501(c)(3) Hospitals Must Meet New Regulations

IRC-501(r) was added by the ACA and impacts all 501(c)(3) hospitals. Among other things it requires specific disclosures regarding patient collections.

Financial Assistance Policy (“FAP”)

• The FAP must identify the providers, other than the hospital facility itself, that may deliver emergency or other medically necessary care in the hospital facility and must specify which providers are covered by the hospital facility’s FAP and which are not.
• The Final Regulations require the FAP to describe discounts available under the FAP rather than all discounts available from the hospital facility, and only those in the FAP may be reported as “financial assistance” on Schedule H of Form 990.

Emergency Medical Care Policy

• The Final Regulations revise the 2012 Proposed Regulations to prohibit “debt collection activities that interfere with the provision, without discrimination, of emergency medical care,” regardless of where such activities occur.
• The emergency medical care policy may be included in the same document with the FAP.

Limitation on Changes

• Amounts charged to FAP-eligible patients for emergency or other medically necessary care must not exceed amounts generally billed (the look-back method is permitted).
• For other services, an FAP-eligible patient must be charged an amount less than gross charges.

Community Health Needs Assessment (“CHNA”)

• The Final Regulations closely follow the 2013 Proposed Regulations with respect to the requirements for CHNAs and Implementation Strategies.
• A hospital facility may build upon previous CHNAs, but it must solicit and consider new input from persons representing the broad interests of the community for each new CHNA.

Errors and Omissions and Disclosure

• An error or omission must be “minor” in order to not be considered as a failure under section 501(r), and the option to correct without disclosure is available only if the error or omission is minor and it is either (i) inadvertent or (ii) due to reasonable cause.
• Disclosure is required for errors and omissions that do not qualify as “minor” and, in addition, those minor errors or omissions that are neither inadvertent nor due to reasonable cause.
• In the case of multiple errors or omissions, they are minor only if they are “minor” when considered in the aggregate.
• If the same error or omission reoccurs, it tends to indicate that it is not inadvertent.
• Establishing practices and procedures reasonably designed to produce compliance with section 501(r) prior to an error or omission tends to show that the error or omission was due to reasonable cause.
• Correction of minor errors or omissions must include establishment (or review and, if necessary, revision) of practices or procedures (formal or informal) that are reasonably designed to achieve overall compliance with the requirements of section 501(r).
• A minor error or omission related to the CHNA that is corrected will not result in the excise tax under section 4959.

Taxation of Noncompliant Hospital Facilities

• If one hospital facility within a hospital organization fails to meet the requirements of section 501(r), the hospital organization may continue to be tax exempt under section 501(c)(3) even though there is an income tax levied upon the income of the noncompliant hospital facility.

Effective Date

• The Final Regulations apply to taxable years beginning after December 29, 2015.