IRS: Nonprofit hospitals can claim nutrition access aid to avoid taxes
January 06, 2015 |07:06 AM
In a major achievement for nutrition and local food advocates, the Internal Revenue Service has ruled that nonprofit hospitals throughout the country will be able to claim the help they provide their communities to “ensure adequate nutrition” as part of their exemption from federal taxation.
The ruling was issued on December 31 as a directive to hospitals to comply with the Affordable Care Act. It means hospitals may be able to claim tax credit for programs to reduce the cost of fruits and vegetables in farmers markets and grocery stores and prescriptions that substitute healthier foods for medicine and even help defray the higher costs of healthier school meals, according to advocates.
Marydale DeBor, a former hospital executive who heads Fresh Advantage, a Connecticut group, and Gus Schumacher, a former Agriculture undersecretary who is now a vice president of Wholesome Wave, a Connecticut-based group of chefs that encourage healthier eating, particularly among low-income people, both told The Hagstrom Report that they were thrilled by the ruling.
The IRS included nutrition in the rule after DeBor and Schumacher organized advocates to write comments on an earlier version that did not specify nutrition access as one of the categories that the hospitals could claim.
Marydale DeBor
“I am so proud that we worked so hard,” DeBor said in an interview Monday.
The amount of money hospitals may spend on such programs could reach billions, but is unclear because there are no exact guidelines on how much of their budgets nonprofit hospitals must spend on community health needs.
“The rule of thumb in practice is around 7.75 percent of the operating budget” of each hospital, said DeBor, a lecturer at Yale who is working with the university’s Department of Psychiatry on a study on food insecurity in Connecticut.
Gus Schumacher
Wholesome Wave pioneered the concept of providing “double bucks” coupons to participants in the Supplemental Nutrition Assistance Program, better known as SNAP or food stamps, to get twice as many fruits and vegetables when they shop at farmers markets. Foundations provided the initial funding, but the 2014 farm bill also provided federal money for the program.
Schumacher noted that Jefferson Memorial Hospital in Martinsburg, W. Va., has committed $30,000 to a local farmers market, but said the goal will be to turn commitments like that into “millions or billions” nationwide.
There is already evidence-based data that eating fruits and vegetables reduces children’s body mass index, Schumacher added.
While most of the programs to reduce the cost of fruits and vegetables for food stamp beneficiaries have provided “double bucks” to be spent in famers markets, the Agriculture Department is funding an experiment through Fair Food Network, a Michigan group, to try the idea in grocery stores where most food stamp or SNAP money is spent.
DeBor said she also hopes hospitals will finance mobile farmers markets to take fruits and vegetables to low-income neighborhoods that do not have farmers markets or high-quality grocery stores.
Hospitals could help schools with the increased costs of complying with the school meals rules under the Healthy Hunger Free-Kids Act, DeBor said.
Instead of asking Congress to diminish the healthier school meals rules as the School Nutrition Association has done, school food service directors should get hospitals to partner with them and provide more resources, she said.
“This is not an either/or — you keep the standards and work with the hospitals,” DeBor said. “We will eliminate a legacy of disease among the poor.”
In separate interviews, DeBor and Schumacher told The Hagstrom Report that they believe the rule could result in hospitals spending millions, maybe billions, of dollars to encourage healthier eating throughout the country — but only if food advocacy and farm groups throughout the country put pressure on the hospitals to make “access to proper nutrition” part of their agendas.
U.S. tax law has long allowed nonprofit hospitals — which make up the majority of hospitals in the country — to avoid federal taxation on the grounds that they benefit communities, but each hospital must fulfill this obligation by conducting a “community health needs assessment” known as a CHNA and implementing a program to address those needs.
In the past, paying the health care expenses of low-income people has made up most of that obligation, but under the Affordable Care Act the number of charity cases is expected to decline because more low-income people will have insurance. In addition, the Affordable Care Act imposed new obligations on the hospitals.
In earlier versions of the rule, the IRS did not cite access to proper nutrition as one of the “health needs” that a hospital could address as part of its obligation to maintain its nonprofit status and avoid taxation.
