Hospitals face a number of new disclosure and reporting requirements on Schedule H. Hear best practices and challenges, along with a practical discussion of implementation pitfalls

1. 22nd Annual Health Sciences
Tax Conference
Implementing Section 501(r): best practices and
pitfalls on the road to compliance
December 3, 2012

2. Disclaimer
► Any US tax advice contained herein was not intended or
written to be used, and cannot be used, for the purpose of
avoiding penalties that may be imposed under the Internal
Revenue Code or applicable state or local tax law
provisions.
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3. Disclaimer
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This presentation is © 2012 Ernst & Young LLP. All rights reserved. No part of this
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Views expressed in this presentation are not necessarily those of Ernst & Young LLP.
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4. Presenters
► Jeanne Schuster ► Amy Dosik
Ernst & Young LLP Ernst & Young LLP
Boston, MA Atlanta, GA
+ 1 617 585 0373 + 1 404 817 5488
jeanne.schuster@ey.com amy.dosik@ey.com
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5. Introduction to IRC Section 501(r)
► Affordable Care Act (ACA) enacted new Internal
Revenue Code (IRC) Sec. 501(r); law signed on
March 23, 2010
► U.S. Supreme Court upheld ACA on June 28, 2012
► Sec. 501(r) — added four new requirements for a hospital
to qualify for exemption under Sec. 501(c)(3)
► Sec. 501(r) — affects existing exempt hospitals and new
hospitals applying for exemption
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6. Introduction to IRC Section 501(r) (cont.)
► Sec. 501(r) imposes four new requirements for hospitals
to qualify for Sec. 501(c)(3) exemption:
► Sec. 501(r)(3) — community health needs assessment
► Effective: taxable years beginning after 3/23/12
► Sec. 501(r)(4) — financial assistance policy
► Sec. 501(r)(5) — limitation on charges
► Sec. 501(r)(6) — billing and collection requirements
► Effective: taxable years beginning after 3/23/10
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7. Introduction to IRC Section 501(r) (cont.)
► June 26, 2012 — U.S. Treasury Department and IRS
issued proposed regulations:
► Sec. 501(r)(4) — financial assistance policy
► Sec. 501(r)(5) — limitation on charges
► Sec. 501(r)(6) — billing and collection requirements
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8. Introduction to IRC Section 501(r) (cont.)
► Reliance on proposed regulations until final or temporary
regulations are issued
► Effective dates of final regulations: taxable years
beginning on or after the date that final or temporary
regulations are published in the Federal Register
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9. Introduction to IRC Section 501(r) (cont.)
► Public comments on proposed regulations were due
September 24, 2012.
► Comments were received from:
► American Hospital Association
► American Academy of Emergency Medicine
► Arizona Hospital Group
► California Children’s Hospital Association
► Massachusetts Law Reform Institute
► Others
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10. Introduction to IRC Section 501(r) (cont.)
► Proposed regulations do not address Sec. 501(r)(3),
Community Health Needs Assessments (CHNAs).
► Internal Revenue Service (IRS) Notice 2011-52 (July 7, 2011)
addressed many Sec. 501(r)(3) issues.
► Hospitals can rely on Notice 2011-52 until six months after IRS
issues further guidance.
► IRS will issue proposed regulations on CHNAs.
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11. Introduction to IRC Section 501(r) (cont.)
► Proposed regulations include:
► Extensive detailed explanations
► Many specific rules and definitions
► Many helpful detailed examples
► IRS requests comments on many issues not addressed
► Estimated average annual burden hours per record-
keeper: 11.5
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12. Key Section 501(r) principle
► A hospital organization that operates more than one
hospital facility must meet each Sec. 501(r) requirement
separately for each hospital facility.
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13. Hospital organization
► Two-part definition:
► An organization exempt under Sec. 501(c)(3) (or which has
applied for exemption under Sec. 501(c)(3)) that operates one or
more hospital facilities
► Includes a hospital facility operated through a disregarded entity
► Includes “dual status” governmental hospitals also recognized as
exempt under Sec. 501(c)(3)
► Comments requested on alternative methods that 501(c)(3)
government hospitals may use to meet the Sec. 501(r) requirements
(except CHNAs)
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14. Hospital organization (cont.)
