As required by the Affordable Care Act (ACA), the Internal Revenue Service (IRS) reviews hospitals for compliance with Internal Revenue Code 501(r). Through June 30, 2016, 166 of the 692 completed reviews were referred for “field examination” for what appeared to be noncompliance with charity care requirements.
Issues for which field examination referrals were made include:
- Lack of a Community Health Needs Assessment (CHNA) under IRC 501(r)(3)
- No Financial Assistance and/or Emergency Medical Care Policies under IRC 501(r)(4)
- Billing & Collection Requirements under IRC 501(r)(6)
(Tax Exempt and Government Entities FY 2017 Work Plan, IRS, September 28, 2016)
Internal Revenue Code 501(r)) requires 501(c)(3) hospitals to:
- Add measures, such as written financial assistance policies and emergency medical care policies, that limit the amounts charged for emergency or other medically necessary care to patients eligible for assistance under a hospital’s financial assistance policy
- Undertake reasonable efforts to determine whether individuals are eligible for assistance under a hospital’s financial assistance policy before engaging in extraordinary collection actions
- Create a Community Health Needs Assessment (CHNA)
- Post the CHNA on hospitals’ websites, with instructions on how patients can obtain hard copies of the CHNA
- Post the financial assistance policy on hospitals’ websites, a plain-language summary and a financial assistance application
(“Hospitals Draw Growing Charity Care Scrutiny,” HFMA Weekly News, October 7, 2016)
The vagueness of some of the 501(r) requirements poses significant challenges for hospitals. For example:
- One hospital posted its financial assistance policies on its website in six different languages, while other hospitals in the community posted their policies in only two of the principle languages spoken in the community.
- Some—but not all—hospitals collect and make available to patients financial information on non-employed physicians who might treat the hospital’s patients.
- To qualify as “widely publicizing” charity care policies, some hospitals go to inner city churches weekly to notify community members in person about policies.
Some industry spokesmen are concerned that efforts to publicize the charity care policies and community benefit obligations may seem substantial to hospitals, but the IRS can claim their efforts are not sufficient.
Hospital billing and collections have experienced unexpected effects of the new charity care requirements. A few, as reported by the Healthcare Financial Management Association, appear below:
- One health system decided to include all medical bills—including those of its primary competitor—in the required calculations of patients’ ability to pay bills as part of the determination of whether they qualify for charity care.
- The requirements may have pushed some hospitals away from the practice of requiring payment up front for elective procedures . . . Instead, more hospitals are focusing efforts on trying to provide a reasonable estimate of the actual patient costs and then providing financial counseling based on that.
- Hospital lawsuits have arisen, where patients who were sued to collect outstanding bills have questioned whether the hospital is compliant with 501(r) requirements.
The IRS noted in its 2017 Work Plan that it will continue to review tax-exempt hospitals’ compliance with requirements under IRS 501(r).
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