Editor’s Note: Earlier posts by Timothy Jost provide analyses of regulations implementing provisions of the new health reform legislation governing the small employer tax credit, the Web portal, reinsurance for early retirees, and young adult coverage.
Section 9007 of the Patient Protection and Affordable Care Act , creating a new 504(r) of the Internal Revenue Code, “Additional Requirements for Charitable Hospitals,” crowns a long-standing campaign by Senator Charles Grassley to increase the accountability and “charitability” of tax exempt hospitals. Indeed, Republican Grassley proudly claims credit for the provision on his website, in spite of the fact that Republican senators have in general had little good to say about the legislation. Senator Grassley and others have long questioned whether the benefits that exempt hospitals provide to their communities and to lower-income Americans justify the billions of dollars that they are afforded each year in tax subsidies.
Section 9007 requires tax exempt “hospital organizations” to
- conduct a community health needs assessment at least once every three years and implement a strategy to meet the needs identified through the assessment;
- have in place and widely publicize a financial assistance policy for making available free or reduced cost care to eligible persons, which must include eligibility criteria and procedures for applying for and calculating eligibility for assistance. An exempt hospital must also provide emergency care without discrimination regardless of financial eligibility;
- limit the amount that those who are eligible for financial assistance are charged for emergency or medically necessary care to the rates “generally billed to individuals who have insurance”; and
- not engage in “extraordinary collection actions” before determining financial assistance eligibility.
These requirements apply to multi-facility hospital organizations on a facility-by-facility basis. The IRS is required to review the community needs activities of exempt hospitals every three years. A $50,000 excise tax can be imposed on any hospital that fails to meet the requirements of the statute. The provisions are effective for taxable years beginning after the implementation of the statute, except for the community needs assessment provisions, which apply for tax years beginning after enactment.
What The IRS Is Thinking
On May 27, the IRS published notice 2010-39 requesting comments regarding the implementation of this provision. While the notice is very brief, and its purpose is simply to request comments, it does indicate the thinking of the IRS on a number of important issues. Specifically the IRS seems to adopt a number of comments on the provision from the Joint Committee on Taxation Technical Explanation of March 21, 2010.
Among the Technical Explanation comments incorporated into the notice are the following:
- The community health needs assessment “may be based on current information collected by a public health agency or non-profit organizations and may be conducted together with one or more organizations, including related organizations.”
- The limits imposed on “amounts billed to those who qualify for financial assistance may be based on either the best, or an average of the three best, negotiated commercial rates, or Medicare rates.”
- “Extraordinary collections include lawsuits, liens on residences, arrests, body attachments, or other similar collection processes.”
- “Reasonable efforts” to determine eligibility “include notification by the hospital of its financial assistance policy upon admission and in written and oral communications with the patient regarding the patient’s bill, including invoices and telephone calls, before collection action or reporting to credit agencies is initiated.”
Comments are requested by July 22, 2010.