New Requirements for Tax-Exempt Hospitals in Health Reform Law

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.

Robert Wood Johnson Foundation Looks to Help “Navigate” Health Care Reform

photo by aulia.m via flickr

As we posted back in January, “California Foundations Advocate for Health Care Reform,” the L.A. Times had reported that Paul Brest, “president of the William and Flora Hewlett Foundation in Menlo Park and author of a book on philanthropic strategies” stated that: “What I’ve seen is foundations moving from thinking all we needed to do is support good research in the field and the rest will happen to realizing that unless we are going to support organizations to take the research and try to turn it into policy, then the research is going to sit in the bottom of a pile somewhere.” With a noted caveat (”Advocacy is risky for foundations, since most are categorized by the IRS as 501(c) nonprofits, which restricts them from direct lobbying or participation in partisan politics.”), one welcomes the foundations and their massive intellectual and financial capital further into the fray. They hold the talent and ability of some of the best and brightest among us.

Having said that, the Robert Wood Johnson Foundation (RWJF) has advanced the battle line one smart step forward. Whereas the lobbying spoken of above goes to delivery of the “message,” RWJF has undertaken to put the message in a more deliverable form.

There’s an interesting post on the subject over at the RWJF Health Reform Blog, The Users’ Guide to the Health Reform Galaxy. The post was written by Brian Quinn, Ph.D, a program officer in the RWJF Research and Evaluation Unit, and goes to the question of form regarding applied research, or “How to package the evidence for health reform.”

Mr. Quinn smartly points out that considering the abundance and complexity of journal articles and reports intent on health reform that each day brings, without some form of translation and synthesis geared to those who will actually make decisions about health reform, the “applied” portion of “applied research” may turn out to be nothing more than just an intent.

As a means of cultivating application, and assuring that worthwhile research doesn’t languish “at the bottom of the pile,” RWJF has initiated the Synthesis Project, “to produce user-friendly briefs and reports that synthesize research findings on perennial health policy questions.” The Project is timely and their work is well worth a look.

At the end of a post the other day, I noted some personal experience relating to the sensibility of providing cancer patients with “Navigators” to help them best understand and utilize the health care resources at hand. I finished the post by stating: “It is simply not reasonable to think that patients will do (or do well) that which they do not understand.” Substitute “policy makers” for “patients” and the statement still holds true.

California Foundations Advocate for Health Care Reform

The Los Angeles Times reports that “Nonprofits have dropped their usual detachment to crusade for healthcare reform in California, opening Sacramento offices staffed by former aides to lawmakers.” Apparently not satisfied with the results garnered through “years of financing studies and demonstration projects,” “California philanthropic foundations and think tanks are shedding their traditionally detached stances to crusade for healthcare reform in the state Capitol and in Congress.”

To lead this crusade, a number of foundations have hired high profile figures to advocate their ideas to policy makers, and, in some instances, foundations have promoted those ideas to the wider public as well. In defense of the practices, the LA Times reports that “Foundation leaders emphasize they have no interest in direct lobbying and that they promote ideas that are based in evidence, not ideology.”

Paul Brest, “president of the William and Flora Hewlett Foundation in Menlo Park and author of a book on philanthropic strategies” is quoted as saying: “What I’ve seen is foundations moving from thinking all we needed to do is support good research in the field and the rest will happen to realizing that unless we are going to support organizations to take the research and try to turn it into policy, then the research is going to sit in the bottom of a pile somewhere.”

Beware the IRS
The article also points out, however, that “Advocacy is risky for foundations, since most are categorized by the IRS as 501(c) nonprofits, which restricts them from direct lobbying or participation in partisan politics.” The experts of “The New America Foundation, a Washington, D.C.-based think tank underwritten by foundations,” are said to have “so much contact with lawmakers that the foundation requires them to keep track of their hours to ensure they do not exceed lobbying limits set on nonprofits.”

Despite the risks, the LA Times reports that “With billions of dollars at their disposal, the foundations are seeking to become bigger players.” Read full story here.