The Internal Revenue Service (IRS) has issued the final section 501(r) regulations, implementing the amendments to the Internal Revenue Code under the Affordable Care Act and providing regulatory guidance for tax-exempt hospitals. This post describes the guidance for financial assistance policies, limitation on charges, and billing and collection practices and highlights the changes made between the proposed and final rules. Section 501(r)(4) requires a hospital to establish a written financial assistance policy (FAP) covering emergency and medically necessary care. To “establish” the policy, the FAP must be adopted by an authorized governing body of the charitable hospital and implemented by the hospital. The policies must specify the eligibility criteria for financial assistance and describe all types of financial assistance (e.g. discounts, free care) available under the FAP. If the hospital provides discounts that are not part of its FAP, the amounts may not be reported as financial assistance on Schedule H of the hospital’s annual form 990.
As clarified in the final rule, the FAP must specify those providers delivering medically necessary care in the hospital facility who are covered by the hospital’s FAP. Tax-exempt hospitals that outsource emergency room operations to a third party need to determine if the care provided by the third-party is covered under the FAP. Additionally, the hospital must take proactive measures to inform visitors and the community about the FAP.
Section 501(r)(5) sets forth limitations on charges. Hospitals must not charge individuals eligible for financial assistance more for emergency or other medically necessary care than amounts generally billed (AGB). The regulations describe two different methods of calculating AGB: a “look-back” method or “prospective” method. The look-back method divides the hospital facility’s total claims paid (including copayment and deductible amounts allowed, whether or not paid) by gross charges for those claims. Recognizing that reimbursement models may change over time, the final regulations provide the Department of Treasury and IRS with flexibility to add different AGB methods in the future.
Under 501(r)(6), a tax-exempt hospital may not engage in extraordinary collection actions (ECA) against an individual to obtain payment for care before making reasonable efforts to determine whether an individual is FAP-eligible. The final regulations encourage hospitals to use presumptive eligibility determinations – information from third party sources or from prior eligibility determinations – rather than a new application. Additionally, 501(r)(6) specifies the reasonable efforts a hospital must take in notifying individuals of the FAP, and processing FAP applications.
The FAP must be widely publicized. The final regulations clarified that to meet the requirement there must be conspicuous notice of the availability of financial assistance in the emergency department and admission areas. The policies, a plain language summary and the application form must be prominently available on the hospital’s website and paper copies must be available for free upon request. Hospitals are also encouraged to reach out to community organizations that assist with the health needs of low-income populations so that information about financial assistance is more widely available.
The FAP requirements under the Affordable Care Act were effective for 2010 tax years and the guidance in the final 501(r) regulations is effective for tax years beginning after December 29, 2015. Compliance requires a review of existing policies and procedures, ongoing leadership education, and designation of oversight responsibilities to monitor compliance and further IRS guidance.