Where Do We Go from Here? IRS Finalizes Rules for Tax-Exempt Hospitals

March 11, 2015

Prepared for Georgia HFMA Financial Executives One Day

Where Do We Go From Here? –

IRS Finalizes Rules for Tax-

Exempt HospitalsGeorgia HFMA Financial Executives One Day

March 11, 2015

Presented by Susan Clark, CPA, Senior Manager

Pershing Yoakley & Associates, P.C.

March 11, 2015


Goals & Objectives

Goals &

Objectives

Setting the Stage

Overview of IRC § 501(r) Requirements

§ 501(r) Regulations

Penalties and Reporting

Next Steps

March 11, 2015


Setting the Stage

Concerns that “charitable” hospitals were not

acting charitable:

Congress (hearings, investigations,

reports, proposals)

Plaintiffs’ lawyers (Scruggs 2004

class action suits)

State and local taxing authorities (e.g., Illinois – Provena and subsequent

legislation)

March 11, 2015


Overview of IRC § 501(r)

Requirements

Added by Patient

Protection and Affordable

Care Act (PPACA) of 2010

Final Regulations

• Issued December 29, 2014

• Effective for tax years

beginning after December 29,

2015

• Provisions effective for tax

years beginning after March

23, 2010

• Community Health Needs

Assessment (CHNA)

provisions effective for tax

years beginning after March

23, 2012

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Requirements

• Other 501(r) Guidance

• Proposed Regulations

• June 2012

• April 2013

• Notices

• 2011-52

• 2014-2

• 2014-3

• Rev Proc 2015-21

(Issued 3/10/15)

Can rely on a

reasonable good faith

interpretation of 501(r)

including proposed

regulations for tax

years beginning before

December 31, 2015

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Requirements

Requirements of

IRC §501(r)

• Written financial

assistance policy

• Limitations on

charges

• Prohibition on certain

collection efforts

• Community Health

Needs Assessment

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Requirements

Charitable Hospital

Organization

• Organization that operates

facility required by a state to

be licensed, registered, or

similarly recognized as a

hospital

• Any other organization that

the IRS determines has the

provision of hospital care as

its principal function or

purpose

• Organizations that operate

more than one hospital facility

must meet the requirements

of § 501 (r) separately with

respect to each facility

March 11, 2015


Written Financial Assistance Policy

IRC § 501(r)(4) requires a hospital to establish

a written financial assistance policy (FAP) that

includes:

• Eligibility criteria for financial assistance (free or

discounted care) and basis for calculating

amounts charged to patients.

• Method for applying financial assistance.

• Actions the hospital may take in the event of

non-payment (this may be in a separate billing

and collections policy).

• Measures to widely publicize the FAP within the

community served by the hospital.

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Eligibility criteria [Reg §1.501(r)-(4)(b)(2)]:

• Must specify all financial assistance available

under the FAP and amounts to which discount

percentages will be applied (e.g. gross charges)

• Must list the eligibility criteria an individual must

satisfy to receive each discount, free care, or

other levels of assistance.

• Must describe the method hospital used to

determine the amounts generally billed (AGB).

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Eligibility criteria [Reg §1.501(r)-(4)(b)(2)]:

• If hospital uses Lookback method for

determining AGB

• FAP must state the AGB percentage and

describe how it was calculated; OR

• Explain how members of the public may

readily obtain this information in writing and

free of charge.

• FAP must indicate that a FAP-eligible individual

may not be charged more than AGB.

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Method for Applying [Reg §1.501(r)-(4)(b)(3)]:

• Describe how an individual applies for

assistance under the FAP.

• FAP or FAP application form must describe all

the information and documentation required to

be provided.

• FAP or application form must include the contact

information for the hospital facility department

that can provide information about FAP.

March 11, 2015


Written Financial Assistance PolicyActions for Nonpayment [Reg §1.501(r)-(4)(b)(4)]:

FAP or separate written billing and collections

policy MUST describe:

• Any actions that hospital or third party may take

to obtain payment (including any extraordinary

collection actions or ECAs).

