolin, MA, is Interim Executive Director of The Hilltop Institute at UMBC.
fected by §9007 of the ACA, “Additional This brief considers each of these require-
Requirements for Nonprofit Hospitals”: ments against a backdrop of federal and state
law and practice. This is not a comprehensive
 Community health needs assessment account of state experience. Rather, these
 Hospital financial assistance and billing examples illustrate a range of state policy
and collection policies decisions that can help to inform the interpre-
 Community benefit reporting and over- tation and implementation of §9007 of the
sight strategies ACA.
Community Health Needs Assessment
The  Federal  Framework.  For tax years  Make its CHNA “widely available to the
beginning after March 23, 2012, the ACA public” (ACA §9007(a), I.R.C.
requires nonprofit hospitals to conduct com- §501(r)(3)(B))
munity health needs assessments (CHNAs).
The ACA also requires nonprofit hospitals to
Any nonprofit hospital that fails to comply
develop an implementation strategy to meet
with this requirement is subject to a $50,000
the needs identified by the CHNA, describe
excise tax liability and the potential loss of
identified needs not addressed by that strate-
its federal tax-exempt status (ACA §9007(b),
gy, and explain why these needs are not be-
(a)). However, the ACA provides no defini-
ing addressed (ACA §9007(a)-(b)).
tion of CHNA and little guidance as to the
processes that hospitals should follow, either
A common complaint about the ACA’s
to conduct these assessments or to address
CHNA requirement is that it lacks sufficient
the community health needs they identify.
specificity to serve as an effective guide for
The law specifies only that the nonprofit
compliance. However, the 2010 Schedule H
hospital must:
(Form 990) and instructions (both published
February 25, 2011) provide some clarifica-
 Conduct a CHNA within the three-year
tion; additional interpretive guidance from
period that begins on the first day of its
the Internal Revenue Service (IRS) is ex-
first tax year beginning after March 23,
pected.2 The ACA’s emphasis on periodic,
2010, and ending on the last day of its
systematic, inclusive, and transparent as-
first tax year that begins after March 23,
sessment and reassessment of community
2012; thereafter, the hospital must con-
health needs echoes well-established public
duct a CHNA at least once every three
health practices. Stakeholder and consumer
years (ACA §9007(f))
involvement are critical to the overarching
 Incorporate into its CHNA input from
purpose of the CHNA, which is to identify
“persons who represent the broad inter-
the community’s health needs and establish
ests of the community served by the hos-
priorities for addressing them. CHNAs in-
pital facility, including those with special
form community benefit planning and foster
knowledge of or expertise in public
the nonprofit hospitals’ development of ef-
health” (ACA §9007(a), I.R.C.
fective programs to improve the health status
§501(r)(3)(B))
of the community (NACCHO, 2005; Mani-
2
toba Health and Healthy Living Accountabil- traditional service boundaries” (e.g., those
ity Support Branch, 2009). served by a hospital’s community benefit
initiatives, or “opportunity areas” with con-
Defining  the  Community.  Although the centrations of “at risk” populations) (CHA,
ACA does not expressly define the terms 2011, pp. 19-20).
“community” or “community health needs
assessment,” it does require input from “per- State  Approaches  to  Defining  the 
sons who represent the broad interests of the Community  of  Interest.  Several states
community served by the hospital facility.” have implemented their own approaches to
This supports an interpretation that requires a identifying a hospital’s CHNA community of
hospital’s CHNA process to target its service interest. In 2003, California’s Office of
area. Statewide Health Planning and Development
(OSHPD) initiated a draft community benefit
The Catholic Health Association (CHA)
planning guide. The guide recommends that
views a hospital’s geographic service area as
hospitals first define the community, which is
a starting point of community definition but
conceptualized as a group of people with
recognizes that the scope of a community
common features, such as place, identity, or
assessment may need to extend beyond that
experiences. After a hospital completes its
“in order to include areas of the greatest
needs assessment and identifies health priori-
need, such as where a majority of uninsured
ties, OSHPD’s guide directs the institution to
persons reside” (2008, p. 67). Examples in-
develop a more specific definition of the
clude areas that are federally designated as
population that it will target for community
“medically underserved” or have a shortage
benefit interventions.
