IRS finalizes ACA requirements for tax-exempt hospitals

February 1, 2015

On Dec. 31 the Internal Revenue Service and the U.S. Department of the Treasury published in the Federal Register final rules that address the Affordable Care Act's requirements for maintaining hospital tax exemption, including conducting community health needs assessments, developing implementation strategies to address identified community health needs and establishing hospital financial assistance and billing and collection policies.

The final rules apply to a hospital's taxable years beginning after Dec. 29, 2015. Until that time, hospitals can follow proposed rules, which have offered compliance guidance in the recent past. Many hospitals have been doing community health needs assessments for over 20 years, but the reviews became mandatory for all tax-exempt hospitals with the passage of the Affordable Care Act in 2010.

In a blog post accompanying the release of the final rules, the Treasury Department commented that the requirements added by the ACA were intended to protect patients and ensure that charitable hospitals meet their obligations to improve community health. The post said the final rules follow the same framework as the proposed regulations but "simplify the compliance process for charitable hospitals, while continuing to provide meaningful guidance on protections for patients and requirements to assess community health needs."

Julie Trocchio, CHA senior director for community benefit and continuing care, said, "The long-awaited final rules fine-tune the proposed rules, relaxing some aspects and tightening others. The preamble to the final rules discusses issues addressed in over 300 public comments on the proposed rules and explains why changes were and were not made. For example, the Treasury Department and IRS increased their estimate of the average amount of time needed for a hospital to comply with certain policies and somewhat lessened the burden of notifying patients about financial assistance policies."

Needs assessments, implementation strategies
The IRS issued proposed rules in 2013 that required tax-exempt hospitals to conduct community health needs assessments at least once every three years with input from public health agencies and community members. The proposed rules set requirements for conducting and documenting these assessments. They also required hospitals to document how they intended to address significant health needs identified in the needs assessments and explain why they choose not to address other identified needs.

The final rules regarding community health needs assessment differ from the proposed rules primarily in three ways: First, while both the proposed and final rules require hospitals to take into account input from people who represent the broad interests of the community, including public health experts and members of medically underserved populations, the final rules provide more flexibility. The final rules allow hospitals that solicit community input but receive no responses to meet the requirement by documenting those solicitation attempts.

Second, the final rules require that community input be used in setting priorities as well as in the assessment process, not, as the proposed rules required, for the assessment only.

Third, hospitals are told to include in their documentation of the community health needs assessment an evaluation of the impact of any actions taken to address significant health needs since the previous assessment. This replaces the proposed rules requirement that implementation strategies include an evaluation plan for actions addressing significant health needs.

Single operating license
In addition, the final rules clarify that multiple health care buildings operating under a single license must be treated as a single facility for the community health needs assessment. Proposed rules gave hospital organizations the option of treating separate buildings operating under one license as single or multiple facilities for purposes of the community health needs assessment. However, the preamble to the final rules says that "a hospital facility consisting of multiple buildings could, if desired, assess the health needs of different geographic areas or populations served by the different buildings separately and document the assessments in separate chapters or sections in the hospital's community health needs assessment report and implementation strategy."

Health needs defined
Another clarification expands the examples of health needs that may be included in the community health needs assessment to include preventing illness; ensuring adequate nutrition; and addressing social, behavioral and environmental factors that impact health. This reinforces what community benefit and public health leaders have long contended — that social and environmental determinants of health play a major role in community health.

In regard to rules governing implementation strategies, the term used in the rules to refer to plans to address identified health needs, in addition to deleting the requirement that the strategy include an evaluation plan for planned actions, the final rules provide hospitals more time to complete their strategies. While the proposed rules called for an implementation strategy to be adopted within the same tax year as the community health needs assessment, the final rules say it must be adopted on or before the 15th day of the fifth month after the end of the tax year in which the hospital facility completes the final step in its community health needs assessment.

Financial assistance, billing and collections
Detailed proposed rules on implementing the ACA financial assistance, billing and collection requirements were published in 2012. They required tax-exempt hospitals to have written financial assistance and emergency medical care policies that are widely publicized. They limited how much a hospital could charge people who are eligible for financial assistance to "amounts generally billed" and prohibited using "extraordinary collection actions" until a hospital established patients' eligibility for financial assistance.

Both the proposed and final rules permit hospitals to establish their own financial assistance policies. The final rules clarify that information for financial assistance applications can be collected orally, as well as in writing and that a hospital can determine what and how much documentation is needed. The rules also permit a hospital to presumptively determine that an individual is eligible for financial assistance based on information provided by others or based on a prior financial assistance eligibility determination. The proposed rules said that if a hospital determined someone was presumptively eligible, that individual must be given the most generous assistance stated in the financial assistance plan. The final rules state that the hospital can provide less assistance if the facility meets certain criteria.

The final rules clarify that if a hospital has separate financial assistance and billing and collection policies, both policies must meet the requirements of being approved by the hospital's board or a group authorized by the board and be translated into foreign languages. The final rules require that translations be available in all languages spoken by limited English proficient groups that constitute the lesser of 1,000 persons or 5 percent of the community served by the hospital. The proposed rules had set the threshold at 10 percent of the community.

Financial assistance policies must be in writing and widely available. The final rules specify that hospitals can inform visitors about their financial assistance policies by posting notices in the emergency and admissions areas, not necessarily in all public areas. The rules also specify that all patients need to be notified about financial assistance policies before their discharge, but should receive such information with billing statements only when the hospital intends to engage in extraordinary collection actions. In addition, billing statements must include "conspicuous written notice" about the availability of financial assistance and a hospital telephone number for obtaining additional information.

Both the proposed and final rules require hospitals to affirmatively reach out to community members they serve to notify them about financial assistance available "in a manner reasonably calculated to reach those members who are most likely to require financial assistance from the hospital."

In response to public comments and questions concerning whether a hospital's financial assistance plan would apply to emergency department physicians and others who bill separately, the final rules require hospitals to describe which providers are covered by their policies and which are not. However, if a hospital outsources its emergency department, it may not exclude it from coverage by its financial assistance plan.

Both the proposed and final rules call for limiting to not more than amounts generally billed the charges for any emergency or medically necessary care provided to patients eligible for financial assistance from a hospital. The final rules add that Medicaid rates can be used to calculate amounts generally billed. The final rules also permit hospitals to change the method used to determine amounts generally billed.

Billing and collections
Consistent with the ACA and the proposed regulations, the final rules prohibit tax-exempt hospitals from engaging in extraordinary collection actions against an individual before making reasonable efforts to determine whether the individual is eligible for financial assistance.

Despite many comments asking that the reporting of nonpayment of a bill to a credit agency not be defined as an "extraordinary collection action," the final rules retain that provision of the proposed rules and add a new action to the definition: deferring or denying medically necessary care, or requiring prepayment before providing such care, because of an individual's nonpayment of one or more previous bills.

"Despite some added flexibility, the billing and collection rules continue to be detailed and prescriptive," said Trocchio. "But the main concern of our members has been the uncertainty of what to expect from the IRS. Now our members can modify their policies if necessary."

 

Copyright © 2015 by the Catholic Health Association of the United States
For reprint permission, contact Betty Crosby or call (314) 253-3477.

Copyright © 2015 by the Catholic Health Association of the United States

For reprint permission, contact Betty Crosby or call (314) 253-3490.