Protecting Your Hospital’s Tax-Exempt Status

Compliance with the Affordable Care Act and Final IRS Section 501(r) Regulations

Commentary

The Patient Protection and Affordable Care Act (the “Affordable Care Act”) imposes four new requirements that Section 501(c)(3) “hospital organizations” operating “hospital facilities” must meet to keep their taxexempt status.

  • Each “hospital facility” must conduct a “community health needs assessment” (“CHNA”) at least once every three years;
  • Each hospital facility is required to adopt both a written financial assistance policy and a written emergency medical care policy that comply with certain statutory criteria;
  • Hospital facilities may not charge patients eligible for financial assistance more than “amounts generally billed” to insured patients and are prohibited from using “gross charges” for patients eligible for financial assistance; and
  • Hospital facilities may not commence certain “extraordinary collection actions” before making “reasonable efforts” to determine if the patient involved is eligible for financial assistance under the financial assistance policy.

The requirements were added to the Internal Revenue Code (the “Code”) under new Section 501(r). Failure to meet these requirements can have significant consequences, ranging from the $50,000 excise tax for each hospital facility that fails to perform a timely community health needs assessment and adopt a corresponding implementation plan, to taxing all of a hospital facility’s revenue for one or more years, to loss of exempt status for that hospital organization and for the interest on its bonds. If the hospital organization is part of a joint venture that operates one or more hospitals, Section 501(r) can apply to those hospitals as well.

The Treasury Department and the IRS have now issued final regulations implementing these requirements. The regulations go into effect for taxable years beginning after December 29, 2015, giving tax-exempt hospitals time to ensure they are in compliance with the specific requirements.

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