On June 22, the U.S. Department of Treasury released proposed regulations providing guidance for charitable hospitals for certain subsections of Internal Revenue Code (Code) section 501(r), which was enacted as part of PPACA. Specifically, the proposed regulations provide guidance to charitable hospitals under Code sections 501(r)(4), (5) and (6) relating to financial assistance and emergency medical care policies, charges for emergency or medically necessary care provided to individuals eligible for financial assistance and billing and collections. The full text of the proposed regulations can be found online.
The proposed regulations do not address all aspects of Code section 501(r). Code section 501(r)(3), relating to community health needs assessments (CHNAs), will be addressed in future regulations. While waiting for regulations addressing CHNAs, hospitals may rely on the guidance in Notice 2011-52, which describes CHNAs in broad terms. In addition, the proposed regulations are silent on the consequences of failing to meet the requirements of Code section 501(r), which will be considered in future regulations.
Code section 501(r)(4) requires a hospital organization described in Code section 501(c)(3) to have a written financial assistance policy (FAP) and a written policy relating to emergency medical care. Under the proposed regulations, a FAP must explain the eligibility criteria for financial assistance and indicate whether assistance includes free or discounted care. A FAP also must include the basis for calculating amounts charged to patients, the method for applying for assistance, what actions a facility without a separate billing and collections policy may take if there is nonpayment and how the FAP will be widely publicized in the community served by the hospital facility. The proposed regulations further provide that the emergency medical care policy requirements, which require a hospital to provide, without discrimination, emergency care regardless of whether an individual qualifies for financial assistance, can be met by complying with the Emergency Medical Treatment and Labor Act (EMTALA). However, the policy must prohibit the hospital from taking any steps that would discourage patients from seeking emergency treatment, such as requiring payment prior to treatment for emergency services or allowing debt collection activities inside the hospital that might interfere with access to services.
Code section 501(r)(5) limits amounts charged to FAP-eligible individuals to not more than amounts generally billed (AGB) to individuals with insurance for emergency or other medically necessary care, and prohibits the use of gross charges (the full, undiscounted charge for services) for other care. The proposed regulations provide that a hospital meets the applicable requirements if the amount charged for any emergency or other medically necessary care provided to a FAPeligible individual is limited to not more than AGB and the charge for any other care is less than the gross charge for that care.
The proposed regulations provide two methods to determine AGB. After choosing a particular method, a hospital must continue to use that method.
- The first method is the "look-back method" under which a hospital can take into account the AGB for patients who are insured by both Medicare and private insurers. This method requires the hospital to multiply the gross charges for its services by an "AGB percentage," which the hospital must update at least annually. The AGB percentage is the amount the hospital received in satisfaction of claims for emergency and other medically necessary care that have been paid in full over the prior 12 months, divided by the total gross charges for those claims. The claims used in the calculation can be either those paid by Medicare Part A and B or those paid by both Medicare Part A and B and all private health insurers who are primary payers. The hospital can include in the calculation both the fees received directly from insurers and the amounts paid by the insured individuals in the form of copays, coinsurance or deductibles. If the hospital chooses to use this method, it can calculate one AGB percentage for all emergency and other medically necessary care provided or calculate separate percentages for different categories of care, such as inpatient and outpatient care or care provided by different departments or for separate items or services, as long as the hospital calculates AGB percentages for all emergency and other medically necessary care provided by the hospital.
- The second method is the "prospective Medicare method" under which a hospital calculates charges as if the patient were eligible for Medicare Part A or B. A hospital applying this calculation method would use its normal coding procedures for Medicare to determine the amount that would be paid by Medicare, as well as the amount that would be paid by the Medicare beneficiary out-of-pocket. The total amount the hospital would receive from both Medicare and the beneficiary for the particular service then is treated as the AGB for that service.
Code section 501(r)(6) requires a hospital to make reasonable efforts to determine if an individual qualifies under a FAP before undertaking extraordinary collection actions, such as selling the debt to a third party, garnishing wages, foreclosing on property, seizing accounts, filing a civil suit for collection of debt or making an adverse report to a credit reporting agency. Under the proposed regulations, reasonable efforts include informing an individual about a FAP, giving an individual sufficient information to complete a FAP application if an incomplete application is initially submitted and determining whether an individual is FAP-eligible.
The comment period for the proposed regulations ends on September 24, 2012, and the new rules will apply to taxable years beginning on or after the date the regulations become final. We will continue to monitor developments regarding Code section 501(r) and will report on new developments in subsequent Health Law Updates.