# Additional Requirements for Charitable Hospitals; Community Health Needs Assessments for Charitable Hospitals; Requirement of a Section 4959 Excise Tax Return and Time for Filing the Return

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URL: https://www.frixlaw.com/law-library/documents/fr%3A2014-30525

## Record

- **Collection:** Federal Register
- **Document type:** Rule
- **Published:** December 31, 2014
- **Citation:** 79 FR 78954

## Text

DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1, 53, and 602
[TD 9708]
RIN 1545-BK57; RIN 1545-BL30; RIN 1545-BL58
Additional Requirements for Charitable Hospitals; Community Health Needs Assessments for Charitable Hospitals; Requirement of a Section 4959 Excise Tax Return and Time for Filing the Return

AGENCY:

Internal Revenue Service (IRS), Treasury.

ACTION:

Final regulations and removal of temporary regulations.

SUMMARY:

This document contains final regulations that provide guidance regarding the requirements for charitable hospital organizations added by the Patient Protection and Affordable Care Act of 2010. The regulations will affect charitable hospital organizations.

DATES:

Effective Date:
The final regulations are effective on December 29, 2014.

Applicability Date:
For dates of applicability, see §§ 1.501(r)-7(a); 1.6033-2(k)(4); 53.4959-1(b); and 53.6071-1(i)(2).

FOR FURTHER INFORMATION CONTACT:

Amy F. Giuliano, Amber L. MacKenzie, or Stephanie N. Robbins at (202) 317-5800 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

The collection of information contained in these final regulations has been reviewed and approved by the Office of Management and Budget in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)) under control number 1545-0047. The collection of information in the final regulations is in §§ 1.501(r)-3, 1.501(r)-4, and 1.501(r)-6(c). The collection of information is required for hospital organizations to receive the benefits of being described in section 501(c)(3) of the Internal Revenue Code (Code) and flows from section 501(r)(3), which requires a hospital organization to conduct a community health needs assessment (CHNA) and adopt an implementation strategy to meet the community health needs identified through the CHNA at least once every three years; section 501(r)(4), which requires a hospital organization to establish a written financial assistance policy (FAP) and a written policy related to care for emergency medical conditions; and section 501(r)(6), which requires a hospital organization to make reasonable efforts to determine whether an individual is eligible for assistance under a FAP before engaging in extraordinary collection actions. The expected recordkeepers are hospital organizations described in sections 501(c)(3) and 501(r)(2).

1. 2012 Proposed Regulations

On June 26, 2012, the Department of the Treasury (Treasury Department) and the IRS published a notice of proposed rulemaking (NPRM) (REG-130266-11; 77 FR 38148) that contained proposed regulations regarding the requirements of sections 501(r)(4) through 501(r)(6) relating to FAPs, limitations on charges, and billing and collections (the 2012 proposed regulations). The 2012 proposed regulations estimated that the collection of information in the proposed regulations relating to sections 501(r)(4) and 501(r)(6) would result in an average annual paperwork burden per recordkeeper of 11.5 hours. (The requirements of section 501(r)(3) were addressed in different proposed regulations, released in 2013, and the collection of information associated with those proposed regulations is addressed in section 2 of this portion of the preamble relating to the Paperwork Reduction Act.)

In response to this burden estimate, the Treasury Department and the IRS received 15 comments generally stating that the estimates set forth in the 2012 proposed regulations were too low and that the burden was significantly higher, with some commenters offering estimates ranging between 15 and 38,500 hours annually. However, these commenters provided insufficient information regarding the hours necessary to comply with the information collection requirements of §§ 1.501(r)-4 and 1.501(r)-6(c) of the 2012 proposed regulations for the IRS to determine why, or by how much, the proposed burden estimate should be increased. A few commenters noted that they would have to devote significant resources up-front to amending policies and procedures and altering information systems.

The Treasury Department and the IRS anticipated an up-front commitment of resources when they derived the 11.5-hour annual burden estimate proposed in the 2012 proposed regulations by dividing an estimated 34.5-hour burden over three years (the maximum OMB approval period for a collection of information burden estimate) by three. It was anticipated that a large share of those 34.5 hours would be devoted to updating policies, procedures, and information systems in the first year. The Treasury Department and the IRS also expected that hospitals would be building upon existing policies and processes rather than establishing entirely new policies. For example, § 1.501(r)-6(c)(2) of the 2012 proposed regulations was intended to enable hospitals to notify patients about the FAP primarily by adding information to billing statements, necessitating some time to change the template of the billing statement but presumably relatively little time thereafter. However, in light of the comments received, the Treasury Department and the IRS have increased their estimate of the average amount of time a hospital organization will devote to amending policies and procedures and altering information systems in the first year to come into compliance with §§ 1.501(r)-4 and 1.501(r)-6(c) to 60 hours (with additional time needed each year to implement the requirements).

One commenter stated that hospitals' experience in administering charity care programs under existing state law required more than 100 annual staff hours per hospital, and that the 2012 proposed regulations would increase that burden. However, the total amount of time spent administering charity care programs in general under the commenter's state law is not equivalent to the amount of time necessary to comply with the collection of information requirements, in particular, in the 2012 proposed regulations.

Most of the 38,500 burden hours that one commenter estimated for the paperwork burden resulting from the 2012 proposed regulations was based on the time the commenter estimated would be spent by 16 financial counseling staff members to provide direct patient counseling. While providing direct patient financial counseling is a commendable activity that would help ensure that patients obtain the financial assistance for which they are eligible, the burden estimates under the Paperwork Reduction Act are limited to collections of information authorized or imposed by the statute and regulations, and, therefore, such counseling activity would not be captured in the estimates.

The Treasury Department and the IRS also note that, in response to comments, these final regulations contain several changes intended to reduce the paperwork burden of the 2012 proposed regulations. Most significantly, numerous commenters noted that the requirement in § 1.501(r)-6(c)(2) to include a plain language summary of the FAP with all (and at least three) billing statements during a 120-day

notification period would add significantly to the cost of mailing the billing statements and be a waste of paper. In response to these comments, rather than requiring a plain language summary with every bill issued during the notification period, the final regulations instead require a hospital facility to include on each billing statement a conspicuous written notice that notifies and informs patients about the availability of financial assistance, including both a telephone number of the office or department that can provide information about the FAP and FAP application process and the direct Web site address (or URL) where copies of the FAP, FAP application form, and plain language summary of the FAP may be obtained. Additionally, the final regulations require a plain language summary to be included with only one post-discharge communication and give a hospital facility the flexibility to send this one plain language summary only to the subset of patients against whom the hospital facility actually intends to engage in extraordinary collection actions. These changes are intended to maintain the frequent reminders to patients of the availability of financial aid while reducing the burden and cost of mailing multiple copies of a plain language summary of the FAP.

The one change in the final regulations that may materially increase the paperwork burden relates to translations of the FAP and related documents. The 2012 proposed regulations required a hospital facility to translate its FAP (as well as the FAP application form and plain language summary of the FAP) into the primary language of any populations with limited English proficiency (LEP) that constitute more than 10 percent of the residents of the community served by the hospital facility. In response to comments discussed in section 4.a.iv.F of this preamble, the final regulations change that threshold to 5 percent or 1,000, whichever is less, of the population of individuals likely to be affected or encountered by the hospital facility. This may increase the overall number of translations that hospital organizations affected by the final regulations will be required to make.

Taking into account all of the comments received, as well as the changes made in these final regulations that will affect the paperwork burden, the Treasury Department and the IRS have adjusted their burden estimate for §§ 1.501(r)-4 and 1.501(r)-6(c) to 60 hours per recordkeeper of up-front time to update information systems and draft and amend policies, procedures, and template billing statements and notifications, plus 15 hours per recordkeeper per year for each of three years to implement the collection of information requirements. This results in a total of 105 hours over a three-year period, or an average of 35 hours per year per recordkeeper, up from the estimate of 11.5 hours per year per recordkeeper proposed in the 2012 proposed regulations. The Treasury Department and the IRS note that the burden estimates must be updated every three years and that future estimates can be amended to reflect hospitals' actual experience in implementing the collection of information requirements in §§ 1.501(r)-4 and 1.501(r)-6(c).

2. 2013 Proposed Regulations

On April 5, 2013, the Treasury Department and the IRS published a NPRM (REG-106499-12; 78 FR 20523) that contained proposed regulations regarding the CHNA requirements under section 501(r)(3) (the 2013 proposed regulations). The 2013 proposed regulations estimated that the collection of information in the proposed regulations would result in an average annual paperwork burden per recordkeeper of 80 hours. In response to this burden estimate, the Treasury Department and the IRS received 10 comments stating generally that the estimates set forth in the 2013 proposed regulations were too low and that the burden was significantly higher, with most commenters stating that satisfying the requirements described in the 2013 proposed regulations would necessitate “thousands of hours.” However, because commenters provided little specific information regarding the hourly burden of activities that are required to comply with the collection of information required by section 501(r)(3), it is difficult for the Treasury Department and the IRS to determine how to appropriately revise the burden estimate.

The Treasury Department and the IRS note that a hospital organization only has to satisfy the CHNA requirements once every three years, and the burden estimate reflected in the 2013 proposed regulations was 240 hours per CHNA, averaged over three years. In addition, the Treasury Department and the IRS recognize that the amount of time hospitals devote to their CHNAs will vary greatly depending on their size and resources and whether they choose to collaborate with other organizations and facilities in conducting their CHNAs.

One commenter asked that the IRS clarify its definition of “recordkeeper” to indicate that the estimate is for a hospital organization with a single hospital facility and that a hospital organization with multiple hospital facilities would have an estimated burden that would be multiplied by the number of hospital facilities. However, both the 2013 proposed regulations and these final regulations allow hospital organizations with multiple hospital facilities to collaborate and produce one joint CHNA report and implementation strategy for all of its hospital facilities, provided the hospital facilities define their communities to be the same. As a result, the Treasury Department and the IRS do not believe the burden estimate will necessarily increase in direct relation to the number of hospital facilities operated. On the other hand, the Treasury Department and the IRS do recognize that some hospital facilities operated by the same organization will define their communities to be different and will therefore conduct separate CHNAs and produce separate CHNA reports. For purposes of estimating the total paperwork burden, and in the absence of data on which hospital facilities will conduct joint CHNAs and which will not, the Treasury Department and the IRS have assumed that hospital facilities operated by hospital organizations with three or fewer hospital facilities will produce joint CHNA reports and hospital facilities operated by hospital organizations with more than three hospital facilities will conduct separate CHNA reports. Based on the latest available IRS data on the number of hospital organizations and facilities, the assumption that hospital organizations operating more than three hospital facilities will conduct separate CHNAs for each hospital facility increases the average annual burden associated with the CHNA requirements per hospital organization from 80 to 101 hours. The Treasury Department and the IRS note that the burden estimates must be updated every three years and that future estimates can be amended to reflect hospitals' actual experience in implementing the collection of information requirements in § 1.501(r)-3.

