This Health Care Tax News article is Part III in a series discussing the proposed regulations under Code Section 501(r).  Part I provided a general overview of why Hospital Organizations should move forward to comply with the proposed regulations and Part II provides an overview of preparing for a Community Health Needs Assessment.

The financial assistance policy ("FAP") is a cornerstone for Code Section 501(r) compliance.  Hospital Organizations should work with skilled legal counsel to review each Hospital Facility's FAP closely, to ensure compliance with the statute and proposed regulations and to consider methods of making the FAP a more effective tool for advancing the Hospital Facility's charitable mission. 

The Basics of the Law

Code Section 501(r)(4) actually imposes two separate requirements on every Hospital Facility operated by a Hospital Organization (meaning any Code Section 501(c)(3) organization that operates one or more Hospital Facilities).  First, each Hospital Facility must establish a written FAP that includes the following five elements: (i) eligibility criteria for financial assistance and whether such assistance includes free or discounted care; (ii) the basis for calculating amounts charged to patients; (iii) the method for applying for financial assistance; (iv) in the case of an organization that does not have a separate billing and collections policy, the actions the organization may take in the event of non-payment, including collections action and reporting to credit agencies; and (v) measures to widely publicize the policy within the community to be served by the organization.  Second, each Hospital Facility must adopt an emergency care policy, which is described as a written policy requiring the organization to provide, without discrimination, care to individuals for emergency medical conditions regardless of their eligibility under the Hospital Facility's FAP.  (This latter requirement, which is not a focus of this article, is typically met by an emergency care policy that satisfies EMTALA.)

Guidance from the IRS

The IRS addressed the FAP requirements in the set of proposed regulations issued on June 26, 2012.  Hall Render previously published a series of articles summarizing these proposed regulations, including an article specifically focused on the FAP provisions.  For present purposes, the key takeaway is that these proposed regulations are extremely detailed and, in many places, quite complex.  For example, the proposed regulations mandate that a Hospital Facility's FAP describe numerous specific matters - including all documentation the Hospital Facility will require to determine eligibility, the process for calculating the amount generally billed for purposes of the limitation on charges and measures that will be taken to make the FAP widely available.  As these examples illustrate, the proposed regulations require content that is not intuitive and thus is unlikely to appear in a FAP unless the Hospital Facility has specifically revised that document to track the proposed regulations.  If, as expected, the final regulations generally track these proposed regulations, each Hospital Facility will have to scrutinize its FAP carefully and make significant revisions to ensure that it satisfies the law and avoids jeopardizing its tax-exempt status - a process each Hospital Facility should begin now (if it has not already done so).

Review by Counsel and Other Practical Steps toward Compliance

As a first essential step toward compliance, each Hospital Facility should ensure that its FAP has been reviewed by skilled counsel familiar with all applicable law, particularly the proposed regulations.  At minimum, the policy absolutely must include all elements described in Code Section 501(r)(4) itself.  As previously discussed in the first article of this series, Hall Render further recommends that each Hospital Facility's FAP include every element required by the proposed regulations.  As an example of such review, Hall Render has developed a checklist to identify matters addressed in or omitted from the FAP and to comment upon how a FAP can be revised for better legal compliance.  By using skilled counsel in this way, a Hospital Organization can ensure that the review is accomplished both accurately and efficiently and that any recommendations are protected by attorney-client privilege.  Generally, the attorney-client privilege is not available if any third parties (including consultants and accountants) are present when legal advice is given or are otherwise made aware of the advice.  Moreover, there is no privilege for communications with consultants and only a limited privilege for communications with accountants.

Hospital Organizations also should consider the following additional practical steps:

  • Consider the Financial Assistance Offered. In light of the requirement in the proposed regulations that the FAP describe all types of assistance available, Hospital Organizations should carefully evaluate what financial assistance they will offer -  including eligibility criteria, levels of assistance and service lines that will (or will not) be covered.  In considering these issues, Hospital Organizations also must operate within the parameters of Code Section 501(r)(5), which imposes limitations on charges and should not restrict access to emergency and other medically necessary care.
  • Premium Support Programs.  Because the Department of Health and Human Services has determined that Qualified Health Plans ("QHPs") offered on the state and federal marketplaces are not federal health care programs, many Hospital Organizations have considered developing a premium support program to provide financial assistance to individuals who meet defined income criteria to facilitate payment of their QHP insurance premiums.  If a Hospital Facility implements a premium support program, then its FAP must address the structure and mechanics of the program.  For more information on issues surrounding premium support programs, please see this Hall Render article.
  • Provide Appropriate Education.  Each Hospital Facility should carry out educational activities to ensure that all levels of hospital personnel have appropriate awareness of the FAP.  For board members and much of the executive team, a high-level awareness will suffice.  For the chief financial officer (or other executives with oversight responsibility), as well as rank and file employees who administer the policy, detailed knowledge will be necessary.  Such employees also must understand the interplay between the FAP and the Hospital Facility's billing and collection policies and practices.  Through the education process, knowledge should flow in both directions, as employees who work closely with the policy may see areas in particular need of improvement.
  • Make the Documents Readable.  To promote the Hospital Organization's charitable mission and with awareness that the FAP will be widely publicized in the community, the Hospital Facility should consider the policy, the summary of the policy and the application from the perspective of potential applicants and should ensure that the documents are clear, consistent and precise.
  • Make the Documents Accessible.  Hospital Organizations should evaluate how easily the FAP and related documents can be accessed through the web site.  They also may wish to consult with the community connections they made through the development of the community health needs assessments in considering how best to make the FAP and related documents widely available in the community.  The proposed regulations require Hospital Facilities to make the documents available both in English and in the primary language of any population that comprises 10% of the community served, and a Hospital Facility may wish to consider whether a lower threshold would advance the charitable mission.


Through deliberate actions like these, a Hospital Organization can ensure compliance with Code Section 501(r) and the proposed regulations.  Additionally, it can promote its charitable mission by ensuring that it more effectively serves the needs of individuals who require financial assistance.