A review of Internal Revenue Service forms submitted by more than 1,800 nonprofit U.S. hospitals, along with general records from 2012, indicates healthcare providers aren’t meeting all necessary requirements related to community health needs assessments and financial assistance policies. 

Many hospitals could improve their compliance with the IRS’s new 501(r) rules, which require completing a community health needs assessment and meeting financial assistance policy requirements, according to a study from the University of Michigan Institute for Healthcare Policy and Innovation (IHPI). Hospitals subject to 501(r) also must adhere to limitations on charges and follow billing and collection practices under the requirements.

Top findings from the research include:

  • One in five hospitals report still using "extraordinary debt collection actions" when patients don't pay their medical bills, which are prohibited under 501(r).

  • Forty-two percent of hospitals said they have been informing patients about their possible eligibility for charity care before attempting to collect payment on medical bills. Providers must notify patients about financial assistance policies before discharge and during the 120-day billing period after receipt of the first post-discharge billing statement. 

  • Most (94%) hospitals have written charity care and emergency care policies, required under 501(r), to help determine which patients qualify for free or reduced-cost care. 

  • One of the requirements of 501(r) is to charge individuals eligible for financial assistance no more than the amount generally billed to patients with insurance, including Medicare, Medicaid or private commercial insurance. The IHPI researchers found that only 29% of the hospitals surveyed reported they started charging uninsured and underinsured patients the same rate given to patients with private insurance or Medicare. 

  • Eleven percent of hospitals have completed a community health needs assessment in the past three years as of 2012. Section 501(r) requires a hospital to conduct a CHNA at least once every three years and to adopt an implementation strategy to meet the community’s needs.  

Hospitals had to follow Affordable Care Act requirements starting in 2012 but the IRS didn’t issue its final language on complying with 501(r) and penalties for non-compliance until 2014. The final rules apply to a hospital’s taxable years beginning after Dec. 29, 2015. Section 501(r) of the Patient Protection and Affordable Care Act of 2010 must be followed for hospitals to maintain their tax exempt status.
"When Congress wrote the Affordable Care Act, they sought to use the tax tools available to them to reduce hospitals’ use of aggressive methods to pursue payment, and perhaps to prevent individual bankruptcies or credit score damage caused by medical bills," according to the IHPI.  Researchers Sayeh Nikpay, IHPI post-doctoral fellow, and IHPI director John Z. Ayanian say hospitals' performance under the new rules are "far from perfect," according to a news release from the IHPI. "Hospitals are generally complying with the part of the rules that require they establish charity care policies and publicize them, but this may not impact the amount of charity care they provide,” Nikpay said. "With added requirements, hospitals may start to pull back on how generous they make their charity care policies — and Section 501(r) of the [Affordable Care Act] does not set standards for that." 

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