Nonprofit Hospitals: Community Benefit under Health Reform: The Impact in California

This issue brief describes new nonprofit hospital requirements from the Affordable Care Act (ACA) and what those add to existing California law.1  It then suggests opportunities for advocates to use these new tools to advance the health rights of low-income uninsured and under-insured Californians.

The ACA contains new ?community benefit? requirements that nonprofit hospitals must meet as a condition of retaining their tax-exempt status.2  Community benefits include free or discounted care for low income individuals and efforts to identify and meet community health needs.  The ACA also authorizes, for the first time, a tax penalty for failing to comply with one of the new requirements.3   Please see Appendix 1 for a table of the ACA requirements, together with their effective dates and penalties for noncompliance.

Beginning in tax years after March 23, 2010, the ACA requires nonprofit hospitals to have a written financial assistance policy that includes eligibility criteria, whether free or discounted care is available to low income individuals, how charges to patients are calculated, and the process for applying for financial assistance.  The policy must explain how it will be widely publicized and, if the hospital organization does not have a separate billing and collections policy, explain the actions it may take in the event of nonpayment.4

Also beginning in 2010, charges to patients who are eligible for financial assistance for emergency or other medically necessary care are limited to ?amounts generally billed? to patients who have insurance covering such care, and gross charges are prohibited.5 Additionally, nonprofit hospitals are prohibited from engaging in ?extraordinary collection actions? unless and until they have made ?reasonable efforts? to determine whether the patient is eligible for financial assistance.6   Nonprofit hospitals must also have a written policy to provide emergency medical care regardless of the patient?s ability to pay.7

In California, AB 774 requires California?s nonprofit acute hospitals to have understandable written policies for charity care and discount payments, including clear eligibility criteria and procedures, and policies for debt collection practices and procedures, as a condition of licensure.8   The ACA does not include minimum eligibility criteria and applications procedures.  AB 774 requires non-profit hospitals to provide financial assistance to uninsured patients with family incomes under 350 percent of the federal poverty level and patients with high medical costs (while the ACA does not).9

AB 774 provides detailed rules for eligibility asset limits and required documentation, translation of notices in languages other than English, notice to patients of the policy and how to apply, extended payment plans, reimbursement to patients for overpayments, and collections policies.10   California law also limits further what hospitals can charge patients who are eligible for financial assistance to ?the amount of payment the hospital would expect, in good faith, to receive for providing services from Medicare, Medi-Cal, Healthy Families, or another government-sponsored health program of health benefits in which the hospital participates, whichever is greater.?11 Starting January 2011, AB 1503 also requires California hospital emergency room physicians to provide discounts to the same patients.12   Hospitals that provide emergency care must add language to their charity care and discount payment policies to notify uninsured patients or patients with high medical costs that discounts are available for emergency room physician services.13

The ACA also requires that nonprofit hospitals conduct a community health needs assessment (CHNA) every three tax years.  This assessment must reflect input from persons who ?represent the broad interests of the community served? by the hospital facility, ?including those with special knowledge of or expertise in public health,? and be made ?widely available? to the public.  The hospital must have an implementation strategy for meeting the needs identified in the assessment, report how they are addressing those needs and describe any needs that are not being addressed together with the reasons they are not being acted on.14   Any nonprofit hospital organization that does not meet these requirements must be assessed a tax of $50,000 per year per non-compliant facility.15   Hospitals must report that they have completed the CHNA requirements beginning in tax years after March 23, 2012.16

In July 2011 the Internal Review Services (IRS) released an Announcement (2011-52) that provides guidance on the CHNA requirements.17   This Announcement clarifies some of the ambiguities present in the statute.  It clarifies that the community to be assessed ?may not be defined in a manner that circumvents the requirement to assess the health needs (or consult with persons who represent the broad interests of) the community served by a hospital facility by excluding, for example, medically underserved populations, low-income persons, minority groups, or those with chronic disease needs.18   Among others things, it also specifies that the CHNA will be expected to take into account input from ?[l]eaders, representatives, or members of medically underserved, low-income, and minority populations, and populations with chronic disease needs, in the community served by the hospital facility.?19

In California, laws predating the ACA require private nonprofit hospitals every three years to complete a community needs assessment ?evaluating the health needs of the community serviced by the hospital that includes, but is not limited to, a process for

consulting with community groups and local government officials in the identification and prioritization of community needs.?20   The hospitals must adopt a community benefit  plan for providing community benefits and update it annually, along with a description of community benefit activities provided, their economic values, mechanisms to evaluate the plan?s effectiveness, and measurable objectives to be achieved.21

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