In the world of tax-exempt hospitals, maintaining IRC Section 501(r) compliance is not just a legal necessity and a requirement for maintaining tax-exempt status – it's a cornerstone of ethical operations. IRC Section 501(r), enacted as part of the Affordable Care Act, requires tax-exempt hospitals to provide transparency on financial assistance, withhold collection actions until a patient is allowed time to apply for financial assistance, and obtain a community health needs assessment that is used to develop and implement a strategic plan to address the community’s health needs. Following are five signs an organization’s IRC Section 501(r) compliance might need a checkup.
Crowe observation
The law requires the IRS to review a tax-exempt hospital’s IRC Section 501(r) compliance every three years. Recent congressional interest in how the IRS is implementing this provision has increased IRS activity in this area.
Sign 1: The FAP is not accessible on the hospital’s website
Having the FAP readily available on the hospital’s website is not just a convenience for patients – it’s a requirement under IRC Section 501(r). The policy must be accessible to all, including those who might not be able to visit the hospital in person. A broken link to the FAP, outdated information, or having to create an account (such as a patient access account) to access the FAP could be treated as noncompliance with the regulations.
Sign 2: Financial assistance signage or invoice language has changed over time
The IRC Section 501(r) regulations require hospitals to make reasonable efforts to notify and inform patients about its FAP. Reasonable efforts include displaying clear and visible signage about the availability of financial assistance in public locations within a hospital. In addition, hospital invoices are required to contain contact information for the hospital department processing financial assistance and the organization’s website for resources on financial assistance. Hospitals should review language in invoices and on signage after a change in its FAP to make sure it is consistent with current policy. Also, missing signage, whether due to signage being moved, displaced, or covered up, could indicate noncompliance.
Sign 3: The hospital has been contacted by a watchdog organization regarding its FAP
A watchdog organization could dispute a hospital’s denial of a claim for financial assistance or assert that a hospital is not in compliance with IRC Section 501(r). A watchdog organization could indicate that the hospital’s FAP is unclear or its implementation is not in line with IRC Section 501(r) regulations. Such contact presents an opportunity to review IRC Section 501(r) compliance measures and evaluate if any changes are needed. Disputes relating to an FAP can result in significant use of staff time and resources and could raise legal and reputational risk issues.
Sign 4: Days outstanding for patient account receivables has decreased
A decrease in the number of days outstanding for patient account receivables could be a sign that billing and collection actions are efficient. However, it also could be a sign of a potential violation of IRC Section 501(r) regulations. Hospitals are required to make reasonable efforts to determine a patient’s eligibility for financial assistance before engaging in extraordinary collection actions and to limit required upfront payments. Accounts being settled or sent to collections more quickly than usual or an increase in refunds because patients were later found to qualify for financial assistance could indicate issues with IRC Section 501(r) compliance.
Sign 5: Personnel responsible for IRC Section 501(r) compliance have changed
Changing personnel is a common occurrence in any organization, but taking steps for continuity and knowledge transfer are especially important when it comes to IRC Section 501(r) compliance. If the individuals responsible for IRC Section 501(r) compliance have changed, it is important for the new person or team to be knowledgeable about IRC Section 501(r) requirements. In addition, new personnel should have access to information about decisions relating to current IRC Section 501(r) policies and procedures. Any gaps should be addressed to avoid missteps and potential noncompliance. Fresh eyes also can be an opportunity to review IRC Section 501(r) compliance and evaluate whether any changes would be helpful.
Looking ahead
IRC Section 501(r) compliance is a complex but crucial task for tax-exempt hospitals. Regularly reviewing compliance with these requirements can help avoid penalties and unwanted negative publicity. Hospitals should seek professional advice for help reviewing their policies and procedures and evaluating whether current operations align with IRC Section 501(r) requirements.