3. Adjusted Burden Estimates for Final Regulations

After taking into account all the comments and information available and based on the latest IRS data on the number of hospital organizations and facilities, the Treasury Department and the IRS have reached the following reporting burden estimates:

Estimated total annual reporting burden:
401,905.

Estimated average annual burden hours per recordkeeper:
136 hours.

Estimated number of recordkeepers:
2,955.

Estimated frequency of collections of such information:
Annual.

An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a valid control number assigned by the Office of Management and Budget.

Books or records relating to a collection of information must be retained as long as their contents may become material in the administration of any internal revenue law. Generally, tax returns and tax return information are confidential, as required by section 6103.

Background

Section 501(r) was added to the Code by the Patient Protection and Affordable Care Act, Public Law 111-148 (124 Stat. 119 (2010)) (the Affordable Care Act), enacted March 23, 2010, and imposes additional requirements on charitable hospital organizations. Section 501(r)(1) provides that a hospital organization described in section 501(r)(2) will not be treated as a tax-exempt organization described in section 501(c)(3) unless the organization meets the requirements of sections 501(r)(3) through 501(r)(6). Section 501(r)(3) requires a hospital organization to conduct a community health needs assessment (CHNA) at least once every three years and to adopt an implementation strategy to meet the community health needs identified through the CHNA. Section 501(r)(4) requires a hospital organization to establish a written financial assistance policy (FAP) and a written policy relating to emergency medical care. Section 501(r)(5) requires a hospital organization to not use gross charges and to limit amounts charged for emergency or other medically necessary care provided to individuals eligible for assistance under the organization's FAP (FAP-eligible individuals) to not more than the amounts generally billed to individuals who have insurance covering such care (AGB). Section 501(r)(6) requires a hospital organization to make reasonable efforts to determine whether an individual is FAP-eligible before engaging in extraordinary collection actions. Section 501(r)(2)(B) requires a hospital organization to meet each of these requirements separately with respect to each hospital facility it operates.

The statutory requirements of section 501(r) (except for section 501(r)(3)) apply to taxable years beginning after March 23, 2010. Section 501(r)(3) applies to taxable years beginning after March 23, 2012. A hospital organization has had to comply with the statutory requirements of section 501(r) since these applicability dates.

The Affordable Care Act also added section 4959, which imposes a $50,000 excise tax on a hospital organization that fails to meet the CHNA requirements for any taxable year, and amended section 6033 to add certain reporting requirements related to section 4959 and the CHNA requirements and to require hospital organizations to file a copy of their audited financial statements with their annual information returns.

In May 2010, the Department of the Treasury (Treasury Department) and the IRS issued Notice 2010-39 (2010-24 IRB 756 (June 14, 2010)), which solicited comments regarding the additional requirements imposed by section 501(r). Approximately 125 comments were received in response to Notice 2010-39.

In July 2011, the Treasury Department and the IRS issued Notice 2011-52 (2011-30 IRB 60 (July 25, 2011)), which described (and solicited comments regarding) provisions related to the CHNA requirements that the Treasury Department and the IRS anticipated would be included in proposed regulations. More than 80 comments were received in response to Notice 2011-52.

On June 26, 2012, the Treasury Department and the IRS published a notice of proposed rulemaking in the
Federal Register
(REG-130266-11, 77 FR 38148) (2012 proposed regulations) that contained proposed regulations regarding the requirements of sections 501(r)(4) through 501(r)(6) relating to FAPs, limitations on charges, and billing and collections. The 2012 proposed regulations also defined key terms used throughout the regulations, such as “hospital organization” and “hospital facility.” More than 200 written comments were received in response to the 2012 proposed regulations, and a public hearing was held on December 5, 2012.

On April 5, 2013, the Treasury Department and the IRS published a notice of proposed rulemaking in the
Federal Register
(REG-106499-12, 78 FR 20523) (2013 proposed regulations) that contained proposed regulations regarding the CHNA requirements of section 501(r)(3), the related reporting obligations under section 6033, the excise tax under section 4959, and the consequences for failing to meet any of the section 501(r) requirements. The 2013 proposed regulations also added a few additional defined terms and made minor amendments to the definitions of “hospital organization” and “hospital facility” contained in the 2012 proposed regulations. More than 90 written comments were received in response to the 2013 proposed regulations. No public hearing was requested or held.

On August 15, 2013, the Treasury Department and the IRS published final and temporary regulations and a cross-reference notice of proposed rulemaking in the
Federal Register
(TD 9629, 78 FR 49681; REG-115300-13, 78 FR 49700) under sections 6011 and 6071, which provided guidance regarding the requirement that a return accompany payment of the section 4959 excise tax for failure to meet the CHNA requirements for any taxable year. Specifically, the temporary regulations direct hospital organizations liable for the tax imposed by section 4959 to file Form 4720, “Return of Certain Excise Taxes Under Chapters 41 and 42 of the Internal Revenue Code,” by the 15th day of the fifth month after the end of the organization's taxable year in which the liability was incurred. The cross-reference notice of proposed rulemaking solicited public comments. No public comments were received, and no public hearing was requested or held.

In January 2014, the Treasury Department and the IRS published Notice 2014-2 (2014-3 IRB 407 (January 13, 2014)) to confirm that hospital organizations could rely on both the 2012 proposed regulations and the 2013 proposed regulations, pending the publication of final regulations or other applicable guidance. This Treasury decision obsoletes Notice 2014-2, but the final regulations contained in this Treasury decision continue to allow reliance on both the 2012 proposed regulations and the 2013 proposed regulations until a hospital organization's first taxable year beginning after December 29, 2015.

Also in January 2014, the Treasury Department and the IRS published Notice 2014-3 (2014-3 IRB 408 (January 13, 2014)), which contained, and solicited public comments on, a proposed revenue procedure that provides correction and reporting procedures under which certain failures to meet the requirements of section 501(r) will be excused for purposes of sections 501(r)(1) and 501(r)(2)(B). The Treasury Department and the IRS received six comments in response to Notice 2014-3.

After consideration of the comments received on the 2012 and 2013 proposed regulations, both sets of proposed regulations under section 501(r) are adopted as amended by this Treasury decision. In addition, this Treasury decision removes the temporary regulations under sections 6011 and

6071 and adopts as amended the proposed regulations that cross-referenced the text of those temporary regulations. The major areas of comment and the revisions are discussed in this preamble. The comments are available for public inspection at
www.regulations.gov
or on request.

Summary of Comments and Explanation of Revisions

These final regulations provide guidance on the requirements described in section 501(r), the entities that must meet these requirements, and the reporting obligations relating to these requirements under section 6033. In addition, the final regulations provide guidance on the consequences described in sections 501(r)(1), 501(r)(2)(B), and 4959 for failing to satisfy the section 501(r) requirements.

1. Hospital Facilities and Organizations

a. In General

In accordance with section 501(r)(2)(A)(i) and consistent with the proposed regulations, the final regulations define “hospital organization” as an organization recognized (or seeking to be recognized) as described in section 501(c)(3) that operates one or more hospital facilities and define “hospital facility” as a facility that is required by a state to be licensed, registered, or similarly recognized as a hospital. The final regulations refer to hospital facilities taking certain actions, and such references are intended to include instances in which the hospital organization operating the hospital facility takes action through or on behalf of the hospital facility.

Section 501(r)(2)(A)(ii) provides that a hospital organization also includes “any other organization that the Secretary determines has the provision of hospital care as its principal function or purpose constituting the basis for its exemption” under section 501(c)(3). One commenter requested that this language be incorporated into the definition of “hospital organization” contained in the final regulations.

At this time, the Treasury Department and the IRS have not identified any additional categories of organizations or facilities (other than hospital facilities and organizations operating them) with the principal function or purpose of providing hospital care. If any such categories of organizations or facilities are later identified, the Treasury Department and the IRS will issue proposed regulations identifying them, with the expanded definition applying prospectively only if, and when, the proposed regulations are finalized, after an opportunity for notice and comment.

b. Multiple Buildings Under a Single Hospital License

The definition of “hospital facility” in the 2012 proposed regulations provided that a hospital organization “may treat” multiple buildings operated under a single state license as a single hospital facility. To increase the certainty and consistency in the designation of hospital facilities, the 2013 proposed regulations revised this definition to indicate that multiple buildings operated by a hospital organization under a single state license “are” considered a single hospital facility for purposes of section 501(r).

In response to the 2013 proposed regulations, several commenters stated that buildings in different geographic locations that share a license (for example, a hospital facility with satellite sites in various locations) may serve distinct communities and stakeholders, whose needs could be missed or unaddressed if they are aggregated into one large community served for purposes of the CHNA requirements. Multiple commenters asked that such a hospital facility be given the flexibility to conduct separate CHNAs for its separate buildings, noting that state law may require the facility to file separate implementation strategies for each building describing how each building plans to meet the health needs in its community.

The Treasury Department and the IRS believe that a fixed rule regarding the treatment of multiple buildings under a single state license will provide for consistency and certainty in tax administration and increase the ability of both the IRS and the public to understand and to evaluate information reported on hospital organizations' Forms 990 from year to year. Accordingly, the final regulations continue to provide that multiple buildings operated by a hospital organization under a single state license are considered to be a single hospital facility. The final regulations also clarify that, in the case of a hospital facility consisting of multiple buildings that operate under a single state license and serve different geographic areas or populations, the community served by the hospital facility is the aggregate of such areas or populations. However, in such a case, the hospital facility consisting of multiple buildings could, if desired, assess the health needs of the different geographic areas or populations served by the different buildings separately and document the assessments in separate chapters or sections of the hospital facility's CHNA report and implementation strategy.

c. One Building Under Multiple State Licenses

A few commenters asked that the final regulations allow a hospital organization to treat operations in a single building under more than one state license as a single “hospital facility,” a situation the proposed regulations did not address. These commenters stated that entities operating within the same building have a high degree of integration and similar patient populations and that requiring each licensed facility to comply separately with section 501(r) would impose burdens without benefitting the community served.

