Health Law Monitor

IRS Releases Guidance For Charitable Hospital Organizations and ACA-Mandated Financial Assistance Policies

July 1, 2015

This month, the IRS released Notice 2015-46, which provides further guidance for charitable hospitals to comply with Treasury Regulation (“Treas. Reg.”) § 1.501(r)-4(b)(1)(iii)(F), which requires that a hospital facility include a provider list in its financial assistance policy (“FAP”) in order to maintain its tax-exempt status. Section 501(r)(1) of the Internal Revenue Code provides that a hospital organization described in § 501(r)(2) will not be treated as a non-profit entity described in § 501(c)(3) unless the organization meets the requirements of § 501(r)(3) through (r)(6). A failure to meet the requirements of § 501(r) that is neither willful nor egregious is excused if the hospital facility corrects and discloses the failure in accordance with IRS Revenue Procedure 2015-21. See Treas. Reg. § 1.501(r)-2(c). A hospital facility's omission or error relating to the § 501(r) requirements that is minor and either inadvertent or due to reasonable cause will not be considered a failure to meet a requirement of § 501(r) and subsequently stripped of its tax-exempt status if the hospital facility corrects such omission or error as soon as possible after discovery. See Treas. Reg. § 1.501(r)-2(b).

Section 501(r)(4) requires charitable hospital organizations to establish written FAPs, which must include eligibility criteria for financial assistance to patients and whether such assistance includes free or discounted care. FAPs must also include the basis for calculating amounts charged to patients and the method for applying for financial assistance. Finally, FAPs must set forth the hospital’s collection protocols that it may take against a patient in the event of non-payment.

In response to proposed regulations in 2012, a number of commenters noted that emergency department patients are commonly seen by private physician groups or other third-party health care providers while in a charitable hospital facility. These commenters asked for clarification regarding the extent to which a hospital facility’s FAP must cover these private physician groups and other third-party health care providers that can aptly be described as “non-employee providers.” Under the final regulations, a hospital facility’s FAP must apply to all emergency and medically necessary care provided in the hospital facility only to the extent the care is provided by the hospital facility itself or a substantially-related entity. See Treas. Reg. § 1.501(r)-4(b)(1)(i). The final regulations also require a hospital facility’s FAP to include a list of non-employee providers, other than the hospital facility itself, delivering emergency or other medically necessary care in the hospital facility and specify which providers are covered by the hospital facility’s FAP and which are not. See Treas. Reg. § 1.501(r)-4(b)(1)(iii)(F).

In Notice 2015-46, the IRS provided the following guidance:

(1)   If a provider is covered by a hospital facility’s FAP in some circumstances but not in others, the hospital facility must describe the circumstances in which the emergency or other medically necessary care delivered by the provider will and will not be covered by the FAP.

(2)   A hospital facility’s provider list must indicate whether the services of a particular provider are or are not covered by the hospital facility’s FAP but is not required to indicate whether that provider’s services are (or may be) covered by another entity’s financial aid policy or program.

(3)   Minor omissions and errors that are either inadvertent or due to reasonable cause are not considered failures to meet a requirement of § 501(r) if they are promptly corrected, and hospital organizations are not required to disclose such omissions or errors. See § 1.501(r)-2(b)(1). Omissions or errors in a hospital facility’s provider list, including a failure to include a provider in that list or to identify a service covered by the FAP, will be considered minor and either inadvertent or due to reasonable cause if the hospital facility takes reasonable steps to ensure that its list of providers is accurate. A hospital facility that updates its list of providers by adding new or missing information, correcting erroneous information, and deleting obsolete information at least quarterly will be considered to have taken reasonable steps to ensure that its list is accurate and will be considered to have corrected any minor omissions or errors in the list for purposes of § 1.501(r)-2(b).

This article was authored by Ryan Pulver, Jackson Kelly PLLC.  For more information on the author, click here.