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IRS Issues Proposed Regulations on Patient Account Related Requirements for Charitable Hospitals

IRS Issues Proposed Regulations on Patient Account Related Requirements for Charitable Hospitals

Health Care Law Note
(June 2012)

On Friday, June 22, 2012, the IRS issued proposed regulations concerning certain requirements for charitable hospitals under Internal Revenue Code Section 501(r), which was enacted as part of the Patient Protection and Affordable Care Act of 2010 ("PPACA"). If and when they become final, the proposed regulations will affect the handling of patient accounts in a number of ways. This latest announcement adds to previously published guidance regarding the section 501(r) community health needs assessment requirements.

The proposed regulations focus on (1) financial assistance and emergency care policies, (2) charges for certain care provided to individuals eligible for financial assistance, and (3) billing and collections and impose significant limitations and requirements in all three areas. The stated goal of the IRS and the Treasury Department in drafting the proposed regulations was "to ensure that patients who may require financial assistance – and the patient advocacy groups that assist them – will have access to the information about a hospital facility's FAP [financial assistance policy] that the patients need in order to effectively seek financial assistance under the FAP."

Under the proposed regulations, tax-exempt hospitals must:

  • "Establish" (an authorized body must adopt and the hospital must implement) written financial assistance policies applicable to all emergency and other medically necessary care provided by the hospitals;
  • Have a financial assistance policy that, in general, must include: (1) eligibility criteria for financial assistance, (2) the basis for calculating the amounts charged to patients; (3) the method of applying for financial assistance; (4) in the absence of a separate billing and collections policy, the actions the hospital may take in the event of nonpayment; and (5) the measures the hospital will take to widely publicize the financial assistance policy within the community served by the hospital facility;
  • Widely publicize their financial assistance policies by meeting four specific requirements;
  • Post their financial assistance policies online in an easily accessible manner;
  • Establish a written emergency care policy that requires a hospital to provide care for emergency medical conditions (as defined by EMTALA) to individuals, regardless of their eligibility under the hospital's financial assistance policy and without discrimination;
  • Limit the charges billed to patients who qualify for the financial assistance policy to "not more than the amounts generally billed to individuals who have insurance covering such care" subject to a safe harbor;
  • Under section 501(r), not bill "gross charges" to patients needing financial assistance, which are defined as a hospital's "full, established price for medical care that the hospital facility consistently and uniformly charges all patients before applying any contractual allowances, discounts, or deductions";
  • Undertake "reasonable efforts" to ensure that patients do not qualify for the financial assistance policy before engaging in "extraordinary collection actions";
  • Accept applications for financial assistance for 240 days following the first billing statement; and
  • Meet specific standards concerning how they may determine how much to charge financial assistance patients.

The proposed regulations clarify who counts as a "hospital organization" that must satisfy the requirements of section 501(r). A "hospital organization" is "any organization recognized (or seeking to be recognized) as described in section 501(c)(3) that operates one or more hospital facilities." A "hospital facility" is "a facility that is required by a state to be licensed, registered or similarly recognized as a hospital." Except as otherwise required, multiple buildings operated under a single state license may be considered a single hospital facility. Under section 501(r) and the proposed regulations, every hospital organization must meet the section 501(r) requirements for every hospital facility it operates.

The proposed regulations do not address the consequences for failure to meet the requirements of section 501(r). However, the Preamble notes that prior comments requested guidance, that the IRS is considering those comments, and that the IRS will address this issue at a later date.

As noted above, PPACA also requires tax-exempt hospitals to conduct community health needs assessments ("CHNA's") to show that their charitable activities are benefiting specific local needs every three years. The IRS provided some guidance and invited public comment on the CHNA requirements in Notice 2011-52. The proposed regulations issued on June 22, 2012 do not address CHNA's. The IRS continues to promise the release of proposed regulations to implement the CHNA requirement at a future date.

The proposed regulations are available online at: Comments and requests for hearing concerning these proposed regulations must be received by September 24, 2012.

If you desire assistance in submitting written comments or evaluating the proposed regulations and their potential impact on your organization, please contact: Maureen Demarest Murray at or 336-378-5258; or Toby Watt at or 404-962-1026.

Maureen Demarest Murray
T (336) 378-5258
F (336) 433-7468
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