On March 10, 2015, the Internal Revenue Service (IRS) issued Revenue Procedure 2015-21, which provides guidance regarding correction and disclosure procedures applicable to certain failures by charitable hospitals to meet the requirements of Section 501(r) of the Internal Revenue Code.  

Section 501(r) of the Internal Revenue Code, which was enacted pursuant to the Affordable Care Act, imposes certain requirements on charitable hospitals in order to be organizations described by Section 501(c)(3).  Specifically, Section 501(r) imposes requirements relating to community health needs assessments, financial assistance and emergency care policies, limitations on charges for emergency or medically necessary care provided to individuals who qualify for financial assistance, and billing and collections practices (to ensure that hospitals make reasonable efforts to determine whether an individual is eligible for financial assistance before engaging in extraordinary collection actions).  On December 29, 2014, the Department of the Treasury and IRS released final regulations that set forth, among other things, the consequences of a charitable hospital’s failure to meet Section 501(r)’s requirements.  Revenue Procedure 2015-21 clarifies certain aspects of the final regulations by providing additional guidance regarding correction and disclosure procedures relating to such failures. 

Under the final regulations, a hospital’s omission or error with respect to the requirements of Section 501(r) will not be considered a failure to satisfy a requirement of Section 501(r) if the omission or error was minor and either inadvertent or due to reasonable cause, and the hospital corrects the omission or error in accordance with the regulations.  The Revenue Procedure clarifies that, because minor omissions and errors that are either inadvertent or due to reasonable cause and are appropriately corrected are not considered failures to meet a requirement of Section 501(r), hospitals do not need to use the correction and disclosure procedures of the Revenue Procedure for such omissions and errors.  The Revenue Procedure gives examples of errors that would not be considered failures to meet the requirements of Section 501(r).

With respect to situations that are considered failures to satisfy Section 501(r), however, the Revenue Procedure generally provides that a failure will not jeopardize the hospital’s status as an organization described by Section 501(c)(3) if the failure is “not willful or egregious,” and if the hospital corrects and discloses the failure in accordance with the requirements of the Revenue Procedure.  The Revenue Procedure discusses the definitions of “willful” and “egregious” for these purposes, as well as what constitutes appropriate “correction” and “disclosure” of the failure.  The Revenue Procedure also clarifies that a hospital’s failure to meet Section 501(r)(3)’s requirements relating to community health needs assessments will result in a tax being imposed on the organization under Section 4959, notwithstanding the organization’s correction and disclosure of the failure.

The Revenue Procedure, which is effective March 10, 2015, is available here.