The federal government recently finalized rules with which nonprofit hospitals must comply in order to maintain their tax-exempt status. To help these hospitals through the next steps of compliance with Internal Revenue Code 501(r) requirements, PYA Senior Manager Susan Clark recently presented, “Where Do We Go from Here? IRS Finalizes Rules for Tax-Exempt Hospitals,” at the Georgia HFMA Financial Executives One Day, March 11, 2015.

1. Page 0March 11, 2015
Prepared for Georgia HFMA Financial Executives One Day
Where Do We Go From Here? –
IRS Finalizes Rules for Tax-
Exempt Hospitals
Georgia HFMA Financial Executives One Day
March 11, 2015
Presented by Susan Clark, CPA, Senior Manager
Pershing Yoakley & Associates, P.C.

2. Page 1March 11, 2015
Prepared for Georgia HFMA Financial Executives One Day
Goals & Objectives
Goals &
Objectives
Setting the Stage
Overview of IRC § 501(r) Requirements
§ 501(r) Regulations
Penalties and Reporting
Next Steps

3. Page 2March 11, 2015
Prepared for Georgia HFMA Financial Executives One Day
Setting the Stage
Concerns that “charitable” hospitals were not
acting charitable:
Congress (hearings, investigations,
reports, proposals)
Plaintiffs’ lawyers (Scruggs 2004
class action suits)
State and local taxing authorities
(e.g., Illinois – Provena and subsequent
legislation)

4. Page 3March 11, 2015
Prepared for Georgia HFMA Financial Executives One Day
Overview of IRC § 501(r)
Requirements
Added by Patient
Protection and Affordable
Care Act (PPACA) of 2010
Final Regulations
• Issued December 29, 2014
• Effective for tax years
beginning after December 29,
2015
• Provisions effective for tax
years beginning after March
23, 2010
• Community Health Needs
Assessment (CHNA)
provisions effective for tax
years beginning after March
23, 2012

5. Page 4March 11, 2015
Prepared for Georgia HFMA Financial Executives One Day
Overview of IRC § 501(r)
Requirements
• Other 501(r) Guidance
• Proposed Regulations
• June 2012
• April 2013
• Notices
• 2011-52
• 2014-2
• 2014-3
• Rev Proc 2015-21
(Issued 3/10/15)
Can rely on a
reasonable good faith
interpretation of 501(r)
including proposed
regulations for tax
years beginning before
December 31, 2015

6. Page 5March 11, 2015
Prepared for Georgia HFMA Financial Executives One Day
Overview of IRC § 501(r)
Requirements
Requirements of
IRC §501(r)
• Written financial
assistance policy
• Limitations on
charges
• Prohibition on certain
collection efforts
• Community Health
Needs Assessment

7. Page 6March 11, 2015
Prepared for Georgia HFMA Financial Executives One Day
Overview of IRC § 501(r)
Requirements
Charitable Hospital
Organization
• Organization that operates
facility required by a state to
be licensed, registered, or
similarly recognized as a
hospital
• Any other organization that
the IRS determines has the
provision of hospital care as
its principal function or
purpose
• Organizations that operate
more than one hospital facility
must meet the requirements
of § 501 (r) separately with
respect to each facility

8. Page 7March 11, 2015
Prepared for Georgia HFMA Financial Executives One Day
Written Financial Assistance Policy
IRC § 501(r)(4) requires a hospital to establish
a written financial assistance policy (FAP) that
includes:
• Eligibility criteria for financial assistance (free or
discounted care) and basis for calculating
amounts charged to patients.
• Method for applying financial assistance.
• Actions the hospital may take in the event of
non-payment (this may be in a separate billing
and collections policy).
• Measures to widely publicize the FAP within the
community served by the hospital.

9. Page 8March 11, 2015
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Written Financial Assistance Policy
Eligibility criteria [Reg §1.501(r)-(4)(b)(2)]:
• Must specify all financial assistance available
under the FAP and amounts to which discount
percentages will be applied (e.g. gross charges)
• Must list the eligibility criteria an individual must
satisfy to receive each discount, free care, or
other levels of assistance.
• Must describe the method hospital used to
determine the amounts generally billed (AGB).