of health professionals; an area the hospital
has historically served; or an area that is se- Connecticut recognizes the community bene-
verely underserved. Moreover, it may be ap- fit responsibilities of both hospitals and man-
propriate for a hospital to identify a subpopu- aged care organizations (MCOs), whether
lation within its defined service area for spe- for-profit or nonprofit. Although the state law
cial focus (e.g., older adults, minorities, requires neither hospitals nor MCOs to de-
pregnant women, children, or those with dis- velop community benefit programs, it does
abilities) (CHA, 2008). require a biannual report informing the state
whether such a program has been adopted. If
In a post-ACA discussion draft designed to
a hospital or MCO chooses to develop a
help nonprofit hospitals assess the needs of
community benefit program, it must establish
their communities and develop responsive
community benefit guidelines that promote
community benefit implementation strate-
preventive care and health improvement for
gies, CHA offers the following factors for a
“working families and vulnerable popula-
hospital to consider when defining the com-
tions” within its service area (Conn. Gen.
munity it will target for its CHNA: the hospi-
Stat. §19(a)-127(k)). Program development
tal’s primary and secondary service areas;
must be based on an assessment of the needs
patient categories (e.g., general patient popu-
and resources of targeted populations, “par-
lation, or subsets thereof, such as children or
ticularly low and middle-income, medically
rehabilitation patients); and geographic areas
underserved populations and barriers to ac-
or populations that are “beyond the hospital’s
3
cessing health care” (Conn. Gen. Stat. vary substantially from state to state and
§19(a)-127(k)). from hospital to hospital. The absence of any
concrete national standard for community
Texas has adopted a similar approach, requir- definition makes it difficult—in states that
ing each nonprofit hospital in the state to de- have not provided clear legislative guid-
velop a community benefit plan that takes ance—for nonprofit hospitals to confidently
into consideration the community’s health focus their CHNA activities (Missouri Foun-
needs based on a community-wide assess- dation for Health, 2009). Moreover, the ab-
ment. In this context, “community” means sence of legislative guidance can frustrate
“the primary geographic area and patient regulators’ ability to hold hospitals accounta-
categories for which the hospital provides ble for needs assessment and community
health care services” (emphasis added), with health improvement.
the “primary geographic area” consisting of
at least an entire county (Tex. Health & Safe- Promoting Community Involvement in 
ty Code §311.044).
a Collaborative Needs Assessment Pro‐
cess. The ACA implicitly recognizes that the
Massachusetts requires nonprofit acute care
involvement of consumers, other community
hospitals to submit community benefit plans
stakeholders, and public health experts is es-
as a condition of original licensure (Mass.
sential to hospitals’ meaningful assessments
Gen. Laws ch. 111, §51G(4)); hospitals al-
of the health needs and priorities of the
ready licensed may choose to comply with
communities they serve (ACA §9007(a)).
the Attorney General’s voluntary community
benefit guidelines. These voluntary guide-
Both the National Association of County and
lines include three approaches that nonprofit
City Health Officers (NACCHO) and the
acute care hospitals may use to define their
Association of State and Territorial Health
communities and develop community benefit
Officers (ASTHO) identify CHNAs as a pub-
plans (Mass. Atty Gen., 2009):
lic health function of state and local health
departments (NACCHO, 2008; ASTHO,
 A geographic approach defines the
2010). As of July 2010, 27 states had partici-
community by political boundaries (e.g.,
pated in the National Public Health Perfor-
town or city limits) or by the aggregate
mance Standards Program (NPHPSP), an
corporate limits of contiguous municipal-
assessment of state and local public health
ities; it is not necessarily limited to a
systems’ capacity and services (ASTHO,
hospital’s direct service area.
2010). NPHPSP—a collaboration of the Cen-
 A demographic approach focuses on one
ters for Disease Control and Prevention
or more specific demographic groups,
(CDC), ASTHO, and other national public
such as older adults or unin-
health organizations—recognizes the assess-
sured/underinsured populations with low
ment of community health status to identify
incomes.
and monitor public health problems, and the
 A health status approach defines the
assessment of public health capacity and
community in terms of disease preva-
resources, respectively, as essential services
lence.
of local and state health departments
It is clear that approaches to defining (NPHPSP, 2008a, 2008b).
