Nonprofit hospitals make up the majority of hospitals in the US. In exchange for their tax-exempt status, the federal government requires these hospitals to provide support in the form of community benefits. Tracking community benefit spending and its impact is important to ensure that such spending aligns with community needs.
Community benefit activities can include free/reduced cost healthcare, workforce development, community coalition building, economic development, and/or community health improvements. Activities must improve the health and wellbeing of the community served by the hospital. Hospitals must also report these activities annually to the IRS.
Community Benefit Spending Timeline
Community benefit spending (or at least a version of it) has been around for a while. Nonprofit hospitals received recognition as tax-exempt organizations in the 1950s. Specifically, these were organizations that “operated exclusively for religious, charitable, scientific, or educational purposes”. The recognition came with a responsibility to provide care for patients who are unable to pay. This expanded in 1969 to include community-building activities, or activities beyond charity care that improve community health and safety.
After 1969, community benefit requirements remained largely the same for almost four decades. In 2009 the IRS added a Schedule H worksheet [PDF] requirement to be completed by nonprofit hospitals that breaks down and categorizes community benefit spending activities. Then in 2012, the Affordable Care Act mandated the completion of a Community Health Needs Assessment (CHNA) every three years. Hospitals complete CHNAs to gather input from the community and use it to develop a community benefit implementation strategy. This ensures community benefit spending aligns with the CHNA results.
Community Benefit Spending Allocations
According to a 2020 report released by the American Hospital Association, nonprofit hospitals allocated $100 billion to community benefits in 2017 (13.8% of their total annual expenses). The majority went to patient financial assistance, absorbing the costs of unreimbursed care, and government program underpayments. Other investment areas included health professions education, medical research, and in-kind contributions to community groups.
Community-building activities fall into nine categories: physical improvements/housing, economic development, community support, environmental improvements, leadership development, coalition building, community health improvement advocacy, workforce development, and others. An earlier study (using 2016 data) conducted a deeper dive into community-building spending. The authors confirmed the combination of community support and workforce development accounted for over 50% of community-building investments.
Community Benefit Spending: Next Steps
The COVID-19 pandemic has highlighted social and racial inequities and brought them to the forefront of public health. The use of CHNAs and the allocation of community benefit spending is an avenue to address these disparities through two simultaneous pathways:
- Community benefit spending data needs to be accessible and easily digestible. To address this, there are tools like Community Benefit Insight (funded by the Robert Wood Johnson Foundation and developed by RTI International) which provides downloadable, aggregate community benefit spending data on nonprofit hospitals throughout the US in an easily understandable layout.
- There is also a need for community benefit spending standards. Currently, there is no minimum or maximum value hospitals are required to allocate to community benefit spending. In addition, confusion reigns in terms of which activities qualify as community benefit activities. Consequently, the hospitals usually make these determinations. Hospitals need clear guidelines on what qualifies as a community benefit activity and to document compliance.
Community benefit spending is an important tool that nonprofit hospitals can leverage to assist underserved communities and address community health needs. However, policy gaps make it difficult to determine how much to spend and where to spend it. Methods to establish community needs, such as CHNAs, are a step in the right direction. Moving forward, spending standards and clearer definitions of what qualifies as community benefit activities would reduce confusion and improve compliance.
Alexa Ortiz