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Protecting the Hospital Tax Exemption Part III: The Financial Assistance Policy

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Gary J. McRay and Julie C. LaVille
Foster Swift Health Care Law News
March 31, 2015

On December 31, 2014, the Internal Revenue Service (“IRS”) published final regulations providing guidance on how a hospital keeps its tax exemption by complying with Section 501(r) of the Internal Revenue Code. Section 501(r), which was added by the Patient Protection and Affordable Care Act (“ACA”) in 2010, introduced four new sets of requirements each hospital must meet in order to maintain its 501(c)(3) tax exemption. Earlier this year, we published an overview of these regulations and the community health needs assessment requirements of Section 501(r)(3). In this installment, we will comment on the second set of Code Section 501(r) requirements, the financial assistance policy (“FAP”) requirements of Section 501(r)(4). A hospital meets the requirements of Section 501(r)(4) only if it establishes:

  1. A written FAP policy that (i) applies to all emergency and other medically necessary care; (ii) is widely publicized; and (iii) includes the following information:
    1. eligibility criteria for financial assistance (and whether such assistance includes free or discounted care);
    2. the basis for calculating the amounts charged to patients;
    3. the methods for applying for financial assistance;
    4. the actions that may be taken in the event of non-payment if the hospital does not have a separate billing and collection policy;
    5. any information obtained from sources other than the patient that the hospital uses and whether and under what circumstances it uses prior FAP eligibility determinations to determine FAP eligibilities; and
    6. a list of any providers, other than the hospital itself, that delivers emergency or other medically necessary care in the hospital facility that specifies which providers are covered by the hospital facility’s FAP and which providers are not covered.
  2. A written emergency medical care policy, which requires the hospital facility to provide care for emergency medical conditions without discrimination and regardless of whether the patient is FAP-eligible. The hospital’s emergency medical care policy must prohibit the hospital from engaging in actions that discourage individuals from seeking emergency medical care, such as requiring patients to pay before receiving treatment for emergency medical conditions or by permitting debt collection activities that interfere with emergency medical care. 

Compliance with the Emergency Medical Treatment and Labor Act (“EMTALA”) will help a hospital comply with the emergency medical care policy requirements of Section 501(r)(4). For example, a hospital that has a dedicated emergency department subject to EMTALA and is not a critical access hospital will comply with the emergency medical care policy of these regulations if it establishes a written emergency medical care policy that requires compliance with EMTALA by (i) providing medical screening examinations and stabilizing treatment; (ii) referring and transferring an individual to another facility when appropriate; and (iii) providing emergency services in accordance with the Medicare conditions of participation set forth in 42 CFR 482.55. The emergency medical care policy must also prohibit any actions that would discourage individuals from seeking emergency medical care.

The FAP must indicate that following a determination of eligibility a patient may not be charged more than the amounts generally billed (“AGB”) for emergency or other medically necessary care. For example, assume the hospital determines the AGB percentage by taking all claims allowed by Medicare and private health insurance over a twelve month period divided by all of the associated gross charges for these claims for the same twelve month period. No FAP-eligible patient may be charged more than the AGB percentage of the hospital’s gross charges for that procedure or service.

The examples in the regulations make it clear that FAPs will provide certain discounts from gross charges based upon family income as a percentage of the federal poverty level (“FPL”). Patients with lower family incomes will therefore receive higher discounts, and no FAP-eligible individual will be charged more than the AGB percentage.

The FAP must be widely publicized. To satisfy this requirement, a hospital must:

  1. make the FAP application form and a plain language summary of the FAP widely available on a website;
  2. 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 including, at a minimum, in the emergency room and administrative areas;
  3. notify and inform members of the community served by the hospital about the FAP; and
  4. notify patients who receive care from the hospital about the FAP by (i) offering a paper copy of the plain language summary as a part of the intake or discharge process; (ii) including conspicuous written notice on billing statements; and (iii) setting up conspicuous public displays to inform patients about the FAP including, at a minimum, in the emergency room and admissions areas.

To widely publicize its FAP, the hospital must accommodate all significant populations that have limited English proficiency by translating its FAP, FAP application form and plain language summary into the primary language spoken by such a population. This translation is required for populations that constitute the lesser of (i) 1,000 individuals or (ii) 5 percent of the community served by the hospital.

We encourage all of our hospital clients to review the final regulations to determine if any FAP policies need to be changed or modified in light of these new requirements. We will publish future newsletters on the remaining requirements of Code Section 501(r).