The final regulations do not adopt this suggestion because the Treasury Department and the IRS believe that having one definition of “hospital facility” based on state licensure alone is simpler and more administrable. However, the Treasury Department and the IRS note that, as discussed in section 4.c of this preamble, separate hospital facilities within the same building may have identical FAPs and other policies established for them or share one policy document as long as the information in the policy or policies is accurate for all such facilities and any joint policy clearly states that it is applicable to each facility. Furthermore, as discussed in sections 3.a.v and 3.b.iii of this preamble, separate hospital facilities within the same building that define their communities to be the same may conduct a joint CHNA and adopt a joint implementation strategy addressing the significant health needs identified in the joint CHNA. Thus, the final regulations allow for hospital facilities within the same building to jointly comply with many of the section 501(r) requirements.

d. Government Hospital Organizations

The statutory language of section 501(r) applies to all hospital organizations that are (or seek to be) recognized as described in section 501(c)(3) and does not provide an exception for government hospital organizations. Accordingly, the preamble to the 2012 proposed regulations stated that the Treasury Department and the IRS intend to apply section 501(r) to every hospital organization that has been recognized (or seeks recognition) as an organization described in section 501(c)(3), regardless of whether a hospital organization is a government hospital organization. However, in recognition of the unique position of government

hospital organizations, the Treasury Department and the IRS also requested comments regarding alternative methods a government hospital organization could use to satisfy the requirements of section 501(r).

A number of commenters noted that government hospital organizations have long-standing relationships with their communities, are already known as “safety net” health care providers, and are already obligated to provide care regardless of ability to pay (although care is sometimes limited to or prioritized for citizens of the locality that is supporting the hospital). Commenters also stated that government hospital organizations disproportionately serve patients who are uninsured, Medicaid beneficiaries, or hard to reach (such as homeless individuals, migrant workers, and undocumented individuals), and have governance structures that reflect a level of public accountability. Commenters added that, as stewards of public funds, government hospital organizations have an obligation to local taxpayers to ensure that scarce financial resources go toward patient care and not toward unnecessary administrative costs. However, rather than offering alternative methods a government hospital organization could use to satisfy the requirements of section 501(r), these commenters instead effectively requested that the Treasury Department and the IRS provide exemptions from the requirements imposed by section 501(r) for government hospital organizations. For example, commenters recommended that government hospital organizations be exempted from all of the documentation requirements related to CHNAs, be deemed to have met the FAP requirements by virtue of their public status, or be permitted to charge some FAP-eligible individuals more than AGB as long as the average annual discounted charge provided to FAP-eligible individuals did not exceed AGB.

Other commenters expressed support for applying the requirements of section 501(r) to government hospital organizations, stating that no exceptions for particular categories of section 501(c)(3) organizations are permitted by the statute. Commenters also stated that, from the point of view of individuals seeking or receiving care, most government hospital organizations are indistinguishable from any other section 501(c)(3) hospital organization and that their practices with regard to charges, billing, and collections are substantially the same.

Because section 501(r) has no express or implicit exceptions for government hospital organizations, the final regulations require the section 501(r) requirements to be met by all hospital organizations that are (or seek to be) recognized as described in section 501(c)(3), including those that are government hospital organizations. The Treasury Department and the IRS note, however, that government hospital organizations that have previously been recognized as described in section 501(c)(3) but do not wish to comply with the requirements of section 501(r) may submit a request to voluntarily terminate their section 501(c)(3) recognition as described in section 7.04(14) of Rev. Proc. 2014-4 (2014-1 IRB 125) (or a successor revenue procedure).

A number of commenters asked whether and how government hospital organizations can satisfy the reporting requirements related to CHNAs, given that they are excused from filing a Form 990, “Return of Organization Exempt From Income Tax,” under Rev. Proc. 95-48 (1995-2 CB 418). The Affordable Care Act did not change the requirements regarding which organizations are required to file a Form 990. Rev. Proc. 95-48 provides that certain government entities are relieved from any requirement to file a Form 990 (and therefore are relieved from having to disclose information or documents on or with a Form 990). Accordingly, a government hospital organization (other than one that is described in section 509(a)(3)) described in Rev. Proc. 95-48 or a successor revenue procedure is not required to file a Form 990 or include any CHNA-related information with a Form 990. However, to be treated as described in section 501(c)(3), government hospital organizations still must meet all section 501(r) requirements that do not involve disclosure on or with the Form 990, including making their CHNA reports and FAPs widely available on a Web site.

e. Accountable Care Organizations

Several commenters asked that separate entities cooperating in accountable care organizations (ACOs) or similar integrated care models be treated as a single “hospital organization” for purposes of section 501(r), arguing that this would create administrative efficiencies as the participating organizations develop one standard set of policies and procedures and result in less confusion for patients as they move through a “continuum of care.” The final regulations do not adopt this suggestion, but the Treasury Department and the IRS note that, as discussed in section 4.c of this preamble, multiple hospital facilities may have identical FAPs and other policies established for them or share one joint policy document as long as the information in the policy or policies is accurate for all such facilities and any joint policy clearly states that it is applicable to each facility. Furthermore, as discussed in sections 3.a.v and 3.b.iii of this preamble, separate hospital facilities that define their community to be the same may conduct a joint CHNA and adopt a joint implementation strategy addressing the significant health needs identified in the joint CHNA. Thus, the final regulations provide opportunities for separate hospital facilities participating in an ACO to jointly comply with many of the section 501(r) requirements.

f. “Operating” a Hospital Facility

The 2013 proposed regulations generally provided that an organization operates a hospital facility if it owns a capital or profits interest in an entity treated as a partnership for federal tax purposes that operates the hospital facility. The final regulations maintain this general rule with two additions.
1

First, the final regulations clarify that an organization is considered to own a capital or profits interest in an entity treated as a partnership for federal tax purposes if it owns such an interest directly or indirectly through one or more lower-tier entities that are treated as partnerships for federal tax purposes.
2

1
The final regulations delete the specific reference to joint ventures and limited liability companies contained in the 2013 proposed regulations because those entities are sufficiently covered by the general phrase “entity treated as a partnership for federal tax purposes.” The final regulations also delete the reference to “members of” an entity treated as a partnership for federal tax purposes because the intended organizations should be captured by the references to owners of a capital or profits interest in the partnership. These changes are not intended to be substantive changes.

2
The final regulations also provide that an organization operates a hospital facility if it is the sole member or owner of a disregarded entity that operates the hospital facility. Section 301.7701-2(a) provides that a disregarded entity's activities are treated in the same manner as a branch or division of the owner. Accordingly, if a hospital organization is the sole owner of one disregarded entity that is, in turn, the sole owner of another disregarded entity that operates a hospital facility, the hospital organization would be considered to operate the hospital facility.

Second, the final regulations clarify how the question of whether an organization “operates” a hospital facility relates to the question of whether the organization needs to meet the requirements of section 501(r) (and, therefore, would be subject to any

consequences for failing to meet such requirements). Specifically, § 1.501(r)-2(e) of the final regulations clarifies that a hospital organization is not required to meet the requirements of section 501(r) with respect to any hospital facility it is not “operating” within the meaning of that defined term. In addition, as stated in the preamble to the 2013 proposed regulations, the final regulations provide that a hospital organization is not required to meet the requirements of section 501(r) with respect to the operation of a facility that is not a “hospital facility” because it is not required by a state to be licensed, registered, or similarly recognized as a hospital. The final regulations also provide that a hospital organization is not required to meet the requirements of section 501(r) with respect to any activities that constitute an unrelated trade or business described in section 513 with respect to the hospital organization.

g. Providing Care in a Hospital Facility Through Hospital-Owned Entities

A number of commenters asked that the final regulations clarify the extent to which certain section 501(r) requirements apply to hospital-owned physician practices providing care in the hospital, with a few commenters requesting that the section 501(r) requirements apply to all care provided in a hospital facility by such practices.
3

3
As discussed in section 4.a of this preamble, in response to comments, the final regulations require a hospital facility's FAP to identify the providers, other than the hospital facility itself, that may deliver emergency or other medically necessary care in the hospital facility and specify which providers are covered by the hospital facility's FAP and which are not.

Whether or not the section 501(r) requirements apply to hospital-owned physician practices or other entities providing care in a hospital facility depends upon how the entities are classified for federal tax purposes. For example, a hospital facility would not be required to meet the section 501(r) requirements with respect to a taxable corporation providing care in the hospital facility, even if the corporation is wholly or partially owned by the hospital organization that operates the hospital facility, because the corporation is a separate taxable entity to which section 501(r) does not apply.

By contrast, if a hospital organization is the sole member or owner of an entity providing care in one of its hospital facilities and that entity is disregarded as separate from the hospital organization for federal tax purposes, the care provided by the entity would be considered to be care provided by the hospital organization through its hospital facility. Accordingly, the hospital organization would be required to meet the section 501(r) requirements with respect to care provided by the disregarded entity in any hospital facility that the hospital organization operates.

If a hospital organization owns a capital or profits interest in an entity providing care in a hospital facility that is treated as a partnership for federal tax purposes, the activities of the partnership are treated as the activities of the hospital organization for purposes of determining whether the hospital organization is operated exclusively for exempt purposes or engaged in an unrelated trade or business under generally applicable tax principles.
See
Rev. Rul. 2004-51 (2004-1 CB 974); Rev. Rul. 98-15 (1998-1 CB 718). Accordingly, emergency or other medically necessary care provided in a hospital facility by a partnership in which the hospital organization operating the facility has a capital or profits interest is treated as care provided by the hospital organization in its hospital facility for purposes of section 501(r). If the provision of such care by the partnership is an unrelated trade or business with respect to the hospital organization, the hospital organization does not have to meet the section 501(r) requirements with respect to the care because, as noted in section 1.f of this preamble, the final regulations provide that a hospital organization is not required to meet the requirements of section 501(r) with respect to any activity that constitutes an unrelated trade or business with respect to the hospital organization. On the other hand, if the provision of emergency or other medically necessary care by the partnership is not an unrelated trade or business with respect to the hospital organization, the final regulations clarify that the hospital organization must meet the requirements of sections 501(r)(4) through 501(r)(6) with respect to such care. The final regulations use a new defined term, “substantially-related entity,” to refer to an entity that is treated as a partnership for federal tax purposes in which a hospital organization owns a capital or profits interest (or a disregarded entity of which the hospital organization is the sole owner or member) and that provides, in a hospital facility operated by the hospital organization, emergency or other medically necessary care that is not an unrelated trade or business with respect to the hospital organization.
4

4
The final regulations also clarify that the term “substantially-related entity” does not include any partnership that qualifies for a grandfather rule included in the 2013 proposed regulations and adopted in the final regulations. Under that rule, an organization will not be considered to “operate” a hospital facility despite owning a capital or profits interest in an entity treated as a partnership for federal tax purposes that operates the hospital facility if it has met certain conditions since March 23, 2010.

h. Authorized Body

The 2013 proposed regulations defined the term “authorized body of a hospital facility” to include: (1) The governing body (that is, the board of directors, board of trustees, or equivalent controlling body) of the hospital organization; (2) a committee of, or other party authorized by, the governing body of the hospital organization, to the extent permitted under state law; or (3) in the case of a hospital facility that has its own governing body and is recognized as an entity under state law but is a disregarded entity for federal tax purposes, the governing body of that hospital facility, or a committee of, or other party authorized by, that governing body to the extent permitted under state law.

