501(c)(3) Hospitals and the Community Benefit Standard

Erika K. Lunder
Legislative Attorney

Edward C. Liu
Legislative Attorney

The recently enacted Patient Protection and Affordable Care Act (PPACA; P.L. 111-148, § 9007) imposes requirements on hospitals with § 501(c)(3) tax-exempt status. Under the act, hospitals will be required to regularly conduct "community health needs assessments" and adopt implementation strategies to meet those needs. They are also required to have written financial assistance and emergency medical care policies that are consistent with standards imposed by the act. Furthermore, hospitals are not able to charge eligible uninsured individuals more than the lowest amounts charged to insured individuals for emergency and other medically necessary care, and they must make reasonable efforts to determine an individual's eligibility for financial assistance before beginning extraordinary collection actions. 

The act's requirements appear to reflect concerns that have arisen in recent years about whether non-profit hospitals are providing adequate public benefits to justify their tax-exempt status. Nonprofit hospitals are eligible for federal tax-exempt status as charitable organizations described in § 501(c)(3) of the Internal Revenue Code (IRC). Under the "community benefit" standard developed by the IRS, charitable hospitals are judged on whether they provide sufficient health benefits to the community. The IRS has recently developed a new annual reporting requirement (Schedule H of the Form 990) for hospitals to report information regarding their activities. 

This report examines the standard under which hospitals qualify for tax-exempt charitable status under federal law, recent inquiries made by Congress and the IRS into whether hospitals are conducting sufficient activities to justify their exemption, and Section 9007 of the Patient Protection and Affordable Care Act. The Appendix to the report discusses the new Schedule H in detail.


Date of Report: May 12, 2010
Number of Pages: 16
Order Number: RL34605
Price: $29.95

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