United States: Are You Ready?—Section 501(R) Final Regulation Deadline Coming December 29, 2015

Last Updated: December 8 2015
Article by Tracey L. Klein and Bradley M. Dennis

Nearly five years after the passage of the Patient Protection and Affordable Care Act of 2010 ("PPACA"), charitable hospitals covered by Internal Revenue Code ("IRC") section 501(c)(3) will need to comply with the final regulations for financial assistance policies ("FAPs") and billing and collection policies ("BACs"), among other requirements under IRC section 501(r). Specifically, the final regulations apply to taxable years beginning after December 29, 2015—meaning many charitable hospitals will need fully compliant policies and procedures beginning January 1.

Background

IRC section 501(r) was added to the IRC by the PPACA, enacted March 23, 2010 and imposes additional requirements on charitable hospitals. IRC section 501(r) provides that a hospital described in IRC section 501(r)(2) will not be treated as a tax-exempt organization described in IRC section 501(c)(3) unless the organization meets the requirements of IRC sections 501(r)(3-6).

  • Section 501(r)(3) requires a charitable hospital to conduct a community health needs assessment ("CHNA") at least once every three years and to adopt an implementation strategy to meet the community health needs identified through the CHNA.
  • Section 501(r)(4) requires a charitable hospital to establish a written FAP and a written policy relating to emergency medical care.
  • Section 501(r)(5) requires a charitable hospital to charge eligible individuals less than gross charges for any medical care covered by the FAP, and to limit amounts charged for emergency or other medically necessary care provided to eligible individuals to not more than the amounts generally billed ("AGB") to individuals who have insurance covering such care.
  • Section 501(r)(6) requires a charitable hospital to make reasonable efforts to determine whether an individual is FAP-eligible before engaging in extraordinary collection actions ("ECAs").

Since the initial passage of IRC section 501(r), the Treasury Department and the Internal Revenue Service ("IRS") have struggled to craft companion regulation. Proposed regulations were released in 2012 regarding FAPs and BACs, with subsequent regulations relating to CHNAs being released in 2013. Due to the long delay of the final regulations, the IRS published a formal notice in January 2014 stating that charitable hospitals could rely on both the 2012 and 2013 proposed regulations, pending the publication of final regulations or other applicable guidance. Finally, on December 31, 2014, the IRS released the final regulations regarding FAPs, BACs and CHNAs (the "Final Regulations").

Clarity on the "Effective Date"

One common misconception that many charitable hospitals have had over the past five years has been the belief that IRC section 501(r) is not effective until the Final Regulations' deadline. In reality, however, charitable hospitals have been required to be in compliance with the statutory IRC section 501(r) requirements beginning as early as 2010. The statutory requirements of IRC section 501(r), with the exception of IRC section 501(r)(3), applied to taxable years beginning after March 23, 2010. IRC section 501(r)(3) applied to taxable years beginning after March 23, 2012.

Charitable hospitals, however, have until the taxable year beginning after December 29, 2015 to fully implement the specific provisions of the Final Regulations. Prior to such deadline, the Final Regulations state that hospitals may rely on a "reasonable, good faith interpretation" of IRC section 501(r) to meets its statutory requirements. The Final Regulations go on to state that hospitals that comply with the 2012 and 2013 proposed regulations "will be deemed" to be in full compliance with the statutory requirements of IRC section 501(r) until the Final Regulation's compliance deadline. Therefore, even if your hospital's next tax year does not begin until July 1, immediate action may still be necessary to demonstrate reasonable, good faith compliance.

Penalties for Noncompliance

Revocation of Tax-Exempt Status. A charitable hospital failing to meet one or more of the requirements of section 501(r) may have its section 501(c)(3) status revoked as of the first day of the taxable year in which the failure occurs. In determining whether to take such a action, the IRS will consider, among other relevant facts and circumstances: the hospital's history of noncompliance; the size, scope, nature and significance of the hospital's failure(s); the reason for the failure(s); whether the hospital had policies and safeguards in place reasonably designed to facilitate compliance; whether the failure(s) was promptly corrected; and whether correction came before IRS intervention.

