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Affordable Care Act Rules for 501(c)(3) Hospitals

July 5, 2012


The IRS is already moving ahead with provisions of the Patient Protection and Affordable Care Act (the Act), upheld by the US Supreme Court last week.  The IRS has proposed new rules applicable to tax-exempt hospitals that impose the following responsibilities.  Hospital systems must meet these requirements in each hospital afforded tax-exempt treatment.

Community Health Needs Assessment and Implementation Plan.  At least once every three years the hospital must conduct a community health needs assessment, which draws on input from persons representing the community.  The hospital must also adopt a plan to implement measures to meet the community's needs.  The needs assessment must be made widely available to the public.  The Department of the Treasury and the Internal Revenue Service issued guidance addressed to these provisions of the Act in Notice 2011-52 (July 8, 2011).Financial Assistance Policy.  A tax-exempt hospital must have a written financial assistance policy that includes:  eligibility criteria for free or discounted care; the basis for calculating patient charges; an application process for financial assistance; in the absence of a separate billing and collections policy, the consequences of nonpayment; and measures to widely publicize the policy.  No specific policy terms are dictated, but four methods of publicizing the policy are required.

  • Emergency Medical Care Policy.  The written policy must require the hospital to provide emergency care as defined by EMTALA regardless of patients' eligibility for financial assistance under the hospital's policy.  Demanding prepayment before treatment, or collection activity in the emergency room, will jeopardize EMTALA compliance and the prohibition against discrimination against patients eligible for financial assistance. Limitation on Charges.  Persons eligible for financial assistance under the hospital's policy may not be charged more than is customary for insured patients generally.  Two alternative methods for arriving at this customary charge are proposed:  one retrospective and inclusive of private insurer rates and Medicare fee for service (FFS) rates or Medicare FFS alone, and one prospective method based only on Medicare FFS rates.  Medicare Advantage rates are considered equivalent to private insurer rates.  Gross "charge master" charges are prohibited.  Collections.  Before "extraordinary collection actions" are taken, which include any legal or judicial process or consumer credit report, the hospital must make "reasonable efforts" to determine the eligibility of the patient for financial assistance under its policy.  Such efforts include a 120-day notification period, in which the patient must be notified of the financial assistance policy, the application process, and additional information concerning submission of a complete application.  The notification period is followed by a 120-day application period, in which the patient may submit a financial assistance application.  Thus, an eligible patient has 240 days following the first billing statement to submit a financial assistance application, and collection efforts must be suspended upon receipt of a timely application.  If the patient is determined to be eligible after collection, then the hospital must refund overpayments.  Accounts receivable may not be sold to third parties during the application period unless or until eligibility for financial assistance is determined.

See Proposed Rule – Additional Requirements for Charitable Hospitals (77 Fed. Reg. 38148) (July 2, 2012), implementing IRC § 501(r).  The Treasury Department and the IRS will issue additional proposed rules concerning sanctions for failing to satisfy section 501(r) requirements.

For further information or questions regarding the Act and the Supreme Court ruling, please contact the Schwabe attorney with whom you work or Kelly Hagan at 503-796-2423 or