On Dec. 29, 2014, the IRS issued long-awaited final regulations that provide guidance regarding the requirements for charitable hospital organizations under the Patient Protection and Affordable Care Act of 2010
Generally, the final regulations under IRC Section 501(r) apply to tax years beginning after Dec. 29, 2015, which gives hospitals at least a year to comply. For tax years beginning on or before Dec. 29, 2015, the final regulations provide that a hospital facility may rely on a reasonable, good faith interpretation of Section 501(r).The first three requirements listed here are effective for tax years beginning after March 23, 2010, and the community health needs assessment (CHNA) requirements are effective for tax years beginning after March 23, 2012.
Each Section 501(c)(3) hospital organization is required, on a facility-by-facility basis, to do the following:
- Establish a written financial assistance policy (FAP) and emergency medical care policy.
- Limit the amounts charged for emergency or other medically necessary care to individuals eligible for assistance under the hospital’s FAP.
- Make reasonable efforts to determine whether an individual is eligible for assistance under the hospital’s FAP before engaging in extraordinary collection actions against the individual.
- Conduct a CHNA and adopt an implementation strategy at least once every three years.
For FAPs, billing and collection, and related matters, the final regulations, among other things, do the following:
- Require a hospital facility’s FAP to list the providers, other than the hospital facility itself, delivering emergency or other medically necessary care in the hospital facility and specify which providers are covered by the hospital facility’s FAP (and which are not).
- Require the FAP to describe all discounts available under the FAP, although the rules clarify that only the discounts specified in a hospital facility’s FAP (and, therefore, subject to the amounts generally billed (AGB) limitation) may be reported as financial assistance on the hospital’s Form 990, Schedule H, “Hospitals.” For example, a self-pay discount that is not subject to AGB would not be reported on Schedule H.
- Eliminate the requirement that the FAP list the measures taken to widely publicize the FAP, and instead require only that a hospital facility implement the measures to widely publicize the FAP in the community it serves.
- Require that a hospital facility’s billing statement include only a conspicuous written notice that informs the recipient about the availability of financial assistance under the hospital facility’s FAP (including telephone number and direct website) rather than require a full plain-language summary.
- Continue to apply the AGB limitation to all individuals eligible for assistance under the hospital facility’s FAP (insured or uninsured). In the case of a FAP-eligible individual who has health insurance coverage, a hospital facility will not fail to meet the AGB requirements as long as the FAP-eligible individual is not personally responsible for paying (in the form of copayments, coinsurance, or deductibles) more than AGB.
- Provide that a hospital facility may at any time change the method it uses to determine AGB.
- Allow a hospital facility (under the look-back method) to take up to 120 days after the end of the 12-month period used in calculating the AGB percentage to begin applying its new AGB percentage.
- Provide that, in addition to presumptively determining that an individual is eligible for the most generous assistance available under its FAP, a hospital facility may also presumptively determine that an individual is eligible for less than the most generous assistance available under the FAP.
For CHNAs and implementation strategies, the final regulations, among other things, do the following:
- Require a hospital facility to take into account community input not only in identifying significant health needs but also in prioritizing them.
- Require an authorized body of the hospital facility to adopt an implementation strategy to meet the health needs identified through a CHNA on or before the 15th day of the fifth month after the end of the tax year in which the hospital facility finishes conducting the CHNA.
Penalties for noncompliance with Section 501(r) range from revocation of Section 501(c)(3) status to taxation of noncompliant hospital facilities. Certain minor omissions and errors will not be considered a failure to meet the requirements of Section 501(r), and certain failures may be excused if the hospital facility corrects and discloses the failures. Failure to meet the CHNA requirements results in a $50,000 excise tax for each hospital facility.