► Any other organization if IRS determines that its principal function
or purpose for Sec. 501(c)(3) exemption is the provision of hospital
care
► Not explained in proposed regulations
► Comments requested on whether additional organizations should be
included
► Until future regulations are effective – applies only to hospital
organizations operating a hospital facility required by a state to be
licensed, registered or similarly recognized as a hospital
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15. Hospital organization (cont.)
► Partnerships
► Notice 2011-52 (CHNAs):
► States that IRS intends to treat as a hospital organization any
Sec. 501(c)(3) organization operating a hospital facility through a
partnership
► Comments requested on whether (or under which circumstances)
an organization should not be considered to operate a hospital
facility as a result of owning a small interest (other than as a
general partner) in a partnership that operates the hospital facility
► IRS to address partnerships in separate guidance
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16. Hospital facility
► A facility required by a state to be licensed, registered or
similarly recognized as a hospital
► A hospital organization may treat multiple buildings operated
under a single state license as a single hospital facility.
► Future IRS guidance — whether a hospital organization
operating in a single building under more than one state license is
treated as one hospital facility or multiple hospital facilities.
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17. Failure to meet Sec. 501(r) requirements
► Proposed regulations — consequences not addressed
► IRS to address in separate guidance
► Possible consequences:
► Revocation of Sec. 501(c)(3) exemption
► Correction within specified period
► Financial penalties
► De minimis exception
► Closing agreement
► Voluntary disclosure program
► A combination of these
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18. Discussion of proposed regulations
► Sec. 501(r)(4) — financial assistance policy
► Sec. 501(r)(5) — limitation on charges
► Sec. 501(r)(6) — billing and collection requirements
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19. Sec. 501(r)(4) — financial assistance
policy
► Each hospital facility must establish a written:
► Financial assistance policy (FAP) that applies to all emergency
and other medically necessary care the hospital facility provides
► Emergency medical care policy
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20. Sec. 501(r)(4) — financial assistance
policy (cont.)
► Requirements for FAP must include:
► Eligibility criteria for financial assistance and whether they include
free or discounted care
► Basis of calculating amounts charged to patients
► Method of applying financial assistance
► Actions that may be taken in the event of non-payment (if
organization does not have separate billing and collection policy)
► Measures to widely publicize the FAP in the community served by
the hospital
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21. FAP eligibility requirements
► The FAP must:
► Specify all financial assistance available under the FAP
► Specify all the eligibility criteria an individual must satisfy to receive
free or discounted care or other level of assistance
► State that an individual determined to be FAP-eligible will not be
charged more for emergency or other medically necessary care
than the amounts generally billed (AGB) to individuals with
insurance covering such care
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22. FAP eligibility requirements (cont.)
► The FAP must:
► Describe the method used to determine AGB (the look-back
method or the prospective Medicare method)
► If the look-back method is used, apply one of the following:
► State the AGB percentages and describe how they were calculated
► Explain how this information in writing may be obtained for free
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23. Method of applying for financial assistance
► FAP must describe application process for financial
assistance.
► FAP or FAP application form (and instructions) must:
► Describe the information and documentation that may be required
to be submitted
► Provide hospital staff with contact information regarding the FAP
► Financial assistance may not be denied based on an
applicant’s failure to provide information or documentation
the FAP or FAP application form does not require.
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24. Actions that may be taken in the event of
non-payment
► The FAP (or a separate, written billing and collections
policy) must describe:
► Any actions that may be taken to obtain payment of medical bill,
including extraordinary collection actions (ECAs)
► The process and time frames used to obtain payment of a medical
bill, including reasonable efforts hospital facility will make to
determine whether an individual is FAP-eligible before engaging in
any ECAs
► The office, department or committee having the final authority or
responsibility to determine that the hospital facility has made
reasonable efforts to determine whether an individual is
FAP-eligible
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25. Sec. 501(r)(4) — financial assistance policy
► If the hospital facility has a separate, written billing and
collections policy, the FAP must:
► State that the actions that may be taken in the event of non-
payment are described in a separate billing and collections policy
► Explain how a free copy of the separate policy can be obtained
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26. Widely publicizing the FAP
► An FAP must explain that the hospital facility will
publicize the FAP by:
► Making the FAP, the FAP application form and a plain-language
summary of the FAP widely available on a website
► Making paper copies of the FAP, FAP application form and plain-
language summary of the FAP available free upon request
► Informing and notifying visitors to the hospital facility about the
FAP through conspicuous public displays (or other measures
reasonably calculated to attract visitors’ attention)
► Informing and notifying residents of the community about the FAP
in a manner reasonably calculated to reach those members of the
community most likely to require financial assistance
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27. Emergency medical care policy
► General rule: each hospital facility must also establish a
written emergency medical care policy that requires the
hospital facility to provide, without discrimination, care
for emergency medical conditions to all individuals
whether or not they are eligible for financial assistance.