“community” for health needs assessment
4
The Public Health Accreditation Board State  Approaches  to  Community  In‐
(PHAB) (supported by the CDC and the
volvement and Collaboration. State and
Robert Wood Johnson Foundation) will
local health departments use CHNAs to
launch a national voluntary accreditation
guide public health planning for community
program for state and local health depart-
health improvement (NACCHO, 2005). This
ments in the fall of 2011. Proposed Accredi-
governmental exercise can be adapted to
tation Standard 4.1B requires health depart-
serve as guidance for hospitals performing
ments to “engage the public health system
CHNAs. Hospitals may elect to employ the
and the community in identifying and ad-
same health assessment and planning tools
dressing health problems through an ongo-
used by local health departments in their pub-
ing, collaborative process” (PHAB, 2009).
lic CHNA processes. These include, among
others, Mobilizing for Action through Plan-
NACCHO (2010) recommends the follow-
ning and Partnerships (MAPP), Planned Ap-
ing:
proach to Community Health (PATCH), and
the Assessment Protocol for Excellence in
IRS reporting requirements should reflect
Public Health (APEXPH) (NACCHO, 2007).
the key characteristics of a high quality
process by asking hospitals to document
Collaboration among hospitals and public
that they are engaged or collaborating in
health agencies may serve as a means of ful-
a process that includes the following key
filling—at least in part—the ACA require-
phrases:
ment that hospital CHNAs take into account
input from individuals who represent “the
 Design of a community health needs
broad interests of the community ... including
assessment;
those with special knowledge of or expertise
 Identification of relevant assessment
in public health” (ACA §9007). Moreover, a
indicators and existing data sources;
partnership of health departments, hospitals,
 Collection of both quantitative and
and an engaged community can increase the
qualitative data, including input from
efficiency and effectiveness of hospital
a wide variety of individuals and or-
community benefit initiatives (Institute of
ganizations in the community;
Medicine, 2002).
 Identification of community priori-
ties and implementation strategies
Several states have recognized the im-
that are based on assessment data,
portance of community involvement in hos-
community input, and the evidence
pitals’ needs assessment processes. For ex-
of effectiveness of proposed inter-
ample, the Massachusetts Attorney General’s
ventions;
guidelines suggest that hospital community
 Implementation of strategies that ad-
benefit planners seek input from community
dress community priorities;
representatives who reflect the racial, cultur-
 Evaluation of strategy effectiveness
al, and ethnic diversity of the populations the
 Demonstration of community health
hospital serves (Mass. Atty Gen., 2009).
improvement resulting from strategy
Maryland law requires that hospitals shall
implementation. (p. 3)
consider state or local health department-
developed CHNAs (if available), and that
they may consult with community leaders,
5
health care providers, and “any appropriate Collaborative approaches to CHNAs, such as
person that can assist the hospital in identify- those required or encouraged by the laws de-
ing community health needs” (Md. Code scribed above, may not be easy to achieve.
Ann., Health-Gen. §19–303(b)). Texas re- Partnerships between hospitals and public
quires hospitals to consider the input of local health agencies may present challenges in
health departments, public-health districts, achieving a common focus in the face of dif-
and other community stakeholders (Tex. fering philosophies and priorities (Israel,
Health and Safety Code Ann. §311.044). Schultz, Parker, & Becker, 1998). On the
New Hampshire requires hospital CHNAs to other hand, hospital/agency partnerships pro-
include the reports of public health agencies. vide an opportunity to leverage scarce public
Utah mandates annual consultation with resources available for funding health de-
county health officials as part of hospitals’ partment-led CHNAs with the private re-
and nursing homes’ CHNA processes (CHA, sources that hospitals must devote to CHNAs
2010). to achieve ACA compliance.