In cases in which a hospital organization owns a capital or profits interest in a partnership that operates a hospital facility, the Treasury Department and the IRS believe the governing body of the partnership should also be considered an authorized body of the hospital facility, and the final regulations are amended to reflect this change. In particular, the final regulations provide that an authorized body of a hospital facility may include the governing body of an entity that operates the hospital facility and is disregarded or treated as a partnership for federal tax purposes (or a committee of, or other party authorized by, that governing body to the extent such committee or other party is permitted under state law to act on behalf of the governing body), and thus either the governing body (or committee or other authorized party) of the hospital organization or of the disregarded entity or partnership may be considered the authorized body of the hospital facility.

Some questions have arisen regarding whether adoption of a CHNA report, implementation strategy, FAP, or other policy by one authorized official of a hospital facility would constitute adoption by an authorized body of the hospital facility for purposes of the regulatory requirements. Under the regulatory definition of “authorized body of a hospital facility” in both the 2013 proposed regulations and these final regulations, a single individual may constitute either a committee of the

governing body or a party authorized by the governing body to act on its behalf, provided that state law allows a single individual to act in either of these capacities.
5

5
This interpretation of “authorized body of a hospital facility” is consistent with the interpretation of the term “authorized body” under Treas. Reg. § 53.4958-6(c)(1)(i).
See
TD 8978 (67 FR 3076, 3082).

2. Failures To Satisfy the Requirements of Section 501(r)

The Treasury Department and the IRS recognize that errors may occur even in circumstances in which a hospital facility has practices and procedures in place that are reasonably designed to facilitate overall compliance with section 501(r) and has implemented safeguards reasonably calculated to prevent errors. Thus, the 2013 proposed regulations provided that a hospital facility's omission of required information from a policy or report described in § 1.501(r)-3 or § 1.501(r)-4, or an error with respect to the implementation or operational requirements described in §§ 1.501(r)-3 through 1.501(r)-6, would not be considered a failure to meet a requirement of section 501(r) if: (1) The omission or error was minor, inadvertent, and due to reasonable cause, and (2) the hospital facility corrected such omission or error as promptly after discovery as is reasonable given the nature of the omission or error.

In addition, to provide an incentive for hospital facilities to take steps not only to avoid errors but also to correct and provide disclosure when they occur, the 2013 proposed regulations provided that a hospital facility's failure to meet one or more of the requirements described in §§ 1.501(r)-3 through 1.501(r)-6 that is neither willful nor egregious would be excused if the hospital facility corrects and makes disclosure in accordance with guidance set forth by revenue procedure, notice, or other guidance published in the Internal Revenue Bulletin. On January 13, 2014, the Treasury Department and the IRS published Notice 2014-3, which contained a proposed revenue procedure setting forth procedures for correction and disclosure of such failures and solicited public comments regarding the proposed revenue procedure. The Treasury Department and the IRS intend to release a revenue procedure finalizing the guidance proposed in Notice 2014-3 in the near future.

a. Minor Omissions and Errors

Several commenters supported the proposed approach to minor and inadvertent omissions and errors that are due to reasonable cause, agreeing that if they are promptly corrected upon discovery they should not result in sanctions. Accordingly, the final regulations retain this general approach, with some modifications.

One commenter suggested modifying the proposed rule so that it will apply to omissions or errors that are minor, inadvertent, “or” due to reasonable cause (rather than “and”), stating that an omission or error was unlikely to satisfy all three conditions. The same commenter noted that “reasonable cause” may be interpreted differently in a variety of circumstances, potentially making this safe harbor too narrow. The Treasury Department and the IRS believe that the insignificance of an omission or error should always be a necessary condition for receiving the benefit of correcting under § 1.501(r)-2(b) without any obligation to disclose to the IRS or the public. Thus, the final regulations require an omission or error to be minor in order to be corrected and not considered a failure under § 1.501(r)-2(b). However, in response to this comment, the final regulations provide that the option for correction without disclosure provided in § 1.501(r)-2(b) will be available if the omission or error is minor and either inadvertent or due to reasonable cause. As noted later in this section of the preamble, the final regulations also clarify the meaning of “reasonable cause” for purposes § 1.501(r)-2(b).

Numerous commenters asked for further guidance and specific examples with respect to the types of omissions and errors that would be considered minor, inadvertent, and/or due to reasonable cause, as opposed to those that are excused only if they are corrected and disclosed, as discussed in section 2.b of this preamble. As more experience is gained regarding the types of omissions or errors that typically occur in implementing the section 501(r) requirements, the Treasury Department and the IRS will consider issuing further guidance in this area. In the meantime, the final regulations provide additional guidance regarding the factors that will be considered in determining whether an omission or error is minor and either inadvertent or due to reasonable cause. With respect to minor, the final regulations clarify that, in the case of multiple omissions or errors, the omissions or errors are considered minor only if they are minor in the aggregate. The final regulations further provide that the fact that the same omission or error has occurred and been corrected previously is a factor tending to show that an omission or error is not inadvertent. Finally, with respect to reasonable cause, the final regulations provide that a hospital facility's establishment of practices or procedures (formal or informal) reasonably designed to promote and facilitate overall compliance with the section 501(r) requirements prior to the occurrence of an omission or error is a factor tending to show that the omission or error was due to reasonable cause.

Commenters also asked for guidance and examples demonstrating how minor omissions or errors should be remedied to avoid sanctions. The final regulations specify that correction of minor omissions or errors must include establishment (or review and, if necessary, revision) of practices or procedures (formal or informal) that are reasonably designed to achieve overall compliance with the requirements of section 501(r). As more experience is gained regarding the types of omissions or errors that typically occur in implementing the section 501(r) requirements, the Treasury Department and the IRS will consider issuing further guidance on the correction of minor omissions or errors.

A few commenters asked that hospital facilities be required to disclose the minor omissions or errors that they correct, either on a Web site or on the Form 990, to increase transparency and encourage continuous improvement. The Treasury Department and the IRS expect that minor omissions or errors will not have a significant impact on individuals in a hospital facility's community and, therefore, will be sufficiently inconsequential that they do not justify the additional burden of disclosure. Instead, as discussed in section 2.b of this preamble, disclosure is a requirement reserved for those omissions and errors that rise above the level of “minor” and have a broader scope and greater impact on individuals within the hospital facility's community, as well as those that are neither inadvertent nor due to reasonable cause and thus involve a degree of culpability on the part of the hospital facility.

b. Excusing Certain Failures If a Hospital Facility Corrects and Makes Disclosure

The 2013 proposed regulations provided that a hospital facility's failure to meet one or more of the requirements described in §§ 1.501(r)-3 through 1.501(r)-6 that is neither willful nor egregious would be excused if the

hospital facility corrects and provides disclosure in accordance with guidance set forth by revenue procedure, notice, or other guidance published in the Internal Revenue Bulletin. The 2013 proposed regulations indicated that, for purposes of this provision, a “willful” failure would be interpreted consistent with the meaning of that term in the context of civil penalties, which would include a failure due to gross negligence, reckless disregard, or willful neglect. Several commenters indicated that the reference to “civil penalties” was unclear. In response, the final regulations delete the reference to civil penalties, but continue to provide that a “willful” failure includes a failure due to gross negligence, reckless disregard, and willful neglect—all terms with well-established meanings in case law—to assist hospital facilities in distinguishing between a failure that is willful and a failure that may be excused if it is corrected and disclosed.

Similarly, several commenters asked for guidance on what would qualify as “egregious” noncompliance, recommending that the term should be reserved for actions that are of the utmost seriousness and that would undermine the intent of section 501(r) as a whole. The Treasury Department and the IRS agree with commenters that the term “egregious” should encompass only very serious failures, taking into account the severity of the impact and the number of affected persons, and the final regulations are amended to reflect this. As the Treasury Department and the IRS gain additional experience with the types of failures to meet section 501(r) that occur, examples of failures that are or are not willful or egregious may be provided in future guidance.

A number of commenters suggested that the final regulations should create a rebuttable presumption that a failure that is corrected and disclosed is neither willful nor egregious. Commenters reasoned that such a presumption would ensure that hospital facilities that correct and disclose failures would get some benefit in return for their efforts and reduce uncertainty regarding their section 501(c)(3) status. The final regulations do not provide for such a presumption because correction and disclosure of a failure are not determinative of a hospital facility's willfulness or the egregiousness of the failure. However, the Treasury Department and the IRS do believe that a hospital facility that corrects and discloses a failure to meet a section 501(r) requirement is less likely to have acted willfully in failing to meet that requirement, and thus the final regulations provide that correction and disclosure of a failure is a factor tending to show that an error or omission was not willful.

A few commenters questioned whether a system of correction and disclosure should be sufficient to prevent revocation of section 501(c)(3) status, with one commenter asking that proposed § 1.501(r)-2(c) be struck in its entirety. The Treasury Department and the IRS believe that the statute's objectives of promoting transparency of hospital facilities' CHNAs and FAPs and of providing protections to FAP-eligible patients with respect to charges and collections are well served by a system that encourages hospitals to adopt practices that prevent failures and promptly discover and correct any failures that happen to occur. In addition, disclosure of failures and what has been done to correct them provides significant transparency. Accordingly, the final regulations retain § 1.501(r)-2(c).

The 2013 proposed regulations stated that a hospital facility may, in the discretion of the IRS, be subject to an excise tax under section 4959 for a failure to meet the CHNA requirements, notwithstanding the hospital facility's correction and disclosure of the failure in accordance with the relevant procedures. Several commenters expressed confusion as to whether and how the tax under section 4959 would apply in the event of a failure that was corrected and disclosed. Although some commenters did not think the excise tax should apply upon correction and disclosure, at least one commenter suggested that the statute does not permit the excise tax to be excused.

To eliminate the uncertainty, the final regulations under section 4959 provide that a hospital facility failing to meet the CHNA requirements “will” (rather than “may, in the discretion of the IRS”) be subject to an excise tax under section 4959, notwithstanding its correction and disclosure of the failure. However, as discussed in section 2.a of this preamble, a hospital facility's omission or error with respect to the CHNA requirements will not be considered a failure to meet the CHNA requirements if the omission or error is minor and either inadvertent or due to reasonable cause and if the hospital facility corrects the omission or error in accordance with § 1.501(r)-2(b)(1)(ii) of the final regulations. Accordingly, the final regulations under section 4959 also make clear that such a minor omission or error related to the CHNA requirements that is corrected will not give rise to an excise tax under section 4959.

c. Facts and Circumstances Considered in Determining Whether To Revoke Section 501(c)(3) Status

Consistent with the 2013 proposed regulations, the final regulations provide that the IRS will consider all relevant facts and circumstances when determining whether revocation of section 501(c)(3) status is warranted as a result of a failure to meet one or more requirements of section 501(r).

