This Fast Fact is part of a series in partnership with the Georgia Health Policy Center (GHPC), the national coordinating center for Bridging for Health: Improving Community Health Through Innovations in Financing, sponsored by the Robert Wood Johnson Foundation.
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Non-profit hospitals receive financial benefit from their tax-exempt status—valued at $24.6 billion in 2011. In light of recent changes outlined in the Affordable Care Act (ACA) there is a renewed effort to refocus a larger percent of these funds towards community benefit activities, rather than the estimated 85 percent that is directed towards charity care—care that is provided to those unable to afford it.
Non-profit hospitals receive financial benefit from their tax exempt status—valued at $24.6 billion in 2011. In light of recent changes outlined in the Affordable Care Act (ACA) there is a renewed effort to refocus a larger percent of these funds towards community benefit activities, rather than the estimated 85 percent that is directed towards charity care—the care that is provided to those unable to afford it.
The IRS established the “community benefit” standard in 1969 to promote community health. However, the IRS rules allowed hospitals’ charity care – that care provided to those unable to afford it – to count towards meeting tax exemption requirements. As a result, the majority of hospitals’ community benefit spending historically has been directed to charity, rather than outside hospital walls. In 2008, the IRS began requiring non-profit hospitals to submit additional community benefit information as part of the IRS 990 reporting form (the form required from all tax-exempt non-profits). While unreimbursed costs of charity care remain a recognized community benefit activity, other community health improvement activities and cash or in-kind contributions to other community activities are also recognized (e.g., hosting a health screening). Furthermore, hospitals can claim Community Development activities such as investments in housing or environmental improvements if they document the relationship between such investments and health improvement.
The Affordable Care Act (ACA) built upon community benefit requirements by calling on non-profit hospitals to target prevention and Population Health through expanded community health improvement activities. The ACA requires non-profit hospitals to conduct community health needs assessments (CHNA) every three years along with an implementation strategy that addresses the needs identified during the CHNA. The ACA, however, does not require a specific minimum value of community benefit dollars that a hospital must provide to qualify for tax-exempt status. The hope is that with a more direct link to overall community health needs, non-profit hospitals and health systems will be able to partner with other community organizations, including community development organizations, to address socioeconomic determinants of health that are known to drive population health outcomes.
The Atlanta Regional Collaborative for Health Improvement (ARCHI) is an interdisciplinary, coalition working to improve the region’s health through a collaborative approach to community health assessments and improvement strategies. Driven in part by the IRS requirements to conduct a community health needs assessment, a partnership of more than 70 hospitals, public health departments, regional planning experts, academic institutions, non-profit and philanthropic organizations are aligning their own towards common health priorities and a commitment to ensuring local investments in health provide improved opportunities to achieve health and well-being for all living in metro Atlanta.
There are also emerging examples nationally of health systems making meaningful improvements in well-being by investing community benefit funds towards community development efforts targeting access to food, housing, and redevelopment of blighted neighborhoods. One example is the Mayo Clinic in Rochester, Minn., that served as the principal investor ($7 million) in a community land trust called First Homes, which has developed 875 units of affordable housing.
Read more about Community Benefits on our Jargon Buster.