Tax-Exempt Hospitals and Community Health Under the Affordable Care Act: Identifying and Addressing Unmet Legal Needs as Social Determinants of Health

Under the Affordable Care Act, nonprofit hospitals seeking tax exemption must regularly survey and respond to community health needs.¹ This new obligation expands hospitals' roles beyond providing clinical care and calls for them to engage with their communities. Recently promulgated Internal Revenue Service (IRS) regulations² and a new estimate of national hospital community benefit spending both point to the value of hospitals working with community partners to address root causes of poor health.³ This installment of Law and the Public's Health reviews key aspects of the IRS regulations, explains how unmet legal needs function as health determinants, and suggests how hospitals' participation in medical-legal partnerships (MLPs) can address those needs.

BACKGROUND

For more than a half-century, the IRS has granted nonprofit hospitals tax exemption as charitable organizations under section 501(c)(3) of the Internal Revenue Code.⁴ To be considered charitable, a hospital must show that “it serves a public rather than a private interest,”⁵ providing a quid pro quo for the benefit it receives from being relieved from the burden of taxation.⁶ Over time, the IRS's approach to assessing a hospital's charitable character has evolved from a charity care standard to the community benefit standard first announced in 1969.⁷

After this announcement, however, the IRS provided no concrete directives or quantitative measures as benchmarks for tax exemption. With minimal federal oversight, most of hospitals' community benefit spending took the form of charity care, which many hospitals viewed as including not just treating uninsured indigent patients, but also what they claimed to be the difference between the cost of treating Medicaid patients and the amounts paid by state Medicaid agencies. In the wake of media reporting in the early 2000s on nonprofit hospitals' unsavory billing and collection practices, the federal government,^8,9 state departments of revenue,¹⁰ and academics¹¹ increasingly viewed the existing community benefit standard as providing inadequate public benefit in return for hospitals' tax exemption. The result was a new set of obligations in the Affordable Care Act for tax-exempt hospitals regulating their charges, billing, and collection practices and requiring them to establish and publicize charity care policies.¹² The new obligations made compliance with the Emergency Medical Treatment and Labor Act¹³ an express condition of tax exemption and established ongoing community health planning obligations that require community and public health involvement as well as active implementation strategies.

A FOCUS ON THE COMMUNITY HEALTH NEEDS ASSESSMENT REQUIREMENT

As discussed in a previous installment of Law and the Public's Health,¹⁴ section 9007 of the Affordable Care Act requires tax-exempt hospitals to conduct community health needs assessments (CHNAs) at least once every three years, taking into account a broad range of community input, and to adopt a strategy for addressing the community health needs identified.¹ This new requirement signals Congress's expectation that hospitals' charitable obligations not only lie in caring for those who are unable to pay, but also extend to inquiring about and responding to the health of their communities. The statute itself is short on specifics, leaving responsibility to the IRS—as the agency responsible for administering the Tax Code—to spell out what hospitals must do to meet this new requirement. This regulatory guidance is particularly important because, although CHNAs are regular practices for public health departments, most hospitals had probably never conducted one.

FINAL IRS REGULATIONS IMPLEMENTING SECTION 9007

Final IRS regulations released on December 29, 2014, provided that guidance.² These regulations embrace public health methods and understandings that may encourage hospitals to move beyond their role as care providers by contributing to community health improvement partnerships. Although the regulations generally accord hospitals flexibility in carrying out a CHNA, they are directive about the importance of community input. In assessing community health needs, hospitals must solicit and take into account input from a governmental health department and from medically underserved, low-income, and minority communities. The regulations also endorse hospital participation in collaborative efforts as a way to address the health needs identified.

Moreover, the IRS's explanation of the health needs that hospitals must identify clarifies that they include “not only the need to address financial and other barriers to care but also the need to prevent illness, to ensure adequate nutrition, or to address social, behavioral, and environmental factors that influence health in the community.”² In short, the regulations recognize social determinants as health needs, paving the way for hospitals to participate in broad-based efforts to address upstream determinants of health.

HOSPITALS' FOCUS ON INDIGENT CARE AS A COMMUNITY BENEFIT

A recent study, however, shows a wide gulf between the vision of tax-exempt hospitals as active partners in community health improvement and hospitals' actual practices under the preexisting community benefit standard. According to one study, the value of the nonprofit tax exemption in 2011 (as measured by forgone federal, state, and local taxes, as well as public donations and the value of tax-exempt bond financing) was $24.6 billion, up from a calculated value of $12.6 billion in 2002.³ Even more stunning is the IRS's 2015 statement to Congress that tax-exempt hospitals reported spending $62.4 billion in 2011 on community benefit activities. The study also described the quid pro quo hospitals provided in return for the immense benefit of tax exemption and, similar to a previous study,¹⁵ found that hospitals allocated less than 8% of their community benefit spending (or less than 1% of their total expenditures) to either community health improvement activities or community-building efforts that improve health.³ Instead, more than half of hospitals' community benefit spending (56%) went to offsetting losses from patient care for indigent patients or reimbursement by means-tested government programs (e.g., Medicaid and Children's Health Insurance Program).³

Despite the disparity between hospitals' established community benefit practices and the Affordable Care Act's vision of hospitals as integral players in community health improvement, paths exist for hospitals to grow into their expanded roles as they assess and address community health needs. One of these paths is through participation in an MLP.

