Posted February 5th 2013 at 10:15 pm by
in Hospitals as Neighbors

New IRS Code Enables Hospital/Community Collaboration

“A little-known provision of the 2010 Affordable Care Act presents a broad range of ‘community benefit’ qualifying activities, including economic development.”

In return for billions of dollars in federal tax subsidies, non-profit hospitals must serve the public good by providing “community benefits” beyond the types of medical services that for-profit institutions offer. Until recently, the nature and scope of such community benefits were vague and the requirement was rarely enforced by the Internal Revenue Service, which has the power to deny or revoke a non-complying hospital’s tax-exempt status.

Now, a little-known provision of the 2010 Affordable Care Act presents a broad range of “community benefit” qualifying activities, including economic development, coalition building, workforce development, and environmental improvements.

The IRS has yet to clarify how much hospitals will be required to spend on community benefits. In some states, hospitals are currently required to spend between 1.5 and 8 percent of healthcare expenditures. Under the new regulations, hospitals could well choose to spend 3 to 5 percent of revenues on community benefits to avoid IRS challenge.

This opportunity could be huge. Last year, the top 50 of the nation’s 2800 non-profit hospitals had annual revenues of $214 billion. At 3 to 5 percent, these 50 hospitals alone could provide between $6 and $11 billion for community development annually.

Hospitals and community development groups will urge that community benefit funds support air quality improvement, lead paint reductions, or energy efficiency retrofits. Local governments may seek funds to fill local development budget gaps.

Yet these approaches miss a promising opportunity to create robust, long term development strategies for cities. The community benefit dollars that non-profit hospitals must invest each year could be leveraged as start-up capital for community-owned businesses. These businesses could access an even larger market: the billions of dollars that hospitals, universities, museums and other large local institutions spend each year on basic operational needs. In the process, these business would create jobs and wealth, and begin building thriving local economies.

Dayna Cunningham is the Executive Director of MIT Community Innovators Lab. Reach her on Twitter at @Daynatweets.

Read the whole “Hospitals as Neighbors” collection:

Cleveland’s Forward-thinking Hospitals by Steven D. Standley of Cleveland, Ohio

An Empty Hospital Stands in Trenton by Tiana Thomas of Trenton, New Jersey

What Boston Neighborhoods Want by Juan Leyton of Boston, Massachusetts

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