► A hospital facility will comply with this requirement if the
policy requires it to provide the care for emergency
medical conditions that it is required to provide under
EMTALA (Emergency Medical Treatment and Labor Act).
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28. Emergency medical care policy (cont.)
► Emergency medical care policy must:
► Prohibit the hospital facility from engaging in actions that
discourage individuals from seeking emergency medical care
► For example:
► By demanding that emergency room (ER) patients pay before receiving
treatment for emergency medical conditions
► By permitting debt collection activities:
► In the ER
► Elsewhere in the hospital facility, where such activities could interfere
with the provision of non-discriminatory emergency medical care
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29. Establishing policies
► A hospital has established an FAP, an emergency
medical care policy, and a billing and collections policy
for a hospital facility only if:
► An authorized body of the hospital has adopted the policy for the
hospital facility
► The hospital facility has implemented the policy
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30. Sec. 501(r)(5) — limitation on charges
► A hospital facility must limit the amounts charged for the
care it provides to any individual eligible for assistance
under its FAP:
► In the case of emergency or other medically necessary care:
► To not more than the AGB for individuals who have insurance
covering such care
► In the case of all other medical care:
► To less than the gross charges for such care
► Note: “Gross charges” not defined
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31. Sec. 501(r)(5) — limitation on charges (cont.)
► AGB
► Applies only to emergency or other medically necessary care to
FAP-eligible individuals
► To determine AGB, a hospital facility must adopt and
continue to use either:
► The look-back method
► The prospective Medicare method
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32. Sec. 501(r)(5) — limitation on charges (cont.)
► The look-back method
► Multiply hospital facility’s gross charges for the provided care by
one or more percentages of gross charges (AGB percentages)
► AGB percentages
► Numerator: the sum of all claims for emergency and other medically
necessary care paid by the hospital facility during the prior 12-month
period
► Claims paid by Medicare fee-for-service and amounts paid by
beneficiaries as co-insurance or deductibles
► Or claims paid by Medicare fee-for-service and all private health
insurers and amounts paid by beneficiaries as co-payments, co-
insurance or deductibles
► Denominator: the sum of the gross charges for those claims
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33. Sec. 501(r)(5) — limitation on charges (cont.)
► Under the look-back method, the AGB percentage may be
one of the following:
► One average percentage of gross charges for all emergency and
other medically necessary care provided by the hospital facility
► Multiple AGB percentages:
► For separate categories of care (such as inpatient and outpatient care
or care provided by different departments)
► For separate items or services
► Start date for using look-back method AGB percentages
► Must begin using AGB percentages by the 45th day after the end
of the 12-month period used to calculate the AGB percentage(s)
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34. Sec. 501(r)(5) — limitation on charges (cont.)
► Prospective Medicare method
► Use the billing and coding process that would be used if the
FAP-eligible individual were a Medicare fee-for-service beneficiary
► Set AGB equal to the sum of expected payments from:
► Medicare
► Medicare beneficiary
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35. Sec. 501(r)(5) — limitation on charges (cont.)
► Gross charges
► Must charge an FAP-eligible individual less than the gross charges
for any medical care provided to that individual
► A billing statement may state the gross charges as a starting point for
allowances, discounts and deductions
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36. Sec. 501(r)(5) — limitation on charges (cont.)
► Safe harbor for charges more than AGB
► Even if a hospital facility charges more than AGB, it will meet the
Sec. 501(r)(5) limitations if:
► FAP-eligible individual has not submitted a completed FAP application
at the time of the charge
► Hospital facility makes reasonable efforts to determine if the
individual is FAP-eligible during the required time periods
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37. Sec. 501(r)(6) — billing and collection
► A hospital facility may not engage in ECAs against an
individual before the hospital facility has made
“reasonable efforts to determine whether the individual
is FAP-eligible.”
► ECAs against an individual include:
► ECAs against any other individual who is responsible for the
individual’s hospital bills
► Any ECAs taken by:
► Any purchaser of the individual’s debt
► Any debt collection agency to which the hospital facility has referred
the debt
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38. Sec. 501(r)(6) — billing and collection (cont.)
