IRS proposes new requirements for tax-exempt hospitals

The IRS has released proposed regulations clarifying a nonprofit hospital’s responsibilities under a provision of the Affordable Care Act (ACA). It requires such hospitals to satisfy certain requirements to maintain their tax-exempt status. Hospitals can rely on the proposed regulations until final regs are issued.

5 elements of a FAP

Under the new regs, a tax-exempt hospital must establish a written financial assistance plan (FAP) that clearly describes five elements:

  1. Eligibility criteria for financial assistance and whether such assistance includes free or discounted care,
  2. The basis for calculating amounts charged to patients,
  3. The method for applying for assistance,
  4. In the case of a hospital that doesn’t have a separate billing and collections policy, the actions it may take in the event of nonpayment, and
  5. Measures to widely publicize the FAP within the community that the hospital serves.

Notably, the regs don’t outline specific substantive requirements for a FAP regarding eligibility or the amount of assistance. That means individual hospitals can determine the most effective ways to serve their particular communities.

To properly establish the FAP according to the regulations, it must be adopted by an authorized body (such as your board of directors or trustees) and consistently carried out. An organization that operates multiple hospitals should implement a separate FAP for each organization, though such policies may contain the same terms.

Amounts generally billed

The regulations prohibit hospitals from charging more for individuals who are eligible for financial assistance as well as for medically necessary care that’s greater than the “amounts generally billed” (AGB) to insured individuals. They also require a hospital to limit the amounts charged for any medical care provided to a FAP-eligible patient to less than the gross charges for that care.

The regulations provide two methods for determining AGB. The “look-back” method is based on actual past claims paid to the hospital by either: 1) Medicare fee-for-service only, or 2) Medicare fee-for-service together with all private health insurers paying claims to the hospital. The “prospective” method requires the hospital to estimate the amount it would be paid by Medicare and a Medicare beneficiary for the care at issue if the FAP-eligible individual were a Medicare fee-for-service beneficiary.

The regs provide a safe harbor for instances when a hospital doesn’t know whether a patient is eligible for assistance. If the patient hasn’t applied for assistance, the hospital can bill him or her at its usual charges as long as it’s reaching out to determine eligibility. If the patient is indeed eligible, the hospital must refund any excess payments that have already been made.

Billing and collections limits

A tax-exempt hospital is prohibited from engaging in certain extraordinary collections practices (for example, reporting a debt to a credit agency or garnishing wages) until it makes reasonable efforts to determine whether an individual is eligible for financial assistance. The regs require charitable hospitals to:

  • Provide patients with a plain language summary of its FAP before discharge and with the first three bills,
  • Give patients at least 120 days following the first bill to submit an application for financial assistance before commencing extraordinary collection actions,
  • Allot the patient an additional 120 days to submit a complete application, and
  • Refund any excess payments made before applying for aid and seek to reverse any collection actions that have already commenced if a patient is determined eligible for financial assistance during the 240 days.

If an individual submits an incomplete application, the hospital must provide the information necessary to complete it.

Emergency medical care

Tax-exempt hospitals must have written policies requiring them to provide emergency medical care without discriminating against patients who may need financial assistance. (The regs provide that a policy that satisfies the EMTALA requirements is generally sufficient.) The policy also must prohibit debt collection activities in the emergency department or other hospital venues where collection activities could interfere with treatment.

More to come

The ACA also requires tax-exempt hospitals to regularly conduct community health needs assessments. The new regulations note that the IRS plans to issue proposed regs on those requirements in the future. •

5 easy steps for publicizing your FAP

The newly proposed IRS regulations list five steps a charitable hospital must take to “widely publicize” its financial assistance plan (FAP). They are to:

  1. Make paper copies of the FAP, the FAP application and a plain language summary of the FAP available upon request and without charge, both for distribution in publications in the hospital and by mail,
  2. Inform hospital visitors about the FAP through a conspicuous public display,
  3. Notify community members about the FAP in a manner reasonably calculated to reach those members most likely to require financial assistance,
  4. Post the FAP, FAP application and a plain language summary of the FAP online, and
  5. Make available both paper and online documents in English and the primary language of any groups with limited English proficiency that constitute more than 10% of the residents of the community served.