• Process and time frames hospital uses in taking

such actions, including reasonable efforts to

determine FAP eligibility.

• Office, department, or body with final authority to

begin ECAs against an individual.

March 11, 2015


Written Financial Assistance PolicyMeasures to widely publicize [Reg §1.501(r)-(4)(b)(5)]

• Must conspicuously post a complete and current version

of the FAP, FAP application form, and a “plain language

summary” on a website.

• Can be Hospital facility’s own site or one belonging to

Hospital organization that controls facility.

• Can be another’s website as long as Hospital facility’s

or organization’s own site contains conspicuously

displayed link along with clear instructions for

accessing document.

March 11, 2015


Written Financial Assistance PolicyMeasures to widely publicize [Reg §1.501(r)-(4)(b)(5)]:

• Make paper copies of the FAP, FAP application form, and

plain language summary of the FAP available upon

request and without charge, both by mail and in public

locations in the hospital facility, including the emergency

room and admissions areas.

• Notify community in manner to reach those most likely to

need financial assistance.

• Notify individuals receiving care at the facility by offering a

paper copy of FAP summary, putting conspicuous notice

on billing statements and setting public displays.

March 11, 2015



Accessibility to limited English

proficient (LEP) individuals:

• Must make translations of its FAP, FAP application form,

and plain language summary available in language

spoken by each LEP language group that constitutes

lesser of 1,000 individuals or 5% of the community

served by the hospital facility available.

• Translations should be made widely available on the

website as well as paper copies made available at the

hospital facility and in the community.

• Must translate separate billing and collections policy as

well.

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Emergency Medical Care Policy:

• Hospital must establish a written policy that requires hospital

to provide, without discrimination, care for emergency

medical conditions to individuals regardless of their eligibility

under FAP.

• The written policy must prohibit hospital from engaging in

actions that discourage individuals from seeking emergency

care such as:

- Demanding payment before receiving treatment for

emergency medical conditions.

- Permitting debt collection activities that interfere with the

provision of emergency medical care.

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Establishing the Policy

• Authorized body of the hospital facility has

adopted and implemented the policy.

• A policy is considered implemented if the

Hospital facility has consistently carried out

the policy.

• May have a joint policy for multiple hospital

facilities if policy clearly identifies each

facility to which it applies.

March 11, 2015


Limitations on Charges

IRC § 501(r)(5) requires hospitals to limit

charges for emergency and other medically

necessary care provided to individuals eligible

for financial assistance to amounts generally

billed (AGB) to insured individuals.

IRC § 501(r)(5) prohibits hospitals from billing

individuals using “gross charges.”

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Reg § 1.501(r)-5 requires a hospital to use one of

two methods:

• Prospective Medicare or Medicaid Method.

• Lookback Method.

Hospital facility may change the method used at

any time.

• Note: Must update FAP if method

changes.

March 11, 2015



Prospective Medicare Method:

• Simpler method.

• Uses typical hospital billing and coding as if

patient was Medicare fee-for-service or

Medicaid beneficiary.

• AGB is amount Medicare or Medicaid would

reimburse together with any co-payments, co-

insurance, and deductibles from the

beneficiary.

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Lookback Method:

• More complex method.

• Multiply gross charges for a service by AGB.

• AGB percentage calculated by dividing the sum

of all claims for emergency and other medically

necessary care that have been allowed by an

insurer by the sum of the associated gross

charges for those claims.

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Lookback Method • Claims can be either:

- Medicare fee-for-service including co-

insurance and deductibles.

- Medicare FFS and all private health insurers

including co-payments, co-insurance, and

deductibles.

- Medicaid.

• Must apply the AGB percentages by 120th day after

the end of the 12-month period.

March 11, 2015


Prohibition on Certain

Collection Efforts

IRC § 501(r)(6) requires a hospital make

“reasonable efforts” to determine eligibility

under FAP before engaging in Extraordinary

Collection Actions (ECA).