The proposed regulations that the IRS issued in 2013 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.”
The regulations also said 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 to the regulations 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.”
But as the IRS noted in the final rule, “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.”
But the inclusion of other community issues such as housing and environmental factors signal that nutrition advocates may find competition from other groups when they try to convince hospital boards and executives to address nutrition issues. And in wealthier communities the hospital officials could decide access to proper nutrition is not a problem. But hospitals are required to assess the health needs of even wealthy communities and cannot ignore medically underserved, minority and other vulnerable populations within their communities, DeBor noted.
The ruling also said, “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.”
DeBor said community nutrition advocates and farm leaders “should reach out to hospital boards of directors, executives and the personnel that manage community benefit programs and educate them about needs in the local community, especially hunger and food insecurity.”
The advocates and farm leaders, she said, need to “let them know what they are capable of doing” and “participate at every point in the process. They need to ask to be represented in the health community needs assessment, make written comments and participate in implementation.”
Later they need to hold the hospitals accountable, she said, and if the community has a “local food policy council,” that is a place for the advocates and the hospitals to start.
The IRS rule requires that hospitals be “transparent” in the process,” DeBor noted, but it unclear how the IRS will enforce the rule since it affects thousands of institutions. The rule requires that community groups be involved in the assessment from the beginning, and DeBor said it is important for local groups to inform hospital officials how they can achieve partnerships to achieve healthier eating that stamps out “the root causes of disease.”
It is also possible that local farm groups will get involved in the process, especially those that want hospitals to buy locally grown food.
But the interest may not be limited to fruit and vegetable producers. DeBor presented the idea at the 2013 National Farmers Union convention. At that event Nebraska Farmers Union President John Hanson suggested that farmers should take an interest in how hospitals are buying food and whether they are buying it locally.
“Transparency is only as good as communities make it,” DeBor said. “There has to be continuing advocacy. There has to be real collaboration at the community level.”
▪ Federal Register — Additional Requirements for Charitable Hospitals; Community Health Needs assessments for Charitable Hospitals, etc. Final Rule
▪ IRS Instructions for Schedule H (Form 990) Hospitals
The ruling was issued on December 31 as a directive to hospitals to comply with the Affordable Care Act. It means hospitals may be able to claim tax credit for programs to reduce the cost of fruits and vegetables in farmers markets and grocery stores and prescriptions that substitute healthier foods for medicine and even help defray the higher costs of healthier school meals, according to advocates.
Marydale DeBor, a former hospital executive who heads Fresh Advantage, a Connecticut group, and Gus Schumacher, a former Agriculture undersecretary who is now a vice president of Wholesome Wave, a Connecticut-based group of chefs that encourage healthier eating, particularly among low-income people, both told The Hagstrom Report that they were thrilled by the ruling.
The IRS included nutrition in the rule after DeBor and Schumacher organized advocates to write comments on an earlier version that did not specify nutrition access as one of the categories that the hospitals could claim.
“I am so proud that we worked so hard,” DeBor said in an interview Monday.
The amount of money hospitals may spend on such programs could reach billions, but is unclear because there are no exact guidelines on how much of their budgets nonprofit hospitals must spend on community health needs.
“The rule of thumb in practice is around 7.75 percent of the operating budget” of each hospital, said DeBor, a lecturer at Yale who is working with the university’s Department of Psychiatry on a study on food insecurity in Connecticut.
Wholesome Wave pioneered the concept of providing “double bucks” coupons to participants in the Supplemental Nutrition Assistance Program, better known as SNAP or food stamps, to get twice as many fruits and vegetables when they shop at farmers markets. Foundations provided the initial funding, but the 2014 farm bill also provided federal money for the program.
Schumacher noted that Jefferson Memorial Hospital in Martinsburg, W. Va., has committed $30,000 to a local farmers market, but said the goal will be to turn commitments like that into “millions or billions” nationwide.
