For decades, nonprofit hospitals have received large tax exemptions for investments in their communities. Currently, federal requirements do not define minimum spending by hospitals on community benefit programs nor are hospitals required to link community benefit dollars to identified health needs. With limited federal guidance, states are leading the way and establishing impactful community benefit policies. This slide deck outlines the levers states are using to hold nonprofit hospitals accountable for their investments in community health improvement. For more information, read NASHP’s blog, Now Is the Time for States to Hold Hospitals Accountable for their Community Benefit Expenditures.
Nonprofit hospitals can be important partners for states in promoting community health, especially through their community benefit investments. Montana’s Legislative Audit Division recently completed a report that calculated the total tax exemptions and community benefit spending by its 47 nonprofit hospitals and found they had no real impact on the health of Montanans.
While there are gaps in federal oversight and enforcement of community benefit reporting by hospitals, several states are exercising more oversight to ensure hospital community benefit spending has a meaningful impact on community health.
Community Benefit and Charity Care Obligations
In the early 2000s, a group of state attorneys general became increasingly concerned about how hospitals were handling account collections, charity care, and patient bankruptcies. As part of its efforts to monitor nonprofit hospitals and ensure they were fulfilling their charitable obligations, the Montana Attorney General’s Office published annual Montana hospital reports between 2008 and 2014 as a way to protect “…the interests of those served by a nonprofit corporation.”
The reports included information on pricing policies, charity care, community benefit, and debt collection practices. Although funding for the reports ended in 2014, Montana legislators remained interested in revisiting these issues, leading to a request by the Legislative Audit committee, a bipartisan committee of the Montana Legislature, for a performance audit.
The Legislative Audit Division’s report was designed to answer two questions:
- Does hospital community benefit spending compare equitably to tax-related benefit relief and impact community health?
- Does the Montana Department of Public Health and Human Services (DPHHS) ensure hospitals provide charity care policies consistent with industry standards as required by law?
In 2016, Montana’s nonprofit hospitals’ estimated tax exemption was more than $146 million dollars. This number was calculated using Internal Revenue Service (IRS) documents and included federal corporate income tax, state corporate income tax, state property tax, local property tax, and state personal property tax liabilities.
Auditors also calculated nonprofit hospital community benefit spending in 2016 from self-reported information on IRS-990 Forms with Schedule H attachments. In 2016, the 47 nonprofit hospitals reported spending $257 million on community benefit activities. Ten hospitals’ community benefit spending was less than their estimated tax liability. Overall community benefit spending was reported as $110 million more than the estimated tax liability for hospitals.
The following is the total community benefit spending in Montana for 2016 broken down by Schedule H report categories:
|IRS-990 Schedule H Category||Self-Reported Community Benefit Spending||Percent of Total Community Benefit Spending|
|Cash and in-kind contributions1||$5.5 million||2%|
|Charity care2||$39.1 million||15%|
|Community health improvements3||$10.3 million||4%|
|Health professionals’ education4||$14.9 million||6%|
|Other means-tested government programs6||$30,000||<1%|
|Subsidized Services8||$114.7 million||45%|
1 Financial support to organizations engaged in community benefit activities defined by the hospital.
2 Payment for health services for patients unable to pay their bills.
3 Programs designed to improve community health. Also includes hospitals’ costs to complete their CHNAs every three years.
4 Funding for education resulting in a degree, certificate, or training to become a medical professional. Can also include medical residency opportunities.
5 Funding to offset costs of hospital services provided to patients enrolled in Medicaid.
6 Funding to offset other government health programs, such as Healthy Montana Kids, Montana’s CHIP program.
7 Funding for researcher salaries and activities that benefit the public.
8 Money spent on clinical services despite a financial loss for the hospital. Examples include neonatal intensive care, inpatient psychiatric care, emergency services, palliative care, and hospice.
The majority of community benefit spending – 87 percent, including subsidized services, Medicaid, and charity care – directly fund hospital services and raise concerns about hospital efficiency, particularly regarding their significant spending on subsidized services. Generally, hospitals report the charges, not actual costs, that inflate the value of these expenditures. The report also found that 4 percent of community benefit spending is on community health improvement. This finding is consistent with national research that has determined that only a small percentage of community benefit spending goes to community-based activities aimed at upstream drivers of health. Health status is largely affected by social determinants of health, therefore to improve community health, hospitals should direct spending to issues like food access, housing and education that improve population health.
