March 2012 Volume 8 Number 7

A Strategic Alliance: Working with Public Health to meet PPACA’s Community Health Needs Assessment Requirement

By Jennifer Bernstein, The Network for Public Health Law, Ann Arbor, MI

AuthorProvisions within the Patient Protection and Affordable Care Act1 (“PPACA”) require nonprofit hospitals and healthcare systems to conduct a community health needs assessment in order to maintain their tax exempt status. Though not defined within PPACA and not yet regulated, the IRS has issued a notice of anticipated regulatory provisions that hospital organizations may rely upon on or before six months after the date further guidance is issued.2 Community health needs assessments have been a tool used within public health to develop community health improvement plans. Community health needs assessments have been defined as a formal approach to identifying health needs and health problems in the community.A variety of tools or instruments may be used in the development of community health needs assessments, but the essential ingredients are community engagement and collaborative participation.3 A new voluntary, national accreditation program for public health departments requires local health departments to conduct a community health assessment to meet accreditation standards.4 This poses an unprecedented, mutually beneficial opportunity for collaboration between nonprofit hospitals and local public health departments.

Section 501(r)(3) Requirements

Under Section 501(r)(3) of the Internal Revenue Code, added by section 9007(a) of PPACA, nonprofit hospitals and healthcare systems (“hospital organizations”) must conduct a community health needs assessment (“CHNA”) every three years in order to maintain their tax exempt status underSection 501(c)(3). Section 501(r)(3) also requires hospital organizations to adopt and implement a strategic plan to meet the community’s health needs that were identified in the CHNA. The CHNA must take into account input from public health experts and individuals in the community who represent the broad interests of the community in the area served by the organization. The CHNA must also be made available to the public.5

Hospital organizations must submit on their Internal Revenue Service (“IRS”) Form 990 a description of how the organization is addressing the needs identified in the CHNA and a description of any such needs that are not being addressed, together with the reasons why such needs are not being addressed. The hospital organization’s community benefit activities will be subject to review by the Department of Treasury at least once every three years. Any organization that fails to meet the CHNA requirements for any taxable year will be subject to an excise tax of $50,000 and the amount of the excise tax must be reported on the annual tax return. The CHNA requirements become effective for taxable years after March 23, 2012.6

Policy Rationale

There are several important policy rationales behind the passage of this provision. Nonprofit hospitals that meet the community benefit standard are exempt from federal income tax under section 501(c)(3) of the Internal Revenue Code. The community benefit standard articulates a multi-factor test, applied on a facts-and-circumstances basis, to determine whether a hospital operates to promote the health of a broad class of individuals in the community.7 Factors considered include: operation of an emergency room that is open to the public, a board of directors chosen from members of the community; an open medical staff policy; treatment of patients using public programs (e.g., Medicare and Medicaid); and useof surplus funds for improving patient care, facilities, equipment, and medical training, education and research.8

Critics have raised questions as to whether nonprofit hospitals deserve the benefits they receive as Section 501(c)(3) charitable organizations.9 Some critics argue that a number of hospitals do not provide enough charity care to justify tax exempt status.10 The IRS Exempt Organizations Hospital Study, released in February 2009, found that less than one-fifth of the 489 nonprofit hospitals it surveyed accounted for 78 percent of the whole group’s spending on “community benefit.”11

Requiring nonprofit hospitals to conduct a CHNA increases transparency in hospital organizations’ efforts towards meeting the community benefit standard and allows for better comparative analysis between hospital organizations with similar demographics. The goal of the CHNA requirement is to ensure that hospitals' identify, evaluate and prioritize the health needs of a community. This allows for a more strategic approach to providing community benefit with a greater focus on actual, rather than perceived, community health needs. A strategic plan will hopefully help guide hospital organizations in leveraging limited charitable resources to focus on the greatest community health needs and ultimately improve community health outcomes.

Building a Strategic Alliance

Many hospitals view the new PPACA requirements as a fiscal and administrative burden to hospital organizations that already have limited resources. So how should a hospital organization go about meeting the requirements of Section 501(r)(3) while minimizing the financial impact? An essential element to conducting proper CHNAs is community engagement and collaborative participation. Many local public health departments (“LPHD”) across the country are working to meet new voluntary public health accreditation standards promulgated by the Public Health Accreditation Board.12 Those standards require LPHDs to conduct CHNAs within their community.13

A strategic alliance between hospital organizations and LPHDs to conduct collaborative community health assessments will not only benefit both parties, but the community as well. The Congressional Joint Committee on Taxation stated that a hospital organization’s CHNA “may be based on current information collected by a public health agency or nonprofit organizations and may be conducted together with one or more organizations, including related organizations.”14

There are numerous reasons why partnering with a LPHD will reduce the fiscal and administrative burden on hospital organizations. Public health agencies and organizations have already spent considerable resources developing the tools and expertise to conduct CHNAs in an effort to carry out the public health mission by identifying community health needs.15 Ongoing public health monitoring programs have gathered comprehensive community health datasets needed in conducting CHNAs. Partnering with a LPHD will help reduce the administrative burden by sharing responsibility and manpower for conducting a CHNA. Additionally, national, state and local organizations across the country are providing grants and funding to LPHDs interested in engaging in the accreditation process, which includes funding to conduct CHNAs.16

Some secondary benefits to hospital organizations include increased visibility and reputation within the community as a leader in improving community health and quality of life. The relationship between hospitals and LPHDs will also be strengthened and may lead to an increase in collaboration on related projects and activities. Additionally, LPHDs will benefit from the collaboration by receiving increased community involvement throughout the CHNA process, resulting in a more detailed health improvement plan and possibly more creative solutions to public health problems.

