Changes in IRS Requirements for Hospitals May Result in New Support for Farmers Markets

By: Jen Cheek       Posted On: January 6, 2015

Great news! In 2013, we shared info about the ‘community health improvement’ spending requirements for nonprofit hospitals, and asked you to tell the IRS to include healthy food access as an approved ‘community health improvement’ activity. See that announcement here.

Your comments were heard! Nonprofit hospitals can now claim tax credit for sponsoring programs that reduce the cost of fruits and vegetables in farmers markets, grocery stores and schools. Now’s the time to reach out to your local nonprofit hospital to ask about sponsoring your market, your market’s incentive program, or a fruit and vegetable prescription program.

FMC board member Gus Schumacher and Marydale Debor of Fresh Advantage were interviewed in today’s Hagstrom Report:

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 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.” See the full article here. 

Debor also noted that nonprofit hospitals typically have to spend 7.5% of their operating budgets on community health initiatives–which can add up to significant support.

Thank you to those who commented! Your time and effort helped create this new opportunity for markets and farmers across the country.