“The Affordable Care Act added a new section to the Internal Revenue Code called Section 501(r), which sets forth the additional requirements that tax-exempt hospitals have to meet. Many of the 501(r) requirements are really process requirements. You must conduct a community health needs assessment. You must have a financial assistance policy. You must make it available. You must take certain actions before you try and collect on people that you may know are not able to pay. Section 501(r) also has other requirements about what you can bill those who qualify for financial assistance.” (Elizabeth Mills, Esq., iProtean course Tax-Exempt Status & Community Benefit)
Proposed regulations specific to Section 501(r) were released last month, and they provide guidance in meeting requirements for financial assistance and emergency care policies, and billing and collections. (The IRS currently is considering comments received in response to an earlier notice regarding the community health needs assessment requirement under Section 501(r), and it plans to address these in a separate guidance.)
A hospital’s financial assistance policy (FAP) must include: eligibility criteria and whether assistance includes free or discounted care; a basis for calculating amounts charged to patients; a method for applying for financial assistance; if an organization does not have a separate billings and collections policy, the actions the hospital may take for nonpayment; and measures to widely publicize the policy.
The proposed regulations do not mandate any particular eligibility criteria and require only that a FAP specify the financial assistance, including all discounts and free care, available under the FAP and all of the specific eligibility criteria that an individual must satisfy to receive each such discount, free care or other levels of assistance. “However, the FAP must be widely publicized; this includes posting the FAP on the hospital’s website, making copies available at the hospital, and displaying the FAP inside the hospital. There must be a ‘plain language’ summary of the FAP with very specific information, and the hospital must reach out to the community it serves.” (Elizabeth Mills, Michael Peregrine, Proposed 501(r) Regulations on Tax Exemption for Hospitals and Continuing Congressional Oversight, AHLA Practice Group Email Alert, July 18, 2012)
A hospital is required to provide care for emergency or other medically necessary care to individuals regardless of their eligibility under the FAP. Hospitals must limit the amount charged for emergency or other medically necessary care provided to individuals eligible for financial assistance to not more than the amount generally billed to individuals who have insurance covering such care. The use of gross charges is prohibited.
A hospital must make reasonable efforts to determine whether an individual is eligible for financial assistance before it engages in extraordinary collection actions. Patients must receive a plain language summary of a hospital’s FAP before discharge, and that summary must be included with the patient’s first three bills. If the patient is deemed eligible for financial assistance, the hospital must refund any excess payments and reverse any collection actions already underway.
In the iProtean course Tax-Exempt Status & Community Benefit, Elizabeth Mills, Esq., Robin Nagele, Esq., Monte Dube, Esq., and Anne McGeorge discuss the additional requirements for tax-exempt status under the Affordable Care Act.
Robin Nagele, Esq., Post Schell
One of the important things for board members of not-for-profit hospitals to keep in mind at all times is that they have the benefit of their tax-exempt status. That is a special status that the IRS and the government affords them because of the general concept that what community not-for-profit hospitals do is good for the community and it fulfills an important community service and a community need. Therefore, to promote that socially desirable activity, the IRS provides them this special status, which is that they are exempt from federal income taxes. It is important as a board member to keep this in mind because the tax exemption is a touchstone that affects the way in which the hospital operates and impacts every decision that’s made.
It is important for board members to know and understand the standards the hospital must adhere to as an institution to maintain tax-exempt status . . . And those standards have actually changed significantly over time.
Elizabeth Mills, Esq., Proskauer
The expectation is that tax-exempt hospitals will provide care and health services to the entire community regardless of people’s ability to pay. It doesn’t mean you have to bankrupt yourself, because then the community would lose the benefit of what you are able to do. It does mean that you need to keep track of what you are doing, do the best that you can in a process way to make sure that you are not harassing people who can’t pay and forcing them into debt, bankruptcy, medical bankruptcy, the things we read about in the paper . . .
The health reform act added a new section to the Internal Revenue Code called Section 501R, which sets forth the additional requirements that tax-exempt hospitals have to meet. It doesn’t replace the community benefit standard. It supplements it and many of the 501(r) requirements are really process requirements. You must conduct a community health needs assessment. You must have a financial assistance policy. You must make it available. You must take certain actions before you try and collect on people that you may know are not able to pay. Section 501(r) also has some other requirements about what you can bill those who qualify for financial assistance, and also requires that you attach your financial statement, your audited financial statement, to the Form 990, which again is available to the public. This is something that you haven’t had to do before.
Section 501R(r) requirements are effective for most hospitals right now. What that means as a board member is that you should ask, “Are we complying with the requirements of 501(r)? How are we doing that? Have we reviewed our financial assistance policies to make sure that they have all the things that the IRS wants to see?”
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iProtean Symposium & Workshop
Mark the Date!! October 10 – 12, 2012 at The Lodge at Torrey Pines, La Jolla, CA. Faculty: Barry Bader, Monte Dube, Esq., Lisa Goldstein, Dan Grauman, Marian Jennings and Brian Wong, M.D. For more information, click here.
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