Hospital Financial Assistance and Billing and Collection Practices  
The primary purpose of a CHNA is to identi-  An explanation of how an individual may
fy community health needs for the purpose of apply for financial assistance
developing activities that improve community  Unless specified in a separate billing and
health status. The traditional and still well- collection policy, the hospital’s potential
accepted understanding of community bene- nonpayment actions, including credit re-
fits also includes charity care, financial assis- porting and collection actions
tance, and, more recently, protections for pa-  Measures to widely publicize the hospi-
tients who find it difficult, if not impossible, tal’s financial assistance policies in the
to pay their hospital bills. These aspects of community
community benefits respond to individual
health needs. This section of the issue brief Although the ACA does not mandate that
explores federal and state regulation of hospi- hospitals provide a minimum level of finan-
tal financial assistance and billing and collec- cial assistance, dictate financial assistance
tion policies that seek to address financially eligibility rules, or define a process for de-
based disparities in access to hospital ser- termining patient charges, the IRS has re-
vices. leased a new Schedule H that requires non-
profit hospital organizations to report finan-
The Federal Framework. Section 9007 of cial assistance policies and practices in effect
the ACA requires tax-exempt hospitals to during 2010 and subsequent tax years. Hospi-
establish a written financial assistance policy tals are required to report whether multiple
that includes all the following elements hospital facilities operated by the organiza-
(ACA §9007(a)): tion used uniform financial assistance poli-
cies, whether the organization used federal
 Financial assistance eligibility criteria, poverty guidelines (FPL)3 to determine eligi-
and whether free or discounted care is bility for free or discounted care, and what
available percentages of the FPL or other criteria were
 The basis for calculating patient charges
6
used to determine financial assistance eligi- pay patients are in place in seven states.7
bility (IRS, 2011, lines 1-7). Providers in 20 states8 and the District of Co-
lumbia must notify patients and the public of
Section 9007 of the ACA requires nonprofit available financial assistance programs
hospitals to adopt, as part of written financial (Community Catalyst, 2010a).
assistance policies, limitations on fees and
constraints on billing and collection actions. Using the FPL to determine financial assis-
Although ACA §9007, 2010 Schedule H, and tance eligibility is common among the states
forthcoming IRS guidance will not directly (Community Catalyst, 2010a). In Maryland,
affect state tax policies, they collectively for example, nonprofit hospitals9 must pro-
provide a federal framework that policymak- vide free care to patients with family income
ers may find useful to reference when re- at or below 200 percent of the FPL, as well
examining state and local tax policies in a as provide reduced-cost care to patients with
post-ACA environment. family income between 200 and 300 percent
of the FPL “in accordance with the mission
State  Approaches  to  Financial  Assis‐ and service area of the hospital,” and to those
tance  Policies.  Nonprofit hospitals have with family income between 200 and 500
historically provided a “safety net” for unin- percent of the FPL who have a “financial
sured and underserved patients by offering hardship” (i.e., medical debt incurred over a
free or discounted care (Community Catalyst, 12-month period that exceeds 25 percent of
2010b). However, after full implementation family income) (COMAR 10.37.10.26A-
of the ACA in 2014, there likely will be few- 2(2)). In addition, a payment plan must be
er uninsured individuals seeking hospital made available to uninsured patients who
care. In that environment, hospital financial have family income between 200 and 500
assistance policies may need to refocus on percent of the FPL and request assistance
underinsured patients (i.e., those whose fi- (COMAR 10.37.10.26A-2(3)). New Jersey
nancial resources are inadequate to cover the also requires hospitals to provide free care
cost of copayments and deductibles) (Jervis, for patients with family income at or below
2005). 200 percent of the FPL (N.J. Admin. Code
§10:52-11.8).
Regulatory approaches to hospital financial
assistance and billing practices vary widely Financial assistance requirements may also
among the states. A few require both non- vary by geographic areas within a state. For
profit and for-profit hospitals to provide fi- instance, Illinois requires rural hospitals to
nancial assistance. Thirteen states4 and the provide discounted care to uninsured patients
District of Columbia mandate free care for with family income up to 300 percent of the
patients unable to pay; eighteen states5 and FPL, whereas urban hospitals must discount
the District of Columbia have uniform stand- charges for services provided to patients with
ards for free care eligibility; and seven states6 family income up to 600 percent of the FPL
require hospital charges for uninsured pa- when charges exceed $300 per admission
tients to be based on sliding fee scales that (210 Ill. Comp. Stat. 210 §89/10).
reflect patients’ ability to pay (Community
Some states have adopted a slightly different
Catalyst, 2010a). Limits on hospital charges
approach. That is, once a patient is deter-
for services delivered to uninsured and self-
mined to be eligible for financial assistance
7
(generally on the basis of a family income the same service during the previous year
range that references the FPL), the patient’s (Minn. Hospital Assn and Atty Gen. 2005).
