By Kim Blake (@kimkblake)
President John F. Kennedy once said, “For of those to whom much is given, much is required.” With increased scrutiny on their community benefit provided, not-for-profit hospitals are well aware of this expectation.
The IRS has required since 1969 that not-for-profit hospitals demonstrate that they provide a community benefit. This may include charity care, health education, screenings and activities that benefit the greater good. But there’s a catch: community benefit is a subjective term in the 36 states that do not have community benefit requirements in statutes or regulations. When a not-for-profit hospital’s tax-exempt status is challenged, the burden of proof is on the hospital, not the local authority.
Hospitals know what’s at stake. The Joint Committee on Taxation estimated that in 2002, the value of exemption for not-for-profit hospitals and their supporting organizations totaled $2.5 billion in federal income tax, $500 million in state corporate income tax, $2.8 billion in state and local sales taxes, and $3.1 billion in local property tax. (Congressional Budget Office, Nonprofit Hospitals and Tax Arbitrage. Washington, D.C.: December 2006).
Hospitals have been on high alert since 2008, when Iowa Senator Chuck Grassley launched an investigation of the value of not-for-profit hospital community benefit. Even more recently, hospitals in states without community benefit requirements such as Georgia and North Carolina have been affected.
What can hospitals do when tax-exemption status is often subjective? It’s all about the battle for your mind. What single, unique, ownable thought is associated with a hospital? Is it a “corporate monster” or a “community partner”? The community is far more likely to defend the latter than the former.
That’s when a strong brand protects you. Not unlike a bank account, hospitals must build up community goodwill in the event that they have to deplete that “bank of goodwill” during a crisis such as the challenge of their tax-exempt status.
There are direct and indirect approaches to building a brand that speak to your community commitment. Some just come out and say it – for instance, Norfolk, Va.-based Sentara Healthcare describes itself as “Your community, not-for-profit health partner.” Alternatively, Valley Health, a six-hospital health system based in Winchester, Va., articulated its brand through a video aimed at educating internal audiences about how the community and Valley Health are, in fact, “Healthier, together.” No matter the approach, the goal is to forge deep relationships with the communities they serve and clearly demonstrate their value before it is called into question.
What steps should a hospital take to develop and communicate a brand that is relevant to its community?
- Gauge perceptions internally and externally to see where you have permission to go. Are you the “corporate monster,” the “community partner,” or something in-between? Conduct interviews with a representative sample of stakeholders, from physicians to clinical staff to board members and community leaders, and find out. These interviews are best conducted by a third party to ensure honest feedback.
- Get all the facts straight. Most rural hospitals are the largest employers in their communities, providing a substantial benefit. An economic impact study can help reveal the broader impact that a hospital has on the community it serves.
- Utilize findings to develop a relevant brand. If you are the “corporate monster,” how can you believably own “community partner”? Identify how to bridge the gap between where you currently stand and where you want to be. Look at proof points from community benefit reporting and interviews to determine how you can articulate your hospital’s value in a way that is relevant to the community.
- Own an issue. As of March 2012, non-profit hospitals are required to conduct a community health needs assessment every three years. Turn this mandatory exercise into a program that strengthens your brand. If lung health is a particular need in your community, create a program that communicates the need, what your hospital is doing to address it and report on results annually.
- Engage brand ambassadors and solicit feedback to create buy-in from “ringleaders.” Identify internal and external brand ambassadors, from service line directors to city council members and educate and inform them as brand ambassadors. Communicate regularly to reinforce the three to five key messages that uphold your brand.
The issue of tax exemption is one that is not going away. While communities want to have excellent care close to home, they see forfeited property taxes as lifeblood for cash-strapped cities, school districts, parks and libraries. Hospitals can protect themselves by establishing brands that demonstrate their value to the community and communicate that value both early and often.