Written by Beth Stephens, Health Access Program Director, and Lindsey Stephens, Duke Law School Extern
On December 31, 2014, the Treasury Department and the IRS issued long-awaited final regulations that clarify requirements for nonprofit hospitals regarding their financial assistance policies and the methods by which they assess and address the needs of their community. These regulations, contained in Section 501(r) of the IRS tax code, refine obligations for nonprofit hospitals that are part of the Affordable Care Act (ACA).
The ACA, which became law on March 23, 2010, creates new obligations for tax-exempt nonprofit hospitals to assist low-income patients and their communities. The ACA requires nonprofit hospitals that file taxes as 501(c)(3) organizations to meet 4 general requirements:
- establish written policies for the provision of financial assistance and emergency medical care,
- limit amounts charged for emergency or other medically necessary care to patients eligible for financial assistance at the hospital,
- make reasonable efforts to determine whether a patient qualifies for help under the hospital’s financial assistance policy before engaging in extraordinary collection actions, and
- conduct a comprehensive community health needs assessment (CHNA) and adopt a corresponding implementation strategy at least once every three years.
For several years, the Section 501(r) IRS regulations were proposed, but not yet finalized. In September 2012, Georgia Watch submitted public comments on the then proposed regulations regarding nonprofit hospital financial assistance policies (FAPs). We were pleased to see some of our recommendations reflected in the final regulations in the following ways:
- In accordance with our recommendation, the final regulations require that Section 501(r) requirements be met by all hospital organizations that are (or seek to be) recognized as 501(c)(3) nonprofits, including those that are government hospital organizations.
- Regarding the translation of hospital FAPs into languages spoken in the community, Georgia Watch recommended that the federal regulations require translation of all FAPs into both English and Spanish. Unfortunately, Spanish translation is not required in the final regulations. However, the required threshold for translation for each eligible LEP group was lowered to include those groups that constitute 5% or 1,000, whichever is less, of the population of persons eligible to be served by the hospital or likely to be affected or encountered.
- Under the final regulations, a nonprofit hospital must limit the amounts charged for any emergency or medically necessary care it provides to a FAP-eligible individual to not more than “amounts generally billed” (AGB). Georgia Watch encouraged the IRS to require hospitals to base AGB on Medicare claims alone because those claims are commonly paid at a lower rate than private insurance and Medicare claims information is publicly available to consumers. The IRS did not go that far. The final regulations give much flexibility to hospitals in calculating AGB, allowing them to use a look-back method to calculate AGB based on Medicare claims and the claims paid by all private health insurers in the previous year. However, consistent with our recommendations, hospitals cannot exclude Medicare claims when calculating AGB.
- In response to comments, including ours, in opposition to allowing hospital facilities to use only a sample of all possible private insurance claims and Medicare to calculate AGB using the look-back method, the final regulations do not allow hospital facilities to base their calculation of AGB on merely a sample of claims. Rather, hospitals must look at the totality of all claims when calculating AGB.
- In accordance with our recommendation, the final regulations consider the deferral or denial of care before providing a patient with medically necessary care due to nonpayment of a bill an extraordinary collection action. Hospitals must make reasonable efforts to determine if a patient is eligible for financial assistance before engaging in a denial or deferral of care.
- The proposed regulations provided that the “notification period” for informing an individual about the hospital’s FAP would start on the date the first billing statement was issued. In response to comments, including ours, that it would only be fair to begin the notification period post-discharge, the final regulations provide that the applicable 120- and 240-day periods start on the date that the first “post-discharge” billing statement is provided.
A recent blog post from the national nonprofit advocacy organization Community Catalyst, accurately summarized the spirit of the final rules in this way: “While the new regulations leave most of the details to hospitals to decide, they set a new federal floor that greatly increases transparency on financial assistance and collections, provides some protection against medical debt and overcharging, and offers communities greater insight and potential influence on the way hospitals understand and address broader health issues.” The final regulations, issued at the end of 2014, do not take effect until 2016. Georgia Watch will issue more detailed analysis of these final regulations in the coming months.