While the Senate Budget Committee works to draft legislation to reconcile the American Health Care Act, the repeal and replace bill passed by the House, there is no expectation of a repeal of the charitable care obligations imposed on tax exempt hospitals under Section 501(r) of the Internal Revenue Code as part of the Affordable Care Act.

Section 501(r) includes the following obligations for hospitals that are tax-exempt under Section 501(c) (3):

  • Community health needs assessments, conducted at least every three years and a plan for addressing the community needs;
  • Financial assistance policies that are widely publicized and include eligibility criteria for free or discounted services and restrictions on collection activities until the hospital determines whether a patient qualifies for assistance.

The Internal Revenue Service has been conducting desk reviews and field investigations of hospitals’ compliance with 501(r) since early 2016, and those activities may accelerate as hospitals are required to identify on their Form 990s compliance failures that are other than minor and inadvertent. Section 501(r) had bipartisan support when enacted, including the efforts of Senator Grassley (R – Iowa) who championed greater oversight of tax exempt hospitals and fulfillment of their charitable obligations.

The Congressional efforts to repeal and replace the Affordable Care Act, if enacted, will reduce the number of patients who have insurance for hospital services by between 13 and 23 million covered persons over ten years, depending on the final version that is ultimately enacted and which independent assessments are used. Under repeal legislation, Hospitals will have greater financial burdens of uncompensated care and bad debt and continued obligations under the 501(r) requirements adopted as part of the Affordable Care Act.

We will continue to monitor this issue, and will of course keep you apprised as matters develop.