Impact of Community Benefit Spending on Community Health
The Legislative Audit Division reviewed the CHNAs of all 47 nonprofit hospitals and identified the top four community health priorities across all hospitals:
- Mental health, substance abuse and suicide;
- Access to health care;
- Healthy living, nutrition and exercise; and
- Chronic disease prevention and management, diabetes and heart disease.
To determine the impact of community benefit spending on identified community health priorities, auditors used County Health Rankings, a collaboration between the University of Wisconsin Population Health Institute and Robert Wood Johnson Foundation, to provide county-level health factors. Previous analysis of community benefit spending has also used County Health Rankings to determine impact on community health.
County Heath Rankings’ measures used to determine community benefit impact include:
- Adult excessive drinking;
- Ratio of Population to Primary Care Physicians
- Adult obesity rates; and
- Prevalence of adult diabetes.
Data for each measure was examined for an available time period to determine if the county ranking increased or decreased. For all four measures, the change in health ranking across all counties found no clear indication that hospital community benefit spending had improved the health of Montanans.
Oversight of Charity Care Programs
Charity care, one type of community benefit spending, is free or reduced-cost health care provided to low-income patients. Montana Law requires hospitals to have “a charity care policy consistent with industry standards applicable to the area the facility serves and the tax status of the hospital.” Only 9 of Montana’s 47 nonprofit hospitals fall under this requirement, the other 38 are critical access hospitals (CAHs).
Spending on charity care varies widely between hospitals, ranging from 1 percent to 76 percent of community benefit spending. Charity care income eligibility limits also vary across the state’s nine large hospitals.
The audit determined that DPHHS does not review hospital charity care policies as required by state law. DPHHS primarily regulates hospitals for quality and relies on self-attestation for their compliance with state law for licensing. Montana law also does not define charity care spending or eligibility.
Montana’s Legislative Audit Division made the following recommendations:
- The state legislature should enact laws defining reporting expectations for community benefit spending, and its impact on community health. The legislature should also identify the state government entity responsible for reviewing community benefit spending.
- Montana DPHHS should define spending and eligibility expectations related to charity care and establish an oversight and review process consistent with industry standards.
Montana DPHHS concurred with the second recommendation, but did not comment on the first. After the report’s presentation, some legislators expressed interest in further defining community benefit and charity care provisions in the state.
States Can Provide Guidance on Charity Care and Community Benefit Spending
Findings and recommendations from this report are not unique to Montana. In 2011, hospitals benefited from $24.6 billion in tax exemptions, yet community benefit spending remained flat between 2011 and 2017. Many states do not currently regulate hospital charity care or community benefit spending. However, some states have laws designed to increase accountability for charity care and community benefit spending. For example:
- In Connecticut, nonprofit hospitals must direct their community benefit spending toward identified CHNA needs and State Health Improvement Plan goals.
- Maryland law requires its Health Services Cost Review Commission to establish a Community Benefit Reporting Workgroup. The workgroup must adopt regulations for nonprofit hospital reporting of community improvement activities. Additionally, nonprofit hospitals are required to report their community benefit initiatives and associated costs.
- Oregon requires nonprofit hospitals to provide assistance to patients with incomes up to 400 percent of the federal poverty level (FPL). The Oregon Health Authority also establishes minimums for community benefit spending by hospitals
- In Washington State, patients with incomes between 100 and 200 percent of FPL qualify for discounted care.
The National Academy for State Health Policy (NASHP) regularly convenes a Community Benefit Workgroup and will continue to provide technical assistance to states and track state policies related to accountability for community benefit spending and reporting requirements. Learn more at NASHP’s Resources to Help States Maximize their Hospitals’ Community Benefit Investments.
Support for this work was provided by the Robert Wood Johnson Foundation. The views expressed here do not necessarily reflect the views of the foundation.
