The Affordable Care Act (ACA) added significant new statutory requirements in 2010 that must be met by all hospitals seeking or maintaining exemption from federal income tax as Section 501(c)(3) organizations (charitable hospitals). These new requirements were codified in Section 501(r) of the Internal Revenue Code.
At a very summary level, this section requires charitable hospitals to:
- conduct a Community Health Needs Assessment (CHNA) every three years and adopt an implementation strategy to meet the needs identified
- establish a written Financial Assistance Policy (FAP) and a policy relating to emergency medical care
- limit the amounts they can charge individuals eligible for financial assistance under the FAP
- limit the way they collect outstanding charges prior to making a reasonable effort to determine whether an individual is eligible for financial assistance under the FAP
Takeaways and Considerations
Final regulations issued by the IRS under Section 501(r) are now in effect. Moreover, Section 501(r) and the final regulations have not been changed or amended under the Trump Administration. Accordingly, charitable hospitals need to ensure they are in compliance because a failure to comply could result in an excise tax or loss of tax-exempt status.
The IRS is required to review the compliance of every tax-exempt hospital every three years. In addition to reviewing the charitable hospital's Form 990, Schedule H, the IRS will likely review the hospital's website, and could send a request to review documentation and/or ask for a tour of the hospital.
The IRS work plan for 2017 noted that it had conducted close to 1,000 hospital reviews and referred more than 360 hospitals for further examination by IRS personnel. The IRS has revoked the tax exemption of at least one hospital. The IRS work plan for this year indicates that it will continue its compliance checks on tax-exempt hospitals.