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Recent IRS Publication of Final Rule for Tax-Exempt Hospitals Serves as a Reminder of Lesser-Known ACA Compliance Requirements

Recent IRS Publication of Final Rule for Tax-Exempt Hospitals Serves as a Reminder of Lesser-Known ACA Compliance Requirements


Health Care Law Note
(January 22, 2015)

Nearly five years after being directed by Congress to do so, on December 31, 2014, the Department of the Treasury published final regulations (the "Final Rule") on the additional requirements for charitable hospital organizations added by the Affordable Care Act (the "ACA") in 2010. The Final Rule provides guidance for Section 501(r) of the Internal Revenue Code - added by Section 9007 of the ACA - regarding the additional requirements for hospitals seeking and trying to maintain 501(c)(3) tax-exempt status. The Final Rule replaces the temporary regulations issued by the IRS in 2012 and 2013, but hospitals may elect to comply with the temporary regulations for taxable years beginning prior to December 29, 2015.

As stated in a December 29, 2014 announcement from the Treasury, the Final Rule provides guidance on the statutory requirement that charitable hospitals do the following:

  • Limit charges. Hospitals may not charge individuals eligible for financial assistance more for emergency or other medically necessary care than the amounts generally billed to patients with insurance (including Medicare, Medicaid, or private commercial insurance).
  • Establish and disclose financial assistance policies. Each hospital must establish and widely publicize a financial assistance policy that clearly describes to patients the eligibility criteria for obtaining financial assistance and the method for applying for financial assistance.
  • Abide by reasonable billing and collection requirements. Charitable hospitals are prohibited from engaging in certain collection methods (for example, reporting a debt to a credit agency or garnishing wages) until they make reasonable efforts to determine whether an individual is eligible for assistance under the hospital's financial assistance policy.
  • Perform a community health needs assessment. Each charitable hospital must conduct and publish a community health needs assessment at least once every three years – and disclose on the tax form it files annually the steps it is taking to address the health needs identified in the assessment.

If a charitable hospital fails to meet the above consumer protection provisions, it could have its tax-exempt status revoked, and if it fails to properly conduct a community health needs assessment or adopt an implementation strategy, it will be subject to an excise tax.

The recent Final Rule is a reminder of the lesser-well known ACA compliance requirements that have received significantly less media coverage than issues such as the individual mandate, the employer mandate, and now the Federal Exchange subsidy question. Other ACA compliance requirements that have received very little coverage but nevertheless contain penalties for health care providers for noncompliance include:

  • Publication of standard charges. Section 2178(e) of the ACA provided that, starting in 2011, each hospital operating within the United States was required to publish a list of standard charges for items and services provided by the hospital. While the final rule for this price transparency provision was delayed until August 4, 2014, CMS' position in its accompanying press release is that the requirement was already in effect.
  • Quality reporting for long-term care hospitals, inpatient rehabilitation hospitals, and hospice programs. Section 3004 established a path toward value-based purchasing for long-term care hospitals, inpatient rehabilitation facilities, and hospice providers by requiring HHS Secretary Sylvia Burwell to implement quality measure reporting programs for these providers in fiscal year ("FY") 2014. Providers under this section who do not successfully participate in the program are subject to a 2% reduction to the market basket percentage increase for that FY.
  • Quality reporting for Prospective Payment System ("PPS")-exempt cancer hospitals. Section 3005 established a quality measure reporting program for PPS-exempt cancer hospitals beginning in FY2014. Providers under this section who do not successfully participate in the program are subject to a reduction in their annual market basket update.
  • Payment adjustment for conditions acquired in hospitals. Under Section 3008, starting in FY2015, hospitals in the top 25th percentile of rates of hospital acquired conditions for certain high-cost and common conditions are subject to a payment penalty under Medicare – specifically, a 1% reduction of their Medicare inpatient payment.
  • Hospital readmissions reduction program. Section 3025 established the Hospital Readmissions Reduction Program, which required CMS to reduce payments to Inpatient Prospective Payment System ("IPPS") hospitals with excess readmissions, effective for discharges beginning on October 1, 2012. Already in effect, this provision adjusts payments for hospitals paid under IPPS based on the dollar value of each hospital's percentage of potentially preventable Medicare readmissions for certain conditions endorsed by the National Quality Forum. Section 3025 also provides the Secretary authority to expand the policy to additional conditions in future years, which indeed she already has for Chronic Obstructive Pulmonary Disease and Total Hip and Total Knee Arthroplasty, and directs the Secretary to calculate and make publicly available information on all patient hospital readmission rates for certain conditions.
  • Requirement for all providers and suppliers, regardless of size, to institute formal compliance program. Section 6401 states that a "provider of medical or other items or services or supplier within a particular industry sector or category" shall establish a compliance program as a condition of enrollment in Medicare, Medicaid, or the Children's Health Insurance Program. Section 6401 also provides that the compliance program shall contain core elements as determined by the Secretary and by a date determined by the Secretary, in consultation with the HHS OIG. These core elements and an enforcement date have yet to be issued but, as CMS notes, since the late 1990s, the OIG has been encouraging providers to voluntarily adopt compliance plans and has issued extensive guidance that can serve as a good rule of thumb until the Secretary acts.

Despite a lack of media coverage and a lack or delay of guidance through final regulations, the above compliance requirements are no less important, and hospitals would be well advised to proactively stay on top of their implementation.

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