Several commenters asked that the regulatory text of the final regulations include the statement found in the preamble to the 2013 proposed regulations that application of these facts and circumstances will ordinarily result in revocation of section 501(c)(3) status only if the organization's failures to meet the requirements of section 501(r) are willful or egregious. On the other hand, one commenter expressed concern that this statement signals that revocation could result due to failures that are willful, but not serious or material.

The final regulations provide that all of the relevant facts and circumstances will be considered in determining whether to revoke a hospital organization's section 501(c)(3) status, including the size, scope, nature, and significance of the organization's failure, as well as the reason for the failure and whether the same type of failure has previously occurred. The IRS will also consider whether the hospital organization had, prior to the failure, established practices or procedures (formal or informal) reasonably designed to promote and facilitate overall compliance with the section 501(r) requirements; whether such practices or procedures were being routinely followed; and whether the failure was corrected promptly.

d. Taxation of Noncompliant Hospital Facilities

Like the 2013 proposed regulations, the final regulations provide for a facility-level tax for a hospital organization operating more than one hospital facility that fails to meet one or more of the requirements of section 501(r) separately with respect to a hospital facility during a taxable year. Specifically, this facility-level tax applies to a hospital organization that continues to be recognized as described in section 501(c)(3) but would not continue to be so recognized based on the facts and circumstances described in section 2.c of this preamble if the noncompliant facility were the only hospital facility operated by the organization. The facility-level tax is applied to income derived from the

noncompliant hospital facility during the taxable year of non-compliance and is computed as provided in section 11 (or as provided in section 1(e) if the hospital organization is a trust described in section 511(b)(2)).

The 2013 proposed regulations also stated that the application of the facility-level tax to income derived from a noncompliant hospital facility would not, by itself, affect the tax-exempt status of bonds issued to finance the noncompliant hospital facility. Numerous commenters requested that the final regulations further specify that a noncompliant hospital facility subject to the facility-level tax will not be treated as an unrelated trade or business for purposes of tax-exempt bonds issued to finance the noncompliant facility. In response to these comments, the final regulations clarify that application of the facility-level tax will not, by itself, result in the operation of the noncompliant hospital facility being considered an unrelated trade or business described in section 513.

3. Community Health Needs Assessments

Consistent with section 501(r)(3)(A), the final regulations provide that a hospital organization meets the requirements of section 501(r)(3) in any taxable year with respect to a hospital facility it operates only if the hospital facility has conducted a CHNA in such taxable year or in either of the two immediately preceding taxable years and an authorized body of the hospital facility has adopted an implementation strategy to meet the community health needs identified through the CHNA.

a. Conducting a Community Health Needs Assessment

Consistent with the 2013 proposed regulations, the final regulations provide that, in conducting a CHNA, a hospital facility must define the community it serves and assess the health needs of that community. In assessing the community's health needs, the hospital facility must solicit and take into account input received from persons who represent the broad interests of its community. The hospital facility must also document the CHNA in a written report (CHNA report) that is adopted for the hospital facility by an authorized body of the hospital facility. Finally, the hospital facility must make the CHNA report widely available to the public. A hospital facility is considered to have conducted a CHNA on the date it has completed all of these steps, including making the CHNA report widely available to the public.

Several commenters suggested that a hospital facility should be considered to have conducted a CHNA if it updates a previously conducted CHNA, as opposed to being required to create an entirely new CHNA every three years. The Treasury Department and the IRS expect that, in conducting CHNAs, hospital facilities will build upon previously-conducted CHNAs, and nothing in either the 2013 proposed regulations or the final regulations is intended to prevent this practice. Hospital facilities should note, however, that both the 2013 proposed regulations and these final regulations require the solicitation and consideration of input from persons representing the broad interests of the community anew with each CHNA, even if the CHNA builds upon a previously conducted CHNA.

i. Community Served by the Hospital Facility

The 2013 proposed regulations provided that a hospital facility may take into account all of the relevant facts and circumstances in defining the community it serves, including the geographic area served by the hospital facility, target populations served (for example, children, women, or the aged), and principal functions (for example, focus on a particular specialty area or targeted disease). The 2013 proposed regulations further provided that a hospital facility may define its community to include populations in addition to its patient populations and geographic areas outside of those in which its patient populations reside. However, the 2013 proposed regulations did not permit a hospital facility to define its community in a way that excluded medically underserved, low-income, or minority populations who are served by the hospital facility, live in the geographic areas in which its patient populations reside (unless such populations are not part of the hospital facility's target population or affected by its principal functions), or otherwise should be included based on the method used by the hospital facility to define its community.

A few commenters expressed concern that the sentence suggesting that a hospital facility could define its community to include populations in addition to its patient populations and geographic areas outside of those in which its patient populations reside could create confusion among both hospital organizations and the public, as it implies that the community that is defined for CHNA purposes may not actually be the community served by the hospital facility. To avoid potential confusion, the final regulations delete this language. However, the final regulations continue to give hospital facilities broad flexibility to define the communities they serve or intend to serve (both in addressing needs identified through their CHNAs and otherwise) taking into account all relevant facts and circumstances, provided that they do not exclude medically underserved, low-income, or minority populations.

With respect to the provision in the 2013 proposed regulations that a hospital facility may not define its community in a way that excludes medically underserved, low-income, or minority populations, several commenters asked that the final regulations prohibit exclusion of additional populations, such as populations with limited English proficiency (LEP) or potential patients within the community who are not currently receiving care. With respect to potential patients not currently receiving care, commenters noted that individuals may live within a hospital facility's service community but not use the facility for reasons that include cost, lack of transportation, lack of adequate language access services, stigma, or other barriers.

The 2013 proposed regulations and these final regulations define “medically underserved” populations as including populations “at risk of not receiving adequate medical care as a result of being uninsured or underinsured or due to geographic, language, financial, or other barriers.” The reference to language barriers in the definition of medically underserved already encompasses LEP populations. In addition, the definition of “medically underserved” already prevents the exclusion of those living within a hospital facility's service area but not receiving adequate medical care from the facility because of cost, transportation difficulties, stigma, or other barriers. The final regulations also provide that hospital facilities may not exclude low-income or minority populations living “in the geographic areas from which the hospital facility draws its patients,” and not only those already receiving care from the facility. Accordingly, the Treasury Department and the IRS believe the concerns addressed by these commenters are addressed by the final regulations.

ii. Assessing Community Health Needs

The 2013 proposed regulations provided that, to assess the health needs of its community, a hospital facility must identify the significant health needs of its community, prioritize those health needs, and identify potential

measures and resources (such as programs, organizations, and facilities in the community) available to address the health needs. For these purposes, the 2013 proposed regulations stated that health needs include requisites for the improvement or maintenance of health status both in the community at large and in particular parts of the community (such as particular neighborhoods or populations experiencing health disparities). The preamble added that requisites for the improvement or maintenance of health status in a community may include improving access to care by removing financial and other barriers to care, such as a lack of information regarding sources of insurance designed to benefit vulnerable populations. Numerous commenters asked for clarification that the term “health needs” also encompasses needs in addition to access to care, such as access to proper nutrition and housing, the mitigation of social, environmental, and behavioral factors that influence health, or emergency preparedness. In response to these comments, the final regulations expand the examples of health needs that a hospital facility may consider in its CHNA to include not only the need to address financial and other barriers to care but also the need to prevent illness, to ensure adequate nutrition, or to address social, behavioral, and environmental factors that influence health in the community. The Treasury Department and the IRS note that the list of possible health needs in the final regulations is only a list of examples, and a hospital facility is not required to identify all such types of health needs in its CHNA report if all such types are not determined by the hospital facility to be significant health needs in its community.

The 2013 proposed regulations provided that a hospital facility may use any criteria to prioritize the significant health needs it identifies, including, but not limited to, the burden, scope, severity, or urgency of the health need; the estimated feasibility and effectiveness of possible interventions; the health disparities associated with the need; or the importance the community places on addressing the need. One commenter supported the flexibility provided to hospital facilities in determining how to prioritize significant health needs, while several other commenters expressed concern that the language in the proposed rule that a hospital facility may use “any” criteria when prioritizing significant health needs could be read to include criteria that disregard community preferences. Two commenters recommended requiring hospital facilities to use the listed criteria, with one such commenter noting that these are commonly-used criteria in health planning and program evaluation.

Section 501(r)(3) does not mandate the use of particular prioritization criteria. Accordingly, the list of prioritization criteria in the final regulations remains a non-exhaustive list of examples, and hospital facilities have flexibility to choose how best to prioritize the significant health needs of their particular communities. However, to ensure transparency with respect to a hospital facility's prioritization, the final regulations, like the 2013 proposed regulations, require a hospital facility's CHNA report to describe the process and criteria used in prioritizing the significant health needs identified. In addition, the final regulations require a hospital facility to take into account community input not only in identifying significant health needs but also in prioritizing them.

A few commenters asked for clarification regarding the requirement in the 2013 proposed regulations that hospital facilities identify potential measures and resources (such as programs, organizations, and facilities in the community) available to address significant health needs. For example, one commenter asked whether the term “measures” referred to how the hospital facility would measure the scope of the health need, rather than actions the hospital facility might take to address the health need. Another commenter interpreted the proposed requirement as referring to the potential measures and resources only of parties in the community other than the hospital facility itself. To eliminate any confusion associated with the use of the term “measures,” the final regulations eliminate the term and require a hospital facility to identify resources potentially available to address the significant health needs, with the term “resources” including programs, organizations, or facilities. In addition, the final regulations clarify that resources of the hospital facility itself may be identified.

Numerous commenters recommended removing the requirement that a CHNA include potential measures and resources to address the significant health needs identified, stating that the implementation strategy was a better place to discuss the means to address health needs. Other commenters supported this requirement, with one such commenter stating that it is important to consider potential measures and resources early in the CHNA process to provide a framework for determining which health needs to address in the implementation strategy. The Treasury Department and the IRS agree that a vital part of assessing and prioritizing health needs is to begin considering what resources in the community could potentially be harnessed to help address those health needs and thus believe that hospital facilities should get community input on this important aspect of assessing health needs while the CHNA is being conducted. The opportunity for contemporaneous community input on potentially available resources would not exist if such resources were identified as part of the implementation strategy because a hospital facility is not required to take into account input on an implementation strategy until it is conducting the subsequent CHNA. Accordingly, the final regulations retain the requirement that a CHNA identify resources potentially available to address significant health needs.

iii. Input From Persons Representing the Broad Interests of the Community

The 2013 proposed regulations provided that, in assessing the health needs of its community, a hospital facility must take into account input received from, at a minimum, the following three sources: (1) At least one state, local, tribal, or regional governmental public health department (or equivalent department or agency) with knowledge, information, or expertise relevant to the health needs of the community; (2) members of medically underserved, low-income, and minority populations in the community, or individuals or organizations serving or representing the interests of such populations; and (3) written comments received on the hospital facility's most recently conducted CHNA and most recently adopted implementation strategy.

