Hospital Financial Assistance Policies

Hospitals face heightened scrutiny from the IRS, regulators, state attorneys general, and the public over whether they are meaningfully earning their tax-exempt status. For many organizations, financial assistance represents the largest component of reported community benefit. A thoughtful review of eligibility criteria, accessibility, and operations can meaningfully improve community benefit reporting and better align financial assistance with the organization’s mission. Compliance with Section 501(r) remains the floor. Choices above that baseline – whether to expand or right-size assistance – should be intentional, data-driven, and transparent.

Section 501(r)(4) requires each hospital facility operated by a tax‑exempt hospital organization to adopt and widely publicize a FAP, supported by a plain‑language summary and translations where required. Regulations prescribe disclosure, application, amounts generally billed (AGB) discounting, and billing and collection standards. The statutory and regulatory framework is stable, but enforcement posture and public scrutiny continue to evolve.

Hospitals balance margin and mission while navigating increases in high‑deductible plans, underinsurance, and language access needs. Community benefit reporting and public scrutiny – including oversight by state attorneys general – heighten reputational stakes when patients do not receive timely, fair determinations. A technically compliant FAP still can fall short if thresholds, processes, or system configurations create hidden barriers.

FAP review considerations for 2026

A pragmatic FAP review designed for approval and implementation in 2026 can replace automatic renewal of these policies with deliberate updates grounded in data. Key focus areas for such a review include benchmarking eligibility thresholds against current poverty levels and local economics; reexamining protections for underinsured patients; streamlining application processes; validating presumptive eligibility standards; and strengthening controls, documentation, and monitoring. When crafting an updated FAP, the following should be considered:

• Application accessibility and simplicity. Require a short, plain-language application that is easy to find online, mobile-friendly, and available through patient portals (for example, MyChart), at point of service and post-service. Check that the application is easy to read (written at about a third to fifth grade level), offer paper copies if someone asks, and provide translations when required under Section 501(r) and limited English proficiency (LEP) rules. If expanding eligibility, remove nonessential documentation; if rightsizing, pair changes with presumptive or alternative pathways to avoid access barriers.
• Underinsured protections. Revisit policies that exclude insured patients entirely from charity care. High-deductible and high-coinsurance plans can leave insured patients facing significant hardship. Consider partial charity tiers, income-based out-of-pocket caps, or hardship pathways for unavoidable emergency or out-of-network care. If benefits are narrowed, clearly define appeal rights and caps to mitigate unintended consequences.
• Presumptive eligibility standards. Refresh and calibrate data sources (for example, Medicaid participation, Supplemental Nutrition Assistance Program eligibility, homelessness indicators, and charity scores) and clarify when presumptive determinations are final versus when follow-up documentation is required. Periodically reassess presumptive eligibility vendors, as tools and data integration capabilities evolve significantly. Expansion or retraction of presumptive criteria should be paired with thoughtful outreach and appeal protections.
• AGB methodology and discount tiers. Confirm whether the current AGB methodology still makes sense. For lookback methods, assess claims sufficiency, payer mix stability, and treatment of outliers. For prospective methods, validate that referenced rates are current and reflect the hospital’s service mix. Document the rationale for staying the course or switching, model affordability and revenue impacts, and clearly define recalculation timing and effective dates.
• Scope of covered services and provider alignment. Clearly list included and excluded services, employed and affiliated provider groups, and any site-of-service rules. Update contracts with revenue-cycle vendors and affiliated physician groups to require honoring FAP discounts and pursue nonmandatory coordination efforts with independent physician groups (for example, emergency, anesthesia, radiology, and pathology) to help limit balance billing on FAP-eligible accounts. Explicitly address joint ventures to avoid patient confusion and reputational risk.
• Systems and vendor configuration. Validate that electronic health records, eligibility screening tools, and vendor platforms use synchronized rules, thresholds, and AGB tables. Test for edge cases (like multiple guarantors, secondary coverage, and retroactive Medicaid) and confirm proper statement language and reason codes. Confirm new rules – expanded or narrowed – are version controlled and include effective dates across systems.
• Controls, documentation, and monitoring. Standardize decision templates, set timeliness goals, and audit denials and pending cases for patterns that signal access barriers. Track appeals, escalations, charity reversals, and shifts between charity and bad debt, and report trends to leadership and the board. As part of governance, regularly review equity impacts and adjust eligibility thresholds when appropriate.
• Impact. Confirm eligibility definitions and thresholds against current poverty guidelines and community needs. Model proposed expansions or retractions to understand effects on net revenue, cash flow, bad-debt substitution, and patient affordability. Align system configurations, retest workflows, and plan patient communications – especially when narrowing benefits. Schedule a board review so the FAP is approved, published, and effective as intended.

Crowe observation

Compliance with Section 501(r) is the floor; credibility comes from clear choices and execution. Decide whether to expand or rightsize assistance, document the rationale, and align operations so determinations are fast, consistent, and visible to patients.

Looking ahead

Hospitals targeting a refreshed FAP in 2026 should use the FAP review considerations highlighted here to run a cross‑functional working session and assign owners and deadlines, look at model expansion and retraction scenarios, socialize implications with finance and community benefit leadership, and document the rationale. Hospitals should pilot the revised application and decision workflow with real users, remediate findings, and present the final FAP for board approval with clear effective dates and patient‑facing communications.