There is a slew of regulations that impact hospital revenue cycle and the IRS 501(r) is one of them. For 501(c)(3) nonprofit hospital organizations, they need to comply or possibly lose tax-exempt status. In addition, a hospital could be imposed with a $50,000 excise tax for violations of Section 501(r)(3) CHNA requirements.

Hospital organizations must meet the requirements imposed by Section 501(r) on a facility-by-facility basis in order to be treated as an organization described in Section 501(c)(3). To comply, hospitals need to meet 4 requirements:

  1. Conduct a Community Health Needs Assessment (CHNA) and adopt an implementation strategy at least once every three years – IRC §501(r)(3)
  2. Establish written and widely publicized financial assistance policy (FAP) as well as emergency medical care policy – IRC §501(r)(4)
  3. Limit the amount charged for emergency or other medically necessary care to individuals who fall under the hospital’s financial assistance policy – IRC §501(r)(5)
  4. Make reasonable efforts to determine whether an individual is eligible for assistance under the hospital’s financial assistance policy before engaging in extraordinary collection actions against the individual – IRC §501(r)(6)

Best Practices and Things to Watch Out For

Strategic Communication Initiatives

All four elements mentioned have implications with strategic communication initiatives that prioritize charity patients and vulnerable uninsured populations. A facility should ensure that the required signage regarding the availability of financial assistance is conspicuously posted in various areas throughout the facility.

Leveraging Data 

The use of data can help in quickly determining if a patient is eligible for charity care or other financial assistance. It can also identify which self-pay accounts can be segmented for payments and collections and which can be qualified for charity care.

Your facility should leverage its own data or third-party data that can help streamline eligibility. Data sources could come from public records and credit-based data from credit reports. Remember that thin files or no-hit credit files are common for charity-eligible patients. You might need to get data from multiple sources and employ a cascading approach so that all patients can be scored and categorized into various payment and charity buckets.

CHNA and Implementation Strategy

The IRS often requests both the most recent and previously conducted CHNA, as well as the corresponding implementation strategies. If these documents are not readily available in a hospital’s website, the IRS will likely do a full compliance check. Here are more helpful tips:

  • The CHNA should be current and compliant
  • Every hospital facility must have its two most recently conducted CHNA’s widely available on their website
  • There should be a written implementation strategy in tandem with the CHNA
  • Two of the most recent implementation strategies should also be widely available on the hospital’s website
  • There should be evidence of adoption of these documents by the organization within meeting minutes of the board of directors

Financial Assistance Policy (FAP) and Emergency Medical Care Policy

Your facility should ensure that all required documents (Financial Assistance Policy, Plain Language Summary, and Financial Assistance Application) are widely available on the hospital’s website and translated into any required Limited English Proficiency languages.

One important thing to note is the FAP must include the following:

  • eligibility criteria for financial assistance for uninsured and underinsured patients
  • methods for applying financial insurance
  • calculating amounts for charity care discounting
  • actions hospitals can take for non-payment.

Here are more helpful tips:

  • Be familiar with specific rules outlined in IRS Notice 2015-46.
  • The hospital’s FAP should be widely available—on a website, upon request for free and conspicuously displayed throughout your facility.
  • The FAP should be readily available in paper form throughout your hospital facility, including admissions and the emergency department.
  • The FAP conspicuously posted on the hospital’s website in plain language.
  • The FAP should be available in alternate languages (if there is a significant portion of the hospital’s community that speaks a language other than English).

Limitation on Charges

Your facility should be able to explain the basis for calculating the amounts charged to patients, “Amounts Generally Billed (AGB)” methodology and calculation. The hospital must either include the percentage and show the calculation in the FAP or describe in the FAP how that percentage and calculation can be accessed.

Billing and Collection Policy

Many hospitals find it helpful to combine the FAP and Billing & Collection Policy. The Billing & Collection Policy must explicitly state the actions the hospital may take in the event of non-payment. The FAP must also explain how members of the general public may readily obtain a free copy of that Policy.