Board Responsibilities
Community Benefit
What
Community benefit is the care and services a nonprofit hospital provides to meet the health needs of its community. It’s how a hospital shows that it operates for a charitable purpose, which is the basis for its tax-exempt status.
On its annual IRS filing, a hospital reports community benefit in these categories: financial assistance (free or discounted care), unreimbursed costs of Medicaid and other means-tested government programs, community health improvement services, health professions education, subsidized health services, research, and cash and in-kind contributions.
The board’s job is to make sure the hospital understands its community’s health needs, responds to them, and reports accurately on what it provides.
Why
To qualify for exemption, a nonprofit hospital must show that it operates to benefit its community. This test is known as the community benefit standard. A hospital that can’t meet it puts its exemption at risk. It also risks the public’s trust.
Federal law doesn’t specify which activities a hospital must provide or how much. The IRS looks at the facts and circumstances of each hospital. That leaves much of the judgment about what is enough, and where it should go, with the board.
Important Considerations
Today a nonprofit hospital must pass two federal tests to keep its 501(c)(3) status.
The community benefit standard. The IRS weighs all the facts, including an emergency room open to all, a community board, an open medical staff, care for Medicare and Medicaid patients, and reinvested surplus. No single factor is required.
Section 501(r) (Affordable Care Act, 2010). Each hospital facility must:
- Complete a community health needs assessment (CHNA) every three years, with input from public health and underserved populations. The board or another authorized body adopts a strategy to address it.
- Adopt and publicize financial assistance and emergency care policies.
- Charge qualifying patients no more than insured patients are generally billed for emergency and medically necessary care.
- Check eligibility for assistance before extraordinary collection actions, such as lawsuits.
Failing the CHNA brings a $50,000 tax per facility per year. Any failure can cost the exemption. Hospitals report yearly on Schedule H of Form 990.
In Practice Example
A board reviews its annual community benefit report and sees a large total. A trustee looks closer and finds that most of it is Medicaid shortfall: the gap between what Medicaid pays and what the care costs. Financial assistance and community health programs make up a small share, and both have dropped for two years. The board asks management to report each category separately from now on and to explain the decline. Medicaid shortfall is legitimate community benefit. But its size depends largely on payer mix and Medicaid rates, not on decisions about where to invest. The board needs to see both.
Governance Questions
- When did the board last review the CHNA, and who adopted the current implementation strategy?
- Can the board tell the difference between benefit the hospital chose to provide and benefit that comes from government payment shortfalls?
- Are financial assistance eligibility levels current, and are patients screened before bills go to collections?
- Do the people overseeing community benefit understand the community, not just the finances?
- Is community health part of how the board evaluates the CEO?
- Does the community benefit plan connect to the hospital’s strategy, including population health and value-based contracts?
Resources & Reads
- The Ever-important Role of Hospital Community Boards Witalis paper
- Nonprofit Hospitals, Tax Benefits, and Charity Care
- A Guide for Planning & Reporting Community Benefit, 2025 Edition
- Beyond Community Benefit: Unveiling Hospitals’ Comprehensive Efforts to Improve Community Health
- Hospital Fair Share Spending
- IRS Revokes Tax-Exempt Status of Government Hospital Organization That Failed to Meet the CHNA Requirements
Witalis LLC is a national healthcare governance consulting firm specializing in governance design, board effectiveness, strategic planning, and board retreat facilitation for hospitals, health systems, medical groups, and other healthcare provider organizations.