Nonprofit hospitals increasingly are under substantial scrutiny on whether they’re providing sufficient community benefit in exchange for their tax-exempt status. In response to these concerns, the IRS requires extensive reporting on Schedule H of Form 990. Additionally, provisions of the Patient Protection and Affordable Care Act of 2010 (Affordable Care Act) have increased required reporting of charity care, community benefit, billing and collection practices.
Understanding 501(r) Affordable Care Act Requirements
As a tax-exempt hospital, you are required to meet the additional Affordable Care Act requirements set forth in IRC 501(r), but like many hospitals, you may not fully be aware of what’s required. Let’s dive into the four relevant sections of 501(r).
Section 501(r)(3), Community Health Needs Assessment (CHNA)
Section 501(r)(3) involves conducting a community health needs assessment. This requires your hospital to 1) define the community it serves, 2) assess that community’s health needs, 3) solicit and take into account input received from persons who represent the broad interests of that community, 4) document the CHNA in a written report and 5) make the CHNA report widely available to the public.
For a hospital to incorporate a CHNA, it must adopt an implementation strategy that meets the community health needs identified by the CHNA. Your hospital must also conduct a CHNA at least once every three years. If you don’t maintain compliance, a $50,000 excise tax per year of noncompliance will be assessed.
Section 501(r)(4), Financial Assistance Policy (FAP) and Emergency Medical Care Policy
Section 501(r)(4) involves two policies, FAP and emergency medical care.
Your FAP must apply to all emergency and other medically necessary care provided by your hospital and be widely publicized. It must also include:
- Eligibility criteria for financial assistance and whether such assistance includes free or discounted care.
- The basis for calculating amounts charged to patients.
- The method for applying for financial assistance.
- The actions that may be taken for nonpayment in the event a hospital does not have a separate billing and collections policy.
- If applicable, how an individual presumptively can be determined to be eligible under the FAP, and whether and under what circumstances prior FAP-eligibility determinations may be used.
- A list of any providers, other than the hospital, delivering emergency or other medically necessary care in the hospital, that specifies which providers are covered by the hospital facility’s FAP.
As for your emergency medical care policy, 501(r) establishes that your hospital must develop a written policy that requires you to provide care for individuals regardless of whether they are FAP eligible. You’re also prohibited from engaging in actions that discourage individuals from seeking emergency medical care, such as demanding that emergency department (ED) patients pay before receiving treatment for emergency medical conditions, or permitting debt collection activities that interfere with the provision of emergency medical care.
Section 501(r)(5), Limitation on Charges
Section 501(r)(5) requires nonprofit hospitals limit the amount they charge for care they provide to any individual who is eligible for assistance under their FAP. In the case of emergency or other medically necessary care, this is limited to no more than the amounts generally billed (AGB) to individuals who have insurance covering such care. In the case of all other medical care covered under the FAP, this is limited to less than the gross charges for such care.
Your hospital must determine AGB for emergency or other medically necessary care using one of two methods: the look-back method or the prospective Medicare or Medicaid method. Your hospital may only use one of these methods to determine AGB at any one time. However, different hospital facilities may use different methods. Your hospital may change the method it uses to determine AGB at any time.
Section 501(r)(6), Billing and Collection Requirements
And finally, Section 501(r)(6) specifies that nonprofit hospitals must not engage in extraordinary collection actions (ECAs) against an individual to obtain payment for care before it has made efforts to determine whether the individual is eligible for assistance under its FAP.
There are two important things to note here. First, ECAs against the individual include ECAs to obtain payment for the care against any other individual who is required to accept responsibility for the individual’s hospital bill for the care. Second, a hospital will have engaged in an ECA if any party to which the hospital facility has referred the debt (such as a debt collection agency) has engaged in such an ECA or taken steps to.
Either your hospital’s FAP or a separate written billing and collections policy must describe:
- Any actions you may take related to obtaining payment of a bill for medical care, including but not limited to any ECAs.
- The process and timeframe the hospital (or any authorized party) uses in taking action.
- The office, department, committee or other body with the final authority or responsibility for determining that the hospital has made reasonable efforts to determine whether an individual is FAP eligible.
Best Practices to Meet 501(r) Audit Requirements
When going through a 501(r) audit, there are three big things to keep in mind. First, you’ll want to make sure you review all policies to check that you’re compliant with regulations. Second, your procedures must not only be compliant within the policy but also practical to work at all levels of the patient experience. And third, using the three-tier penalty framework, you need to make sure you have all of the required corrections and Form 990 disclosures.
This may all seem obvious, but you’d be surprised at what can slip through the cracks, especially when there’s a lot to prepare or you’re scrambling to meet a deadline. In terms of more detailed best practices to help your hospital prepare for your 501(r) audit, we’ve put together vital questions to ask yourself below, based on our experiences:
Community Health Needs Assessment (CHNA)
- Are both your prior and current CHNA available on your website?
- Can you easily find your CHNA on your website?
- Do you have both a CHNA and an implementation strategy that was adopted by an authorized body, and do you know the date of adoption?
Financial Assistance and Billing & Collections Policies
- Do you have committee minutes describing your hospital’s actions in widely publicizing its financial assistance policy (FAP)?
- Is the FAP, FAP application and plain-language summary of the FAP available on your website?
- Have you updated the list of providers that are not included in your FAP? Is this list easy to find?
- Do you have a designated person within your organization who can lead the IRS through your billing and collection procedures?
- If you are using the look-back method for determining 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 engaging in actions that discourage individuals from seeking emergency care?
Form 990 Disclosure
- Are you updating your Form 990 as needed on a timely basis to help prevent errors?
- Is your Schedule H verbiage updated year-to-year to include your progress with your CHNA objectives?
These are all insights we at Wipfli have gathered from past 501(r) audits that we’ve helped clients prepare for and undergo. If you have questions about 501(r)’s requirements, how to comply with those requirements or how to prepare for a 501(r) audit, contact Wipfli today.
“Financial Assistance Policy and Emergency Medical Care Policy,” Section 501(r)(4), Internal Revenue Service (IRS), accessed December 2018.