Several commenters asked that the final regulations address the situation in which a hospital facility, despite its best efforts, is unable to secure input on its CHNA from a required category of persons. In response, the final regulations retain the three categories of persons representing the broad interests of the community specified in the 2013 proposed regulations but clarify that a hospital facility must “solicit” input from these categories and take into account the input “received.” The Treasury Department and the IRS expect, however, that a hospital facility claiming that it solicited, but could not obtain, input from one of the required categories of persons will be able to document that it made reasonable

efforts to obtain such input, and the final regulations require the CHNA report to describe any such efforts.

Numerous commenters requested that the final regulations provide for public input on the identification and prioritization of significant health needs, with a few of these commenters expressing a particular interest in ensuring ample opportunity for community input and feedback on which community health needs should be deemed “significant.” By requiring hospital facilities to take into account public input “in assessing the health needs of the community” and defining “assessing the health needs of the community” to include identifying and prioritizing significant health needs, the 2013 proposed regulations already required public input on the identification and prioritization of significant health needs. The final regulations clarify that the requirement to take into account input in assessing the health needs of the community includes taking into account input in identifying and prioritizing significant health needs, as well as identifying resources potentially available to address those health needs.

Finally, the final regulations do not adopt a suggestion from several commenters that a hospital facility be required to take into account public input in defining its community because such a requirement would be circular, as a hospital facility must define its community before it can take into account input from persons who represent the broad interests of that community.

A. Governmental Public Health Departments

Numerous commenters supported requiring hospital facilities to take into account input from a governmental public health department (or equivalent department or agency), noting that governmental health departments typically have access to statistical and other data that may be helpful in assessing and prioritizing community health needs and, in many cases, conduct community health assessments of their own.

One commenter asked what is meant by “or equivalent department or agency” and whether the term was intended to be an exception to the requirement that hospital facilities collaborate with governmental public health departments. The parenthetical reference to an “equivalent department or agency” in the 2013 proposed regulations and the final regulations is not intended to be an exception. Rather, it is included in recognition of the fact that governments may have different names for the particular unit with jurisdiction over and expertise in public health. For example, the particular unit of a government with jurisdiction over and expertise in public health might be called an “agency,” “division,” “authority,” “bureau,” “office,” or “center” rather than a department and may or may not have the term “public health” in its name. As long as a hospital facility is soliciting and taking into account input received from the unit of a local, state, tribal, or regional government with jurisdiction over and expertise in public health, it will satisfy the requirement to solicit and take into account input received from a governmental public health department.

The 2013 proposed regulations provided flexibility in allowing a hospital facility to choose the level of government that it concluded was most appropriate for its CHNA, and did not require a hospital facility to solicit input from a local public health department, in particular, because not all jurisdictions will have local public health departments available to participate in the CHNA process. Several commenters asked that the final regulations require a hospital facility to solicit input from a local public health department if one exists in its community. Other commenters, however, expressly supported allowing flexibility to choose the particular governmental health department from which to seek input.

The Treasury Department and the IRS believe that public health departments represent the broad interests of the jurisdictions they serve and have special knowledge of and expertise in public health, regardless of whether they are local, state, tribal, or regional departments. Several commenters noted that local public health departments may vary greatly in their capacity to participate in a CHNA process. In addition, the community served by a hospital facility may span the jurisdictions of multiple local public health departments. Thus, even when a hospital facility's locality has a local public health department, the hospital facility still might reasonably decide that a public health department at a different jurisdictional level may be a more appropriate source of input for its CHNA. Accordingly, the final regulations preserve the flexible approach of the 2013 proposed regulations and allow a hospital facility to select the jurisdictional level (local, state, tribal or regional) of the public health department that is most appropriate for its CHNA.

One commenter asked that the final regulations identify State Offices of Rural Health (SORHs) as governmental public health entities from which hospital facilities may seek input. This commenter stated that SORHs operate on a statewide basis and routinely conduct rural health planning efforts, including both health service access assessments and population health status assessments. The Treasury Department and the IRS note that the substantial majority of SORHs are located in state health departments, such that rural hospital facilities soliciting input from these state SORHs would presumably be soliciting input from a state public health department. However, because some SORHs are located in state universities or other nonprofits or government departments other than public health departments, the final regulations separately identify SORHs as a source of input from which hospital facilities may solicit and take into account input to satisfy the relevant requirement.

One commenter stated that hospital facilities are increasingly employing or contracting with public health experts. This commenter further stated that it would seem illogical for a hospital facility to be considered to have failed to meet the CHNA requirements because it relied on more specific, in-depth advice and input from a public health expert without necessarily working with a public health agency with strained available resources that is attempting to serve a larger geographic area with a broader set of public health needs than those the hospital facility might address. The Treasury Department and the IRS note that public health expertise alone does not result in a person's representing the broad interests of the community, while a governmental public health department both offers public health expertise and is responsible for ensuring that the broad interests of the community are represented. Thus, while hospital facilities are free to contract with public health experts to assist with their CHNAs, the final regulations require a hospital facility to solicit and take into account input received from a governmental public health department.

B. Medically Underserved, Low-Income, and Minority Populations

Several commenters asked that hospital facilities be required to seek input from certain specified groups, such as the disabled, individuals with chronic diseases, women and children, and LEP populations, in addition to the requirement in the 2013 proposed regulations to seek input from medically

underserved, low-income, and minority populations. As noted in section 3.a.i of this preamble, “medically underserved” populations are defined in the 2013 proposed regulations and these final regulations as populations “at risk of not receiving adequate medical care as a result of being uninsured or underinsured or due to geographic, language, financial, or other barriers.” The Treasury Department and the IRS believe this definition (along with the inclusion of low-income and minority populations) should be sufficiently broad to encompass many of the populations cited by commenters to the extent such populations are at risk of not receiving adequate medical care. Moreover, even if a hospital facility does not solicit input from a particular population while conducting its CHNA, any person can participate in the CHNA process by submitting written comments on the hospital facility's most recently conducted CHNA and most recently adopted implementation strategy, as described in section 3.a.iii.C of this preamble. Accordingly, the final regulations do not expand the populations from whom a hospital facility is required to solicit input beyond medically underserved, minority, and low-income populations.

One commenter asked that the final regulations define the broader category of “minority populations” to include certain sub-categories of persons, such as persons with disabilities and LEP individuals, and require hospital facilities to consult a member or representative of each such sub-category identified in their community served. Because the sub-categories within the broad categories of minority and medically underserved populations will likely vary greatly from community to community, the final regulations continue to provide hospital facilities with the flexibility to identify the significant minority and medically underserved populations in their communities with whom they should consult and do not mandate any specific approach.

C. Written Comments

While some comments in response to Notice 2011-52 recommended a requirement that a hospital facility take into account public input on a draft version of its CHNA report before finalizing the report, this recommendation was not adopted in the 2013 proposed regulations due to the complexity of the additional timeframes and procedures such a process would require. Instead, the 2013 proposed regulations required hospital facilities to consider written comments received from the public on the hospital facility's most recently conducted CHNA and most recently adopted implementation strategy. Because a new CHNA must be conducted and an implementation strategy adopted at least once every three years, the Treasury Department and the IRS intended for this requirement to establish the same sort of continual feedback on CHNA reports suggested by commenters, albeit over a different timeframe.

In response to the 2013 proposed regulations, some commenters continued to advocate for requiring comments on a draft CHNA report before it is finalized, stating that the burdens of such a rule would be reasonable and commensurate with the benefits of giving interested individuals additional opportunities to participate in the CHNA. These commenters added that without a mandatory opportunity to comment on the draft CHNA report, interested individuals and organizations may not be aware that a hospital facility is conducting its CHNA until the CHNA is complete, and that opening up the CHNA report for comment in “real time” would yield findings more indicative of community priorities and provide a better framework for collaboration. Other commenters, however, supported the proposed requirement that hospital facilities take into account input in the form of written comments received on the hospital facility's most recently conducted CHNA and most recently adopted implementation strategy, stating that such comments may provide extremely valuable information to guide future assessments and implementation strategies and that this is a practical way of taking various perspectives into account.

The Treasury Department and the IRS continue to believe that the opportunity for the public to submit written comments on previously adopted CHNA reports and implementation strategies will result in a meaningful exchange over time and that the longer timeframe will both give the public sufficient time to provide comments (including comments reflecting changing circumstances) and give hospital facilities sufficient time to take the comments into account when conducting their next CHNA. The Treasury Department and the IRS also note that hospital facilities' CHNA processes will be taking into account input in “real time” from various community stakeholders, including, at a minimum, governmental public health departments and medically underserved, low-income, and minority populations (or persons serving or representing them). Accordingly, the final regulations retain the requirement that a hospital facility take into account written comments on the hospital facility's most recently conducted CHNA report and most recently adopted implementation strategy and do not adopt an additional requirement to post a draft CHNA report for public comment before it is finalized. In addition, the Treasury Department and the IRS note that hospital facilities may choose to post a draft CHNA report for public comment, and both the 2013 proposed regulations and these final regulations facilitate this option by specifying that the posting of a draft CHNA report will not trigger the start of a hospital facility's next three-year CHNA cycle.

A few commenters asked how the public is expected to comment on the implementation strategy if the information is not made available outside of the Form 990 reporting process. As discussed in section 8.a of this preamble, a hospital organization must either attach to its Form 990 a copy of the most recently adopted implementation strategy for each hospital facility it operates or provide on the Form 990 the URL(s) of the Web page(s) on which it has made each implementation strategy widely available on a Web site. Section 6104 requires Forms 990 to be made available to the public by both the filing organization and the IRS, and members of the public may obtain a copy of a hospital organization's Forms 990 from one of the privately-funded organizations that gathers and disseminates Forms 990 online or by completing IRS Form 4506-A, “Request for Public Inspection or Copy of Exempt or Political Organization IRS Form.”

One commenter requested clarification on how hospital facilities should be collecting written comments from the public, asking, for example, if written comments must be collected via a form on a Web site or by email or mailed letter. The final regulations do not require a specific method for collection of these written comments, providing hospital facilities with the flexibility to set up a collection and tracking system that works with their internal systems and makes the most sense for their particular community.

