New Requirements for Tax-Exempt Hospitals in Health Reform Law
Filed under: 501(c)(3), Hospital Finances, Nonprofit Hospitals
I. New Requirements for Tax-Exempt Hospitals Embedded in PPACA
Sen. Grassley’s fingerprints are evident in the Patient Protection and Affordable Care Act (H.R. 3950). The Act includes in Section 9007 requirements to appear in new IRC §501(r), which applies to § 501(c)(3) charitable hospitals. Every hospital facility, including each hospital in a multi-hospital system must meet these requirements, which fall within the following categories:
Community Health Needs Assessment and Implementation Strategy. Hospitals must work with community representatives and experts in public health to develop community needs assessment made available to the public, as well as an implementation strategy. This section takes effect in tax years that begin after March 23, 2012. The hospital must include a description of how it is meeting the requirements of this section in its 990 filing. The Secretary of the Treasury is mandated to review a hospital’s community-benefit activities at least once every three years. IRC Section 4959 is amended to provide for a $50,000 fine for failure to meet the community health needs assessment provision of §501(r)(3).
Financial Assistance Policy. Hospitals must develop a financial assistance policy which enumerates a) eligibility criteria, b) an explanation of how hospital charges are calculated, c) the process for applying for financial assistance, and d) whether such assistance includes free or discounted care. If the hospital does not have a separate collections policy, the financial assistance policy must explain what happens if a hospital bill is not paid, including collections actions and reports to credit agencies. The financial assistance policy must be widely publicized throughout the entity’s service area.
Limitations on Patient Charges. Hospital charges for emergency or other medically necessary care provided to patients eligible for financial assistance may not exceed the lowest amounts charged to insured patients, and may not be based upon gross charges.
Limitations on Collections Policies. Collection actions may not be undertaken until the hospital has undertaken reasonable efforts to determine if the patient is eligible for financial assistance.
Finally, the PPACA requires hospitals for the first time to include their audited financial statements with the 990 filings.
II. IRS 990 Version 2.0
The new Informational Return 990 for tax exempt organizations continues to raise philosophical questions about the “federalization of nonprofit law,” particularly with its many questions about governance. As presumably intended by the IRS, its questions about the existence of particular policies such as whistle-blower, document retention, etc., inspired many tax-exempt organizations to create these policies. Many tax-exempt boards are actually seeing their entity’s 990 for the first time, again inspired by a question on the 990 itself.
The 990 for fiscal year 2009 reflects several changes, such as:
- Whether the entity follows the rebuttable-presumption-of-reasonableness procedure described in Reg. 53.4958-6(c);
- Whether the entity has made any significant changes to its program services or organizational documents.
Most important to hospitals is that the completion of Schedule H is mandatory for fiscal year 2009 (completion was optional last year). Questions include:
- Whether the organization uses Federal Poverty Guidelines (FPG) to determine eligibility for providing free or discounted care to low-income individuals;
- Whether the organization budgets for free or discounted care, and whether actual expenditures exceeded the budgeted amount;
- The amount of unreimbursed costs from government programs;
- Whether the organization has a written debt collection policy, and how patients are advised of financial-assistance programs for which they might be eligible;
- Whether the organization creates an annual community-benefit report which it provides to the public.
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