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Regulation and Compliance > Federal Regulation > IRS

Ways and Means Eyes Tax-Exempt Hospitals

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The Internal Revenue Service (IRS) seems to be heaping even more new tax return paperwork on nonprofit hospitals than Patient Protection and Affordable Care Act (PPACA) nonprofit hospital tax provisions require, according to a witness from a group that represents nonprofit hospitals.

Michael Regier, a senior vice president at VHA Inc., Irving, Texas, gave the nonprofit hospitals views on new IRS Form 990 rules for tax-exempt hospitals at a recent hearing on tax-exempt entities organized by the House Ways and Means oversight subcommittee.

VHA represents about 1,400 nonprofit hospitals and 23,000 other types of nonprofit health care organizations.

Before Congress passed PPACA, judicial decisions and IRS administrative rulings provided most of the guidelines that governed tax-exempt community hospitals, Regier said, according to a written version of his testimony posted by the committee.

Since 1969, community hospitals that wanted tax-exempt status had to meet standards such as providing charity care, maintaining an emergency room open to all persons, regardless of those persons’ ability to pay, and making medical staff privileges available to all qualifying physicians.

Congress included new tax-exempt hospital rules in PPACA in an effort to provide more specific rules and more oversight by Congress and the IRS, Regier said.

In 2009, before PPACA passed, the IRS began requiring hospitals to send it information about their community benefit activities and expenditures on Form 990 annual information returns they filed with the IRS, Regier said.

In PPACA Section 9007(a), Congress created new requirements for nonprofit hospitals seeking federal income tax exemptions under Internal Revenue Code (IRC) Section 501(c)(3).

PPACA Section 9007(b) created IRC Section 501(r), which requires that 501(c)(3) hospital:

  • Go through an IRS community benefit activity review at least once every 3 years.
  • Include more information on Form 990 filings.
  • Prepare and publicize a “community health needs assessment” (CHNA) every 3 years; 
  • Adopt and publicize a financial assistance policy.
  • Limit charges for medical care for patients who need medical assistance.
  • Refrain from engaging in “extraordinary” collection efforts before making  reasonable attempts to determine whether a patient qualifies for financial  assistance.

Most of the requirements took effect Jan. 1, 2011, and the CHNA requirement will start to apply in the taxable year starting Jan. 1, 2013, Regier said.

Since Section 501(r) was enacted in 2010, the IRS has issued guidance in an announcement and three notices, but it has not issued any formal regulations, Regier said.

The IRS also seems to have gotten around the usual rules that government IRS rulemaking, by adding 20 questions with about 60 subparts to the IRS Form 990 Schedule H that hospitals must fill out, Regier said.

The IRS has said in response to hospitals’ complaints that some of the questions are designed simply to collect information, not for use in enforcement proceedings, Regier said.

VHA is working with other health care group to try to make Schedule H less burdensome, Regier said.

The CHNA requirements, for example, are too detailed, and they require that a hospital provide, for example, the specific names and titles of individuals consulted, and whether consultations involved meetings, focus groups, interviews, surveys or written correspondence, Regier said.

Regier said hospitals also need guidance on matters such as how they should go about calculating permissible charges in compliance with PPACA limits on the amounts hospitals can charge for emergency or other medically necessary treatment provided for patients who qualify for financial assistance, Regier said.

“Did Congress intend this requirement to apply and be calculated on a procedure-by-procedure basis or may hospitals calculate an average effective discount rate received from each commercial insurance company across all covered procedures and services?” Regier asked.

Hospitals also need to know whether they can report delinquent patient accounts to credit agencies and what constitutes a “reasonable effort” to determine whether an individual is eligible for financial assistance, Regier said.


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