To make sure hospitals’ community benefit investments address community and state health goals, many states are working to ensure that hospitals are held accountable and their investments truly improve community health and advance equity. In return for their tax exemptions, every three years nonprofit hospitals perform community health needs assessments (CHNA) and make investments to address the identified needs.
These resources explain how these investments can be used to improve community engagement, increase accountability, and address social determinants of health. To learn more about NASHP’s workgroup of states working on community benefit issues, or to share your state’s efforts, contact Elinor Higgins.
Equity and Community Involvement Strategies
- Webinar: How States Can Leverage Hospital Community Benefit Policy to Advance Community Health and Equity, April 2021. This webinar explored the legislative and regulatory levers that states have at their disposal to ensure hospitals invest in their communities to improve population health through effective and accountable community benefit investments.
- State Requirements or Guidelines for Community Involvement in Community Health Needs Assessments, April 2019. Nonprofit hospitals are federally required to conduct CHNAs every three years and develop plans to meet those needs in exchange for their tax-exempt status. Many states have laws or guidelines that are more detailed than the federal requirements. This table documents 10 states’ guidelines for involving community members in the CHNA process, as well as their enforcement levers.
- How States Keep Community at the Center of Hospitals’ Community Health Needs Assessments, April 2019. States can work to make sure hospitals truly seek out and act on meaningful input from a wide range of community representatives. This blog and table identify state recommendations and requirements for community involvement, and identify which states have enforcement levers in place for ensuring that requirements are met.
- Lawrence, Massachusetts, Keeps the Community at the Center of Hospital Community Benefits, October 2018. This case study looks at Lawrence, Mass., a city that has struggled with poverty and poor health but that is now a Culture of Health Prize winner due in part to state policies that bolster the city’s efforts to advance health equity and address social needs. These supportive state policies include guidelines governing the local hospital’s community health needs assessments, its community benefits investments, and its determination of need spending.
- How 10 States Keep the ‘Community’ in Hospitals’ Community Health Needs Assessments, April 2019. This infographic depicts 10 states’ guidelines for involving community members in the community health needs assessment process, as well as their enforcement levers.
- States Explore Pivoting Hospital Community Benefit Requirements to Address Disparities Exposed by COVID-19, September 2020. This blog explores how states might use community benefit requirements to address disparities illuminated by the COVID-19 pandemic. One lever state officials have is to require nonprofit hospitals to address health inequities in the community investments they must make in exchange for their significant tax exemptions.
Opportunities for Oversight and Accountability
- How States Can Leverage Hospital Community Benefit Policy to Advance Health Equity, March 2021.
This slide deck explores what roles hospitals should play in their communities and the levers states are now using to hold hospitals accountable for improving community health.
- How States Can Hold Hospitals Accountable for their Community Benefit Expenditures, March 2021.
This blog provides an overview of community benefit policy, the lack of federal requirements for community benefit spending and levers available to states to ensure meaningful community benefit investments in communities.
- Identifying Gaps in Federal Oversight of Hospitals’ Community Benefit Investments – Opportunities for State Policy. December 2019. The Affordable Care Act created additional community benefit requirements for non-profit hospitals, however opportunities exist for states to strengthen reporting requirements for more meaningful community benefit investments. This blog outlines community benefit federal laws and regulations including community health needs assessments (CHNAs), implementation strategies, activities and enforcement levers.
- States Use a Sharper Lens to Scrutinize Nonprofit Hospitals’ Community Benefit Spending March 2020. This blog highlights a reporting template tool for states to use to better track community benefit hospital expenditures and program outcomes. Reporting requirements from Connecticut, Massachusetts and Oregon are also highlighted.
- State Reporting Templates for Tax-Exempt Hospitals: Community Benefit Expenditures and Program Outcomes, March 2020. Non-profit hospitals are required to submit information on community benefit spending through the Internal Revenue Service’s Form 990 Schedule H. Hospital systems can report data in aggregate and are not required to tie their spending back to community health needs. This tool serves as a guide for states to collect hospital community benefit expenditures and program outcomes for more granular and actionable data.
- States Work to Hold Hospitals Accountable for Community Benefits Spending May 2018. In 2011, non-profit hospitals benefited from at least $24.6 billion in tax exemptions. This blog introduces NASHP’s work on community benefit and outlines how current workgroup states are holding hospitals more accountable for their investments through a variety of policy levers.
