How to Protect Your Hospital’s Tax Exempt Status under Section 501(r)

As noted in the Pulse article posted on April 17, 2015, tax-exempt hospitals need to be working on their policies and procedures to comply with the finalized regulations of IRS Code Section 501(r).

There are several steps hospitals should take to avoid the risk of their tax-exempt status under the new regulations.

Hospitals should form project teams to ensure compliance with the regulations and maintain oversight over the change process. These teams would identify modifications to existing policies and procedures that need to be made, educate staff on the impact of the changes to hospital operations and create and implement a process to ensure ongoing compliance.  These teams should be led by Compliance or Internal Audit leaders.  Members comprising these teams should be high level individuals from the Finance, Revenue Cycle, Community Benefit, Legal, Marketing and IT departments.

These teams should focus on making creating new or changing existing policies to meet the regulation’s “specificity” and “plain language” requirements.  In particular, the review should focus on the Financial Assistance Policies (FAP), billing and collection policies, and emergency medical care policies.   The hospital’s FAP are those policies that list the financial assistance offered to patients and how they would apply for it, describes how the hospital calculates charges to those who receive assistance, lists the potential collection activity that can be pursued by the hospital and states which providers within the hospital that are covered by the FAP.  The emergency medical care policy is a document that affirms the hospital’s commitment to provide emergency care regardless of the patient’s eligibility for financial assistance.  These policies, as well as several others, may need to be amended to bring the hospital into compliance with the new regulations.

Research your facility’s demographics.  Depending upon your community’s diversity, the FAP and its related documentation should be translated into languages that are spoken in your community.  To help with this task, you may want to collaborate with local government or regional health authorities to ensure the needs of your communities are being addressed by the documentation.

Once the policies have been created or amended, submit them to the hospital’s board or an authorized committee of the board for review/approval.  After approval, be certain to update your forms and website with the new documentation.

Considering the day-to-day work requirements facing your project team members, you may want to consider seeking help from a firm with a health law group to assist with team development, analyzing and editing your current policies, and educating your board members about the necessity of the changes.

It is important that you act soon to bring your hospital in line with these new regulations by December 29, 2015.  Violations, at best, can result in embarrassing corrections and disclosures on your organization’s Form 990.  At worst, they can lead to a loss of your facility’s tax-exempt status.

Start down the path now; although it may be formidable task, the protection of your facility’s tax-exempt status is well worth the effort.    


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