The Internal Revenue Service (IRS) and the Treasury Department recently proposed regulations that will affect charitable hospital organizations. The Patient Protection and Affordable Care Act (ACA) added §501(r) to the Internal Revenue Code, which imposes certain requirements for tax-exempt hospitals to obtain and retain their tax-exempt status. Under this provision, for example, hospital organizations must conduct a community health needs assessment at least once every three years and adopt an implementation program to meet the identified needs.
In addition, hospital organizations must adopt a written financial assistance policy (FAP) that establishes eligibility criteria for free or discounted care, including how any unpaid charges will be collected as well as a written policy relating to emergency medical care that outlines requirements to provide care for emergency medical care regardless of eligibility under the FAP. The Proposed Regulations provide guidance on compliance with certain of the §501(r) requirements:
- Clarification on which entities must meet the §501(r) requirements in order to obtain or retain tax exemption.
- Descriptions of the information that a hospital facility must include in its FAP and the methods a hospital facility must use to widely publicize that policy.
- Descriptions of what a hospital facility must include in its emergency medical care policy.
- How the hospital facility can determine the maximum amount that can be charged for emergency or other medically necessary care provided to individuals who are eligible for assistance under its FAP, which cannot be "more than the amounts generally billed to individuals who have insurance covering such care".
- Details on what are considered to be "extraordinary collections actions" and the reasonable efforts a hospital must take to determine whether a patient is eligible for its FAP before it can engage in extraordinary collections actions.
If a hospital or hospital system fails to comply with the requirements of §501(r), its tax-exempt status will be subject to revocation. In addition, for certain violations, additional taxes and/or penalties might apply. For example, if a charitable hospital fails to conduct a timely community health needs assessment as required by §501(r), it is subject to a penalty of $50,000 (excise tax). The Proposed Regulations contain a placeholder for details as to the consequences of failure to comply with the requirements to adopt and comply with an FAP and an emergency medical care policy.
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