Affordable Care Act Opens Hospital Doors to Greater Community Investment

Written by Austin Nijhuis and Lena Ferguson, ICIC

National discourse surrounding the Affordable Care Act (ACA) tends to focus on benefits to individuals. But new legislation introduced with the ACA also has the potential to improve the overall health of communities.

Since 1969, nonprofit hospitals have been required to provide community benefits in order to retain their federal tax-exempt status. With the introduction of the ACA, nonprofit hospitals now report their community benefit expenses to the Internal Revenue Service (IRS) through Form 990 Schedule H. Schedule H standardized the reporting of community benefit expenses to include:

• financial assistance and means-tested government programs;
•  subsidized health services;
• community health improvement services and community benefit operations;
• cash and in-kind contributions for community benefit;
• health professionals’ education; and
•  research.

It also includes a section for hospitals to report their Community Building Activities, which include the following eight categories: physical improvements and housing, economic development, community support, environmental improvements, leadership development and training for community members, coalition building, community health improvement advocacy, and workforce development. As the Hilltop Institute, a non-partisan health research organization, notes, “the ACA requirements now provide a federal template for hospital community benefit accountability. The national framework requires collaborative community health planning; mandates more transparent financial assistance and collection policies; and refines existing rules for consistent reporting of community benefit activities.”

Traditionally, nonprofit hospitals have met their community benefit requirement through subsidized direct care. A 2009 Northeastern University study published in the New England Journal of Medicine found that for the average nonprofit hospital 85% of their community benefit expenses were directed towards subsidized direct care, compared to only 8% toward community health improvement services, community benefit operations and cash and in-kind contributions for community benefit.

As the ACA expands Medicaid and health insurance coverage to millions of Americans who were previously uninsured, at some hospitals expenses related to subsidized direct care may decrease. This gives those hospitals the opportunity to shift their resources to other community benefit activities. ACA also places a new emphasis on proactive community investments that reduce the cost for direct medical care by addressing the “upstream” social determinants of health, such as employment, income, community safety, and housing.

Hospitals may make some of these investments as part of their community benefit or community building activities.  The prioritization of these activities will be guided by each hospital’s Community Health Needs Assessment (CHNA), also new with ACA, which hospitals are required to complete every three years.

The ACA changes may have the greatest impact on economically distressed inner cities. Recent ICIC research found that one in four inner city residents do not have health insurance, which represents 16% of all non-elderly uninsured residents in the United States. At the same time, inner cities are home to approximately 240 large nonprofit hospitals, or about 20% of all large nonprofit hospitals in the United States. With a high proportion of both uninsured residents and nonprofit hospitals, the impact of shifting resources from direct care to community investments could be significant.

Baltimore provides an interesting example of this opportunity. Sixty-three percent of uninsured people in Baltimore live in inner city areas, compared to 43% for all US cities. Inner city Baltimore also is home to eight nonprofit hospitals, the most of any inner city in the United States. Baltimore’s inner city hospitals spend $556 million annually on community benefits. Of that total, they spend $283 million on subsidized direct care and $7 million on community health improvements and contributions. A shift in funds due to the ACA, elevated by the high number of inner city Baltimoreans eligible to gain coverage, may translate to millions of dollars rededicated to growing inner city Baltimore’s economy and as a result, the health of its residents.

Bon Secours Health System in Southwest Baltimore is an example of an inner city Baltimore hospital that is already heavily invested in its community.  A 2013 Baltimore Business Journal article reports that Bon Secours spent 12 percent of its total operating expenses on community benefits in 2012. For comparison, the article also reports that most hospitals in Maryland spend somewhere between 2 percent and 6 percent.

The Democracy Collaborative at the University of Maryland profiled Bon Secours as part of its 2013 report, Hospitals Building Healthier Communities, and notes that the bulk of Bon Secours’ community initiatives are run through its foundation, Community Works, and focus on community services, housing development and neighborhood revitalization. Community Works runs a women’s resource center, family resource center, financial services and a workforce development program for community members. The hospital’s Operation ReachOut, started in 1995 with the purchase of 31 vacant row homes located near the hospital, has constructed or rehabilitated more than 650 units of affordable housing. In addition, the hospital’s neighborhood revitalization effort, Clean and Green, founded in 2002, has revitalized more than 640 vacant lots in surrounding neighborhoods, beautified over 1.1 million square feet of open space, cleaned up 133 tons of waste, and planted over 1,000 trees – all while training community residents in specialized landscaping skills. Bon Secours also has just begun working on procurement efforts. It has increased local, minority vendor procurement to 6% and established a goal to increase that amount to 9%.

Hospitals such as Bon Secours also are, of course, important anchors in their community. We define anchor institutions as large, place-based organizations with strong roots in their local communities. They often are major employers and major purchasers of local goods and services. ICIC’s strategic anchor framework defines seven roles for anchors in their communities: purchaser, employer, workforce developer, cluster anchor, community developer, core product/service provider, and real estate developer. The introduction of ACA opens the door for hospitals to reconsider their broad social and economic relationship within their community.

As John O’Brien, former President and CEO of UMass Memorial Health Care, and Robert Restuccia, Executive Director of Community Catalyst, recently wrote, “[healthcare reform] can be a seminal moment for hospitals and communities to come together to build a more sustainable health system and to improve the health and quality of life in our communities.” As hospitals begin to rethink their community benefit, they can look to the successes of Bon Secours Health Systems and other anchor institutions in creating healthy communities through strategic investments in their communities.