In Part I, we covered IRS compliance checks in the Section 501(r) and the importance of hospitals completing their own periodic assessment to strengthen ties with patients and the community, as well as ensure compliance.
There are several particulars to each Section of 501(r) that apply to tax-exempt hospitals. Part II will only cover the highlights that are most relevant to our 501(c)(3) hospital clients.
Each 501(c)(3) hospital organization is required to meet four general requirements on a facility-by-facility basis:
- Community health needs assessment (CHNA) – including an implementation strategy
- Financial assistance policy (FAP) – including an Emergency Medical Care Policy (EMCP)
- Limitation on charges
- Billing and collection policy
Community Health Needs Assessment
Section 501(r)(3) focuses on the Community Health Needs Assessment (CHNA) conducted every three years. The intention of the CHNA requirement is to hold nonprofit hospitals accountable for meeting health needs as a condition for maintaining tax-exempt status. A CHNA is a comprehensive report that includes a definition of the community the hospital serves, how the report was conducted, and a prioritized description of the significant health needs identified within the community. The report covers efforts made to encourage feedback from low-income, medically underserved minority populations and others that represent the broader interests of the community it serves. A CHNA is considered completed once the report is adopted by an authorized body of the hospital and made widely available to the public.
A quick test to determine if your hospital meets the three-year requirement is to verify whether the CHNA was conducted in the current fiscal year or either of the two preceding years. If not, then a new report is required by the end of the fiscal year.
A hospital is permitted to conduct its CHNA in collaboration with other organizations as long as its CHNA is documented in a separate report. CHNA reports of collaborating hospital facilities should differ to reflect any material differences in the communities served. Additionally, if a governmental public health department has conducted a CHNA for all or part of a hospital facility’s community, portions of the facility’s report may be substantively identical to those portions of the health department’s report that address the hospital facility’s community.
Implementation Strategy
The implementation strategy is a written plan for each significant health need identified in the CHNA. The plan describes how to address the health need or explains why the hospital does not intend to address the health need. When describing how your facility plans to address the identified need, detail the actions the facility intends to take to address the health need, the anticipated impact of these actions, resources identified to address the health need, and any planned collaboration with other facilities or organizations. This must be done on or before the fifteenth day of the fifth month after the end of the fiscal year in which the hospital facility finishes conducting the CHNA.
Since the CHNA must be completed every three years, the report can also be a resource used in strategic planning. Coordinate the hospital’s strategic plans with its implementation strategy to build a long-term plan. This report is an opportunity to show dedication of resources to improving the health of the community through managing health rather than just providing services.
Financial Assistance Policy
Section 501(r)(4) requires hospital facilities to establish two types of policies for financial assistance. The intention is to assure that patients and the community at large (including those with language barriers) are aware that financial assistance is available and are provided adequate time to apply and submit required information and documentation.
The FAP must apply to all medically necessary care, including emergency services. It needs to establish criteria for financial assistance, including free or discounted care, how to apply for assistance, and how patients are charged. If there is no separate billing and collection policy, the FAP must also include the actions that are allowed in the event of nonpayment. The FAP must also include a description of how it is “widely publicized” to the community, typically using a combination of posting on the hospital’s website, attaching the policies to invoices, posting policies in emergency rooms and waiting rooms, and distribution through the admissions office. The FAP must also include a list of providers, other than the hospital itself, delivering emergency or medically necessary care in the hospital facility, as well as specify which providers are covered by the hospital’s FAP and which are not.
The plain language summary of the FAP is a written statement that notifies an individual the hospital offers financial assistance. The summary is meant to provide additional information in language that is clear, concise, and easy to understand, as well as the availability of translations of the FAP documents, if applicable.
Hospitals must accommodate all significant populations that have limited English proficiency (LEP) by translating the FAP documents into the primary language spoken by these populations. The translations should be made available in all the same ways the English version is available.
The emergency medical care policy (EMCP) requires a hospital to provide, without discrimination, care for emergency medical conditions to individuals, regardless of whether they are FAP-eligible. Emergency medical conditions are defined in the Emergency Medical Treatment and Labor Act (EMTALA), Section 1867 of the Social Security Act. This policy prohibits the hospital from engaging in actions that discourage individuals from seeking emergency medical care.