IMPROVING COMMUNITY HEALTH BY ADDRESSING UNMET LEGAL NEEDS

The explicit guidance in the IRS regulations regarding the identification of social determinants of community health, as well as the clear directive to hospitals to build broad community partnerships, provides an important opportunity to engage legal partners in the CHNA process. Many social determinants of health, including access to income, insurance, nutrition, safe and healthy housing, and freedom from exposure to violence, are common legal problems. Legal aid interventions can be critical in improving individual and community health (Figure).

Figure.

How civil legal aid helps health-care address the social determinants of health^a

^aSource: Marple K. Framing legal care as health care. Washington: National Center for Medical-Legal Partnership; January 2015. Also available from: URL: http://medical-legalpartnership.org/new-messaging-guide-helps-frame-legal-care-health-care [cited 2015 Sep 10].

MLPs integrate civil legal aid into hospitals and health centers to address patients' unmet legal needs, such as substandard housing, food insecurity, domestic violence, and unemployment, and to detect and confront larger systemic barriers affecting community health. According to the National Center for Medical-Legal Partnership, MLPs are now in 135 hospitals and 127 health centers in 36 states.¹⁶ By building partnerships among health-care, public health, social-service, and legal professionals, MLPs both identify and address social determinants by linking the clinical setting to the broader community in which patients live. The Health Resources and Services Administration has explicitly recommended legal services as allowable costs under 330 grants to federally qualified health centers because of the importance of these enabling services in alleviating social and economic threats to health.¹⁷ Legal partners, therefore, can be critical contributors to CHNAs. Without an assessment of the role of unmet legal needs in health outcomes, CHNAs may miss important factors contributing to community health.

IMPLEMENTATION STRATEGIES: LEGAL ADVOCACY TO IMPROVE COMMUNITY HEALTH

The new regulations require that a hospital facility develop an “implementation strategy to meet the community health needs identified through the hospital facility's CHNA.”¹⁸ For each health need identified in the CHNA, the hospital facility must describe how it plans to meet the health need, including the actions it will take, the resources it will commit, and the organizations with which it will collaborate to address the need.

Because legal barriers play a significant role in community health, confronting those barriers head-on can be a critical component of an implementation strategy aimed at addressing the social determinants of health. Preliminary research indicates that MLPs improve patient and community health and reduce health-care costs.¹⁹ MLPs have proven effective in targeting legal interventions toward an identified community health need. The MLP at Cincinnati Children's Hospital Medical Center, for example, successfully directed legal intervention toward enforcement of the housing code for a substandard housing cluster after the hospital used geographic information system mapping to identify the homes of children hospitalized for asthma.²⁰

A key component of a hospital's implementation strategy is to determine how it will direct resources, typically deployed through its community benefit activities, to address identified community health needs. One innovative hospital, Seattle Children's Hospital, has included its legal partners in the development of its CHNA and has invested in an MLP through its community benefits program.²¹ As the CHNA process continues to drive innovative hospitals' strategies to improve community health, evidence-based approaches, such as MLPs, should be considered.

IMPLICATIONS FOR PUBLIC HEALTH PRACTICE

Because the new IRS regulations require hospitals to seek input from at least one governmental health department, public health officials may have a chance to influence how hospitals undertake their new CHNA obligations. Moreover, health departments that engage productively and proactively with hospitals may help steer how community benefit funding is invested in community health improvement. A danger exists that funding will simply flow to pet projects of hospital administrators, but public health input emphasizing evidence-based practice may promote funding decisions that are more likely to improve community health. In particular, public health practitioners should be aware of how unmet legal needs function as social determinants of health and be familiar with the well-established model for MLPs. They should encourage hospitals to include legal partners (e.g., civil legal aid programs or MLP attorneys, if an MLP already exists) in the CHNA process to ensure that the assessment of health needs includes unmet legal needs. Finally, if a hospital chooses to participate in an MLP as part of its implementation strategy under the Affordable Care Act, public health practitioners may play an ongoing role, both as consultants and as partners, in driving any efforts toward systemic change that may flow from the MLP experience.