A few commenters asked that the final regulations clarify how hospital facilities should respond to written comments received from the public. One commenter proposed that a hospital facility designate a representative or division responsible for providing substantive responses to written comments to demonstrate that the hospital facility has received the

comment and to ensure that the public will be able to provide continual feedback during the interim period between formal CHNAs. In contrast, another commenter stated that requiring hospitals to individually address each community concern through feedback could become burdensome. As discussed in section 3.a.iv of this preamble, the final regulations require hospital facilities to describe generally any input received in the form of written comments (or from any other source) in their CHNA reports. The Treasury Department and the IRS expect that this description in the CHNA report will provide sufficient confirmation that comments have been received and considered and intend that hospital facilities will otherwise have flexibility in determining whether further responses are necessary. Thus, the final regulations do not adopt any specific requirements regarding how hospital facilities must respond to written comments received from the public.

Finally, one commenter sought confirmation that the requirement to take into account written comments on the hospital facility's “most recently conducted CHNA” means that hospital facilities must take into account public comments submitted after the CHNA or implementation strategy is finalized to inform and influence future CHNAs and implementation strategies. This is an accurate description of this provision in both the 2013 proposed regulations and these final regulations. The Treasury Department and the IRS intend that the phrase “most recently conducted CHNA” refers not to a CHNA that is in process but rather to the last CHNA that was “conducted,” typically determined as of the date the hospital facility makes an adopted and complete CHNA report widely available to the public.

D. Additional Sources of Input

The 2013 proposed regulations provided that, in addition to soliciting input from the three required sources, a hospital facility may take into account input from a broad range of persons located in or serving its community, including, but not limited to, health care consumers and consumer advocates, nonprofit and community-based organizations, academic experts, local government officials, local school districts, health care providers and community health centers, health insurance and managed care organizations, private businesses, and labor and workforce representatives.

Numerous commenters requested that the final regulations require, rather than simply permit, hospital facilities to solicit input from additional sources, including from patient and health care consumer organizations located in or serving the hospital facility's community, county governing boards, experts in nutrition or the local food system, and housing service providers. While these sources may have valuable input to contribute to a hospital facility's CHNA, mandating input from some or all of these sources could result in a final rule that is unsuited for particular communities and further complicate the CHNA process and the ability to collaborate. Accordingly, the final regulations do not require hospitals to solicit input from additional persons, although a hospital facility is free to solicit input from the suggested sources (as well as other sources) and must take into account input received from any person (including these sources) in the form of written comments on the most recently conducted CHNA or most recently adopted implementation strategy.

E. Input on Financial and Other Barriers

The 2012 proposed regulations requested comments on the potential link between the needs of a hospital facility's community, as determined through the hospital facility's most recently conducted CHNA, and a hospital facility's FAP. The preamble to the 2013 proposed regulations recognized that the need to improve access to care by removing financial barriers can be among the significant health needs assessed in a CHNA, and the 2013 proposed regulations themselves provided that input from persons representing the broad interests of the community includes, but is not limited to, input on any financial and other barriers to access to care in the community.

Several commenters stated that the CHNA process offers an opportunity to inquire about financial and other barriers to care, which could provide useful information to a hospital facility in updating and evaluating its FAP. However, other commenters noted that section 501(r) does not require a link between a hospital facility's CHNA and its FAP. These commenters further stated that because CHNAs are already required to take into account input from persons who represent the broad interests of the community and the decision of how to meet those needs is the responsibility of the hospital's governing board, a linkage should be allowed at the discretion of the hospital facility but not required.

In acknowledgement of the importance of assessing financial barriers to care in the CHNA process, the final regulations expressly provide that the health needs of a community may include the need to address financial and other barriers to access to care in the community. However, consistent with the approach taken in Notice 2011-52 and the 2013 proposed regulations, the final regulations focus on ensuring transparency regarding the health needs identified through a CHNA rather than requiring hospital facilities to identify any particular categories of health needs. As with all significant health needs identified through a CHNA, a hospital facility's decision as to whether and how to address a significant health need involving financial barriers to care (including through an amendment to a hospital facility's FAP) will be disclosed publicly in the hospital facility's implementation strategy and subject to public comments in preparing the next CHNA. Thus, the final regulations do not require any additional link between a hospital facility's CHNA and its FAP.

iv. Documentation of a CHNA

Similar to the 2013 proposed regulations, the final regulations provide that a hospital facility must document its CHNA in a CHNA report that is adopted by an authorized body of the hospital facility and includes: (1) A definition of the community served by the hospital facility and a description of how the community was determined; (2) a description of the process and methods used to conduct the CHNA; (3) a description of how the hospital facility solicited and took into account input received from persons who represent the broad interests of the community it serves; (4) a prioritized description of the significant health needs of the community identified through the CHNA, along with a description of the process and criteria used in identifying certain health needs as significant and prioritizing those significant health needs; and (5) a description of resources potentially available to address the significant health needs identified through the CHNA.

Both the 2013 proposed regulations and these final regulations provide that a CHNA report will be considered to describe the process and methods used to conduct the CHNA if the CHNA report describes the data and other information used in the assessment, as well as the methods of collecting and analyzing this data and information, and identifies any parties with whom the hospital facility collaborated, or with whom it contracted for assistance, in conducting the CHNA. Some commenters requested that this provision be modified to permit the referencing of publicly available source

materials (for example, public health agency data) on which the hospital facility relied in conducting its CHNA. The final regulations clarify that a hospital facility may rely on (and the CHNA report may describe) data collected or created by others in conducting its CHNA and, in such cases, may simply cite the data sources rather than describe the “methods of collecting” the data.

A few commenters requested clarification on how a hospital facility's CHNA report should describe input received in the form of written comments, with one such commenter asking if a general summary of the input provided, the number of comments received, and the time period during which the comments were received will be sufficient. The final regulations retain the provisions of the 2013 proposed regulations, which stated that a CHNA report will be considered to describe how the hospital facility took into account community input if it summarizes, in general terms, the input provided and how and over what time period it was provided. This language applies to written comments, as well as to any other type of input provided. In addition, like the 2013 proposed regulations, the final regulations provide that a CHNA report does not need to name or otherwise identify any specific individual providing input on the CHNA, which would include input provided by individuals in the form of written comments.

v. Collaboration on CHNA Reports

The 2013 proposed regulations provided that a hospital organization may choose to conduct its CHNA in collaboration with other organizations and facilities, including related and unrelated hospital organizations and facilities, for-profit and government hospitals, governmental departments, and nonprofit organizations. In general, every hospital facility must document its CHNA in a separate CHNA report. However, the 2013 proposed regulations made clear that portions of a hospital facility's CHNA report may be substantively identical to portions of the CHNA reports of other facilities or organizations, if appropriate under the facts and circumstances. The 2013 proposed regulations further provided that collaborating hospital facilities that define their community to be the same and that conduct a joint CHNA process may produce a joint CHNA report. The final regulations amend the proposed regulations to clarify that joint CHNA reports must contain all of the same basic information that separate CHNA reports must contain (discussed in section 3.a.iv of this preamble).

Numerous commenters expressed support for allowing joint CHNA reports, noting that the purpose of collaboration is to make the most efficient use of resources in assessing community needs and devising strategies to address those needs and that communities would benefit from strengthened collaborative partnerships that help build broad-based support for community-wide solutions to the underlying causes of health problems. In addition, several of these commenters stated that joint CHNA reports would more effectively leverage the health data expertise of governmental public health departments without placing an unreasonable burden on departments that serve jurisdictions with more than one tax-exempt hospital facility. Another commenter stated that joint CHNA reports both enhance overall community health and lessen confusion in the community by providing a more comprehensive view of the identified needs and associated strategies for addressing those needs. For these reasons, the final regulations continue to permit collaborating hospital facilities to produce joint CHNA reports.

Several commenters recommended that the final regulations go beyond simply permitting collaboration to expressly encouraging, or even requiring, hospital facilities located in the same jurisdiction to collaborate in conducting a CHNA and developing an implementation strategy. One of these commenters stated that this would help ensure that the community is not overburdened by multiple CHNA efforts, noting that a “go it alone” approach in a jurisdiction with multiple hospitals is likely to be neither the most efficient nor the most effective way to improve the overall health of the community. Another commenter, however, stated that the discretion to work collaboratively with others should be left to each particular hospital facility, given the many health care providers operating in a typical community.

Like the 2013 proposed regulations, the final regulations encourage and facilitate collaboration among hospital facilities by allowing for joint CHNA reports. However, section 501(r) applies separately to each hospital organization (and, in the case of hospital organizations operating more than one hospital facility, each hospital facility) and, therefore, it is not appropriate to require hospital organizations to meet the section 501(r)(3) requirements collaboratively with other organizations. Accordingly, the final regulations facilitate, but do not require, collaboration.

Two commenters asked whether the requirement that collaborating hospital facilities must “conduct a joint CHNA process” to adopt a joint CHNA report means that the collaborating hospital facilities must make the joint CHNA report widely available to the public (including posting the CHNA report on a Web site) on the same day. The Treasury Department and the IRS do not intend for collaborating hospital facilities to have to make a joint CHNA report widely available to the public on the same day. Thus, in response to these comments and to avoid potential confusion, the final regulations remove the reference to a joint CHNA process.

A. Defining a Common Community

Several commenters expressed concern regarding the requirement that hospital facilities that collaborate on a CHNA and intend to produce a joint CHNA report must define their communities to be the same. Two of these commenters requested that a hospital facility collaborating on a CHNA being conducted for a larger shared community also be able to identify and address needs that are highly localized in nature or occurring within only a small portion of that community. The 2013 proposed regulations and these final regulations define “health needs” to include requisites for the improvement or maintenance of health status in particular parts of the community, such as particular neighborhoods or populations experiencing health disparities. Accordingly, a joint CHNA conducted for a larger area could identify as a significant health need a need that is highly localized in nature or occurs within only a small portion of that larger area. In addition, nothing in the final regulations prevents a hospital facility collaborating on a CHNA from supplementing a joint CHNA report with its own assessment of more highly localized needs. Because the 2013 proposed regulations already allowed collaborating hospital facilities to address highly localized needs experienced in a particular part of their shared community, the final regulations do not amend the proposed regulations in response to these comments.

One commenter requested that collaborating hospital facilities that serve different communities be allowed to adopt a joint CHNA report, stating that requiring all hospital facilities participating in a joint CHNA report to define their community to be the same would appear to prohibit collaboration between general and specialized

hospital facilities in the same geographic area if the specialized hospital facilities define their communities in terms of service area or principal function and the general hospital facilities define their communities geographically.

