ABA Health eSource
 December 2005 Volume 2 Number 4

Community Benefits: The Growing Trend in Accountability
by Michael A. DeLucia, Esq., Senior Assistant Attorney General, Department of Justice of the State of New Hampshire, Concord, NH

Michael S. DeLucia Community benefits continues to develop as a key accountability tool for ensuring that nonprofit hospitals provide the charitable services that are inherent in their status as 501(c)(3) entities. For example, in November 2004, the Public Health Institute, based in Oakland, California, issued its recommendations in “Advancing the State of the Art in Community Benefit: A User’s Guide to Excellence and Accountability.” 1 In September 2005, the National Advisory Committee to that project met to discuss community benefit standards being developed in nonprofit hospitals in two critical states – Texas and California. These pilot programs are intended to serve as models for use in other states. In October 2005, at the ABA ’s “Washington Healthcare Summit,” Roger Colinvaux, the legislative counsel for the Joint Committee on Taxation of the United States Congress, focused on community benefits in his presentation. Community benefits, he noted, is the distinguishing element between for-profit and non-profit hospitals. Finally, a national conference on community benefits has been organized for March 2006 in Arizona by several of the leading authorities in this area, including Catholic Health Association and VHA, Inc. 2

The phrase “quid pro quo” is at the core of community benefits; and it focuses upon the obligation of nonprofit hospitals to provide charitable healthcare services to the community that provides its tax exemptions. The concept has spawned a growing list of scholarly articles, 3 court cases, out-of-court settlements, conferences, IRS rulings and advisory commission reports. 4 Many different organizations have helped shape the concept and deserve credit for advocating and refining this accountability tool. 5 Although the IRS has addressed the community benefits issue in private letter rulings, state legislatures have acted to implement additional accountability mechanisms, in part because citizens, advocates, and others have raised questions about (i) access to charity care for the uninsured and underinsured and (ii) the performance of nonprofit hospitals in meeting their charitable missions and obligations.

This article is designed to describe the status of community benefits in three different states: New Hampshire, Massachusetts and Maryland. More than a dozen states have adopted some type of community benefit requirement, but the programs differ in scope. 6 Although the concept has evolved rapidly, 7 community benefits statutes provide a mechanism for nonprofit healthcare entities to (i) distinguish themselves from their for-profit counterparts, (ii) fulfill their charitable obligations under federal and state law, and (iii) help deal with the problem of the uninsured and underinsured.

Three case studies: New Hampshire, Massachusetts and Maryland

Community benefits is a concept that is shaped and reshaped as it moves from state to state. The common issues that need to be resolved in each state are as follows:

First, what is the proper scope of the legislation? Should the statutes identify only nonprofit hospitals as reporting entities, or should the statutes extend to all nonprofit healthcare institutions, including nonprofit HMOs, visiting nurses associations and community health centers?

Second, should “community benefit” be defined broadly or narrowly? How elastic is the term? What activities should be approved and contained within the term? If it encompasses more than charity care, what activities and programs fall within the definition?

Third, questions about valuation are critical. Should bad debt be included in community benefits? Should community benefits be valued at their actual cost or the customary charge?

Fourth, should the Attorney General’s Office be the state authority that receives the reports, monitors compliance and establishes guidelines? Or should the state Health and Human Services Department be the monitoring agency, given its expertise on healthcare issues? Or is there a possibility of collaboration among departments?

Each state discussed below has resolved these four questions in differing ways. One size does not fit all jurisdictions; and there is no one correct answer to the questions.

A. New Hampshire

Crafting a major statute in the healthcare arena requires consensus-building. In New Hampshire, the entities that formed the working group to create the statute were a cross-section. The stakeholders included the New Hampshire Hospital Association, the Visiting Nurses Association, New Hampshire Legal Aid, Bi-State Primary Care, and Citizens Action, as well as representatives of the Insurance Department, the Department of Health and Human Services, and the Attorney General’s Office. The working group was bipartisan.

