On December 29, 2014, the Treasury Department and the IRS (collectively, the IRS) released final regulations under Internal Revenue Code Section 501(r) after taking into account comments received in response to proposed regulations published in 2012 and 2013, temporary regulations published in 2013, and various notices. The 261 double-spaced pages (64 pages in the December 31 Federal Register) of final regulations and accompanying preamble clarify and, in some cases, change prior guidance regarding the Section 501(r) requirements. The final regulations also provide guidance about the reporting obligations relating to, and the consequences of failing to satisfy, the Section 501(r) requirements.
The effective date of the final regulations is December 29, 2014, although the final regulations continue to allow reliance on both the 2012 and 2013 proposed regulations until a hospital organization’s first taxable year beginning after December 29, 2015. The statutory requirements of Section 501(r) (except for Section 501(r)(3), relating to community health needs assessments) apply to taxable years beginning after March 23, 2010. Section 501(r)(3) applies to taxable years beginning after March 23, 2012.
Section 501(r) was added to the Internal Revenue Code by the Patient Protection and Affordable Care Act in 2010, and imposes additional requirements on charitable hospital organizations. Section 501(r)(1) provides that a hospital organization described in Section 501(r)(2) will not be treated as a tax-exempt organization described in Section 501(c)(3) unless the organization meets the requirements of Sections 501(r)(3) through 501(r)(6):
- Section 501(r)(3) requires a hospital organization to conduct a community health needs assessment (CHNA) at least once every three years and to adopt an implementation strategy to meet the community health needs identified through the CHNA;
- Section 501(r)(4) requires a hospital organization to establish a written financial assistance policy (FAP) and a written policy relating to emergency medical care;
- Section 501(r)(5) requires a hospital organization to not use gross charges and to limit amounts charged for emergency or other medically necessary care provided to individuals eligible for assistance under the organization’s FAP (FAP-eligible individuals) to not more than the amounts generally billed to individuals who have insurance covering such care (AGB); and
- Section 501(r)(6) requires a hospital organization to make reasonable efforts to determine whether an individual is FAP-eligible before engaging in extraordinary collection actions (ECAs).
Section 501(r)(2)(B) requires a hospital organization to meet each of these requirements separately with respect to each hospital facility it operates.
The final regulations and preamble contain a great deal of useful guidance, and this article does not attempt to capture every aspect of the guidance. Set forth here, however, are some highlights.
To view the final regulations and related preamble, click here.