Since the implementation of the Patient Protection and Affordable Care Act in 2010, the IRS has been crafting a set of regulations specific to charitable hospital organizations and how they must update policies and procedures in order to be compliant under the act.
The regulations have undergone several updates and changes since their initial creation in 2010, with the IRS finally releasing the final requirements in December of 2014. These final regulations, found under IRS code section 501(r), will become mandatory for all 501(c)(3) charitable hospital organizations as of December 29, 2015.
If your nonprofit hospital has not already finalized policy updates and procedures in order to be compliant with these final regulations, you risk fines and excise taxes or even revocation of tax-exempt status.
An Outline of the 501(r)
The entire section is comprised of six sections:
- 501(r)(1): Definitions under the act, including what constitutes a charitable hospital organization
- 501(r)(2): Consequences for failure to satisfy 501(r) requirements
- 501(r)(3): Conducting a Community Health Needs Assessment
- 501(r)(4): Financial Assistance and Emergency Medical Care Policy requirements
- 501(r)(5): Establishes limitations on charges
- 501(r)(6): Billing and collections policy requirements
The Proposed Regulations
The IRS initially created additional requirements for hospitals applying for nonprofit status in conjunction with the enactment of the Affordable Care Act in March of 2010. Over the next several years the IRS provided two notable notices updating and amending these initial requirements. The first set of proposed regulations was published in 2012, establishing more details for sections 501(r)(4) through 501(r)(6). The second set was published in 2013 and further detailed the 501(r)(3) requirements for conducting a Community Health Needs Assessment (CHNA).
The Final Regulations
The final regulations amend and adopt the 2012 and 2013 proposed regulations. They generally follow the guidance provided by the proposed regulations, but they include important clarifications and additional guidance, particularly in the area of conducting a CHNA. The IRS provided existing charitable hospital organizations with one year to update their existing policies and procedures in order to be compliant, although during this time all such organizations must have been following one of the proposed versions.
A few key areas highlighted by the final regulations include (but are not limited to):
Community Health Needs Assessment:
- Further define a hospital's "community" and expand the scope of a community's needs
- Provide requirements for defining and adopting an implementation strategy
- Discusses due dates, conducting joint CHNAs, and failure to obtain input from entire community
Financial Assistance Policy:
- Allows for provision of fewer plain-language summaries, but more translations
- Adds additional provisions regarding independent contractors within a hospital
- Specifies types of assistance to be provided under the FAP
- Amends requirements for making the FAP documents widely available
Limitation on Charges:
- Provides expanded calculation methods and the ability to change methods
- Discusses which charges are limited and for what patients
Billing and Collection Policies:
- Adjusts the definition of an "extraordinary collection action"
- Makes changes to the application and notification periods and relaxes the oral notification requirement
- Provides more details about collection activity initiation notices
- Expands a hospital's ability to presume FAP-eligibility and adjusts approach to incomplete applications
These final regulations were established in response to comments submitted on the proposed regulations and are meant to ease the burden of compliance in many areas. However, they also add various new requirements and considerations that may be at odds with the policies established by hospitals in response to the proposed regulations. Many hospitals that believe they have achieved 501(r) compliance may have some updates to make, so it is important to take one final look at the regulations to ensure your hospital is ready for the impending deadline.
In working with our hospital clients to implement these policies and procedures, we have identified a few best practices to ensure compliance. Review these suggestions to see if your charitable hospital organization has done the same:
- Create or update your existing Financial Assistance, Billing and Collections, and Emergency Medical Care policies and review them with your legal council to ensure all requirements are met.
- Establish a procedure to inform patients of their application and eligibility status, as well as to discuss any remaining balances due to ensure there is no confusion over patient responsibility.
- Publish all required documentation clearly and obviously on your organization's website. Be sure the documents are not in a PDF format, as that is not in compliance with regulations.
- Work with your statement vendor or internal software to ensure that the proper notification and contact information is included on your patient statements.
- Update your inbound IVR phone systems and train your representatives to provide notice of the availability of financial assistance for all inbound to and outbound phone calls from patients.
- Establish a partnership with a healthcare business process outsourcing and/or third-party medical collections vendor to ensure complete compliance from pre-registration through any necessary collection activities.
- The Final Regulations as published in the Federal Register
- American Hospital Association Commentary: Protecting Your Hospital's Tax-Exempt Status (PDF Download)
Written by Ali Bechtel, Public Relations Coordinator
This information is not to be construed as legal advice. Legal advice must be tailored to the specific circumstances of each case. Although we attempt to provide up-to-date information, laws and regulations often change. We make no claims, promises, or guarantees about the accuracy or completeness of this document. For legal advice, please consult an attorney.