Reg § 1.501(r)-6 defines ECAs and

“reasonable efforts” as well as notification

requirements.

March 11, 2015



Collection Efforts

Any action taken by hospital to obtain payment for care

covered under FAP that:

• Requires legal or judicial process.

• Involves selling an individual’s debt to another party.

• Involves reporting adverse information to consumer

credit reporting agencies or credit bureaus.

• Deferring, denying, or requiring payments before

providing medically necessary care.

Extraordinary Collection Actions

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Collection Efforts

Actions that require a legal or judicial process include, but are

not limited to:

• Placing a lien on property.

• Foreclosing on real property.

• Attaching or seizing a bank account or other personal property.

• Commencing a civil action.

• Causing arrest or body attachment.

• Garnishing wages.


March 11, 2015



Collection Efforts

Do NOT include:

• Mere referral of debt without selling it.

• Certain debt sales.

• Requiring deposits before providing care.*

• Charging interest.

* Be Careful of EMTALA restrictions


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Collection Efforts

• Reasonable efforts to determine FAP eligibility:

– Notifies individual about FAP during the notification

period.

– Processes applications for financial assistance during the

application period.

– Periods are computed based on the date that the hospital

provides the individual with the first bill for care.

o Notification period – 120 days after first bill

o Application period – 240 days after first bill

March 11, 2015



Collection Efforts

• Provides individual with written notice

that indicates financial assistance is

available, identifies ECAs that may be

taken and the deadline for action.

• Provides individual with plain

language summary of FAP.

• Makes reasonable effort to orally

notify the individual about the FAP

and how to obtain assistance.

Notification

March 11, 2015


Community Health

Needs Assessment

Applies for tax years beginning afterMarch 23, 2012.

Assessment must be conducted during tax year or in either of the two immediately

preceding tax years.

Authorized body of Hospital must adopt implementation strategy to meet community

health needs identified.

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Community Health

Needs Assessment

• Conduct CHNA

– Define community served

– Assess the health needs of the community

• Take into account input received from persons who

represent broad interests of community

1) Include at least one state, local, tribal, or regional government

public health department

2) Include members of medically underserved, low income, and

minority populations

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Community Health

Needs Assessment

• Document – written CHNA report must include:

– Definition of the community served and how it was

determined.

– Description of the process and methods used to conduct

the CHNA.

– Description of how the facility took into account input.

– Prioritized description of the significant health needs.

– Description of resources available to address needs.

– Evaluation of impact of any actions since prior CHNA.

March 11, 2015


Community Health

Needs Assessment

• CHNA considered to be completed when CHNA

report made widely available to the public on a

website and in paper copy at the hospital facility

– Must keep available until two subsequent CHNAs

completed and widely available

• Multiple facilities – a separate CHNA report must be

provided for each facility

– Joint report only allowed if communities defined are

identical

March 11, 2015


Written Implementation Strategy

Describe how the facility plans to meet each

significant identified health need.

Identify the significant health need as one the hospital

facility does not intend to meet and explain why.

Must be adopted by the 15th day of the 5th month after

end of the taxable year in which the facility conducts

the CHNA.

March 11, 2015


Penalties Under § 501(r) • What Are Penalties For Failing To Comply With

§ 501(r) Requirements?

Revocation of

IRC § 501(c)(3)

status.

Excise tax

under IRC

§ 4959.

March 11, 2015


Penalties Under § 501(r) • Revocation of IRC § 501(c)(3) status

Hospital organization’s failure to comply with IRC § 501(r) during

plan year may result in revocation of IRC § 501(c)(3) status.

Revocation based on facts and

circumstances.

Exception for minor and inadvertent omissions and

errors.

Excusal for certain failures if hospital

facility corrects and discloses.

March 11, 2015


Penalties Under § 501(r)

• Revocation of IRC § 501(c)(3) status

Factors IRS May Consider:

Failure History, Type, and Reason

Whether there was previous failure and,

if so, whether failure is same type?

