States Put Hospital Community-Benefits Requirements to Work for Population Health Improvement

In exchange for billions of dollars each year in tax exemptions, nonprofit hospitals are required to invest in the health of their communities. However, the federal government confers this status with little oversight over whether and how hospitals make these investments. As a result, states are increasingly using policy levers to hold hospitals accountable for their community benefits spending and ensure that hospital dollars are spent on activities that address the most important health needs of local residents.

To support states in this work, the National Academy for State Health Policy (NASHP), with support from the New England States Consortium Systems Organization (NESCSO) and the Robert Wood Johnson Foundation (RWJF), has convened a hospital community benefits workgroup. (The Milbank Memorial Fund supports convenings of members of NESCSO, which is a nonprofit organized by the New England Health and Human Services agencies and the University of Massachusetts Medical School.)

The NESCSO–NASHP community benefit workgroup brings together state officials representing state attorneys general offices, state Medicaid and public health agencies, and state offices charged with overseeing health care spending and health system transformation. It also gathers and synthesizes information on the state community benefit landscape to inform policymaking.

States forgo billions of dollars in revenue to fund nonprofit hospitals’ tax exemptions, so state policymakers have an interest in maximizing this investment to improve the lives and health of their residents. While the Affordable Care Act placed new community benefits requirements on charitable hospitals governed by section 501(c)(3) of the Internal Revenue Code (IRC), limits to these requirements create opportunity for state policymaking. For example, while the Internal Revenue Service requires hospitals to conduct a community health needs assessment (CHNA) that informs an implementation strategy, hospitals are not federally required to tie their community benefits spending to the needs identified by the CHNA. However, states can choose to require more from hospitals than federal law demands. To show how some states regulate and enforce their hospital community benefits processes, NASHP and the workgroup developed a table that compares state-level community benefits spending and reporting requirements, implementation strategies, and state enforcement levers.

The workgroup also determined that a robust and inclusive CHNA process can help ensure that community benefits investments meet genuine community needs, instead of merely marketing hospital services. To help states ensure that community voices are an integral part of the CHNA process, NASHP and the workgroup developed materials that draw on state laws and guidelines to show how 10 states are keeping “community” in their community health needs assessment.

When states hold hospitals accountable for meaningful community benefits investments, it works. A recent study found that adoption of multiple types of regulation, such as imposing requirements to report community benefits, conduct community health needs assessments, provide minimum levels of community benefits, and adhere to minimum income eligibility standards for charity care, rather than just one or two regulatory requirements, was consistently associated with higher levels of hospital-provided community benefits. Another recent study associated state community benefit laws “of any type” with higher nonprofit hospital community benefit spending, and concluded that “policy makers can use community benefit laws to increase nonprofit hospital engagement with public health.”

States are using their policy levers. Last month, Oregon passed HB 3076, which will require the Oregon Health Authority to establish a community benefits spending floor for hospitals based on a range of factors. In Connecticut, a Certificate of Need approval for the transfer of ownership of two health systems requires their community benefits activities to directly address the needs identified in the CHNA and align with the State Health Improvement Plan.

States will continue to work together to explore how tax-exempt hospital community benefits policies on the federal and state level can become more effective to help all communities become and remain healthy while ensuring hospitals are held accountable for how they use these tax benefits.

Thanks to the New England States Consortium Systems Organization and the Robert Wood Johnson Foundation for their support of this work.   

Amy Clary is a Senior Policy Associate at the National Academy for State Health Policy