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Healthcare Reform Brings New IRS Requirements for Tax-Exempt Hospitals

September 21, 2010 | Comments Off on Healthcare Reform Brings New IRS Requirements for Tax-Exempt Hospitals
Posted by Beth Christian

If your tax-exempt hospital has not yet formed a task force or committee to work on implementing the additional IRS requirements contained in the Patient Protection and Affordable Care Act (the “PPAC’), now would be a good time to do so.  The law imposes four additional requirements upon tax-exempt hospitals.  Hospitals that fail to meet these requirements will be subject to a $50,000 excise tax.  The four additional requirements include (1) the requirement that a hospital conduct community health needs assessments; (2) the implementation of criteria regarding a facility’s financial assistance policies; (3) limitations on a facility’s charges; and (4) implementation of billing and collection restrictions.
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Each tax-exempt hospital must perform a community health needs assessment at least once every three years.  In addition, the hospital must adopt an implementation strategy to meet the community health needs identified through its assessment.  The assessment must take into account input from individuals who represent the broad interests of the community served by the hospital facility, including those with special knowledge of or expertise in public health.  The community needs assessment must be made widely available to the public.  The community needs assessment applies to taxable years beginning after the date which is two years after the date of the enactment of the Act (i.e., two years after March 23, 2012). 

The IRS will review each hospital’s community benefit activities at least once every three years.  Each hospital will have to prepare a report which describes how it is addressing the needs identified in its community health needs assessment and a description of any such needs that are not being addressed, together with the reasons why such needs are not being addressed.  In addition, the hospital will have to submit its audited financial statements.  Because of the lead time that will be needed to identify applicable stakeholders who will be providing input, as well as the development of criteria and community health needs assessment review tools, hospitals should start thinking about how to implement the community needs assessment process now. 

In addition to the community health needs assessment, tax-exempt hospitals must also implement a written financial assistance policy.  The policy must include (i) eligibility criteria for financial assistance, and whether such assistance includes free or discounted care; (ii) the basis for calculating amounts charged to patients; (iii) the method for applying for financial assistance; (iv) in the case of organizations that do not have a separate billing and collections policies, the actions the hospital may take in the event of nonpayment, including collections action and reporting to credit agencies, and (v) measures to widely publicize the financial assistance policy within the community to be served by the organization. 

Due to New Jersey’s charity care regulations, New Jersey hospitals may already have some of these components in place.  However, current policies may not go into the level of detail required by the new legislation.  In addition, it is unclear how far a hospital will have to go to “widely publicize” its financial assistance policy.  For example, will it be sufficient for the hospital to post signage, as it does in order to meet EMTALA requirements?  If so, how detailed does the signage have to be?  Will the hospital have to publish newspaper notices regarding its financial assistance policy, or provide incoming patients with a copy of the policy?  These are all questions that will need to be answered.  The requirement to adopt a financial assistance policy applies to taxable years beginning after March 23, 2010. 

The financial assistance policy requirements also require the hospital to develop a written policy which requires the hospital to provide, without discrimination, care for emergency medical conditions to individuals regardless of their eligibility under the financial assistance policies referenced above.  It has been our experience that most hospitals already have this type of language in place as part of their EMTALA policies.  It is unclear whether or not the legislation is intended to impose any new requirements with regard to EMTALA. 

The legislation also imposes a limitation on charges.  The amounts charged for emergency or other medically necessary care provided to individuals eligible for assistance under the hospital’s financial assistance policy cannot exceed the lowest amount charged to individuals who have insurance covering such care.  It is not clear whether or not the term “insurance coverage” is intended to refer to Medicare or Medicaid under the law.  In addition, the hospital is prohibited from billing a patient utilizing gross charges.  It is not clear whether or not this prohibition applies to charges levied against all patients, or only to those who are eligible for assistance in the hospital’s financial assistance policy.

With regard to billing and collection requirements, a tax-exempt hospital may not engage in extraordinary collection actions before it has made reasonable efforts in determining whether or not an individual is eligible for assistance under the hospital’s financial assistance policy.  The legislation does not define what is meant by the term “extraordinary collection actions.”  However, it appears that the analysis for financial need would have to take place before the hospital sent the account out to an outside collection agency or initiated credited agency reporting. 

The ability of the IRS to levy a $50,000 excise tax applies to failures which occur after the date of the enactment of the PPAC.  Hospitals should start reviewing relevant policies to determine where adjustments to their existing policies and charge structures need to be made.  While the legislation requires the IRS to issue regulations and guidance as may be necessary to carry out the provisions of the law, hospitals should not wait for the government to act before initiating steps to bring the hospital into compliance with the PPAC.


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