The objective of the working group was to build a statutory structure that enjoyed broad support, mandated disclosure rather than percentage requirements, involved the community in decision-making, and required a periodic needs assessment. At the same time, the working group sought to avoid creating a new bureaucratic structure to administer the program and avoid having state officials micro-manage community benefit programs. Four years after the statute was adopted, the Legislature acted to expand the number of years between needs assessments from three to five years, thereby easing the financial burden upon the reporting entities. 8 The reporting forms were also streamlined.

The starting point for the legislation was the tax-exempt privileges that nonprofit hospitals enjoy and the need to document the benefits that those hospitals returned to their community. The New Hampshire statute (RSA 7:32) begins with a statement of purpose: “…to ensure that the health care charitable trusts provide the communities they serve with benefits in keeping with the charitable purposes for which those trusts were established and in recognition of the advantages the trusts enjoy. 9

The scope of RSA 7:32 is far different from either Maryland (which focuses strictly upon acute care hospitals) or Massachusetts (which focuses upon nonprofit hospitals and HMOs). New Hampshire’s legislation includes nonprofit hospitals, community health centers, nonprofit diagnostic centers, nonprofit nursing homes, and those nonprofit entities providing direct medical services. The statute applies to every nonprofit health care entity that has in excess of $100,000 in revenue (as determined by its Form 990). Thus, the legislation impacts both the largest medical center in the state and the smallest community health centers. This is not the case in either Maryland or Massachusetts.

Defining Community Benefits. The definition of “community benefits” in the New Hampshire statute is also very broad, including five separate categories into which activities may be placed. 10 In addition to “charity care,” activities that fall within the following categories qualify: (i) financial or in-kind support of public health programs; (ii) financial or in-kind support of community needs; (iii) funds to promote healthier communities, enhance access to services, education regarding prevention issues, and services to “vulnerable populations;” and (iv) support of medical research, education, and training of practitioners. 11

Specific Requirements. Community benefits plans must be filed annually with the Attorney General’s Office, no later than ninety days after the start of the entity’s fiscal year. 12 The initial filing must include the entity’s articles, bylaws, and mission statement, among other items. The plan must take into consideration a community needs assessment and must identify community groups, public officials and others consulted in crafting the plan. The Attorney General’s Office posts a complete listing of all of the nonprofits entities that file community benefit plans at its webpage 13 , and there are links connecting the Attorney General’s webpage with those websites where the complete report has been posted in order to enable easier access by the public. One such example is the Cheshire Medical Center, located in Peterborough, New Hampshire. 14

B. Massachusetts

Common Law Basis, Not Statutory. Massachusetts has a well-established, voluntary system of reporting for both nonprofit hospitals and nonprofit HMOs. (See the “Attorney General’s Community Benefits Guidelines for Hospitals and HMOs” at it webpage, www.ago.state.ma.us). Massachusetts adopted its program in 1994 under then-Attorney General Scott Harshbarger using its general common law authority. Consequently, Massachusetts has never adopted any legislative structure. The Attorney General’s Office describes its community benefits program as a “non-regulatory approach” 15 to the issue. In fact, its program was indeed the result of a partnership among the Attorney General’s Office, nonprofit hospitals and HMOs, and advocacy groups, thereby building a broad consensus to support the program.

Electronic Filing. Massachusetts is unique among the three states in making all the annual reports available electronically on the Internet at its webpage. 16 This is a unique and major achievement and should be imitated by other jurisdictions. The Massachusetts reports are also have a searchable data base, allowing citizens to track identified areas (such as child obesity) across all nonprofit reports.

C. Maryland

In Maryland, HB 15/2001 requires the Maryland Health Services Cost Review Commission (HSCRC) to collect information on community benefits from acute care hospitals in the state and to then issue a statewide report. The HSCRC 17 was scheduled to issue the first report in 2005. 18 The legislative objectives underlying the adoption of a community benefit program were to (i) ensure consistency in reporting, (ii) share different models of community benefits, and (iii) create a comprehensive system of disclosure. (See the materials assembled by the first statewide Symposium on community benefits in Maryland at www.ifc.org) 19

In Maryland (as in New Hampshire and Massachusetts), community benefits are broadly defined; and Maryland, like New Hampshire, includes the same core elements discussed above. 20 Although there is broad consensus about what constitutes a community benefit, the more difficult issue is crafting a consensus on how to measure and quantify the value of community benefits – also known as “metrics”. In addition, the Maryland law, like the New Hampshire statute, works towards involving local community representatives in identifying healthcare needs and creating programs to fill those needs.