10. Page 9March 11, 2015
Prepared for Georgia HFMA Financial Executives One Day
Written Financial Assistance Policy
Eligibility criteria [Reg §1.501(r)-(4)(b)(2)]:
• If hospital uses Lookback method for
determining AGB
• FAP must state the AGB percentage and
describe how it was calculated; OR
• Explain how members of the public may
readily obtain this information in writing and
free of charge.
• FAP must indicate that a FAP-eligible individual
may not be charged more than AGB.

11. Page 10March 11, 2015
Prepared for Georgia HFMA Financial Executives One Day
Written Financial Assistance Policy
Method for Applying [Reg §1.501(r)-(4)(b)(3)]:
• Describe how an individual applies for
assistance under the FAP.
• FAP or FAP application form must describe all
the information and documentation required to
be provided.
• FAP or application form must include the contact
information for the hospital facility department
that can provide information about FAP.

12. Page 11March 11, 2015
Prepared for Georgia HFMA Financial Executives One Day
Written Financial Assistance Policy
Actions for Nonpayment [Reg §1.501(r)-(4)(b)(4)]:
FAP or separate written billing and collections
policy MUST describe:
• Any actions that hospital or third party may take
to obtain payment (including any extraordinary
collection actions or ECAs).
• Process and time frames hospital uses in taking
such actions, including reasonable efforts to
determine FAP eligibility.
• Office, department, or body with final authority to
begin ECAs against an individual.

13. Page 12March 11, 2015
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Written Financial Assistance Policy
Measures to widely publicize [Reg §1.501(r)-(4)(b)(5)]
• Must conspicuously post a complete and current version
of the FAP, FAP application form, and a “plain language
summary” on a website.
• Can be Hospital facility’s own site or one belonging to
Hospital organization that controls facility.
• Can be another’s website as long as Hospital facility’s
or organization’s own site contains conspicuously
displayed link along with clear instructions for
accessing document.

14. Page 13March 11, 2015
Prepared for Georgia HFMA Financial Executives One Day
Written Financial Assistance Policy
Measures to widely publicize [Reg §1.501(r)-(4)(b)(5)]:
• Make paper copies of the FAP, FAP application form, and
plain language summary of the FAP available upon
request and without charge, both by mail and in public
locations in the hospital facility, including the emergency
room and admissions areas.
• Notify community in manner to reach those most likely to
need financial assistance.
• Notify individuals receiving care at the facility by offering a
paper copy of FAP summary, putting conspicuous notice
on billing statements and setting public displays.

15. Page 14March 11, 2015
Prepared for Georgia HFMA Financial Executives One Day
Written Financial Assistance Policy
Accessibility to limited English
proficient (LEP) individuals:
• Must make translations of its FAP, FAP application form,
and plain language summary available in language
spoken by each LEP language group that constitutes
lesser of 1,000 individuals or 5% of the community
served by the hospital facility available.
• Translations should be made widely available on the
website as well as paper copies made available at the
hospital facility and in the community.
• Must translate separate billing and collections policy as
well.

16. Page 15March 11, 2015
Prepared for Georgia HFMA Financial Executives One Day
Written Financial Assistance Policy
Emergency Medical Care Policy:
• Hospital must establish a written policy that requires hospital
to provide, without discrimination, care for emergency
medical conditions to individuals regardless of their eligibility
under FAP.
• The written policy must prohibit hospital from engaging in
actions that discourage individuals from seeking emergency
care such as:
- Demanding payment before receiving treatment for
emergency medical conditions.
- Permitting debt collection activities that interfere with the
provision of emergency medical care.

17. Page 16March 11, 2015
Prepared for Georgia HFMA Financial Executives One Day
Written Financial Assistance Policy
Establishing the Policy
• Authorized body of the hospital facility has
adopted and implemented the policy.
• A policy is considered implemented if the
Hospital facility has consistently carried out
the policy.
• May have a joint policy for multiple hospital
facilities if policy clearly identifies each
facility to which it applies.

