Additional Hospital Tax-Exempt Status Requirements Under Internal Revenue Code Section 501(c)(3) Effective Soon
Section 9007 of the Patient Protection and Affordable Care Act (Act), signed into law by President Obama on March 23, 2010, includes specific requirements for hospitals to receive and maintain Internal Revenue Code (IRC) Section 501(c)(3) status.
The specific Internal Revenue Service requirements, and related $50,000 excise tax for failure to meet those requirements, will be detailed in the new IRC Sections 501(r) and 4959.
Most of the new standards are effective for tax years beginning after the date of enactment. Therefore, a hospital with a June year-end (i.e., June 30, 2010) will have some requirements effective for their June 30, 2011 fiscal year-end; and a hospital with a December year-end will have some requirements beginning January 1, 2011.
In particular, the Act adds four specific additional requirements that hospitals must satisfy in order to avoid being subject to the $50,000 excise tax imposed for failure to comply. Those requirements are as follows:
I. Community Health-Needs Assessment
Each hospital must have (1) conducted a community health-needs assessment in the applicable taxable year or in either of the two taxable years immediately preceding such taxable year; and (2) adopted an implementation strategy for meeting the community health needs identified in the assessment.
II. Financial Assistance Policy
Each hospital must adopt and make widely available a written financial assistance policy that commits the hospital to provide non-discriminatory emergency medical care, regardless of whether the individual is eligible for financial assistance under the hospital's financial assistance policy. The policy must incorporate the following: (1) eligibility criteria; (2) the basis for calculating amounts charged to patients; (3) the method for applying for financial assistance; (4) a statement of the collection-related actions the hospital may take in connection with non-payment; and (5) how the hospital will widely publicize the policy within the community it serves.
III. Limitations on Charges
Each hospital must limit the charges for emergency or other medically necessary care provided to patients eligible for financial assistance under its financial assistance policy to not more than the lowest amounts charged to patients who have insurance covering such care. The hospital must also prohibit the use of gross charges.
IV. Billing and Collection Requirements
A hospital may not carry out "extraordinary collection actions" until it has made "reasonable efforts" to determine whether a patient is eligible for assistance under the hospital's financial assistance policy.
The Act contains various other provisions as follows:
Mandatory Review
The U.S. Department of the Treasury Secretary (Treasury Secretary) or its delegate is to review at least once every three years the community benefit activities of each tax-exempt hospital.
Reporting Requirements
IRC Section 6033(b) is amended by adding a new provision requiring tax-exempt hospitals to include in their annual Form 990 two additional items: (1) a report that describes how the hospital is addressing the needs identified in each community-needs assessment, together with a summary of any such needs that are not being addressed and why; and (2) their audited financial statements (or the consolidated financial statements in which they are included).
Agency Reports
The Treasury Secretary is to submit an annual report to Congress on (1) levels of charity care; bad debt expense; and certain unreimbursed costs of taxable, tax-exempt, and government hospitals; and (2) costs incurred by tax-exempt hospitals for community benefit activities.
Definition of a Hospital
The Act defines a hospital as a facility required to have a state license as a hospital, and any other organization that the Treasury Secretary determines has the provision of hospital care as its principal function.
Multi-Hospital Organizations
For tax-exempt hospital organizations that own and operate more than one hospital facility, the new tax-exemption requirements will apply to each individual hospital.
While many tax-exempt hospitals may already be operating in substantial conformance with the new standards, hospitals should review their policies and procedures to make sure that appropriate provisions are in place. Hospitals will also need to be even more vigilant in correctly completing Schedule H of the Form 990 so that accurate information is available to the public and the government.
