Wipfli logo
Insights - Articles, Blogs and on-demand webcasts

Articles & E-Books


How to comply with 501r Affordable Care Act requirements

Dec 13, 2018

Nonprofit hospitals are under substantial scrutiny over whether they’re providing enough community benefit to warrant a tax-exempt status. In response, the IRS is asking for extensive reporting on Schedule H of Form 990. Some provisions of the Affordable Care Act have increased reporting mandates, too. Nonprofit hospitals must report on charity care, community benefit, billing and collection practices.

Make sure you understand how to comply with IRC 501(r). There are four relevant sections:

1. Section 501(r)(3), Community Health Needs Assessment

Nonprofit hospitals must conduct a community health needs assessment (CHNA) at least every three years that:

  • Defines the community they serve
  • Assesses that community’s health needs
  • Solicits and applies input from people within that community

The CHNA must be documented in a written report and made publicly available. Hospitals also need a strategy to meet community health needs that are identified in the CHNA. Failure to maintain compliance is a $500,000 excise tax per year of noncompliance.

2. Section 501(r)(4), Financial Assistance and Emergency Medical Care

Section 501(r)(4) covers two areas: a financial assistance policy (FAP) that encompasses all emergency and medically necessary care, and an emergency medical care policy.

Your FAP must be widely publicized and include:

  • Eligibility criteria for financial assistance and whether it includes free or discounted care.
  • The basis for calculating amounts charged to patients.
  • The method for applying for financial assistance.
  • Actions that may be taken for nonpayment (if you don’t have a separate billing and collections policy).
  • How eligibility is determined under the FAP and whether prior FAP-eligibility determinations may be used.
  • A list of providers, other than the hospital, that deliver emergency or other medically necessary care in the hospital. The list should specify which providers are covered by the hospital facility’s FAP.

You must also have a written emergency medical care policy stating that you will care for individuals regardless of their FAP eligibility. Section 501(r)(4) also prohibits actions that discourage people from seeking emergency medical care, such as demanding payment before receiving treatment for emergency medical conditions or permitting debt collection activities that interfere with emergency medical care.

3. Section 501(r)(5), Limitation on Charges

Per Section 501(r)(5), there’s a limit to what hospitals can charge patients who are eligible for assistance under their FAP. In the case of emergency or other medically necessary care, charges cannot be more than the amounts generally billed (AGB) to individuals who have insurance coverage for such care. For all other medical care covered under the FAP, patient charges must be less than the gross charges for such care.

Determine AGB one of two ways: the look-back method or the prospective Medicare or Medicaid method. You may only use one method to determine AGB at a time. However, different facilities may use different methods, and you may change the method used to calculate AGB at any time.

4. Section 501(r)(6), Billing and Collection Requirements

Nonprofit hospitals must try to determine an individual’s eligibility for assistance before engaging in extraordinary collection actions (ECAs).

There are two important things to note here. First, ECAs include efforts to collect payment from any individual who is required to accept financial responsibility for the patient’s hospital bill. Second, it’s considered an ECA if any party the hospital refers debt to engages in an ECA (e.g., debt collection agencies).

In addition, your hospital’s FAP (or billing and collections policy) must describe in writing:

  • Any actions you may take to obtain payment (including ECAs).
  • The process and timeframe the hospital (or any authorized party) uses to take action.
  • The office, department or committee, etc., that decides the hospital made reasonable efforts to determine FAP eligibility.

Best practices to meet 501(r) audit requirements

When going through a 501(r) audit, there are three big things to keep in mind: policies, procedures and penalties.

  • Review all policies to ensure they’re compliant with the current regulations.
  • In addition to being compliant, procedures must be practical across the patient experience.
  • Use the three-tier penalty framework to ensure you have all the required corrections and Form 990 disclosures.

501(r) audit checklist

When there’s a lot to prepare and deadlines to meet, important details can slip through the cracks. Use a checklist to cover vital questions:


Community Health Needs Assessment (CHNA)

  • Are prior and current CHNAs available on your website?
  • Is your CHNA easy to find on your website?
  • Do you have a CHNA and an implementation strategy?
  • Was the strategy adopted by an authorized body? Do you know the date of adoption?

Financial Assistance Policy (FAP) and Billing & Collections Policies

  • Do you have committee minutes describing your hospital’s actions to widely publicize its FAP?
  • Does your website include a plain-language summary of the FAP?
  • Is a financial assistance application on your website?
  • Have you updated the list of providers that are not included in your FAP? Is the list easy to find?
  • Is there a designated person who can lead the IRS through your billing and collection procedures?
  • If you use the look-back method to determine AGB, are you updating your percentage on an annual basis and altering your policy for this change?

Emergency Medical Policy

  • Does your emergency medical policy have language that explicitly prohibits staff from discouraging individuals from seeking emergency care?

Form 990 Disclosure

  • Are you updating your Form 990 on a timely basis to help prevent errors?
  • Is your Schedule H verbiage updated year-to-year to include progress on your CHNA objectives?

How Wipfli can help

Checklists are just the beginning. Wipfli also has valuable insight and experience from helping clients prepare for and undergo 501(r) audits. If you have questions about the requirements or how to comply, contact us today.

We know nonprofit hospitals are invaluable to their communities. We’re ready to help you prove your worth and prepare for a successful 501(r) audit.

Sign up to receive additional healthcare content and information in your inbox, or continue reading on:


Wipfli logo square

Wipfli Editorial Team