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Health Care Law Alert: Changes to Requirements for Tax-Exempt Hospitals

March 25, 2010

The Patient Protection and Affordable Care Act (the "Act") adds four specific requirements that hospitals must satisfy in order to qualify for and maintain tax-exempt status under Section 501(c)(3). These new requirements, effective as of the beginning of a hospital's next tax year, reflect the growing concern that nonprofit hospitals are not sufficiently distinguishable from their for-profit counterparts. We're advising clients to review and update their current policies and procedures.

The four specific additional requirements that hospitals must satisfy in order to qualify for and maintain tax-exempt status under Section 501(c)(3) are:

1. Community Health Needs Assessment

Each hospital must have 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 must have adopted an implementation strategy for meeting the community health needs identified in the assessment. The assessment itself must include input from a broad cross-section of the community served by the hospital, including those with special knowledge of public health. The assessment must be made widely available to the public. This provision is effective for taxable years that begin after March 23, 2012. Failure to comply with the provision will subject a hospital to an excise tax penalty of $50,000.

2. Financial Assistance Policy

Each hospital must adopt and make widely available a written financial assistance policy that includes:

  • eligibility criteria for financial assistance and an indication as to whether such assistance includes free or discounted care
  • the basis for calculating amounts charged to patients
  • the method for applying for financial assistance
  • if the hospital does not have a separate billing and collections policy, a statement of the collection-related actions the hospital may take in connection with non-payment; and
  • a description of how the hospital will publicize the policy within its community.

The hospital must develop and adhere to a written policy requiring the provision of non-discriminatory emergency medical care, regardless of whether the individual is eligible for financial assistance under the hospital's financial assistance policy. This does not seem to indicate a change from a hospital's EMTALA obligations.

3. Limitations on Charges

Hospitals must limit the charges for emergency or other medically necessary care provided to patients eligible for financial assistance under their financial assistance policies to not more than the lowest amounts charged to patients who have insurance covering such care. Hospitals must also prohibit the use of gross charges.

4. 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 term "reasonable efforts" is to be defined in subsequent regulations; the term "extraordinary collection actions" is not defined.

Keeping track

The Act requires the Secretary of the U.S. Department of the Treasury or its delegate to review the community benefit activities of each tax-exempt hospital at least once every three years. Each hospital will now be required to include two additional items in its annual Form 990: (1) a description of how the hospital is addressing the needs identified in each community needs assessment along with a description of any such needs not being addressed and the reasons therefor; and (2) its audited financial statements.

To view the alert, click here.