New IRS Rules for Tax-Exempt Hospitals New IRS Rules for Tax-Exempt Hospitals Dan Mulholland Horty, Springer & Mattern Requirements of IRC § 501(r) Community Health Needs Assessment (“CHNA”) Financial Assistance Policy Limits on Charges Collection Actions 1
New IRS Rules for Tax-Exempt Hospitals When do we have to comply? Part of Affordable Care Act – March 25, 2010. Proposed regs in 2012 and 2013. Final regs 12/31/2014. Effective tax years beginning after 12/29/2015. “Good Faith Interpretation” sufficient until then. Who Do the Regs Apply To? “Hospital Organizations” – charitable organizations that operate one or more hospital facilities. “Hospital Facility” is a “facility that is required to be licensed, registered or similarly recognized as a hospital.” Hospital organizations must separately meet the requirements for each facility that they operate. Not applicable to governmental entities that do not have separate 501(c)(3) exemption. 2
New IRS Rules for Tax-Exempt Hospitals What are the Penalties for Violations? “Minor Omissions and Errors” — no sanctions if promptly corrected. “Failures That Are Not Willful or Egregious” — correct and disclose; IRS will review on case-by-case basis. “Violations Resulting in Revocation of Exempt Status” — IRS may revoke exemption based on all of the facts and circumstances, including the size, scope, nature, and significance of the violation. $50,000 penalty for failing to adopt CHNA. Community Health Needs Assessment Define the community served by hospital; Assess the health needs of the community; Solicit and take into account input received from persons representing broad interests of community; Document the CHNA in a written report adopted by an authorized body; and Make the CHNA widely available to the public. Once every three years. 3
New IRS Rules for Tax-Exempt Hospitals Defining the Community Served Hospital has flexibility; can be geographic or programmatic (e.g., women, children, etc.); may not exclude certain medically underserved, low-income, or minority populations. Assessing the Community’s Health Needs identify significant health needs of the community; prioritize those health needs; and identify resources available to address such health needs. 4
New IRS Rules for Tax-Exempt Hospitals Examples of Community Needs need to prevent illness; ensure adequate nutrition; address social, behavioral, and environmental factors that influence health in the community; and financial and other barriers to accessing care. Community Input – solicit and take into account input received from: at least one state, local, tribal, or regional public health department with relevant knowledge or expertise of the community’s health needs; members, or persons serving or representing members, of medically underserved, low-income, and minority populations in the community; written comments received on the hospital facility’s most recent CHNA and implementation strategy; and broad range of other persons representing the community. 5
New IRS Rules for Tax-Exempt Hospitals Documentation of CHNA definition of the community served; description of the process and methods used; description of community input solicitation efforts and how input received was used; prioritized description of, and process used to identify and prioritize, significant health needs; description of potential resources available to address the identified significant health needs; and evaluation of the impact of any actions taken since the last CHNA to address needs. CHNA Must Be “Widely Available to Public” post on website; provide a paper copy upon request free of charge; “proactive efforts to inform” not required for CHNA (but are required for Financial Assistance Policy). 6
New IRS Rules for Tax-Exempt Hospitals CHNA Implementation Strategy adopt an implementation strategy to meet the community health needs identified in its CHNA; 4½ months after the close of tax year. Financial Assistance Policy (“FAP”) eligibility criteria for financial assistance; whether assistance includes free or discounted care; basis for calculating amounts charged to patients; method for applying for financial assistance; and actions that may be taken in the event of nonpayment. 7
New IRS Rules for Tax-Exempt Hospitals Scope of FAP All emergency and other medically necessary care that the hospital provides; “medically necessary care” can be defined by: Medicaid rules, community standards, or examining physician’s determination. FAP Must State whether outside sources of information will be used in determining financial assistance; whether and under what circumstances hospital uses prior FAP eligibility determinations to presumptively determine that an individual qualifies; list of providers (entire medical staff?) delivering emergency or medically necessary care in the hospital facility and which providers are covered by the FAP and which are not. 8
New IRS Rules for Tax-Exempt Hospitals Widely Publicize FAP post FAP, application, and a plain language summary on website; paper copies available upon request and without charge, by mail and in public locations of the hospital, including at least in ER and admission areas; notify and inform the community about the FAP in a manner reasonably calculated to reach those members who are most likely to require financial assistance; Widely Publicize FAP offer a paper copy as part of the registration or discharge process; conspicuous written notice on billing statements about the FAP; conspicuous public displays regarding the FAP in public locations of the hospital facility, including ER and admissions areas. 9
New IRS Rules for Tax-Exempt Hospitals FAP also applies to: “Substantially-Related Entities” – entities in which the hospital owns capital or profits interests that are treated as a partnership for federal tax purposes and disregarded entities of which the hospital sole member or owner. Outsourced emergency room operations. Other FAP Rules Discounts outside of FAP OK. Billing statements no longer need plain language summaries. Can obtain information from an applicant in writing, orally, or both. Outside sources of information permitted. Identify sources for FAP application assistance. May include emergency medical care policy. Multiple facilities may share FAPs. 10
New IRS Rules for Tax-Exempt Hospitals FAP Translation Requirement Must offer versions FAP, application, and plain language summary in any language spoken by the lesser of 5% or 1,000 LEP individuals in the community. Limitation on Charges limit amount “charged” (what patient would be responsible to pay)… for emergency or other medically necessary care… provided to FAP-eligible individuals… to not more than the amounts generally billed (AGB) to individuals who have insurance covering such care. 11
New IRS Rules for Tax-Exempt Hospitals Two methods permitted: Look-Back Method Prospective Method Look-Back Method Calculate “AGB percentage” once a year. Apply “AGB percentage” to gross charges for services provided to patient. 12
New IRS Rules for Tax-Exempt Hospitals AGB percentage = A ÷ B A = amounts allowed during year for all claims (including co-pays and deductibles) by either: Medicare fee-for-service alone Medicare fee-for-service plus all private health insurers or Medicaid, either alone or in combination with Medicare fee-for-service or Medicare fee-for-service plus all private health insurers. Divided By B = gross charges associated with those claims Example: Patient No. 1: Patient with no insurance eligible for 50% discount under FAP Gross charges for hospital visit = $5,000 13
New IRS Rules for Tax-Exempt Hospitals Hospital calculated AGB % based on Medicare FFS alone: Total allowed on all claims by Medicare FFS in base year = $30,000,000. Gross charges associated with those claims = $100,000,000. AGB = 30%. How much is Patient No. 1 responsible for? Patient No. 1 only liable for $1,500 ($5,000 x 30%). But if patient was eligible for 80% discount under FAP, would only be liable for $1,000. ($5,000 less 80% = $1,000.) 14
New IRS Rules for Tax-Exempt Hospitals Example: Patient No. 2: Patient with insurance, responsible for 20% out-of-pocket. Gross charges for hospital visit = $5,000. Total allowed by insurance contract (including out-of-pockets) = $4,000. AGB = 30%. How much is Patient No. 2 responsible for? Patient No. 2 liable for $1,000 out-of-pocket. Less than 30% (AGB%) x total charges. 15
New IRS Rules for Tax-Exempt Hospitals Prospective Method what hospital would be paid if patient were a Medicare fee-for- service or Medicaid beneficiary including any co-payments, co-insurance and deductibles. Other Rules Applicable to Charge Limits Calculate AGB on a facility-by facility basis. May use different methods for different facilities. May not use statistical samples. Can change AGB methodology at any time, but update FAP to reflect the change. 16
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