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IRS Publishes Notices on Affordable Care Act Requirements for Charitable Hospitals


2/5/14

Synopsis

Notice 2014-2 provides that charitable hospitals may rely on proposed regulations under section 501(r) of the Internal Revenue Code published by the IRS in 2012 and 2013 pending the publication of final regulations or other guidance. Notice 2014-3 contains a proposed revenue procedure that provides correction and disclosure procedures under which certain failures to satisfy the requirements of section 501(r) will be excused.

Issue

Section 501(r), enacted by the Affordable Care Act (ACA) on March 23, 2010, imposes new requirements on 501(c)(3) organizations that operate one or more hospital facilities (“hospital organizations”). Under section 501(r), hospital organizations are required to meet the following four general requirements on a facility-by-facility basis:

  1. Conduct a community health needs assessment (CHNA) and adopt an implementation strategy at least once every three years;
  2. Establish written financial assistance and emergency medical care policies;
  3. Limit amounts charged for emergency or other medically necessary care to individuals eligible for assistance under the hospital's financial assistance policy to not more than the amounts generally billed to individuals who have insurance covering such care; and
  4. Make reasonable efforts to determine whether an individual is eligible for assistance under the hospital’s financial assistance policy before engaging in extraordinary collection actions against the individual.

These requirements (with the exception of the CHNA requirements) are effective for tax years beginning after March 23, 2010. The CHNA requirements are effective for tax years beginning after March 23, 2012.

The ACA also added new section 4959, which imposes an excise tax for failure to meet the CHNA requirements, and added new Form 990 reporting requirements related to sections 501(r) and 4959.

On June 26, 2012, the IRS published proposed regulations on the requirements for charitable hospitals relating to financial assistance and emergency care policies, charges for emergency or medically necessary care provided to individuals eligible for financial assistance, and billing and collections. The 2012 proposed regulations also contain definitions of “hospital organization,” “hospital facility,” and other key terms. On April 5, 2013, the IRS published proposed regulations on the CHNA requirements and the related Form 990 reporting requirements and excise tax under section 4959 as well as the consequences for failing to satisfy the section 501(r) requirements. The 2013 proposed regulations also make minor amendments to the definitions of “hospital organization” and “hospital facility” contained in the 2012 proposed regulations. For details on the 2013 proposed regulations, please see our previous alert.

Notice 2014-2 confirms that hospital organizations may rely on all of the provisions of both the 2012 and 2013 proposed regulations pending the publication of final or temporary regulations or other applicable guidance. In addition, hospital organizations may rely on provisions of the 2013 proposed regulations related to the CHNA requirements for any CHNA conducted or implementation strategy adopted on or before the date that is six months after final or temporary regulations are published. Hospital organizations must comply with the statutory requirements of section 501(r). Although not binding, the IRS considers the 2012 and 2013 proposed regulations to be reasonable interpretations of section 501(r). 

Notice 2014-3 contains a proposed revenue procedure that provides correction and disclosure procedures under which certain failures to meet the requirements of section 501(r) will be excused. Hospital organizations may rely on the proposed revenue procedure to correct and disclose any failure to meet a requirement under section 501(r) that is not willful or egregious, provided the organization has begun correcting the failure and has disclosed the failure before the organization is first contacted by the IRS concerning an examination of the organization. (However, if the hospital organization’s Form 990 for the tax year in which the failure is discovered is not yet due (with extensions), then the organization need only to have begun correcting the failure before being contacted by the IRS.)

Correction must include restoration of affected persons and should be made as promptly after discovery as is reasonable given the nature of the failure. Practices and procedures designed to achieve each hospital facility’s compliance with section 501(r) should be established and modified if necessary to reduce the likelihood of future failures. Disclosure is made by reporting a description of the failure, how and when it was discovered, the method and date of correction, and a description of the organization’s practices and procedures for detecting and minimizing future failures (or an explanation of why no such practices and procedures were needed). This information is to be reported on Schedule H, Hospitals, of the organization’s Form 990 for the tax year in which the failure is discovered. The proposed revenue procedure will be effective as of the date it is published in final form.
 
What Does CohnReznick Think?
Charitable hospitals may want to consider establishing practices and procedures that are reasonably designed to achieve each hospital facility’s compliance with section 501(r). Any compliance failures should be corrected as promptly after discovery as possible.

Contact
 
Please contact Phil Royalty, Director, at 916-930-5222 or Thomas Lanning, Partner, at 646-834-4108.
 
Or, learn more about CohnReznick’s Healthcare Industry Practice on our website.


Circular 230 Notice: In compliance with U.S. Treasury Regulations, the information included herein (or in any attachment) is not intended or written to be used, and it cannot be used, by any taxpayer for the purpose of i) avoiding penalties the IRS and others may impose on the taxpayer or ii) promoting, marketing, or recommending to another party any tax related matters.

This has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.

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