Congress has approved and President Obama has signed into law both the Patient Protection and Affordable Care Act and the related Health Care and Education Reconciliation Act. Included in these new laws are additional requirements that hospitals must satisfy to preserve tax-exemption under Internal Revenue Code Section 501(c)(3).
Presented below are new requirements for tax exempt organizations operating a hospital, which is defined as a facility required by a state to be licensed, registered, or otherwise recognized as a hospital, or to have hospital care as its primary function or principal purpose of exemption.
- Community Health Needs Assessment: To be completed at least once every three years, each hospital must conduct a community health needs assessment with input from persons who represent the broad interest of the community served by the hospital. The assessment should be developed with the assistance of individuals with special knowledge of or expertise in public health issues. Furthermore, the organization is required to adopt an implementation strategy to meet the needs identified through the assessment and make the assessment available to the public. Hospitals must disclose on the annual information return (Form 990) how the hospital is addressing community health needs identified in the assessment. If all identified needs are not being addressed, the hospital must explain the reasons why on the annual information return. Failure to complete the assessment will result in a penalty of up to $50,000 per failure.
- Reporting requirements: Community benefit activities will be subject to Treasury review at least once every three years. The Secretary of the Treasury, in consultation with the Secretary of Health and Human Services, annually must submit a report to Congress with detailed information regarding levels of charity care, bad debt expense, unreimbursed costs of means tested government programs, and unreimbursed costs of other government programs incurred by all hospitals (including taxable and governmental hospitals). Every five years, a joint report from Treasury and HHS analyzing trends in these amounts must be presented to Congress.
- Audited Financial Statements: One reporting requirement directly affecting hospitals requires a copy of the audited financial statements (including consolidated audited financial statements if separate company statements are unavailable) to be attached to the annual information return.
- Financial Assistance Policy Requirements: Each tax exempt hospital must adopt, implement and widely publicize a written financial assistance policy. The policy must include the criteria used for determination of financial assistance (i.e., both free and discounted care), the basis for calculating amounts billed to eligible patients, and how to apply for such assistance. The hospital must also address in a policy the actions the organization may take to collect outstanding debts including the use of collection agencies. Finally, the hospital must adopt and implement a policy to provide emergency medical treatment that prevents discrimination for those eligible for financial assistance or those eligible for government assistance.
- Limitation on Charges: A tax exempt hospital may bill patients who qualify for financial assistance no more than the lowest amounts generally billed to insured patients. A hospital may not use gross charges for individuals when billing patients who qualify for financial assistance.
- Limitation on Collection: A hospital is prohibited from taking extraordinary collection actions against patients without first making reasonable attempts to determine if the patient is eligible for assistance under the organization’s financial assistance policy.
We will continue to keep you informed of developments in this area and will be more than happy to evaluate the impact any of these or other provisions may have on your hospital. If we can be of assistance, please contact the experts listed below at (800) 270-9629.