The 2013 proposed regulations and these final regulations permit hospital facilities with different but overlapping communities to collaborate in conducting a CHNA and to include substantively identical portions in their separate CHNA reports if appropriate under the facts and circumstances. The final regulations elaborate upon this point with an example of two hospital facilities with overlapping, but not identical, communities that are collaborating in conducting a CHNA and state that, in such a case, the portions of each hospital facility's CHNA report relevant to the shared areas of their communities may be identical. Thus, the final regulations not only expressly permit hospital facilities with different communities (including general and specialized hospitals) to collaborate but also allow such hospital facilities to adopt substantively identical CHNA reports to the extent appropriate.

A few commenters recommended that the final regulations make clear that, to the extent that the communities served by collaborating hospital facilities differ, a CHNA report must reflect the unique needs of the community of the particular hospital facility adopting the report. By stating that collaborating hospital facilities with different but overlapping communities may include substantively identical portions in their separate CHNA reports only “if appropriate under the facts and circumstances,” the 2013 proposed regulations and these final regulations convey that the CHNA reports of collaborating hospital facilities should differ to reflect any material differences in the communities served by those hospital facilities.

B. Collaborating With Public Health Departments

Two commenters requested that hospital facilities be permitted to adopt the CHNA of a local public health department in the event that: (1) The hospital facility has the same community as the local public health department (as defined by the hospital facility), and (2) the CHNA adopted by the local public health department meets the requirements set forth in these regulations. The final regulations clarify that if a governmental public health department has conducted a CHNA for all or part of a hospital facility's community, portions of the hospital facility's CHNA report may be substantively identical to those portions of the health department's CHNA report that address the hospital facility's community. The final regulations also clarify that a hospital facility that collaborates with a governmental public health department in conducting its CHNA may adopt a joint CHNA report produced by the hospital facility and public health department, as long as the other requirements applicable to joint CHNA reports are met.

vi. Making the CHNA Report Widely Available to the Public

The 2013 proposed regulations provided that a hospital facility must make its CHNA report widely available to the public both by making the CHNA report widely available on a Web site and by making a paper copy of the CHNA report available for public inspection without charge at the hospital facility. The 2013 proposed regulations further provided that the CHNA report must be made widely available to the public in this manner until the date the hospital facility has made widely available to the public its two subsequent CHNA reports.

A few commenters recommended that the final regulations require the CHNA report to be translated into multiple languages. Commenters also recommended that the hospital facility be required to make paper copies of the CHNA report available in locations other than the hospital facility that may be more accessible to the community at large and proactively inform the community when the report is available.

The Treasury Department and the IRS note that section 501(r)(3) requires the CHNA to be made “widely available” to the public, in contrast to the requirement in section 501(r)(4) regarding measures to “widely publicize” the FAP. The Treasury Department and the IRS have interpreted the term “widely publicize” to require proactive efforts to inform, and make a document available in, the community at large, but have not so interpreted the term “widely available.” The Treasury Department and the IRS interpret “widely available” in a manner consistent with how that term is defined for purposes of section 6104 (relating to disclosure of annual information returns).
See
§ 301.6104(d)-2(b) (interpreting the term “widely available” in section 6104(d)(4) to include the posting of information returns and exemption applications on a Web page). Accordingly, the final regulations retain the definition of “widely available” set forth in the proposed regulations and decline to adopt a definition that would include the suggested measures to translate and proactively publicize the CHNA report within the community served by the hospital facility.

Additional commenters requested that hospital facilities be required to post their CHNA reports (and implementation strategies) on a national, searchable Web site. Given that hospital facilities are already required to conspicuously post their CHNA reports on a Web site, any individual interested in a particular hospital facility's CHNA report should be able to locate it. The Treasury Department and the IRS do not have, and cannot require a third party to host, a comprehensive Web site containing all hospital facilities' CHNA reports. Accordingly, the final regulations do not adopt this additional suggested requirement.

One commenter asked that the final regulations clarify how a hospital facility is required to make a paper copy of its CHNA report available for public inspection and, specifically, whether a paper copy of the CHNA report must be publicly displayed or, rather, may be made available only upon request. The final regulations clarify that a hospital facility need only make a paper copy of the CHNA report available for public inspection upon request.

vii. Frequency of the CHNA Cycle

The 2013 proposed regulations provided that, to satisfy the CHNA requirements for a particular taxable year, a hospital facility must conduct a CHNA in that taxable year or in either of the two taxable years immediately preceding such taxable year. A few commenters requested that the final regulations provide flexibility in the timeline to limit impediments to collaboration amongst hospital facilities with different taxable years. Commenters also requested that the CHNA cycle match the five-year cycle that local public health departments follow in conducting their community health assessments for national accreditation by the Public Health Accreditation Board. One such commenter stated that adopting this five-year timeline would avoid duplication of effort and incentivize hospital facilities to collaborate more fully with local public health departments. Because section 501(r)(3)(A)(i) requires a hospital organization to conduct a CHNA in the current or one of the two prior taxable years, the final regulations do not adopt these suggestions.

b. Implementation Strategies

The final regulations provide, consistent with the 2013 proposed regulations, that a hospital facility's implementation strategy is a written plan that, with respect to each significant health need identified through the CHNA, either: (1) Describes how the hospital facility plans to address the health need, or (2) identifies the health need as one the hospital facility does not intend to address and explains why the hospital facility does not intend to address the health need.

The preamble to the 2013 proposed regulations further provided that although an implementation strategy must consider the significant health needs identified through a hospital facility's CHNA, the implementation strategy is not limited to considering only those health needs and may describe activities to address health needs that the hospital facility identifies in other ways. Several commenters supported this proposed flexibility to discuss health needs identified in ways other than through conducting a CHNA, with two such commenters requesting that this language appear in the regulatory text of the final regulations. Another commenter, however, stated that CHNA reports and implementation strategies should be tightly integrated and expressed concern that allowing or encouraging hospital facilities to introduce in the implementation strategy additional needs beyond those identified in the CHNA may undermine the role of community input.

In general, the final regulations under section 501(r) provide detail only with respect to the minimum elements that must be included in the various documents and policies required under sections 501(r)(3) and 501(r)(4), preserving flexibility for hospital facilities to otherwise determine the contents of such documents and policies. Consistent with this approach, the final regulations do not prohibit implementation strategies from discussing health needs identified through means other than a CHNA, provided that all of the significant health needs identified in the CHNA are also discussed.

Many commenters recommended that the statutory requirements that a CHNA “take into account input from persons who represent the broad interests of the community” and “be made widely available to the public” should also apply to implementation strategies to allow communities to monitor, assist, and provide input on hospital facilities' efforts to address health needs. With respect to making the implementation strategy more accessible to the public, commenters also asked that the final regulations clarify how the public may access an implementation strategy that is attached to the Form 990.

Section 501(r)(3)(B) applies the requirements regarding community input and wide availability to the public only to CHNAs. In addition, only section 501(r)(3)(A)(i), which refers to CHNAs, and not section 501(r)(3)(A)(ii), which refers to implementation strategies, cross-references the requirements regarding community input and wide availability to the public contained in section 501(r)(3)(B). Accordingly, the final regulations do not adopt the suggested changes. However, the 2013 proposed regulations and these final regulations respond to commenters' requests to require public input on the implementation strategy by requiring a hospital facility to take into account comments received on the previously adopted implementation strategy when the hospital facility is conducting the subsequent CHNA. Furthermore, as discussed in section 8.a of this preamble, the 2013 proposed regulations and these final regulations respond to commenters' requests to require the implementation strategy to be made widely available to the public by requiring a hospital organization to attach to its Form 990 a copy of the most recently adopted implementation strategy for each hospital facility it operates (or provide on the Form 990 the URL(s) of the Web page(s) on which it has made each implementation strategy widely available on a Web site). As noted in section 3.a.iii.C of this preamble, section 6104 requires Forms 990 to be made available to the public by both the filing organization and the IRS, and members of the public may easily obtain a copy of a hospital organization's Forms 990 from one of the privately-funded organizations that gathers and disseminates Forms 990 online or by completing IRS Form 4506-A.

i. Describing How a Hospital Facility Plans To Address a Significant Health Need

In describing how a hospital facility plans to address a significant health need identified through the CHNA, the 2013 proposed regulations provided that the implementation strategy must: (1) Describe the actions the hospital facility intends to take to address the health need, the anticipated impact of these actions, and the plan to evaluate such impact; (2) identify the programs and resources the hospital facility plans to commit to address the health need; and (3) describe any planned collaboration between the hospital facility and other facilities or organizations in addressing the health need.

Many commenters supported the proposed requirement that a hospital facility include a plan to evaluate the impact of its efforts in its implementation strategy and further recommended that the final regulations require hospital facilities to actually perform the planned evaluation and publish the results of the evaluation. Some of these commenters recommended publication of the results in the subsequent CHNA report. Other commenters requested permission for hospital facilities to accomplish the “plan to evaluate the impact” of the implementation strategy through the process of conducting the next CHNA. In response to these comments, the final regulations replace the proposed requirement that the implementation strategy describe a plan to evaluate its impact with a requirement that the CHNA report include an evaluation of the impact of any actions that were taken since the hospital facility finished conducting its immediately preceding CHNA to address the significant health needs identified in the hospital facility's prior CHNA(s).

The preamble to the 2013 proposed regulations provided the example that if a hospital facility's CHNA identified high rates of financial need or large numbers of uninsured individuals and families in the community as a significant health need in its community, its implementation strategy could describe a program to address that need by expanding its financial assistance program and helping to enroll uninsured individuals in sources of insurance such as Medicare, Medicaid, Children's Health Insurance Program (CHIP), and the new Health Insurance Marketplaces (also known as Exchanges), as appropriate. A few commenters stated that, in addition to examples involving access to health care, it would be helpful to have examples of other interventions designed to prevent illness or to address social, behavioral, and environmental factors that influence community health. An implementation strategy may describe the actions the hospital facility intends to take to address any significant health needs identified through the CHNA process, and, as noted in section 3.a.ii of this preamble, the final regulations specify that the health needs identified through a CHNA may, for example, include the need to prevent illness, to ensure adequate nutrition, or to address social, behavioral, and environmental factors that influence health in the community.

Thus, the final regulations make clear that an implementation strategy may describe interventions designed to prevent illness or to address social, behavioral, and environmental factors that influence community health.

ii. Describing Why a Hospital Facility Is Not Addressing a Significant Health Need

The 2013 proposed regulations provided that a hospital facility may provide a brief explanation of its reason for not addressing a significant health need, including, but not limited to, resource constraints, relative lack of expertise or competencies to effectively address the need, a relatively low priority assigned to the need, a lack of identified effective interventions to address the need, and/or the fact

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A2014-30525. Public record. Not legal advice.