► ECAs are:
► Actions taken by a hospital facility against an individual related to
obtaining payment of a bill for care covered under its FAP:
► Requiring a legal or judicial process
► Involving selling an individual’s debt
► Reporting adverse information about the individual to consumer credit
reporting agencies or credit bureaus
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39. Sec. 501(r)(6) — billing and collection (cont.)
► Examples of actions requiring a legal or judicial
process:
► Placing a lien on an individual’s property
► Foreclosing on an individual’s real property
► Attaching or seizing an individual’s bank account or other personal
property
► Commencing a civil action against an individual
► Causing an individual’s arrest
► Causing an individual to be subject to a writ of body attachment
► Garnishing an individual’s wages
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40. Sec. 501(r)(6) — billing and collection (cont.)
► “Reasonable efforts to determine whether an individual
is FAP-eligible”:
► The hospital facility notifies the individual about the FAP during
the notification period
► For an individual who submits an incomplete FAP application
during the application period, there are certain required actions
► For an individual who submits a complete FAP application during
the application period, there are certain required actions.
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41. Sec. 501(r)(6) — billing and collection (cont.)
► Notification
► A hospital facility notifies an individual about its FAP when it:
► Distributes a plain-language summary of the FAP and offers the
individual an FAP application form before discharge from the hospital
facility
► Includes a plain-language summary of the FAP with at least three
billing statements and with all other written communication regarding
the bill given to the individual during the notification period
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42. Sec. 501(r)(6) — billing and collection (cont.)
► Informs the individual about the FAP in all oral communication
regarding the amount due for care occurring during the notification
period
► Gives the individual at least one written notice that:
► Informs the individual about the ECAs that may be taken if the individual
does not submit an FAP application or pay the amount due by a specified
deadline (not before the end of the notification period)
► Is given to the individual at least 30 days before the specified deadline
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43. Sec. 501(r)(6) — billing and collection (cont.)
► Notification occurs:
► If a complete or incomplete FAP application is submitted and the
hospital facility has met the requirements for addressing a
complete or an incomplete FAP
► If no FAP application is submitted and the hospital facility has
met the notification requirements
► Notification period
► As to any care the hospital facility provides:
► Begins on the first date care is provided
► Ends on the 120th day after the hospital facility gives the individual
the first billing statement for the care
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44. Sec. 501(r)(6) — billing and collection (cont.)
► FAP application situations:
► No application submitted
► Incomplete application submitted
► Completed by completion deadline
► Not completed by completion deadline
► Complete application submitted
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45. Sec. 501(r)(6) — billing and collection (cont.)
► Completion deadline is no earlier than the later of:
► 30 days after the hospital facility gives the individual the
written notice
► The last day of the application period
► Application period
► As to any care the hospital facility provides:
► Begins on the first date care is provided
► Ends on the 240th day after the hospital facility gives the individual
the first billing statement for the care
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46. Sec. 501(r)(6) — billing and collection (cont.)
► No FAP application submitted
► If an individual does not submit an FAP application during the
notification period (or by the deadline specified in the written
notice) and the facility has properly notified the individual:
► The facility will have made “reasonable efforts to determine whether
the individual is FAP-eligible.”
► The facility may engage in ECAs against the individual.
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47. Sec. 501(r)(6) — billing and collection (cont.)
► Incomplete FAP application submitted
► If an incomplete application is submitted during the application
period, “reasonable efforts to determine whether the individual is
FAP-eligible” will have been made if the hospital facility:
► Suspends any ECAs against the individual
► Gives the individual written notice describing the additional information
and/or documentation required to complete the FAP application,
including a plain-language summary of the FAP
► Gives the individual a written notice that:
► Describes the ECAs that may be taken if the FAP application remains
incomplete by the specified completion deadline
► Is given to the individual at least 30 days before the completion deadline
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48. Sec. 501(r)(6) — billing and collection (cont.)
► If FAP is completed by the completion deadline:
► FAP will be considered completed and timely submitted
► Hospital facility will have made “reasonable efforts to determine
whether the individual is FAP-eligible” if it meets the requirements
for complete FAP applications
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49. Sec. 501(r)(6) — billing and collection (cont.)
