Hospitals rethink community benefit

With new reporting requirements from the Affordable Care Act and increasing scrutiny of community benefits programs, executives of hospitals are taking a more critical look at their programs to make sure they’re on target and creating a solid financial strategy.

In 2010, the ACA and the accompanying IRS regulations required hospitals to do a community health needs assessment (CHNA) once every three years to determine the health needs of the local community before it put benefits programs in place. And once those assessments are completed, the programs have to show that they meet the needs identified in the assessments.

An American Hospital Association report released in April 2013 said 11.3 percent of hospitals’ total annual expenditures were “benefits to the community,” but about 25 percent of that amount involved Medicare losses or bad debt, which the IRS does not consider as part of its definition of community benefit.

Additionally, hospitals may have to adjust some more if a recent IRS draft proposal, put forth in December 2013, is put in place. The proposal would exclude hospitals’ grant-funded work from being counted as part of the costs included in its community outreach totals.

“If you receive a grant from the Robert Wood Johnson Foundation, they are essentially paying for that program,” explained Jason Turner, PhD, assistant professor, School of Public Health, Saint Louis University School of Law. “From the IRS perspective, they would ask: ‘Why should we allow you to include that as a community benefit expense when the hospital really isn't paying for it?’”

“In order to develop sustainable programs that will have a measureable impact that hospitals can report on to the IRS, community-hospital partnerships must be more thoughtful and more rooted in what has been proven to address disparities, improve access and improve health status,” said Alec McKinney, with the public health consulting firm John Snow, Inc.

As hospitals work to align with the new community benefit regulations, said McKinney, “… there is a growing appreciation for the health-related issues affecting communities as well as a better understanding of the range of programs and practices that work.”

Dignity Health has put a program in place to meet the new community benefit regulations, support its mission of serving the poor and underserved and provide a good financial strategy, said Eileen Barsi, the health system’s senior director for the community benefit programs.

The health system’s sophisticated community assessment protocol has helped it pinpoint the health needs of the communities it serves, she said, which has helped reduce hospitalizations for ambulatory care-sensitive conditions. In essence, the cost of the community outreach programs sponsored by Dignity Health has been much smaller than the savings generated by not having to provide free hospital care to these patient populations.