D. The Public Health Institute and the National Advisory Committee

As indicated earlier, the Public Health Institute is working to establish uniform tools for the development and evaluation of community benefits nation-wide. 21 The project (termed “Advancing the State of the Art in Community Benefit” or “ASACB”) is funded by prominent endowments and entities with long-established interest in healthcare issues, including The California Endowment and the W.K. Kellogg Foundation. In November 2004, the Public Health Institute published a Report (“User’s Guide to Excellence and Accountability”) a major step forward in establishing uniform tools for community benefit plans. The goal of ASACB is to establish a set of standards in the evolving community benefits field that permits the activities to be quantifiable, encourages accountability, and helps institutions meet unmet healthcare needs in communities.

The establishment of “metrics” is a big step forward and twelve healthcare organizations have committed to implementing the reforms outlined in the “User’s Guide.” 22 The Report issued by the ASACB in 2005 23 describing its recommendations contains a brief summary of the context in which community benefits emerged: (i) the extensive privileges that nonprofit hospitals enjoy because of their tax benefits (exemption from local property taxes, state sales tax, state income tax, and federal income tax); and (ii) the perception by some persons that the community benefits are either insufficient or are being used to further public image but do not address unmet healthcare needs.

The Report establishes five core principles for nonprofit hospitals to consider. Principle one is to give priority to those most in need when providing healthcare services. Principle two calls for addressing the underlying causes of health problems (e.g., asthma) by promoting healthier environments. Principle three is the building of a seamless continuum of care. Principle four is to mobilize and work with community groups and business organizations. Principle five is collaboration with community groups to manage the community benefits program, making them stakeholders in the process.

One of the reasons for the five principles is the use of community benefits on less than optimal programs, such as the creation of health fairs in upscale malls rather than programs in areas where there are uninsured populations with unmet healthcare needs.

The ASACB project has also crafted accounting guidelines that distinguish between “accountable expenses” associated with community benefits and “inappropriate” expenses that inflate or pad the community benefit, thereby undermining the legitimacy of the community benefit programs. 24


During the past decade, the state legislatures, state Attorneys General and state Health and Human Service Departments have joined other entities that are advancing community benefits, including the American Hospital Association, the Catholic Health Association, and VHA Health Foundation. This state-by-state approach has permitted much experimentation in defining terms, establishment of mechanisms for scrutiny and creation of ways of engaging the community. However, there is a need for continued collaboration and leadership at the national level, if further progress is to be made. “Community benefits” is a concept and a process that ultimately benefits all parties.