financial responsibility is capped at a specific
amount calculated as a percentage of the pa- The ACA also bars tax-exempt hospitals
tient’s income. For example, in Illinois, the from initiating “extraordinary collection ac-
maximum amount that hospitals may collect tions” before making a reasonable effort to
from any person who qualifies for discounted determine whether the patient qualifies for
care is 25 percent of that person’s annual financial assistance (ACA §9007(a)). The
family income (210 Ill. Comp. Stat. 89/10). IRS 2010 Schedule H requires tax-exempt
Similarly, New Jersey caps the payment re- hospital organizations with tax years begin-
sponsibility of patients who are eligible for ning after March 23, 2010 to specifically
reduced-cost care to 30 percent of annual identify the types of collection practices they
gross income (N.J. Admin. Code, §10:52- employed during the tax year (IRS, 2011,
11.8); eligibility for discounted care is based lines 15-17).
on a sliding scale that distinguishes between
Fifteen states10 have adopted billing and debt
four income ranges between 200 and 300
collection requirements that apply exclusive-
percent of the FPL. This means that a patient
ly to medical debt (Community Catalyst,
with a family income equivalent to 230 per-
2010a). Maryland requires written hospital
cent of the FPL is responsible for 40 percent
policies that necessitate hospitals’ “active
of the charges, whereas a patient with a fami-
oversight” of third-party debt collection, pro-
ly income equivalent to 260 percent of the
hibit selling medical debt, and prohibit inter-
FPL is expected to pay 50 percent of the
est charges on uninsured patients’ unpaid
charges (N.J. Admin. Code §10:52-11.8).
bills unless a court judgment has been ob-
tained (Md. Code Ann., Health-Gen. §19-
State approaches to billing and collec‐
214.2). With respect to patients who are eli-
tion practices. The ACA prohibits nonprof-
gible for financial assistance, California hos-
it hospitals to charge patients eligible for dis-
pitals may not charge interest on outstanding
counted care more than the rate “generally
bills, seek wage garnishment, or seek liens
billed” to patients with insurance that covers
against a patient’s primary residence. Alt-
the service and prohibits the use of gross
hough a third-party collection agency is not
charges (ACA §9007).
subject to the garnishment prohibition that
applies to hospitals, a judicial garnishment
Similarly, some states limit charges to pa-
order may not be granted unless the agency
tients who are eligible for discounted care on
can show that the patient has the ability to
the basis of rates paid by insurers. California
pay, taking into consideration the size of the
requires hospitals to limit charges to individ-
debt and the patient’s current and future fi-
uals with family income at or below 350 per-
nancial obligations (Cal. Health & Safety
cent of the FPL to the rates paid by Medicare
Code §127425).
or another government-sponsored health pro-
gram (Cal. Health & Safety Code
Like California, New York limits the interest
§127405(d)). For uninsured Minnesota resi-
rate that hospitals may charge for medical
dents earning less than $125,000 annually,
debt and protects a patient’s primary resi-
hospitals have agreed to limit charges to the
dence from foreclosure (N.Y. Pub. Health
maximum charged to a third-party payer for
Law §§2807-2809). Pursuant to an agree-
8
ment between the Minnesota Attorney Gen- cy on the hospital’s website; attaching it to
eral and the Minnesota Hospital Association, patient bills; posting it in hospital emergency
Minnesota hospitals may not refer a patient’s rooms, waiting rooms, admissions offices, or
account to a collection agency or file suit all of these locations; providing the written
against a patient for nonpayment before first policy to patients upon admission; making it
confirming that all potentially responsible available upon request; or “other” methods
insurers have been billed and that a payment (IRS, 2011, line 13).
plan and financial assistance have been of-
fered if the patient is eligible (Minn. Hospital States have adopted a variety of approaches
Assn and Atty Gen., 2005, 2007). Similarly, to address this issue. Illinois requires finan-
the Massachusetts Attorney General has en- cial assistance policies to be posted on hospi-
couraged hospitals to develop mechanisms tal websites and, along with Ohio, requires
for addressing patient complaints about the them to be disseminated in non-English lan-
actions of collection agents and to require guages commonly spoken in the community
third-party collection agents to secure written (Ill. Pub. Act 094-0885; Ohio Admin. Code
consent from the hospital before initiating 5103:3-2-07.17). Maryland requires hospitals
legal action or reporting a patient’s medical to distribute financial policies to patients at
debt to a credit agency (Mass. Atty Gen., the time of admission, before discharge, with
2009). hospital bills, and upon request by patients or
their representatives (Md. Code Ann.,
State Approaches to Publicizing Finan‐ Health-Gen. §19-214.1). California relies on
a similar approach: financial assistance in-
cial Assistance Policies. Section 9007 of
formation must be provided in the emergency
the ACA requires tax-exempt hospitals to
department, billing office, admissions office,
adopt measures that “widely publicize” fi-
and other various outpatient settings (Cal.
nancial assistance policies in their communi-
Health & Safety Code §127410). The state
ties. The 2010 Schedule H (Form 990) re-
has also developed a patient-friendly website
quires hospitals to identify methods they
to help individuals determine whether they
have used to publicize financial assistance
are eligible for financial assistance services
policies during the 2010 tax year by selecting
and to identify potential care providers
from options, which include posting the poli-
(OSHPD, 2007).