18. Page 17March 11, 2015
Prepared for Georgia HFMA Financial Executives One Day
Limitations on Charges
IRC § 501(r)(5) requires hospitals to limit
charges for emergency and other medically
necessary care provided to individuals eligible
for financial assistance to amounts generally
billed (AGB) to insured individuals.
IRC § 501(r)(5) prohibits hospitals from billing
individuals using “gross charges.”

19. Page 18March 11, 2015
Prepared for Georgia HFMA Financial Executives One Day
Limitations on Charges
Reg § 1.501(r)-5 requires a hospital to use one of
two methods:
• Prospective Medicare or Medicaid Method.
• Lookback Method.
Hospital facility may change the method used at
any time.
• Note: Must update FAP if method
changes.

20. Page 19March 11, 2015
Prepared for Georgia HFMA Financial Executives One Day
Limitations on Charges
Prospective Medicare Method:
• Simpler method.
• Uses typical hospital billing and coding as if
patient was Medicare fee-for-service or
Medicaid beneficiary.
• AGB is amount Medicare or Medicaid would
reimburse together with any co-payments, co-
insurance, and deductibles from the
beneficiary.

21. Page 20March 11, 2015
Prepared for Georgia HFMA Financial Executives One Day
Limitations on Charges
Lookback Method:
• More complex method.
• Multiply gross charges for a service by AGB.
• AGB percentage calculated by dividing the sum
of all claims for emergency and other medically
necessary care that have been allowed by an
insurer by the sum of the associated gross
charges for those claims.

22. Page 21March 11, 2015
Prepared for Georgia HFMA Financial Executives One Day
Limitations on Charges
Lookback Method
• Claims can be either:
- Medicare fee-for-service including co-
insurance and deductibles.
- Medicare FFS and all private health insurers
including co-payments, co-insurance, and
deductibles.
- Medicaid.
• Must apply the AGB percentages by 120th day after
the end of the 12-month period.

23. Page 22March 11, 2015
Prepared for Georgia HFMA Financial Executives One Day
Prohibition on Certain
Collection Efforts
IRC § 501(r)(6) requires a hospital make
“reasonable efforts” to determine eligibility
under FAP before engaging in Extraordinary
Collection Actions (ECA).
Reg § 1.501(r)-6 defines ECAs and
“reasonable efforts” as well as notification
requirements.

24. Page 23March 11, 2015
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Prohibition on Certain
Collection Efforts
Any action taken by hospital to obtain payment for care
covered under FAP that:
• Requires legal or judicial process.
• Involves selling an individual’s debt to another party.
• Involves reporting adverse information to consumer
credit reporting agencies or credit bureaus.
• Deferring, denying, or requiring payments before
providing medically necessary care.
Extraordinary Collection Actions

25. Page 24March 11, 2015
Prepared for Georgia HFMA Financial Executives One Day
Prohibition on Certain
Collection Efforts
Actions that require a legal or judicial process include, but are
not limited to:
• Placing a lien on property.
• Foreclosing on real property.
• Attaching or seizing a bank account or other personal property.
• Commencing a civil action.
• Causing arrest or body attachment.
• Garnishing wages.
Extraordinary Collection Actions

26. Page 25March 11, 2015
Prepared for Georgia HFMA Financial Executives One Day
Prohibition on Certain
Collection Efforts
Do NOT include:
• Mere referral of debt without selling it.
• Certain debt sales.
• Requiring deposits before providing care.*
• Charging interest.
* Be Careful of EMTALA restrictions
Extraordinary Collection Actions

27. Page 26March 11, 2015
Prepared for Georgia HFMA Financial Executives One Day
Prohibition on Certain
Collection Efforts
• Reasonable efforts to determine FAP eligibility:
– Notifies individual about FAP during the notification
period.
– Processes applications for financial assistance during the
application period.
– Periods are computed based on the date that the hospital
provides the individual with the first bill for care.
o Notification period – 120 days after first bill
o Application period – 240 days after first bill

