On March 23, 2010, President Obama signed into law the Patient Protection and Affordable Care Act (PPACA) (Pub. L. No. 111-148). PPACA imposes four new substantive requirements that a hospital must satisfy to maintain its tax exemption:
• Conduct a community health needs assessment once every three years and adopt an implementation strategy to meet the identified needs
• Needs assessment must “take into account” input from persons who represent the broad interests of the community served by the hospital facility, including those with special knowledge or expertise in public health
• Assessment may be based on current information collected by a public health agency or nonprofit organization
• Assessment must be made widely available to the public
• Two or more related or unrelated hospitals may jointly conduct a needs assessment
• Failure to comply results in an excise tax penalty of up to $50,000
• Adopt, implement, and publicize a financial assistance policy that must include:
• eligibility criteria for such assistance, and whether it includes free or discounted care
• the basis for calculating the amounts charged to patients
• the method for applying for financial assistance
• collection actions that will be taken in the event of nonpayment (including reporting to credit agencies)
• measures to widely publicize the policy within the hospital community
Also, the hospital must adopt a written policy to provide emergency medical care to all individuals regardless of their ability under the financial assistance policy
• Limit charges for those qualifying for financial assistance:
• Hospitals must limit charges for emergency or “other medically necessary care” provided to individuals who qualify for financial assistance to “the amounts generally billed” to individuals with insurance
• Hospitals may not use gross charges (i.e., charge master rates)
• The amounts billed may be based on the best ( or an average of the three best) negotiated commercial rates, or Medicare rates
• Refrain from extraordinary collection actions before making reasonable efforts to determine whether a patient qualifies for financial assistance
• Examples of “extraordinary collection actions” includes lawsuits, liens on residences, arrests, body attachments or other similar collections practices
In addition, PPACA imposes three new mandates that will increase the flow of data from tax-exempt hospitals to the IRS, and from IRS/Treasury to Congress:
• Tax-exempt hospitals must include and disclose additional information on Form 990 Schedule H (community needs assessment implementation and financial audits)
• IRS must review every exempt hospital’s community benefit activities as reflected on its Form 990/Schedule H at least once every three years
• Treasury Secretary must report annually to Congress on comparative levels of hospital charity care, and complete a Congressional study on emerging trends after five years
Organizations subject to the new requirements include:
• Any 501(c)(3) organization which operates a facility which is required by State to be “licensed, registered or similarly recognized as a hospital”
• Any other organization which the Treasury Secretary determines “has the provision of hospital care as its principal function or purpose constituting the basis” for its tax status
Also, organizations that operate more than one hospital facility must meet the requirements “separately with respect to each such facility”
These new provisions are generally effective for taxable years beginning after the date of enactment.
• E.g., if a hospital’s fiscal/tax year begins on July 1, the new requirements go into effect at that time
• Effective date for completion of community needs assessment is delayed (consistent with the “once-every-three-years” requirement) to taxable years beginning two years after the date of enactment
In summary, the new health reform law imposes significant additional requirements on tax-exempt hospitals and health systems. The Treasury Department is expected to issue implementing regulations soon.
Written by: VHA Inc. is a nationwide cooperative owned and governed by community-owned health care systems and their physicians.
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