Healthcare Reform Adds New Requirements for Charitable Hospitals
Many hospitals in Louisiana are referred to as “non-profit”, but this term actually applies to two distinct categories of providers. A hospital can be exempt from federal taxation either because it is a governmental entity (such as service district hospitals in Louisiana) or because it qualifies for the charitable exemption in Section 501(c)(3) of the Internal Revenue Code. In order to qualify, hospitals have to meet a “community benefit standard”.
When Congress enacted The Patient Protection and Affordable Care Act earlier this year, they added structure and substance to this community benefit standard. Under these new criteria, tax-exempt hospitals must now meet community health needs assessment requirements, implement financial assistance policies, limit charges to patients that qualify under the financial assistance policies, and restrict collection activities in certain circumstances.
Community Health Needs Assessment - In general, a tax-exempt hospital must conduct a “community health needs assessment” every three years and adopt an implementation strategy to meet the identified community health needs. The hospital’s assessment must be based on broad input from the community served by the hospital and be made widely available to the public. The hospital will be required to provide the Internal Revenue Service with a description of both how it is addressing the identified community health needs and the needs that are not being addressed together with the reasons. The three-year requirement appears to mean that hospitals will have adequate time to prepare and implement this requirement.
Financial Assistance Policies - Written financial assistance policies are also required and must include eligibility criteria for free or discounted care, how eligible patients are to be charged, the process for applying for financial assistance, the hospital’s policy in the event of non-payment, and mechanisms for widely publicizing the policy within the hospital’s community. The legislation also re-emphasized the hospital’s existing obligation to provide emergency care without regard to the patient’s ability to pay.
Limitation on charges – A tax-exempt hospital must limit the amounts charged for emergency or other medically necessary care provided to individuals that qualify for financial assistance to not more than the lowest amounts charged to health insurers. Eligible patients may not be charged the hospital’s standard rate.
Billing and Collection Requirements - The legislation prohibits a tax-exempt hospital from engaging in "extraordinary collection actions" before making a reasonable effort to determine whether the patient is eligible under the financial assistance policy. The Internal Revenue Service will issue guidance on what it considers "extraordinary".
Except for the community health needs assessment, these requirements become effective in the hospital's tax year which begins after March 23, 2010. Therefore, for the typical tax-exempt hospital which has a calendar tax year, the financial assistance, limitation on charges, and billing and collection policies, should be in place by January 1, 2011.
Tax-exempt hospitals that fail to meet these requirements will be subject to an excise tax of $50,000. Hospitals' community benefit activities will also be subject to review by the Treasury Department at least once every three years.
These requirements apply only to hospitals. Other healthcare providers that are tax-exempt, such as federally qualified health centers and some nursing homes, are not affected. Further, it applies only to those hospitals which are tax-exempt because they have qualified under Section 501(c)(3) of the Internal Revenue Code. Local governmental hospitals that have not sought such an exemption are not effected. Those service district hospitals that have also qualified under Section 501(c)(3) will have to decide whether to comply with these requirements or simply give up this designation and rely on their governmental status for their tax exemption. These hospitals should, however, carefully consider all of the ramifications of that decision.