Federal laws/regulations;

OLR Research Report

May 10, 2011




By: John Kasprak, Senior Attorney

You asked if the federal health care reform law requires hospitals to undertake a community health needs assessment and if so, what are the elements of the assessment.


Section 9007 of the Patient Protection and Affordable Care Act (“ACA”, the 2010 federal health care reform law, P.L. 111-148) adds requirements that a nonprofit hospital must meet in order to maintain its Sec. 501(c)(3) tax-exempt status under the Internal Revenue Code. A hospital must conduct a community health needs assessment at least once every three years and faces financial penalties for failing to timely conduct the assessment. The new law also addresses a hospital's financial assistance policy and billing and collection practices. The U.S. Department of the treasury, in consultation with the Department of Health and Human Services (HHS) must provide an annual report to Congress concerning charity care, bad debt, and unreimbursed services.

These new provisions are effective for taxable years beginning after March 23, 2010, except that the community health needs assessment requirement takes effect in tax years beginning after March 23, 2012.

For purposes of these provisions, a “hospital” generally includes (1) any facility that is, or is required to be, licensed, registered, or similarly recognized by the state as a hospital and (2) any other facility or organization the Treasury secretary, in consultation with the HHS secretary, determines that the provision of hospital care is its primary purpose.


Community Needs Assessment

Each hospital facility is required to conduct a community health needs assessment at least once every three taxable years and adopt an implementation strategy to meet the community needs identified through the assessment. This process must take into account input from people representing the broad interests of the community served by the facility, including those with special knowledge or expertise in public health issues. The needs assessment process must be made widely available to the public. Failure to complete an assessment in any applicable three-year period results in a $50,000 penalty to the facility.

The ACA requires a hospital to include a description of how it is meeting these community needs assessment requirement in its IRS Form 990 filing. Specifically, it must file (1) a description of how the facility is addressing the identified needs and a description of the needs not being addressed with an explanation as to why this is the case and (2) a copy of its audited financial statements.

The U.S. Treasury secretary must review information about a hospital's community benefits activities at least once every three years.

Financial Assistance Policy

The PPA requires each hospital to adopt, implement, and widely publicize a written financial assistance policy. This policy must include the eligibility criteria for financial assistance and whether it includes free or discounted care, the basis for calculating patient charges, and the process for applying for financial assistance. In addition, each hospital must adopt and implement a policy to provide emergency medical treatment to individuals. The policy must prevent discrimination in providing emergency care, including denial of service, against those eligible for (1) financial assistance under the hospital's financial assistance policy or (2) government assistance.

A hospital can bill for emergency or other medically necessary care provided to those qualifying for financial assistance under the facility's policy. Such billing which is generally no more than the best rates charged to individuals with insurance coverage. A hospital may not use gross charges when billing individuals who qualify for financial assistance.

Billing and Collection Requirements

Under the act, a hospital may not take extraordinary collection actions before it has made reasonable efforts to determine whether the individual is eligible for financial assistance under the hospital's policy described above. The Treasury secretary must issue guidance concerning what constitutes “reasonable efforts.”

Annual Report

The Treasury secretary, in consultation with HHS, must annually report to Congress regarding the levels of charity care, bad debt expenses, unreimbursed costs for services provided with respect to means-tested government programs, and unreimbursed costs on nonmeans-tested government programs incurred by private tax-exempt, taxable, and government hospitals. Additionally, these federal entities must study the trends in these amounts and report to Congress within five years.