The Patient Protection and Affordable Care Act (ACA) became law eight years ago, establishing §501(r) of the Internal Revenue Code (IRC)—a section most tax-exempt hospitals have become quite familiar with in the years since. The provisions of §501(r) have phased in slowly; one of the most recent is the set of rules regarding a tax-exempt hospital’s financial assistance policy (FAP) for low-income, uninsured patients. The Internal Revenue Service (IRS) recently issued guidance on the final regulations in an article posted on its website.
What’s in the FAP?
Beginning with tax years that started after December 29, 2015, tax-exempt hospitals have been required under §501(r)(4) of the IRC to implement FAPs that meet the specifications of the final Treasury regulation 1.501(r)-4. A hospital’s FAP should include information about:
- What conditions qualify a patient for financial assistance – generally this is determined based on the person’s income level as benchmarked against the federal poverty guidelines (FPG).
- How medical charges are calculated for patients eligible for the FAP.
- What a person must do to apply for financial assistance.
- Which outside sources the hospital will use (if any) when determining eligibility for financial assistance—such as credit reporting agency reports or employment verification.
- Which medical providers perform emergency care within the hospital and whether the charges for their care qualify under the hospital’s FAP.
Even when a tax-exempt hospital drafts the FAP, meeting all above requirements, it does not mean the hospital is in full compliance. The hospital’s board of directors or a board committee authorized to approve the FAP must first approve it; second, the hospital must widely publicize the FAP before being considered fully compliant.
What Do Treasury Regulations Mean by “Widely Publicized?”
Prior to December 29, 2015, the final Treasury regulations stated a hospital could self-determine what is meant by widely publicizing its FAP. Some hospitals gave paper copies to all patients, others made copies available only upon request, while other hospitals would verbally advise patients of the FAP at admission. Final Treasury regulations now outline parameters for widely publicizing the FAP. Specifically, a tax-exempt hospital must:
- Post the FAP, application, and plain language summary on a website (most hospitals post on their own websites).
- Make paper copies available upon request and available in hospital common areas, including the emergency department and admissions (if applicable).
- Translate the FAP into another language if either 1,000 persons or 5% of the population served by the hospital speaks a common language other than English.
- Notify the community of the hospital’s FAP – this provision applies to all members of the community, not just the hospital’s patients.
- Inform persons receiving care in a hospital’s facility of its FAP.
The method of information conveyance for items 1 through 3 is well-defined and specific, but not so much for items 4 and 5. For instance, it is not clear if posting on a website also satisfies the requirement to notify the general public about the hospital’s FAP. Frequently, those that qualify for financial assistance do not have access to the web to become informed about the FAP.
It is common practice for tax-exempt hospitals to have FAPs and, post-ACA, hospitals are doing an excellent job making FAPs available to the populations they serve. However, there are additional provisions under 501(r) that relate to the FAP, such as:
- Hospitals are precluded from any practices that discourage or delay a person from receiving emergency care. This means that hospitals may not require a person to complete the FAP application, put down a financial deposit, or provide any other financial information before receiving emergency care
- The IRS has announced it will review Form 990: Return of an Organization Exempt from Income Tax for all tax-exempt hospitals at least once every three years. Schedule H of Form 990 has specific questions that relate to a hospital’s FAP; therefore, it is important for hospitals to answer those questions carefully
- Though a common practice for tax-exempt hospitals is to use a patient’s household income as a determinant for qualifying for financial assistance, that is not required by the final Treasury regulations. A tax-exempt hospital should carefully consider its population served and patient financial need when establishing a policy, with the goal to provide free or discounted care to those that need it.
Now that there is clear guidance, each hospital should closely review its practices surrounding its FAP and ask: does our policy make the grade?
If you have questions about your hospital’s FAP, or would like to request a speaker on this topic for your organization or event, contact a PYA executive below at (800) 270-9629.