The Patient Protection and Affordable Care Act of 2010 imposes several new mandates on certain organizations exempt from tax under § 501(c)(3). These include: (1) organizations operating a facility that is required to be registered with, licensed by, or similarly recognized by a state as a hospital, and (2) any other organization the Treasury Secretary determines has the provision of hospital care as its principal function or purpose. If the organization operates more than one hospital facility, it must satisfy the mandates with respect to each such facility (yet tax-exempt status is given to entities, not facilities). These new mandates are in addition to any other requirements of an organization exempt under § 501(c)(3) and are found in new § 501(r) of the Internal Revenue Code.
Community Health Needs Assessment
Every three years, the organization is required to perform a community health needs assessment and adopt an implementation strategy to meet the needs identified by the assessment. Failure to comply can lead to a tax of $50,000. The assessment must take into account the input from persons representing the broad interests of the community served by the organization, including those with special knowledge of, or expertise in, public health issues. The assessment must also be made widely available to the public. The organization must disclose in its Form 990 how it is meeting the needs identified in the assessment and explain any failures in that regard. The Joint Committee on Taxation Report explains that the assessment can be based on information collected by a public health agency or non-profit organization and may be prepared in conjunction with another organization, including a related organization.
Financial Assistance Policy
The organization is required to adopt, implement and widely publicize a written financial assistance policy. The policy must identify: (i) the criteria for assistance and explain whether such assistance includes free or discounted health care; (ii) the basis for calculating the amounts charged; (iii) the method of applying for assistance; (iv) where the organization does not have a separate billing and collections policy, the actions taken in the case of non-payment, including a collections action and reporting to credit agencies; and (v) measures taken to widely publicize the policy in the community. Each organization must also implement a policy for emergency medical treatment. The policy cannot discriminate against those eligible for assistance under the organization’s policy or those eligible for government assistance.
Limitations on Charges
The organization may not charge a patient that qualifies for financial assistance at any higher rate than the amounts generally billed to patients with health insurance. Furthermore, the organization is prohibited from using “gross charges” (explained by the Joint Committee Report to mean “chargemaster” rates) when billing a patient that qualifies for financial assistance. According to the Joint Committee Report, the new law intends that the amounts billed to those who qualify for financial assistance may be based on either the lowest, or an average of the three lowest, negotiated commercial rates, or the Medicare rate. Practically, using the Medicare rate would pose the fewest compliance risks.
The organization cannot undertake extraordinary collections activities (even if otherwise allowed under relevant law) until making reasonable efforts to determine whether the patient qualifies under the financial assistance policy. The Treasury Secretary is directed by the statute to issue guidance on what constitutes “reasonable efforts.” The Joint Committee Report explains that “extraordinary activities” include lawsuits, house liens, arrests, or similar collection efforts. The Joint Committee Report explains further that the new law intends that “reasonable efforts” includes notification by the organization of its financial assistance policy upon admission and in communications with the patient regarding the patient’s bill before bringing a collection action or reporting to credit agencies.
The above provisions are effective the first taxable year beginning after the date of the law’s enactment (March 23, 2010). The community health needs assessment requirement, however, is not effective until the first taxable year beginning two years after the law’s enactment.
Request for Comments
On May 27, 2010, the IRS issued Notice 2010-39 requesting comments on these new mandates and, specifically, comments on whether guidance is needed regarding such requirements. The IRS and Treasury are particularly interested in comments regarding (i) the appropriate requirements of a Community Health Needs Assessment; (ii) what constitutes “reasonable efforts” to determine eligibility for assistance under a financial assistance policy; and (iii) § 509(r)(2)(B)(ii), which provides that an organization operating more than one hospital facility is not described in § 501(c)(3) with respect to any hospital facility that does not separately satisfy the four above requirements. Over the years, certain medical clinics (that would not typically be viewed as “hospitals”) have been determined by the IRS to be tax-exempt “hospitals” under the Treasury Regulation’s broader definition of “hospital.” Guidance is needed as to how the new Community Health Needs Assessment impacts these medical clinics.