Case Studies and State Examples
- Lawrence, Massachusetts, Keeps the Community at the Center of Hospital Community Benefits, October 2018. This case study looks at Lawrence, a city that has struggled with poverty and poor health but is now a Culture of Health Prize winner due in part to state policies that bolster the city’s efforts to advance health equity and address social needs. These supportive state policies include guidelines governing the local hospital’s community health needs assessments, its community benefits investments, and its determination of need spending.
- Oregon and Connecticut Hold Hospitals Accountable for Meaningful Community Benefit Investment, August 2019. This blog highlights how Oregon and Connecticut go beyond the federal community benefit requirements and connect hospital investment to identified community need.
- Hospital Community Benefits Comparison Table for Six New England States, May 2018. This table presents key elements of state hospital community benefits requirements and related state law requirements of interest to states seeking to leverage the community benefits process to improve community health.
- How 10 States Connect their Health Improvement Goals to Hospital Community Benefit Investments November 2020. This resource highlights the goals of 10 states’ health and equity improvement plans, certificate/determination of need processes, and COVID-19 recovery and resilience plans. States can use these goals to connect their hospital community benefit spending to identified community needs.
- States Connect their Health Improvement Priorities to Hospital Community Benefits. November 2020. Community benefit spending by hospitals is estimated at more than $60 billion per year with $2.5 billion allocated to address social determinants of health. This blog addresses existing health improvement plans states can use to direct their hospital community benefit spending to community needs.
A new National Academy for State Health Policy’s (NASHP) tool helps states gather detailed information from hospitals about their community benefit expenditures and activities during the pandemic.
In exchange for their tax exemptions, the federal government requires hospitals to conduct community health needs assessments (CHNAs) and develop implementation plans to address the identified needs and report their community benefit spending to the Internal Revenue Services each year. However, there are currently no federal requirements that require community benefit spending to be tied to hospitals’ CHNAs or their implementation plans.
States can go beyond the federal requirements and require or encourage more detailed reporting of hospitals’ community benefit expenditures and their impacts. However, additional details may be necessary to assess how hospitals are identifying shifting community needs during COVID-19 and how community benefit spending is shifting to meet those needs.
The need for additional or renewed focus on racial and ethnic health inequities has been highlighted by the pandemic, and this new NASHP tool will help states collect detailed data that will show whether hospital community benefit programs and spending are addressing disparities and promoting equity.
This template can be used to complement NASHP’s two other reporting templates that synthesized several state community benefit reporting tools to help states collect data on hospital expenditures and community benefit program outcomes.
This tool is designed to capture more granular and actionable information than is currently required by the IRS Form 990 Schedule H, which allows some hospital systems with multiple facilities to report in aggregate and does not require hospitals to tie their reported spending back to needs identified by their CHNAs or other sources. If a state requests any hospital or hospital system’s Form 990 Schedule H worksheet, the information gathered with this NASHP tool can be compared with any reported activities listed there.
NASHP’s tool requires:
- Each hospital in a health system to report individually, and
- Hospitals to include program and activity information that the IRS considers to be a community benefit, community-building, or community health improvement activity on Parts I and II of IRS Form 990, Schedule H.
Instructions are included with the tool, and states are encouraged to tailor the instructions, or the form itself, to match their needs.
Support for this work was provided by the New England States Consortium Systems Organization (NESCSO) and the Robert Wood Johnson Foundation. The views expressed here do not necessarily reflect the views of the foundation or NESCSO.
Confronted with revenue shortfalls, the COVID-19 pandemic, and health disparities, states are tapping all available resources to address urgent health needs and plan for long-term recovery. Accessing new Coronavirus Aid Relief and Economic Security (CARES) Act resources, pursuing flexibility with current funds, and leveraging hospitals’ community benefit tax exemptions are strategies states are employing to meet their residents’ health needs, particularly those affected by long-term structural inequities.