28. Page 27March 11, 2015
Prepared for Georgia HFMA Financial Executives One Day
Prohibition on Certain
Collection Efforts
• Provides individual with written notice
that indicates financial assistance is
available, identifies ECAs that may be
taken and the deadline for action.
• Provides individual with plain
language summary of FAP.
• Makes reasonable effort to orally
notify the individual about the FAP
and how to obtain assistance.
Notification

29. Page 28March 11, 2015
Prepared for Georgia HFMA Financial Executives One Day
Community Health
Needs Assessment
Applies for tax years beginning after
March 23, 2012.
Assessment must be conducted during tax
year or in either of the two immediately
preceding tax years.
Authorized body of Hospital must adopt
implementation strategy to meet community
health needs identified.

30. Page 29March 11, 2015
Prepared for Georgia HFMA Financial Executives One Day
Community Health
Needs Assessment
• Conduct CHNA
– Define community served
– Assess the health needs of the community
• Take into account input received from persons who
represent broad interests of community
1) Include at least one state, local, tribal, or regional government
public health department
2) Include members of medically underserved, low income, and
minority populations

31. Page 30March 11, 2015
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Community Health
Needs Assessment
• Document – written CHNA report must include:
– Definition of the community served and how it was
determined.
– Description of the process and methods used to conduct
the CHNA.
– Description of how the facility took into account input.
– Prioritized description of the significant health needs.
– Description of resources available to address needs.
– Evaluation of impact of any actions since prior CHNA.

32. Page 31March 11, 2015
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Community Health
Needs Assessment
• CHNA considered to be completed when CHNA
report made widely available to the public on a
website and in paper copy at the hospital facility
– Must keep available until two subsequent CHNAs
completed and widely available
• Multiple facilities – a separate CHNA report must be
provided for each facility
– Joint report only allowed if communities defined are
identical

33. Page 32March 11, 2015
Prepared for Georgia HFMA Financial Executives One Day
Written Implementation Strategy
Describe how the facility plans to meet each
significant identified health need.
Identify the significant health need as one the hospital
facility does not intend to meet and explain why.
Must be adopted by the 15th day of the 5th month after
end of the taxable year in which the facility conducts
the CHNA.

34. Page 33March 11, 2015
Prepared for Georgia HFMA Financial Executives One Day
Penalties Under § 501(r)
• What Are Penalties For Failing To Comply With
§ 501(r) Requirements?
Revocation of
IRC § 501(c)(3)
status.
Excise tax
under IRC
§ 4959.

35. Page 34March 11, 2015
Prepared for Georgia HFMA Financial Executives One Day
Penalties Under § 501(r)
• Revocation of IRC § 501(c)(3) status
Hospital organization’s
failure to comply with
IRC § 501(r) during
plan year may result in
revocation of IRC
§ 501(c)(3) status.
Revocation based on
facts and
circumstances.
Exception for minor
and inadvertent
omissions and
errors.
Excusal for certain
failures if hospital
facility corrects and
discloses.

36. Page 35March 11, 2015
Prepared for Georgia HFMA Financial Executives One Day
Penalties Under § 501(r)
• Revocation of IRC § 501(c)(3) status
Factors IRS May Consider:
Failure History, Type, and Reason
 Whether there was previous failure and,
if so, whether failure is same type?
 What is size, scope, nature, and
significance of failure?
 Where more than one facility, what is
number, size, and significance of failing
facilities compared to compliant ones?
 What are reasons for failure?
Factors IRS May Consider:
Failure Practices and Procedures
 Whether practices and procedures were in
place prior to failure?
 Whether practices and procedures were
routinely followed and failure was due to
oversight or mistake?
 Whether safeguards were in place?
 Whether failure was corrected promptly?
 Whether safeguards and corrective actions
were taken before IRS discovered failure?

37. Page 36March 11, 2015
Prepared for Georgia HFMA Financial Executives One Day
Penalties Under § 501(r)
• Exception for minor and inadvertent omissions and
errors (Reg 1.501(r)-2(b)):
• Such omission was minor, inadvertent,
and due to reasonable cause and
• Hospital facility corrects such omission
or error as promptly after discovery as is
reasonable given nature of omission or
error.
• Not considered a failure under 501(r).

