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Why Nonprofits Must Prepare Now for Closer IRS Scrutiny

Philip Betbeze, for HealthLeaders Media, September 30, 2011

We spend a lot of time and effort trying to educate ourselves, and you, about the realities of healthcare reform. In many cases, the bottom line seems to be that your bottom line is poised to get ever tighter in the coming few years.

While our focus on the measurement and process re-engineering on which many hospitals and health systems are embarking is appropriate, let's not forget the prominent role that the Internal Revenue Service is about to play in healthcare reform.

We are at its beginning stages as the forms you must complete to justify your nonprofit status increase in complexity and detail.  But in the future, much of your hospital or health system's story will be told by your IRS filings, says Michael Regier, senior vice president and general counsel for VHA Inc., and a noted expert on tax matters.

Not only that, but you might want to consider that a future in which your nonprofit status will be judged in part by the way you tell that story, is probable, if not inevitable. Regier and other experts will convene Oct. 13 for a HealthLeaders Media webcast about the agency's increasing involvement in healthcare, but, in search of a sense of the seriousness with which healthcare leaders are treating the new regulations, I thought I would try to catch up with him prior to that event.

"People don't realize how much of healthcare reform has been assigned to the IRS," says Regier. "From the individual mandate to tax credits to all these new provisions for nonprofit subsidies, the IRS will be the regulator. The IRS itself is still getting its arms around it."

One of the most recent requirements for nonprofit hospitals and health systems deals with the community health needs assessment, which must be performed at least once every three years. Further, the hospital or health system must make that document widely available to the public, along with a written implementation plan.

In full, new IRS regulations require 501(c)(3) organizations to complete the following:

  • Adopt and implement written financial assistance and emergency medical care policies,
  • Limit charges for emergency or other medically necessary care,
  • Comply with new billing and collection restrictions, and
  • Conduct a community health needs assessment at least once every three years (this fourth requirement is effective for tax years beginning after March 23, 2012)

Though more detailed than they're used to, "this is not unfamiliar to the nonprofit sector. They've been dealing with community benefit planning," says Regier. "The difference is that it's never been a toll gate to get or maintain tax-exempt status."

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1 comments on "Why Nonprofits Must Prepare Now for Closer IRS Scrutiny"


bob (9/30/2011 at 9:47 PM)
Regler does not seem to understand the essential difference between programs to improve population health and programs to improve community health. Both represent significant advances over the more traditional limited focus on patient care at most hospitals. Focusing on population health introduces methodologies reflecting the unique characteristics of various populations, especially those with comprehensive coverage and systematic management. Focusing on community health introduces even more exciting and quite different methodologies reflecting the power of community forces. Methodologies for improving population health do not necessarily focus on communities or take advantage of the power of effective community benefit projects and programs. Those professionals involved in community health improvement know that no two communities are alike and the leadership of each community is unique and most be actively involved in designing community benefit projects. I do not know of any existing health system with an active community benefit program in which the various initiatives are not designed and carried out at the local level. The affordable heath care act recognizes that reality, and should not be changed. Regler is well advised to support community benefit programs designed to improve community health rather than the health of particular enrolled or un-enrolled populations. I am sure he knows that a health system's service area does not meet anyone's definition of a community.