For example, in the Quad Cities,17 a partnership among the Scott County Health Department, the Rock Island County Health Department, Genesis Health System and Trinity Regional Health System has formed to produce a joint CHNA and maintain a repository of current data that could be utilized by each agency. The partnership participants have found the joint CHNA process less demanding of both time and resources.18

Existing CHNA Resources

A wide range of tools currently exist to assist in the development of a CHNA. Members of the public health community developed most of these tools, although they can be utilized by hospital organizations alone or in collaboration with LPHDs in meeting the requirements of Section 501(r)(3). The National Association of County & City Health Officials’ Community Health Assessment and Health Reform webpage provides information to help local health departments and hospital organizations conduct collaborative community health assessment and improvement processes.19

The Community Health Assessment and Health Reform site mentions a number of CHNA resources, including the Mobilizing for Action through Planning and Partnerships (“MAPP”) process, a community-driven planning process for improving community health. Though MAPP is designed to increase the efficiency, effectiveness, and performance of local public health systems, MAPP results in a strategic plan for the entire community. Through leadership and facilitation, this framework helps identify community partners, apply strategic thinking to prioritize community health needs, identify resources and implement a community health improvement plan. Successful completion of the MAPP process results in a CHNA. Through MAPP, hospital organizationswill build new community partnerships and benefit from a strengthened public health infrastructure with an improved ability to anticipate and manage change.20


The new requirements of Section 501(r)(3) seek to increase transparency under the community benefit standard and require hospital organizations to engage in a more strategic approach to identifying and prioritizing charitable care based on actual community health needs. Though many hospital organizations view the new PPACA requirements as a fiscal and administrative burden, a strategic alliance with LPHDs to conduct collaborative CHNAs will help reduce the burden on hospital organizations. A strategic alliance between hospitals and public health will ultimately translate into improved community health outcomes.


Patient Protection and Affordable Care Act, Pub. L. No. 111-148, 124 Stat. 119 (2010).

2 Notice 2011-52, 2011–30 I.R.B.

Bernard J. Turnock, Public Health: What it is and How it Works (2011).


Public health accreditation is overseen by the Public Health Accreditation Board, an independent nonprofit entity. See infra at 12.


I.R.C. § 501(r)(3) (2011).




Rev. Rul. 69-545, 1969-2 C.B. 117.


Rev. Rul. 83-157, 1983-2 C.B. 94.


See e.g., John Carreyrou and Barbara Martinez, Nonprofit Hospitals, Once For the Poor, Strike It Rich; With Tax Breaks, They Outperform For-Profit Rivals, Wall St. J., Apr 4, 2008, at A1.


See e.g., John D. Colombo, Federal and State Tax Exemption Policy, Medical Debt and Health Care for the Poor, 51 St. Louis U. L.J. 433 (2007).


Internal Revenue Service, IRS Exempt Organizations Hospital Compliance Project Final Report (2009).


The Public Health Accreditation Board (“PHAB”) is an independent, nonprofit entity formed to implement and oversee national public health department accreditation. The PHAB was not initiated by or related for the PPACA. The CDC’s 2004 Futures Initiative identified accreditation as a key strategy for strengthening public health infrastructure. Through the work of public health stakeholder meetings, recommendations regarding the development and implementation of a national voluntary public health accreditation program were established. PHAB was incorporated in 2007 and began work to develop a national public health accreditation model. Version 1.0 of the PHAB Accreditation Standards and Measures and the Guide to National Public Health Department Accreditation were released to the public in July 2011. National public health department accreditation launched in September 2011. For more information, see .


PHAB Version 1.0 Accreditation Standards and Measures, .


Notice 2010-39, 2010–24 I.R.B.


The generally accepted mission of public health is to assure conditions in which people can be healthy. Health is defined as the state of complete physical, mental and social well-being and not merely the absence of disease or infirmity. See id at 3. The LPHDs are not required to conduct CHNAs by any federal law, although some states and local jurisdictions require LPHDs to conduct CHNAs.


See e.g., Julian Pecquet, Local health departments get grants to prepare for accreditation, The Hill, July 25, 2011. at this link.


The Quad Cities is comprised of Davenport, Iowa, Bettendorf, Iowa, Rock Island, Illinois and Moline, Illinois.


Edward R. Rivers, A Community Health Needs Assessment Collaboration Case Study, The Network for Public Health Law Blog, at this link (January 2012).


NACCHO, Community Health Assessment and Health Reform, (last visited January 18, 2012).


NACCHO, MAPP and Non-Profit Hospitals Fact Sheet (July 2010), at this link.

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