Taxation of Noncompliant Hospitals. In the event that a hospital organization (as described in IRC section 501(c)(3)) with multiple charitable hospitals has one or more—but not all—of its hospitals separately fail to comply with IRC section 501(r), the income derived from the noncompliant hospital facility may be subject to taxation if the noncompliant hospital would have had its status revoked as outlined above, if it were the only hospital in the organization. Despite the potential taxation, noncompliance will not, by itself, affect the tax-exempt status of bonds issued by the noncompliant hospital.

Minor Errors and Omissions. The Final Regulations recognize that even if a hospital has policies and safeguards reasonably aimed at complying with IRC section 501(r), minor errors and omissions may still occur. As such, the Final Regulations explain that a hospital's omission of required information from a policy or report described in section 1.501(r)–3 (CHNA) or section 1.501(r)–4 (FAP) of the Final Regulations, or an error with respect to the implementation or operational requirements described in sections 1.501(r)–3 through 1.501(r)–6 of the Final Regulations, will not be considered a failure to meet a requirement of IRC section 501(r) if certain conditions are satisfied. These conditions include that:

  • such omission or error was minor and either inadvertent or due to reasonable cause;
  • the hospital promptly corrects the error or omission; and
  • such correction includes the establishment (or review and, if necessary, revision) of practices or procedures that are reasonably designed to promote and facilitate overall compliance with IRC section 501(r).

Errors or omissions rising above the level of "minor" will require disclosure in accordance with rules set forth by revenue procedure, notice or other guidance published in the Internal Revenue Bulletin. The IRS will, however, excuse certain failures if the hospital corrects the error or omission, and such error or omission was neither "willful" nor "egregious" as defined by the Final Regulations.

CHNA Excise Tax. If a hospital organization fails to meet the requirements of IRC section 501(r)(3) separately with respect to a charitable hospital it operates in any taxable year, a $50,000 tax on the hospital organization will be imposed. If a hospital organization operates multiple hospitals and fails to meet the requirements of IRC section 501(r)(3) with respect to more than one hospital, the $50,000 tax will be imposed on the hospital organization separately for each hospital's failure.

Compliance with State Laws

The Final Regulations do not contain any provisions equating compliance with one or more requirements in applicable state law to compliance with one or more of the requirements in the Final Regulations. Furthermore, the Final Regulations are not intended to preempt any state laws or regulations, and any additional or stricter requirements under a state's laws or regulations will continue to apply to hospitals licensed in that state. As some hospitals have already begun to discover, this can mean substantial analysis to determine how state and federal requirements fit together including, among other issues, notice and collection timing, minimum levels of assistance and billing statement contents.

Are You Compliant?

As you begin to finalize your IRC section 501(r)-compliant policies and procedures, please use the following questions to begin your final compliance review. Although these questions do not represent a comprehensive compliance checklist, they should help you gain a clearer sense of whether your organization has taken steps to meet its IRC section 501(r) obligations.

  • Have you conducted your CHNA?
  • What AGB calculation method have you used and what payment sources are included? Does your FAP convey this information?
  • Are you using one AGB percentage, or separate percentages for different categories of care or departments?
  • Have you compared your AGB percentage to discounts currently offered to determine if any current discounts fall below the AGB minimum (this may be an issue even for current state mandated discounts)?
  • Does a gross charge limit apply (i.e., does your FAP include non-medically necessary care)?
  • Is your provider list up to date and how is it incorporated into the FAP?
  • Is your FAP "widely publicized" including, but not limited to, posting the FAP, FAP application form and a plain language summary of the FAP on your website?
  • Are your billing and collection notice and ECA deadlines compliant with both state and federal requirements?
  • Do you provide required refunds for care ultimately decided to be covered by the FAP?
  • Have you reviewed your contracts with third-party debt collectors for the required elements?

Helpful Links

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Tracey L. Klein
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions