The Impact of Healthcare Reform Legislation on Tax-Exempt Hospitals
Senate Finance Committee Chairman Max Baucus recently released the Chairman’s Mark of the America’s Healthy Future Act (the Mark).
The proposal includes changes to the requirements for Internal Revenue Code §501(c)(3) tax-exempt hospitals. The text of the changes was released on October 5th and is available on the Senate Finance Committee website here (pdf).
The new requirements apply to tax-exempt organizations that operate at least one hospital facility and are in addition to, and not in lieu of, the requirements that are otherwise applicable to such organizations. For purposes of the proposal, a hospital facility generally includes: (1) any facility that is, or is required to be, licensed, registered, or similarly recognized by a state as a hospital; and (2) any other facility or organization the Secretary of the Treasury (Secretary), in consultation with the Health and Human Services (HHS) Secretary and after public comment, determines has the provision of hospital care as its principal purpose. Each hospital facility would be required to comply with the provisions.
Community Health Needs Assessment
Each hospital facility must conduct or participate in a community-needs analysis at least once every three years and adopt an implementation strategy to meet the community needs identified through the assessment. The assessment process must take into account input from persons who represent the broad interests of the community served by the hospital, including those with special knowledge or expertise with respect to public health issues. The hospital must disclose in its annual information report to the IRS (i.e., Form 990 and related schedules) how it is addressing the needs identified in the assessment and, if all identified needs are not addressed, the reasons why (e.g. lack of financial or human resources). Each hospital facility would be required to make the assessment widely available. This is not a new idea since a similar provision was included in the 1993 healthcare reform proposal.
Financial Assistance Policy
Each hospital facility would be required to adopt, implement, and widely publicize a written financial assistance policy. Each hospital facility would be required to adopt and implement a policy to provide nondiscriminatory emergency medical treatment to individuals. The financial assistance policy should indicate the eligibility criteria for financial assistance and whether such assistance includes free or discounted care. For those eligible for discounted care, the policy should indicate the basis for calculating the amounts that will be billed to such patients. The policy should also indicate how to apply for such assistance. If hospital does not have a separate billing and collections policy, the financial assistance policy must also indicate what actions the hospital may take in the event of non-response or non-payment, including collections action and reporting to credit rating agencies.
Limitation on Charges
Each hospital facility would be required to bill patients who qualify for financial assistance no more than the amount generally billed to insured patients. A hospital facility may not use a retail price (or chargemaster rate), when billing individuals who qualify for financial assistance. Instead, the amount billed to those who qualify for financial assistance must be based on either the best, an average of the three best, negotiated commercial rates, or Medicare rates.
Collection Processes
A hospital facility generally would be required to follow current Medicare law and regulations regarding collection of debts, but may not undertake certain extraordinary collection actions (even if otherwise permitted by law) against a patient without first making “reasonable attempts” to inform the patient about the hospital’s financial assistance policy. Such extraordinary collection actions would include lawsuits, liens on residences, arrests, body attachments, or other similar collection processes. It is intended that for this purpose, “reasonable attempts” would 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 rating agencies is initiated.
Reporting and Disclosure Requirements
Under the Mark, the IRS would be required to review information about a hospital‘s community benefit activities (currently reported on Form 990, Schedule H) at least once every three years. Such review is intended to be similar to review of companies registered with the Securities and Exchange Commission. Each organization to which the Mark applies would be required to make its audited financial statements widely available. If an organization is included in consolidated financial statements, the consolidated entity’s audited financial statements must also be widely available.
The Mark would require the Secretary and the HHS Secretary to annually report to Congress the levels of charity care, bad debt expenses, unreimbursed costs of means-tested government programs, and unreimbursed costs of non-means tested government programs incurred by private tax-exempt, taxable, and governmental hospitals as well as the cost of community benefit activities incurred by private tax-exempt hospitals. In addition, the Secretary, in conjunction with the HHS Secretary, must conduct a study of the trends in these amounts with the results of the study provided to Congress five years from date of enactment.