A review of 10 states’ health plans contained in this analysis shows that states continue to prioritize long-standing health issues, such as improving access to health care and reducing chronic disease, cancer, and infant mortality. States are also increasingly focused on the upstream factors that impact health, including social determinants of health (housing, economic security, food access, adversity, trauma, toxic stress and racism.)
States can use these tools to increase hospital’s community benefit investment accountability by tying community benefit requirements to state-level health goals. For example:
- Massachusetts has aligned community benefit requirements with state health priorities by tying its Department of Public Health’s determination of need process to specific standards for community engagement and social determinant of health investing.
- New York requires that hospital community health improvement plans specifically address goals contained in its State Health Improvement Plan, Prevention Agenda 2019-2024. New York also requires hospitals to report their community benefit spending as it relates to its Prevention Agenda’s goals.
States can also use these resources to identify and assess measures of progress for community benefit investments and activities. Connecticut has performed a community and state crosswalk comparison analysis of its State Health Improvement Plan and hospital community benefit plans. It is creating a dashboard of measures to track the impact of hospital community benefit investment on State Health Improvement Plan goals.
In this time of high needs and scarce resources, it is critical for state governments to operate as efficiently and effectively as possible and tap into all available resources. This new NASHP chart is designed to help states identify, measure, and advance state health goals by focusing the local efforts of nonprofit hospitals to reflect state priorities.
This resource highlights the goals of 10 states’ health and equity improvement plans, certificate/determination of need processes, and COVID-19 recovery and resilience plans. Policymakers can use the information in this chart and blog to make hospitals’ community benefit investments more accountable and effective by having them reflect state health goals and then measuring their progress. These states participate in the National Academy for State Health Policy’s workgroup on community benefits.
States’ COVID-19 Recovery and Resilience Plans data comes from the National Governors Association, Summary of Public Health Criteria in Reopening Plans.
Hospitals account for the largest expenditure of US health care dollars, followed by physician and clinical services, half of which are owned by a hospital or health system. To address rising health care costs, policymakers and the public need detailed financial information to understand a hospital’s assets as well as its expenses and liabilities.
- How NASHP’s model legislation and reporting template increases transparency.
- What critical information the model provides to state policymakers.
- What state entity should be tasked with oversight and review of the data received.
Moderator: Trish Riley, Executive Director, National Academy for State Health Policy
- Nancy Kane, DBA, Adjunct Professor of Management in the Department of Health Policy and Management, Harvard T.H. Chan School of Public Health
- Jeremey Vandehy, JD, Director of the Health Policy and Analytics Division, Oregon Health Authority
- Vicki Veltri, JD, LLM, Executive Director, State of Connecticut Office of Health Strategy
To help state policymakers engage in difficult discussions around how best to lower the health care cost trajectory, the National Academy for State Health Policy created the slide deck, Understanding the Health Care Cost Conundrum in 2020, featuring factual information about rising health care costs.
This toolbox features multiple sections that could be used together or featured separately by topic depending on a state’s interests. Addressing health care costs can be a complex and monumental task, this new resource provides a straightforward, easy-to-understand overview to help inform policymakers and the public.
COVID-19 and its impact on states’ economies and budgets has refocused attention on high health care costs. To help state policymakers engage in the difficult discussions around how best to lower the health care cost trajectory, the National Academy for State Health Policy (NASHP) created the slide deck Understanding the Health Care Cost Conundrum in 2020 to help policymakers understand what is leading to rising health care costs and make the case for action.
Addressing health care costs can be a monumental task for state policymakers and is complicated by the complex and biased information provided by different actors across the health care industry. This new resource is designed to provide a straightforward, easy-to-understand overview that will resonate with policymakers and the public.
The slide deck is designed to prompt discussion about important questions, such as:
- What if states could dedicate some of the resources now going towards direct health care costs to other priorities, such as investing in social determinants of health or working to achieve health equity?
- How will COVID-19 contribute to additional health care consolidation, a key driver of high costs?
- How do high costs impact consumers, employers, and the overall economy?
The slide deck also includes an infographic showing hospitals’ many funding sources and highlights how the burden of high costs falls on individuals in multiple ways – in their roles as taxpayers, employees, employers, and consumers.
View more state tools to address health care costs at NASHP’s Center for Health System Costs’ model legislation and resources.