New IRS Rules for Tax-Exempt Hospitals Dan Mulholland Horty, - - PDF document

New IRS Rules for Tax-Exempt Hospitals

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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

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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
• rganizations 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.

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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

• f 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.

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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
• f the community;
• prioritize those health needs; and
• identify resources available to

address such health needs.

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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.

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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).

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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.

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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.

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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
• r 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.

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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

• f 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.

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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.

FAP Translation Requirement 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.

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Two methods permitted:

• Look-Back Method
• Prospective Method

Look-Back Method

• Calculate “AGB percentage”
• nce a year.
• Apply “AGB percentage” to

gross charges for services provided to patient.

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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.

B = gross charges associated with those claims

AGB percentage = A ÷ B Divided By

Example: Patient No. 1:

• Patient with no insurance eligible for

50% discount under FAP

• Gross charges for hospital visit = $5,000

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Hospital calculated AGB % based

• n 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.)

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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
• ut-of-pocket.
• Less than 30% (AGB%) x total

charges.

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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.

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Billing and Collection

• hospital organization may not

engage in Extraordinary Collection Actions (“ECAs”)

• before it has made reasonable

efforts to determine whether the patient is FAP-eligible.

Extraordinary Collection Actions

• Selling debt to a collection agency or
• ther third party.
• Reporting adverse information to a

credit agency.

• Delaying or denying, or requiring

payment before providing, medically necessary care because of past nonpayment.

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Extraordinary Collection Actions

• Actions requiring a legal or judicial

process, including, but not limited to:

• liens
• foreclosures
• attaching/seizing bank accounts or

personal property

• lawsuits
• arrest
• body attachments

Reasonable Efforts

• presumptive determination that the

individual is eligible for financial assistance based on third-party information or prior eligibility determinations; or

• follow the notification and processing

procedures for FAP application.

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Notification and Application Process Prior to ECAs

• Notify the patient about the FAP at

least 120 days after the first “post- discharge” billing statement before initiating ECAs.

Notification and Application Process Prior to ECAs

• If patient submits incomplete FAP

application during application period (at least 240 days after the first post- discharge billing statement), hospital facility must suspend ECAs until:

• patient completes FAP application,
• hospital determines whether patient is

eligible for financial assistance, or

• patient fails to respond within a

reasonable time.

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Notification and Application Process Prior to ECAs

• If patient submits complete FAP

application during application period, the hospital facility determines that the patient is FAP-eligible and:

• suspends ECAs for pending FAP

applications;

• provides patient written notice of the

eligibility determination and basis for determination; and

Notification and Application Process Prior to ECAs

• if the patient is determined to be eligible

for financial assistance, either

• provides the patient with a billing

statement describing how the bill was determined and how to get information regarding AGB;

• refunds amounts already paid (unless

less than $5); or

• takes all reasonably available measures

to reverse any ECA already taken.

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What You Need To Do NOW

• Review applicable policies and

revise as needed.

• Calculate most favorable AGB%.
• Educate billing, admissions,

discharge and ER staff.

• Revise collection agency contracts to

require compliance.

• Update your CHNA.