As nonprofits, these hospitals are exempt from federal, state, and local taxes, acknowledging the “community benefit (CB)” spending and services provided by these entities. To meet the requirements for tax exemption, hospitals historically engaged in charity care spending (e.g., providing free or reduced-cost care to eligible patients). However, the Affordable Care Act created new standards for CB services that nonprofit hospitals must satisfy to qualify for and maintain their 501(c)(3) status. These requirements include:

1. Conducting a community health needs assessment (CHNA) and developing an accompanying implementation strategy every 3 years;
2. Establishing written financial assistance policies for medically necessary and emergency care;
3. Complying with limitations on hospital charges to those that are eligible for financial assistance; and
4. Making reasonable efforts to determine whether a patient is eligible for financial assistance before engaging in extraordinary collection actions.

In 2016 (the latest year with comprehensive tax records available), the AHA reported that overall CB spending was 13.7% of hospital spending, with more than three-fourths of that being dedicated to charity care. Hospital spending on “cash and in-kind contributions to community groups” and “community building” was 0.3% and 0.1%, respectively, making up a small portion of the overall 13.7% CB spending figure. While charity care aids vulnerable populations, efforts that target the needs of this population, such as greater access to transportation, healthy food initiatives, and improved housing stability may have a significant impact on the health outcomes of the patients served by nonprofit hospitals.

There is a growing healthcare industry focus on addressing social determinants of health (SDOH). According to the World Health Organization, SDOH are the conditions in which people are born, work, and live that impact health outcomes and contribute to health disparities. Such conditions include but are not limited to socioeconomic status, neighborhood/built environment, food security, and access to healthcare. Underlying SDOH may account for up to 80% of the health outcomes of patients, which is more than clinical care. Increasing the amount of spending nonprofit hospitals dedicate to SDOH initiatives may have a greater impact than financial assistance on patients’ overall health and outcomes, while still meeting the requirements for tax exemption. Furthermore, amid the COVID-19 crisis, targeted spending towards SDOH will help ensure families impacted by the coronavirus have access to care, healthy food, and housing.

Within the nonprofit hospital space, there is substantial opportunity to dedicate CB spending to community-based initiatives to provide sustainable support to communities impacted by SDOH through partnerships with and donations to local organizations:

• The DC Health Matters Collaborative, a collective of local DC hospitals and federally qualified health centers (FQHCs), decided to streamline their efforts and combine resources to conduct joint CHNAs and implementation plans. They created working groups to address 4 priority areas (as identified by the CHNA) and developed strategies and initiatives to take action. One of these initiatives included awarding $150,000 to 2 non-profit organizations over a 2-year period to address mental health and housing.
• As part of the Health Anchor Network, over 45 hospitals and health systems have committed to an investment of $700 million to address SDOH. These organizations realized the need to address local health disparities that drive up medical spending and are developing a comprehensive strategy to target their investments in a sustainable and meaningful way.
• More recently, Providence St. Joseph Health created partnerships with, and donated $500,000 to, county public health departments, homeless shelters, food banks, and school districts to ensure consistent messaging around COVID-19 and to meet basic human needs of traditionally marginalized patient populations during the coronavirus outbreak.

Leading healthcare organizations understand that a successful SDOH strategy involves thinking beyond the walls of their organization and closely coordinating with local partners who provide social services. Nonprofit hospitals have the size and sway to effect positive change provided they are armed with a meaningful strategy, capable data tracking and insights, and new partners to address SDOH and positively impact health outcomes. By taking on a more holistic perspective in the community, hospitals are starting to move outside of clinical care. In 2020, the pressure to address SDOH and build a more equitable health system will continue to grow, particularly given the significant impacts the COVID-19 pandemic is having, and will have, on all hospitals and communities.

Our Role

At Avalere Health, our expertise and access to robust data sets enable us to understand how social needs can affect patient outcomes. Avalere’s Center for Healthcare Transformation has engaged in multiple projects to bring social determinants of health to the forefront of healthcare decision-making. The Malnutrition Quality Improvement Initiative works with more than 250 hospitals and clinics around the country to improve the quality of care provided to malnourished patients, ultimately improving outcomes for both patients and the system. As sites advance their engagements in quality improvement and their interests evolve, we support their sharing of best practices in integrating nutrition care (such as grocery delivery or follow-up visits with a registered dietitian) into discharge planning for malnourished patients and ensuring such care continues across transitions of care. Other work with the Robert Wood Johnson Foundation, Meals on Wheels America, and Aetna has deepened our insight into the obstacles faced by community-dwelling citizens in accessing necessary care or fundamentally living in health-promoting environments.

We look forward to continuing and expanding on this important work with more partners. For more information on how we assist our clients in evaluating their opportunities and risks in addressing SDOH, please contact John Feore.

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