38. Page 37March 11, 2015
Prepared for Georgia HFMA Financial Executives One Day
Penalties Under § 501(r)
• Excusal for certain failures if hospital facility corrects
and discloses:
• Failures that are neither willful nor
egregious are excused if corrected
and disclosure made in accordance
with guidance.
• If not minor errors or omissions - will
still be subject to excise taxes under
IRC § 4959.

39. Page 38March 11, 2015
Prepared for Georgia HFMA Financial Executives One Day
Penalties Under § 501(r)
• Revenue Procedure 2015-21
• Revenue Procedure
• Defines willful or egregious
• Provides correction principles
• Describes disclosure reporting
• Issued March 10, 2015
• Supersedes Notice 2014-3
(Dec 30, 2013)

40. Page 39March 11, 2015
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Penalties Under § 501(r)
• Revenue Procedure 2015-21
Willful or Egregious
• Includes failure due to gross negligence,
reckless disregard, or willful neglect
• Egregious failure – very serious failure
• Correction and disclosure is a factor
tending to show that the failure was not
willful or egregious
• Will be considered a factor

41. Page 40March 11, 2015
Prepared for Georgia HFMA Financial Executives One Day
Penalties Under § 501(r)
• Revenue Procedure 2015-21
Correction
• Restore the affected person(s)
• Should be reasonable and appropriate
for the failure
• Made as promptly after discovery as is
reasonable
• Establish practice & procedures for
compliance

42. Page 41March 11, 2015
Prepared for Georgia HFMA Financial Executives One Day
Penalties Under § 501(r)
• Revenue Procedure 2015-21
Disclosure - Report on Form 990 for tax year in
which failure discovered
• Description of failure
• Description of correction made
• Description of practices & procedures
revised or added
• If no 990 filing, disclose on website

43. Page 42March 11, 2015
Prepared for Georgia HFMA Financial Executives One Day
Penalties Under § 501(r)
• Revenue Procedure 2015-21
• Correction and disclosure is a factor in
determining that the failure was not willful or
egregious
• Hospital will be subject to excise tax under
§4959 even with correction and disclosure

44. Page 43March 11, 2015
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Penalties Under § 501(r)
• Excise Tax under § 4959
-$50,000 excise tax on hospital
organization that fails to meet CHNA
requirements with respect to any taxable
year.
o Applies separately to each hospital facility.
o Applies each year of failure.

45. Page 44March 11, 2015
Prepared for Georgia HFMA Financial Executives One Day
Penalties Under § 501(r)
Failure of one (or more) hospital
facility may not necessarily
result in loss of exemption for
entire organization.
Noncompliant facility subject to
tax as if taxable corporation.
Income may not be aggregated
with other noncompliant
facilities or other unrelated
business income.
• Special rule for multiple
facilities:

46. Page 45March 11, 2015
Prepared for Georgia HFMA Financial Executives One Day
Governmental Hospital Organizations
• Organizations that are exempt under 501(c)(3) must
meet the 501(r) rules.
-Don’t have to file Form 990
-Do have to make CHNA and FAP widely
available on website
-Failure can result in excise tax and/or
revocation of 501(c)(3) status

47. Page 46March 11, 2015
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Planning
Review existing Financial Assistance
and Billing and Collection policies.
• Compare to current code and regulations
and make any necessary changes.
• Determine LEP populations and translate
policies, summaries, and applications.
• Make documents widely available.

48. Page 47March 11, 2015
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Planning
Review process for conducting CHNA
• Make sure current CHNA made widely
available.
• Review report previously issued with new
regulations.
• Begin planning for next CHNA – most will be
due sometime in 2016.

49. Page 48March 11, 2015
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Planning
Review processes in place and
potential for inadvertent errors.
Educate board and organization
leadership.
Educate staff.

50. Page 49March 11, 2015
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Questions?
Contact information for Susan Clark
(404) 266-9876
sclark@pyapc.com