The Treasury Department issued proposed regulations under Section 501(r) of the Internal Revenue Code (“IRC”), which was enacted as part of the Patient Protection and Affordable Care Act and the Health Care and Education Affordability Reconciliation Act (collectively “ACA”). As proposed regulations, the regulations are not final or binding upon taxpayers, but they may be relied upon until final regulations are issued. After March 23, 20120, a hospital must fulfill the requirements described in IRC §501(r) in addition to the requirements of IRC §501(c)(3).
The proposed regulations provide guidance for IRC §501(r)(4) through IRC §501(r)(6), concerning a Hospitals’ financial assistance policy, limitations on charges, and billing and collection requirements. Because the ACA survived opponents’ constitutional attacks in National Federation of Independent Businesses v. Sebelius, decided by the Supreme Court on June 28, 2012, hospitals must continue to implement the new stipulations of IRC §501(r). Hospitals may apply the guidance provided in the proposed regulations to assist in compliance with IRC §501(r) to remain tax-exempt.
The proposed regulations first make some semantic clarifications. A “hospital facility” is a facility that is required by state law to be licensed, registered, or similarly recognized as a hospital. If a hospital organization operates more than one hospital facility, then each facility must individually meet the IRC §501(r) requirements.
IRC §501(r)(4) requires a hospital organization to establish a written financial assistance policy (FAP). The FAP must include: (1) eligibility criteria for financial assistance and whether such assistance includes free or discounted care; (2) the basis for calculating amounts charged to patients; (3) the method for applying for financial assistance; (4) in the case of an organization that does not have a separate billings and collections policy, the actions the hospital organization may take in the event of nonpayment; and (5) measures to widely publicize the policy within the community served. The proposed regulations do not mandate any particular eligibility criteria. A hospital has the freedom to structure the eligibility standards of its FAP, so long as it specifies the financial assistance available and the criteria for qualification.
Under the proposed regulations, hospitals must take four specific measures to widely publicize the FAP. The hospital organization must have hard copies of the FAP available for interested persons, conspicuously display the FAP within the hospital, communicate information about the FAP to community members most likely to require financial assistance, and post the FAP materials on the hospital’s web page. In addition, if more than 10% of a hospital’s community speaks a non-English language, the FAP must be available in that language. This section lastly requires hospital facilities to adopt a written policy stating that they will provide, without discrimination, care for emergency medical conditions to individuals, regardless of their FAP eligibility.
IRC §501(r)(5) states that a hospital facility must limit the amount charged for any medically necessary care it provides to a FAP-eligible individual to not more than the amounts generally billed to individuals with insurance covering that care (AGB). The proposed regulations provide two methods for hospitals to determine AGB, the “look back or the “prospective” method, and a hospital may use only one of the methods. The “look back” method calculates the AGB based on all past claims that have been paid in full to the hospital facility for medically necessary care by either Medicare fee-for-service alone or by Medicare fee-for-service together with all private health insurers paying claims to the hospital. The “prospective” method bases the AGB on an estimate of the amount that would be paid by Medicare and a Medicare beneficiary for the medically necessary care at issue if the FAP-eligible individual were a Medicare fee-for-service beneficiary.
The regulations also prohibit hospitals from charging FAP-eligible individuals the gross charge of their medical care, which is the full, established price for the medical care that a hospital uniformly charges all patients before applying any contractual allowances, discounts, or deductions. If, however, the hospital does not know whether an individual is FAP-eligible, the proposed regulations provide a “safe harbor”; the hospital can bill the person its usual charges and still be compliant, as long as it makes attempts to determine whether the person is eligible for financial assistance. If the hospital determines that the individual is eligible, it must refund any excess payments.
IRC §501(r)(6) provides that a hospital cannot engage in extraordinary collection actions (ECAs) against an individual before it makes a reasonable effort to determine whether the individual is eligible for financial assistance. The proposed regulations define the terms “extraordinary collection actions” and “reasonable effort.” ECAs are any actions taken by a hospital facility against an individual, related to obtaining payment of a bill for care covered under the hospital’s FAP, that require legal or judicial process. Such actions include foreclosure on the individual’s real estate or placing a lien on an individual’s property. Deferring or denying medical care because of a pattern of nonpayment is not considered an ECA. A hospital has made reasonable efforts to determine an individual’s FAP eligibility if the hospital: (1) Notifies the individual about the FAP; (2) in the case of an incomplete FAP application, provides the individual with information relevant to completing the application; and (3) in the case of a complete FAP application, makes and documents a determination as to whether the individual is FAP-eligible. Hospitals have 120 days following a first bill to notify an individual about financial assistance, and patients have an additional 120 days to submit a complete application.
The Treasury Department’s proposed regulations do not address IRC §501(r)(3), which requires hospitals to conduct community health needs assessments (CHNAs). However, the IRS issued such guidance in a previous notice. In Notice 2011-52, the IRS stated that a CHNA must have certain components. A CHNA must describe the community served and how the community was determined, as well as the processes and methods used to conduct the assessment. The CHNA must identify any organizations with which the hospital facility collaborated in completing the CHNA and any public health experts it consulted. Finally, the CHNA must prioritize the community health needs and discuss the existing resources available to meet these needs. The hospital must include a strategy for implementing the CHNA and make the assessment available to the public. Notice 2011-52 also states that a hospital can incur penalties for noncompliance, such as a $50,000 excise tax for each year of noncompliance and a loss of its tax-exempt status. A hospital must complete its CHNA by the last day of its first taxable year beginning after March 23, 2012.
Hospitals can no longer wait to comply with IRC §501(r) requirements. Hospitals should compare the proposed regulations with their current policies to see if they can be easily implemented. For more information on how the proposed regulations may affect your organization, you may contact any of Jackson Kelly, PLLC’s Health Care and Finance attorneys.