Industry Insights

501(r)(4) – Financial Assistance Policy & Emergency Medical Care Policy – Does Your Organization Pass the Test?

February 2015

On December 29, 2014, the IRS issued final regulations with respect to section 501(r) of the Internal Revenue Code (IRC), which requires hospital facilities to comply with certain billing and collecting practices to maintain exemption under 501(c)(3). The final regulations are effective December 29, 2014, and apply to tax years beginning after December 29, 2015. For tax years beginning on or before the effective date of December 29, 2014, hospital facilities may rely on a reasonable good-faith understanding of 501(r).

Each hospital facility operated by a tax-exempt organization must have a written financial assistance policy (FAP) and written emergency medical care policy in place to be compliant with the requirements of IRC Section 501(r)(4). In addition to being written, each policy must be adopted by an authorized body of the hospital facility, i.e., the board of directors, in which these policies reside.

The final regulations follow many of the guidelines issued under the proposed regulations, with a few revisions. The regulations provide detailed guidance on the requirements for a written FAP and emergency care policy. Here are some of the key requirements outlined in the final regulations.

Financial Assistance Policy

For a hospital facility’s written FAP to be considered compliant, the policy must meet the following criteria:

  • Apply to all emergency and other medically necessary care provided by the hospital facility, including similar care by substantially related organizations
  • Be widely publicized; to meet this requirement, the FAP, FAP application and plain language summary must:
    • Be made widely available on a website (hospital facility’s site or another site)
    • Be available in paper form upon request and without charge
    • Be disclosed in public locations in the facility—at a minimum in the admissions office and emergency room
    • In a reasonably calculated manner, inform community members most likely to require financial assistance
  • Include the criteria for financial assistance eligibility; if financial assistance includes free or discounted care, it must:
    • Include all discounts and free care under the hospital facility’s FAP
    • Disclose eligibility criteria for individuals who may receive discounted care, free care or other assistance under the FAP
  • Disclose the basis for calculating amounts charged to patients by describing the method the hospital facility used to calculate amounts generally billed (AGB) to those who have insurance for emergency and other medically necessary care
  • Describe the method an individual uses to apply for financial assistance under its FAP, including, but not limited to, information and documentation the hospital facility may require from a FAP-eligible individual
  • Disclose, for those facilities without a separate billing and collections policy under Section 501(r)(6), the actions that may be taken in the event of nonpayment against an individual, including, but not limited to, any extraordinary collection actions (ECA) and the processes, time frames, reasonable efforts and actions the hospital facility or other authorized party, i.e., a third-party collection agency, takes before engaging in any ECAs against the individual
  • Include, if applicable, other sources of information the hospital facility uses to determine FAP eligibility, including the circumstances under which it uses prior FAP eligibility determinations to presumptively determine the individual is FAP-eligible
  • Disclose a list of providers, other than the hospital facility, delivering emergency or other medically necessary care in that facility; the list must specify which providers are covered by the hospital facility’s FAP and which are not

A hospital facility may grant financial assistance under its FAP notwithstanding an applicant’s failure to provide information in his or her FAP application. In addition, the regulations say after determining FAP eligibility, FAP-eligible individuals may not be charged more than AGB for emergency or other medically necessary care.

Emergency Care Policy

For a hospital facility to successfully implement a compliant emergency care policy, the policy must:

  • State that the hospital facility provides care for medical conditions to individuals, without discrimination and regardless of FAP eligibility   
  • State that the hospital facility disallows actions that discourage individuals from seeking medical care, i.e., demanding emergency department patients pay before receiving treatment for emergency medical conditions or permitting debt collection activities that interfere with the provision of emergency medical care

A hospital facility’s emergency care policy may be included as part of the facility’s FAP or be a standalone document; in either case, the policy must include the items listed above.

If you have questions regarding the final 501(r)(4) regulations, contact your BKD advisor.

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