► If FAP is not completed by the completion deadline and
hospital facility has met the requirements for an
incomplete FAP application:
► Hospital facility will have made “reasonable efforts to determine
whether the individual is FAP-eligible” if it meets the requirements
for complete FAP applications
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50. Sec. 501(r)(6) — billing and collection (cont.)
► Complete FAP application
► If a complete FAP application is submitted during the application
period:
► Hospital facility will have made “reasonable efforts to determine
whether the individual is FAP-eligible” if it:
► Suspends any ECAs
► Determines (and documents) whether the individual is FAP-eligible
► Notifies the individual in writing of the eligibility determination, the
assistance available, if any, and the basis for this determination
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51. Sec. 501(r)(6) — billing and collection (cont.)
► If the individual is determined to be FAP-eligible, the
hospital facility:
► Gives the individual a billing statement showing the amount owed,
explanation of how it was determined and explanation of the AGB
► Refunds any payments made in excess of amount owed as an
FAP-eligible individual
► Takes reasonable measures to reverse any ECAs taken to collect
the debt
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52. Sec. 501(r)(6) — billing and collection (cont.)
► Special rules:
► Anti-abuse rule for complete FAP applications
► Presumptive eligibility permitted
► Suspending ECAs during a pending FAP application
► Waiver not included in reasonable efforts
► Agreements with debt collectors
► Placement of notices and communications
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53. Sec. 501(r)(6) — billing and collection (cont.)
► Anti-abuse rule for complete FAP applications
► A hospital facility will not have made “reasonable efforts to
determine whether an individual is FAP-eligible” if its determination
that the individual is not FAP-eligible is based on information:
► That the facility has reason to believe is unreliable or incorrect
► Obtained from an individual under duress or through coercive
practices
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54. Sec. 501(r)(6) — billing and collection (cont.)
► Presumptive eligibility permitted
► A hospital facility will have made “reasonable efforts to
determine whether an individual is FAP-eligible” if:
► It determines that the individual is eligible for the most generous
assistance (including free care) available under the FAP based on:
► Information other than that provided by the individual in a complete FAP
application
► The determination that the hospital facility meets the requirements for
actions involving a complete FAP application
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55. Sec. 501(r)(6) — billing and collection (cont.)
► Suspending ECAs during a pending FAP Application
► If a complete or incomplete application is submitted during the
application period, the hospital facility will have made
“reasonable efforts to determine whether the individual is FAP-
eligible” if, after receiving the application, it:
► Does not initiate or pursue any ECAs until either:
► The hospital facility has met the requirements for actions involving a
complete application
► The application is incomplete and the completion deadline has passed
without completion of the FAP application
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56. Sec. 501(r)(6) — billing and collection (cont.)
► Waiver is not included in reasonable efforts
► Obtaining a signed waiver that an individual does not wish to apply
for FAP assistance or receive FAP application information will not
meet the requirement to make “reasonable efforts to determine
whether the individual is FAP-eligible” before engaging in ECAs.
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57. Sec. 501(r)(6) — billing and collection (cont.)
► Agreements with debt collectors
► If a hospital facility refers or sells a debt to a debt collector during
the application period, it will have made “reasonable efforts to
determine whether the individual is FAP-eligible” if it obtains (and
enforces) a legally binding written agreement that the debt
collector:
► As to debts referred during the notification period, will not engage in
ECAs until the hospital facility has documented that it has met the
reasonable efforts requirements
► As to an application submitted during the application period, the third
party will suspend any ECAs
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58. Sec. 501(r)(6) — billing and collection (cont.)
► As to an application submitted during the application period and the
hospital facility having determined the individual is FAP-eligible, the
debt collector will:
► Adhere to procedures specified in the agreement that ensure the individual
will not pay any more than required as an FAP-eligible individual
► Take all reasonable measures to reverse any ECAs already taken
► If the debt collector refers or sells these debts to another party
during the application period, it will obtain a written agreement
from the other party that includes all these requirements.
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59. Sec. 501(r)(6) — billing and collection (cont.)
► Placement of notices and communications
► A hospital facility may print any required written notice or
communication (including a plain-language summary of the FAP)
on a billing statement or along with other descriptive or
explanatory matter if the required information is conspicuously
placed and large enough to be clearly readable.
Implementing Section 501(r): best practices and
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pitfalls on the road to compliance

60. Questions
Implementing Section 501(r): best practices and
Page 60
pitfalls on the road to compliance