Health Care Law Blog

New requirements for tax exempt hospitals imposed by the Affordable Care Act

The Affordable Care Act, enacted on March 23, 2010, has established a number of new requirements that nonprofit hospitals must meet to maintain tax exemptions. Some of these new obligations, all codified in Section 501(r) of the Internal Revenue Code, include community health needs assessment and implementation, financial assistance and emergency care policies, limits on charges, and billing and collection restrictions.

In June 2012, the IRS released proposed regulations offering guidance to tax-exempt hospitals relating to certain provisions of Section 501(r). Although, the proposed regulations do not have the force of law, hospitals may rely on these to assist in implementing the requirements.

Below is a brief summary that highlights some of the new requirements for tax-exempt hospitals. Please refer to the full rule, Section 501(r) or contact us, to explore the extent of the new requirements in more detail.

Community health needs assessment and implementation (CHNA)

Effective for tax years beginning after March 23, 2012, hospital facilities must conduct a CHNA and adopt an implementation strategy at least once every three years.

Financial Assistance Policies (FAP) and Emergency Medical Care Policies

Hospital organizations must establish a FAP that applies to all emergency and other medically necessary care provided by the hospital facility. To meet the new requirements, the following must be included in a written FAP:

1. Eligibility for financial assistance and whether the assistance includes free or discounted care
2. The basis for calculating amounts charged to patients
3. The method for applying financial assistance
4. Actions which may be taken for nonpayment if the facility does not have a separate billing and collections policy
5. Measures to widely publicize the FAP within the hospital itself and the community served by the hospital

Reasonable Efforts

A hospital must make reasonable efforts to determine whether an individual is eligible for FAP. Reasonable efforts include:

1. Distributing a plain language summary of the FAP
2. Offering a FAP application to the individual prior to discharge
3. Informing the individual about the FAP in oral communication regarding the amount due
4. Providing an individual with at least written notice about extraordinary collection actions that may be taken

Billing and Collection Restrictions

Hospital facilities have to limit the amount charged to FAP-eligible patients for emergency and medically necessary care. Furthermore, hospital facilities are required to use reasonable efforts to determine if a patient is FAP-eligible before engaging in extraordinary collection actions (ECA). Examples of ECAs include:

1. Reporting to credit agencies
2. Placing a lien on an individual property
3. Attaching or seizing an individual’s bank
4. Commencing a civil action
5. Causing an individual’s arrest
6. Garnishing an individual’s wages
7. Certain sales of the patient’s debt to another party

Nonprofit Hospitals with tax-exempt status should review Section 501(r) to ensure their policies are in compliance with the new requirements. Please contact us if you have any questions.

Categories: Health Care Reform, Hospitals

Posted by: Rachel N. Gizicki (Summer Associate)