New rules for charitable hospitals
Under the sweeping federal health reform law known as the Patient Protection and Affordable Care Act, a charitable hospital "shall not be treated" as an Internal Revenue Code 501(c)(3) tax-exempt entity unless it meets specific new requirements. Those new requirements require prompt attention since they are effective in a hospital's first tax year after the act's enactment date.Specific obligations for tax-exempt hospitals under the revisions to the Internal Revenue Code include the following:Financial assistance policy: Charitable hospitals must have financial assistance policies in place that include eligibility criteria and whether free or discounted care is included, the basis for calculating amounts charged to patients, the way in which a patient can apply for assistance, and if an entity does not have a separate billing and collections policy, the actions it may take in the event of nonpayment, including collection actions and reporting to credit agencies. Hospitals should review and update their policies to ensure they include the explanation of the manner in which patients are charged and in which collections actions may be undertaken as well as the other requirements. Emergency medical care: A nonprofit hospital must have a written policy that commits it to provide nondiscriminatory care for emergency medical conditions, regardless of whether an individual is eligible under the financial assistance policy. Although an "emergency medical condition" is defined in the same way as under EMTALA (the Emergency Medical Treatment and Active Labor Act), which already applies to hospitals, it is unclear whether and how far "care" for such conditions extends beyond the requirements for stabilization under EMTALA. Limitations on charges: Tax-exempt hospitals also now must limit the amounts they charge for "emergency or other medically necessary care" for individuals eligible under the financial assistance policy to "not more than the amounts generally billed" to individuals who have insurance coverage for such care. Further, hospitals may not use "gross charges." Under this provision, no detail is given as to what is considered "other medically necessary care." Second, guidance is needed to confirm that a hospital will be compliant if it uses gross charges as a starting point but applies a deduction resulting in the amount accepted from the individual as not more than amounts generally accepted for those who have insurance coverage. Billing and collection: Perhaps a response to perceived egregious tactics by certain hospitals to collect from uninsured patients, the amendment to Sec. 501 now prohibits charitable hospitals from engaging in "extraordinary collection actions" before making "reasonable efforts" to determine whether a person is eligible under the financial assistance policy. It is unclear what is considered "extraordinary" in terms of collection actions as well as what efforts are considered "reasonable" in trying to determine whether a person is eligible for financial assistance. Community health needs assessment: Effective with its first tax year beginning after March 23, 2012, each tax-exempt hospital must have conducted a community health needs assessment either during that year or during one of the two immediately preceding tax years, and have adopted an implementation strategy to meet the needs identified through that assessment. A new assessment will be required at least every three years. It will be important to integrate compliance with this and similar needs assessment requirements under state laws to avoid inconsistent processes and reporting. Penalties/reporting: To add teeth to the community health needs assessment requirements, PPACA changes the Internal Revenue Code to impose a tax penalty of $50,000 for any charitable hospital that fails to comply for any taxable year. Moreover, the U.S. Treasury Department must review the community benefit activities of every tax-exempt hospital at least once every three years and make further reports to Congress. Nonprofit hospitals also must include in their annual Form 990 filing a description of how they are addressing the needs identified in each community health needs assessment, a discussion of any needs not being addressed and reasons why, and their audited financial statements. Priscilla Kimball, who concentrates her practice on health care and corporate law, is of counsel to Hinckley Allen Snyder. Andrew B. Eills, who practice focuses on health care, is a partner in the firm.