Community Benefit Reporting and Oversight Strategies  
The Federal Framework. From 2007 to The ACA’s new reporting requirements for
2008, the IRS developed Schedule H (Form federal income tax exemption will permit
990), the first federal income tax reporting more effective comparative analyses of
requirements specifically focused on non- community benefits at the national level.
profit hospital community benefits. On Feb- With the exception of those relating to
ruary 25, 2011, the IRS released the 2010 CHNAs, the new reporting requirements are
Schedule H, which includes revised reporting effective for federal tax years beginning after
requirements for nonprofit hospitals con- March 23, 2010. As described in the next
sistent with those in the ACA. section, some states automatically grant state
income tax exemption based on an organiza-
9
tion’s federal tax-exempt status. Other states cally11 or through a separate formal applica-
have their own reporting requirements that tion process.12 Three states13 determine a
may or may not relate to a hospital’s qualifi- corporation’s tax status independently of its
cation for state income tax exemption. In ei- federal tax exemption (Mancuso, 2002). The
ther case, the ACA does not mandate that community benefit requirements of one of
states alter their own reporting requirements these three states—California—are discussed
to make state tax exemption standards con- in the next section.
form to the ACA requirements embedded in
Schedule H. However, state and local poli- States may adopt community benefit report-
cymakers may wish to examine the new fed- ing requirements as a tool for determining a
eral tax reporting framework to assess its hospital’s qualification for either state non-
utility for ensuring nonprofit hospital ac- profit status or other policy-related purposes.
countability at the state level. States have A state may have mandatory,14 voluntary,15
adopted community benefit reporting re- or both mandatory and voluntary16 types of
quirements to serve different purposes; these community benefit reporting requirements
purposes may include qualification for state (CHA, 2010). Seven17 states have no com-
tax exemption or may be designed to serve munity benefit reporting requirements. This
other state policy objectives. national variation in state community benefit
reporting is a product of each state’s unique
State  Community  Benefit  Reporting  business, regulatory, and political climate.
Requirements. In exchange for the value
States that have mandatory reporting re-
that nonprofit hospitals and other charitable
quirements either link them to one or more
organizations add to the community, most
federal, state, or local tax exemption or re-
states exempt them from state tax (Jervis,
quire community benefit reporting independ-
2005). At the federal level, hospitals that the
ent of a hospital’s state tax status (CHA,
IRS determines to be tax-exempt are not re-
2010). North Dakota, for example, deter-
quired to pay federal corporate income tax. A
mines whether a hospital is exempt from
majority of states determine an organiza-
state corporate income tax by deferring to its
tion’s nonprofit state tax status in accordance
federal tax status, but links mandatory com-
with its federal tax-exempt status (Mancuso,
munity benefit reporting to state sales and
2002). Of the remaining states, those without
use tax exemption. New Mexico links man-
a state corporate income tax excuse nonprof-
datory reporting to hospital licensure, where-
its from other forms of state taxation, such as
as North Carolina requires mandatory report-
property, franchise, and sales and use tax
ing only when nonprofit hospitals apply for
(CHA, 2010).
tax-free bonds (CHA, 2010). As previously
mentioned, Massachusetts has mandatory
Forty-seven states (including the District of
community benefit reporting for nonprofit
Columbia) have a state corporate income tax
acute care hospitals as a condition of original
(Nevada, South Dakota, Washington, and
licensure (Mass. Gen Laws ch. 111,
Wyoming have no state corporate income
§51G(4)); for hospitals already licensed, re-
tax). Of these 47 states, 44 use a corpora-
porting is voluntary (Mass. Atty Gen., 2009).
tion’s federal tax status as the deciding factor
Of the 14 states with mandatory community
in determining its tax status for purposes of
state corporate income tax, either automati-
10