IRS releases new rules for tax-exempt hospitals' collection practices

The Internal Revenue Service has released new regulations for charitable hospitals to stop harsh collection practices and make financial assistance policies more transparent to patients.

The IRS released the rules Monday, noting that reports of some charitable hospitals aggressively seeking payment for health services — including collecting payment in emergency rooms — highlighted the need for patient protection.

"For hospitals to be tax-exempt, they should be held to a higher standard," Emily McMahon, deputy assistant secretary for tax policy at the Department of the Treasury, wrote in a blog post about the new rules. If hospitals fail to follow the newly finalized rules, they risk losing their tax-exempt status.

The regulations are the final piece of the Patient Protection and Affordable Care Act's rules [section 501(r)] for nonprofit hospitals, and many of the requirements took effect after the law was enacted in 2010. "Charitable hospitals have been required to make a good-faith effort to comply with the statutory requirements since the law was passed, and have been able to rely on Treasury's proposed regulations pending finalization," wrote Ms. McMahon. "Today's regulations finalize these requirements and provide time for hospitals to phase in the new requirements."

Under the finalized regulations:

  • Tax-exempt hospitals may not charge individuals eligible for financial assistance more for emergency or other medically necessary care than amounts generally billed to patients with Medicare, Medicaid or commercial insurance.
  • Hospitals must establish and widely publicize their financial assistance policies that clearly describe eligibility criteria and the method for applying for assistance.
  • Hospitals are prohibited from engaging in certain collection methods — such as reporting debt to a credit agency or garnishing wages — until they make a reasonable effort to determine whether an individual is eligible for financial assistance under the hospital's policy.
  • Each hospital must conduct and publish a community health needs assessment at least once every three years and disclose on annual tax forms how it is addressing health needs identified in said assessment.

Those hospitals that fail to conduct a CHNA or publish its results will face an excise tax. If a hospital fails to meet a requirement listed above, but the failure is neither willful nor egregious, the hospital can correct and publicly disclose the error to have it excused but still pay an excise tax.

The Treasury notice states the final regulations continue to allow reliance on both the 2012 proposed regulations and the 2013 proposed regulations for 501(3)(c) hospitals until a an organization's first taxable year beginning after Dec. 29, 2015.

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