What is size, scope, nature, and

significance of failure?

Where more than one facility, what is

number, size, and significance of failing

facilities compared to compliant ones?

What are reasons for failure?

Factors IRS May Consider:

Failure Practices and Procedures

Whether practices and procedures were in

place prior to failure?

Whether practices and procedures were

routinely followed and failure was due to

oversight or mistake?

Whether safeguards were in place?

Whether failure was corrected promptly?

Whether safeguards and corrective actions

were taken before IRS discovered failure?

March 11, 2015


Penalties Under § 501(r) • Exception for minor and inadvertent omissions and

errors (Reg 1.501(r)-2(b)):

• Such omission was minor, inadvertent,

and due to reasonable cause and

• Hospital facility corrects such omission

or error as promptly after discovery as is

reasonable given nature of omission or

error.

• Not considered a failure under 501(r).

March 11, 2015


Penalties Under § 501(r) • Excusal for certain failures if hospital facility corrects

and discloses:

• Failures that are neither willful nor

egregious are excused if corrected

and disclosure made in accordance

with guidance.

• If not minor errors or omissions - will

still be subject to excise taxes under

IRC § 4959.

March 11, 2015


Penalties Under § 501(r) • Revenue Procedure 2015-21

• Revenue Procedure

• Defines willful or egregious

• Provides correction principles

• Describes disclosure reporting

• Issued March 10, 2015

• Supersedes Notice 2014-3

(Dec 30, 2013)

March 11, 2015



Willful or Egregious

• Includes failure due to gross negligence,

reckless disregard, or willful neglect

• Egregious failure – very serious failure

• Correction and disclosure is a factor

tending to show that the failure was not

willful or egregious

• Will be considered a factor

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Correction

• Restore the affected person(s)

• Should be reasonable and appropriate

for the failure

• Made as promptly after discovery as is

reasonable

• Establish practice & procedures for

compliance

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Disclosure - Report on Form 990 for tax year in

which failure discovered

• Description of failure

• Description of correction made

• Description of practices & procedures

revised or added

• If no 990 filing, disclose on website

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• Correction and disclosure is a factor in

determining that the failure was not willful or

egregious

• Hospital will be subject to excise tax under

§4959 even with correction and disclosure

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Penalties Under § 501(r) • Excise Tax under § 4959

-$50,000 excise tax on hospital

organization that fails to meet CHNA

requirements with respect to any taxable

year.

o Applies separately to each hospital facility.

o Applies each year of failure.

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Penalties Under § 501(r)

Failure of one (or more) hospital

facility may not necessarily

result in loss of exemption for

entire organization.

Noncompliant facility subject to

tax as if taxable corporation.

Income may not be aggregated

with other noncompliant

facilities or other unrelated

business income.

• Special rule for multiple

facilities:

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Governmental Hospital Organizations• Organizations that are exempt under 501(c)(3) must

meet the 501(r) rules.

-Don’t have to file Form 990

-Do have to make CHNA and FAP widely

available on website

-Failure can result in excise tax and/or

revocation of 501(c)(3) status

March 11, 2015


Planning

Review existing Financial Assistance

and Billing and Collection policies.

• Compare to current code and regulations

and make any necessary changes.

• Determine LEP populations and translate

policies, summaries, and applications.

• Make documents widely available.

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Planning

Review process for conducting CHNA

• Make sure current CHNA made widely

available.

• Review report previously issued with new

regulations.

• Begin planning for next CHNA – most will be

due sometime in 2016.

March 11, 2015


Planning

Review processes in place and

potential for inadvertent errors.

Educate board and organization

leadership.

Educate staff.

March 11, 2015


Questions?

Contact information for Susan Clark

(404) 266-9876

[email protected]

Where Do We Go from Here? IRS Finalizes Rules for Tax-Exempt Hospitals

Healthcare

Transcript of Where Do We Go from Here? IRS Finalizes Rules for Tax-Exempt Hospitals