Limitations On Charges
Expanding on the financial assistance policy, Section 501(r)(5) covers the limitations on charges a hospital can bill its FAP-eligible patients. This section assures that eligible patients are required to pay no more than the amounts received by the hospital for insured patients. A hospital may use only one method to determine amounts generally billed (AGB) at any one time by using the look-back or the prospective method. The AGB limitation applies to all individuals eligible for assistance under the hospital facility’s FAP, without specific reference to their being insured or uninsured.
A hospital choosing the look-back method may calculate the AGB percentage as an average of all gross charges or alternatively, may calculate multiple AGB percentages for separate categories of care (such as inpatient and outpatient care or care provided by different departments) or for separate items or services, as long as the hospital calculates AGB percentages for all emergency and other medically necessary care provided by the facility. Typically, Hospitals have discretion regarding how to structure its sliding fee scale discount schedule if the complexity of the structure does not create a barrier to care.
A hospital is permitted to change the method it uses to determine AGB at any time. The FAP must describe the method used to determine AGB; therefore, a hospital facility that changes its AGB calculation method must update its FAP to describe the new method before it is implemented.
Billing and Collection Policy
Section 501(r)(6) exclusively deals with how hospital facilities engage in billing and collection activities concerning FAP-eligible patients. Before engaging in extraordinary collection actions (ECA), a hospital must make reasonable efforts at determining if the patient qualifies for assistance under the FAP. Hospitals are accountable for the ECAs of the debt collection agencies and debt buyers to which they refer or sell debt.
A hospital is considered to have made a reasonable effort to determine if an individual is FAP-eligible if:
- The hospital facility notifies the individual about the FAP before initiating any ECAs to obtain payment for the care and refrains from initiating such ECAs for at least 120 days from the date the hospital facility provides the first post-discharge billing statement.
- In the case of an individual who submits an incomplete FAP application during the 240-day application period, the hospital facility notifies the individual about how to complete the FAP application and gives the individual a reasonable opportunity to do so.
- In the case of an individual who submits a complete FAP application during the 240-day application period, the hospital facility determines whether the individual is FAP-eligible for the care.
- The application period may be longer than 240 days, as a hospital facility must notify an individual at least 30 days before initiating one or more ECAs to obtain.
A hospital facility may continue to accept and process FAP applications from patients at any time.
Reporting
Tax-exempt hospitals report information on policies and practices that are addressed in Section 501(r) in Part V, Section B of Schedule H. This section asks for information concerning each hospital’s CHNA, financial assistance, emergency medical care, and billing and collection policies. The hospital organization must complete a separate Section B for each of its hospital facilities listed in Section A of Schedule H. A “hospital facility” is a facility that is required by a state to be licensed, registered, or similarly recognized as a hospital. As a result of the Patient Protection and Affordable Care Act enacted by Congress in March of 2010, the Internal Revenue Service (IRS) is required to perform a desk review of the Form 990, Schedule H of each hospital at least once every three years to ensure compliance with Section 501(r) requirements.
Management Responsibilities
The Hospital should designate an individual(s) with suitable knowledge or experience to monitor the 501(r) requirements on a regular basis and perform periodic assessments to ensure continued compliance and update any policies and procedures as necessary. Verifying hospital’s compliance is about fixing current issues, but also about making sure internal controls and processes are in place to monitor compliance over time, and consistently, in the event of turnover. This includes coordination of different departments that contribute to Section 501(r) compliance.
Government hospitals with dual status that do not wish to comply with the requirements of Section 501(r) may submit a request to voluntarily terminate their Section 501(c)(3) recognition, as described in section 3.01(12) of Revenue Procedure 2018-5 (or a successor revenue procedure). Before considering voluntarily terminating 501(c)(3) recognition, we recommend doing a pro-versus-con analysis and determine if your pension plan requires 501(c)(3) status.
Closing
If you have questions, need a 501(r) compliance tool, or need assistance with a 501(r) compliance analysis, contact DZA today.
