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IRS Tweaks Could Promote Community Health

News  |  By John Commins  
   December 01, 2016

Researchers urge the Trump administration to consider stroke-of-the-pen changes to federal tax policy that would encourage non-profit hospitals to invest in community health initiatives.

Non-profit hospitals shy from investing in community health initiatives for fear that the murky verbiage in the tax code could bring down an audit, a research report suggests.

Because of that, researchers at the George Washington University's Milken Institute School of Public Health want the Trump administration to revise Internal Revenue Service policies governing community benefit spending to encourage greater hospital involvement in community-wide health initiatives.

The report, "Improving Community Health through Hospital Community Benefit Spending: Charting a Path to Reform," was authored by Sara Rosenbaum and others from Milken's Department of Health Policy and Management at the George Washington University.

About 60% of non-profit hospitals community spending goes toward financial assistance to patients who have difficulty paying for their care, says report lead author Rosenbaum, a professor of health law and policy at Milken.

"There is room to reprogram or expand one's horizons regarding how you are spending that other chunk of funding, which may be going into research or something called community health improvements," Rosenbaum says.

"Those activities as the IRS defines them are relatively narrow right now. We are suggesting that it makes great sense to broaden the definition of what is community health improvement to include activities that today are excluded from the definition and instead called community building."

Rosenbaum says the definitions could be broadened administratively, and would not require any additional funding or action by Congress.

Burden is on Hospitals
"The snag is that under Schedule H there are certain activities that are called community building," she says. "They are not community benefit. The IRS says that if you think your community building activity would meet the community benefit definition you can provide us with an explanation."

"The problem is it puts the burden on the hospital to justify what it's doing," she says. "If you're a hospital and concerned about running in a compliant and prudent fashion with IRS policy, you don't want to push the envelope, because you're probably already pushing the envelope on other matters."

The report analyzed the most-recent community health needs assessments compiled by non-profit hospitals and found that 72% of hospitals identified obesity, 68% identified mental health and 62% identified diabetes as the top health challenges of their communities.

However specific programs, such as sponsoring farmers' markets or working to improve access to affordable and safe housing, would likely not fall under the current definition of community benefit.

3 Recommendations
"The better part of discretion is to just stay on the straight and narrow and continue to do financial assistance or free immunizations clinics," Rosenbaum says. "That is all very good, but it's these community building activities that really are a form of community health improvement, but they fall outside the definition."

Specifically, Rosenbaum's report recommends that the IRS:

  • Issue guidance to hospitals stating that activities now designated as community building efforts but that promote population health on a community-wide basis will be treated as community benefit spending.
  • Bring greater transparency to community benefit reporting by creating a link between community health priorities documented through the community health needs assessment process and their community-benefit spending allocations.
  • Issue tax guidance on effective community-wide health improvement activities, not only in health, but in areas such as nutrition, education, the environment, transportation, the work force, and housing.

A blog by Rosenbaum and colleagues on this topic appears in Health Affairs.

John Commins is a content specialist and online news editor for HealthLeaders, a Simplify Compliance brand.

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