There is already evidence-based data that eating fruits and vegetables reduces children’s body mass index, Schumacher added.
While most of the programs to reduce the cost of fruits and vegetables for food stamp beneficiaries have provided “double bucks” to be spent in famers markets, the Agriculture Department is funding an experiment through Fair Food Network, a Michigan group, to try the idea in grocery stores where most food stamp or SNAP money is spent.
DeBor said she also hopes hospitals will finance mobile farmers markets to take fruits and vegetables to low-income neighborhoods that do not have farmers markets or high-quality grocery stores.
Hospitals could help schools with the increased costs of complying with the school meals rules under the Healthy Hunger Free-Kids Act, DeBor said.
Instead of asking Congress to diminish the healthier school meals rules as the School Nutrition Association has done, school food service directors should get hospitals to partner with them and provide more resources, she said.
“This is not an either/or — you keep the standards and work with the hospitals,” DeBor said. “We will eliminate a legacy of disease among the poor.”
In separate interviews, DeBor and Schumacher told The Hagstrom Report that they believe the rule could result in hospitals spending millions, maybe billions, of dollars to encourage healthier eating throughout the country — but only if food advocacy and farm groups throughout the country put pressure on the hospitals to make “access to proper nutrition” part of their agendas.
U.S. tax law has long allowed nonprofit hospitals — which make up the majority of hospitals in the country — to avoid federal taxation on the grounds that they benefit communities, but each hospital must fulfill this obligation by conducting a “community health needs assessment” known as a CHNA and implementing a program to address those needs.
In the past, paying the health care expenses of low-income people has made up most of that obligation, but under the Affordable Care Act the number of charity cases is expected to decline because more low-income people will have insurance. In addition, the Affordable Care Act imposed new obligations on the hospitals.
In earlier versions of the rule, the IRS did not cite access to proper nutrition as one of the “health needs” that a hospital could address as part of its obligation to maintain its nonprofit status and avoid taxation.
The proposed regulations that the IRS issued in 2013 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.”
The regulations also said 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 to the regulations 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.”
But as the IRS noted in the final rule, “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.”
But the inclusion of other community issues such as housing and environmental factors signal that nutrition advocates may find competition from other groups when they try to convince hospital boards and executives to address nutrition issues. And in wealthier communities the hospital officials could decide access to proper nutrition is not a problem. But hospitals are required to assess the health needs of even wealthy communities and cannot ignore medically underserved, minority and other vulnerable populations within their communities, DeBor noted.
The ruling also said, “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.”
DeBor said community nutrition advocates and farm leaders “should reach out to hospital boards of directors, executives and the personnel that manage community benefit programs and educate them about needs in the local community, especially hunger and food insecurity.”
The advocates and farm leaders, she said, need to “let them know what they are capable of doing” and “participate at every point in the process. They need to ask to be represented in the health community needs assessment, make written comments and participate in implementation.”
Later they need to hold the hospitals accountable, she said, and if the community has a “local food policy council,” that is a place for the advocates and the hospitals to start.
The IRS rule requires that hospitals be “transparent” in the process,” DeBor noted, but it unclear how the IRS will enforce the rule since it affects thousands of institutions. The rule requires that community groups be involved in the assessment from the beginning, and DeBor said it is important for local groups to inform hospital officials how they can achieve partnerships to achieve healthier eating that stamps out “the root causes of disease.”
It is also possible that local farm groups will get involved in the process, especially those that want hospitals to buy locally grown food.
But the interest may not be limited to fruit and vegetable producers. DeBor presented the idea at the 2013 National Farmers Union convention. At that event Nebraska Farmers Union President John Hanson suggested that farmers should take an interest in how hospitals are buying food and whether they are buying it locally.
“Transparency is only as good as communities make it,” DeBor said. “There has to be continuing advocacy. There has to be real collaboration at the community level.”
▪ Federal Register — Additional Requirements for Charitable Hospitals; Community Health Needs assessments for Charitable Hospitals, etc. Final Rule
▪ IRS Instructions for Schedule H (Form 990) Hospitals