1 Information on the Public Health Institute may be found at its web site, www.phi.org. There is also information on the leader of the project, Kevin Barnett, Dr.PH, MCP at that web site.
2 The two entities have organized a community benefit conference in March 2006 in Arizona; and the web site for additional information is www.chausa.org.
3 Professor Nancy Kane of the Harvard University School of Public Health has written extensively on community benefits and nonprofit hospitals. See her recent testimony before the United States House Committee on Ways and Means at waysandmeans.house.gov (May 26, 2005). See also, Noble A, Hyams A, Kane N, "Charitable Accountability: A Review and Analysis of Legal and Policy Initiatives," Journal of Law, Medicine and Ethics, Vol 25(1), pp. 116-137 (Spring 1998).
4 See, Redlands Surgical Services v. Commissioner, 113 T.C. at 86-88 (1999) and Geisinger Health Plan, 985 F.2d at 1219. Also, see Internal Revenue Service National Office Field Service Advice Memorandum for Judith Picken, area counsel (Great Lakes & Gulf Coast Area), where the Memorandum asserts that a hospital’s mere assertion that it provides health care services to the indigent “is not sufficient to establish that the hospital meets the charity care requirement of the community benefit standard.” The IRS was clear to state that this Field Service Advice is not binding on Examinations or Appeals and cannot be used or cited as a precedent. IRS Number: 200110030, Release Date of 3/9/01.
5 Among the entities are (i) the Catholic Health Association and its Social Accountability Program, (ii) the Volunteer Hospital Association, (iii) the Kellogg Foundation, (iv) Consumers Union, and (v) Community Catalyst. Most recently, the National Advisory Commission on Community Benefits (the “Commission”) has taken strides to shape the concept in practical ways. In general terms, the states that have adopted community benefits programs fall into two different categories: (i) those states that are “reporting” states (that is, states that require nonprofit healthcare entities to report the healthcare benefits they provide to the public) and (ii) those states that mandate a minimum expenditure level of some type. The first group includes states such as Maryland, New Hampshire, Massachusetts, California, Idaho, Indiana, New York and Missouri. The second group includes Texas, Pennsylvania and Utah.
6 See Community Catalyst, supra. The states include California, Connecticut, Georgia, Idaho, Indiana, Massachusetts, Minnesota, New Hampshire, New York, Pennsylvania, Rhode Island, Texas, Utah, West Virginia – and most, recently, Maryland and Illinois.
7 For a brief commentary on the origins of charitable trust law and the evolution of community benefit, see Douglas M. Mancino’s Hospitals and Health Care Organizations (1995 Warren, Gorham and Lamont, Boston, MA) pp. 2-39 to 2-50 and 4-32 to 4-33.
8 RSA 7:32-f. The reporting forms and the complete list of New Hampshire entities filing the community benefits forms may be found at the Attorney General’s website, www.doj.nh.gov.
9 Jennifer Frizzell, “Nonprofit Hospitals and Charitable Tax Exemptions: Reexamining the Quid Pro Quo,” New Hampshire Bar Journal, Vol. 39, no. 4 (December 1998), pp. 30-35. See also, Suzanne Amidon, “Nonprofit Community Hospitals: Keeping the Community in Healthcare,” New Hampshire Bar Journal, Vol. 39, no. 4 (December 1998), pp. 22-29.
10 New Hampshire RSA 7:32-c et seq.
11 New Hampshire RSA 7:32-d (Definitions).
12 RSA 7:32-g. The statute also requires the reporting entities to place their community benefit plans “where practicable” on an internet site or web page in order to enable citizens to easily access the reports.
13 See www.doj.nh.gov and check the Charitable Trust pages.
14 See www.cheshire-med.com.
15 See the Massachusetts Attorney General’s webpage for analysis and filing materials, www.ago.state.ma.us.
16 www.ago.state.ma.us.
17 See the website for the Maryland Health Services Cost Review Commission (HSCRC) at ww.hscrc.state.md.us.
18 The initial reporting period is from July 1, 2003 until June 30, 2004; and the individual hospital filings with the state are required by January 1, 2005.
19 For additional information on the filings, see www.hscrc.state.md.us/data_and_reports/data_reports.html.
20 New Hampshire RSA 7:19-32 et seq.
21 See the website for the Public Health Institute, www.phi.org.
22 The organizations include Catholic Healthcare West, St. Joseph’s Health System, Texas Health Resources, Hoag Memorial Hospital Presbyterian, Lucile Packard Children’s Hospital at Stanford, and Presbyterian Intercommunity Hospital.
23 The Report is available from the Public Health Institute ( Oakland, CA).
24 Items that are not properly countable in community benefit calculations include senior executive officers time spent on boards of groups not dealing directly with the underserved populations with unmet healthcare needs (e.g., chambers of commerce, etc.). In addition, care should be taken when judging when and if the costs of recruitment of specialists as a community benefit count. If the primary purpose of the new recruit is to serve the medically indigent, then the recruitment costs are considered a community benefit. However, other recruitment costs are not community benefits but rather “the cost of doing business.” Further, with the development of Internet-based programs developed by nonprofit hospitals for educational purposes, should these be considered a community benefit? The ASACB asks who is the likely beneficiary of this service – a privately insured patient or one who is uninsured? With respect to health care services, only those services designed to focus upon underserved populations would count as a community benefit – e.g., child care services, transportation, etc.