Industry Insights

Updated 501(r)(6) Regulations Address Notification Requirements, ECAs & Other Issues

February 2015
Author:  Krystal Creach

Krystal Creach

Director

Tax

Construction & Real Estate
Health Care

910 E. St. Louis Street, Suite 200
P.O. Box 1190
Springfield, MO 65801-1190 (65806)

Springfield
417.865.8701

The long-awaited final Internal Revenue Code Section 501(r) regulations were issued at the end of 2014, to be effective for taxable years beginning after December 29, 2015. Our series covering the four significant sections of the regulations concludes with a look at the regulations under 501(r)(6), which provides guidelines regarding a hospital facility’s billing and collection practices.

After the release of the proposed 501(r) regulations, 501(r)(6) in particular spurred many comments. The IRS appears to have considered many of these comments, as many feel the changes made in the final regulations are more hospital-friendly. One of the most significant changes lifts many of the notification requirements. Other changes address extraordinary collections actions, sale of debts to third parties and presumptive financial assistance determinations.

A facility is in compliance with 501(r)(6) if it doesn’t engage in extraordinary collection actions (ECAs) against an individual before making reasonable efforts to determine if an individual is eligible for assistance under the organization’s financial assistance policy (FAP). The following actions are considered ECAs:

  • Selling an individual’s debt to another party, subject to some exceptions
  • Adverse reporting to credit reporting agencies or credit bureaus
  • Deferring, denying or requiring payment before providing medically necessary care due to nonpayment for previously provided care
  • Actions that require a legal process, including but not limited to:
    • Placing a lien on property
    • Foreclosing on real property
    • Attaching or seizing a bank account or other personal property
    • Commencing civil action against an individual
    • Causing an individual’s arrest
    • Causing an individual to be subject to a writ of body attachment
    • Garnishing an individual’s wages

Reasonable efforts should be taken to determine whether an individual is FAP-eligible before undertaking any ECA. Reasonable efforts can include presumptive FAP-eligibility determination through third parties or prior eligibility information, as long as the individual is notified of the basis for presumptive eligibility and told how to apply for more generous assistance, if applicable, within a reasonable period of time. Reasonable efforts are considered to be made if the facility does all of the following:

  • Notifies the individual via a written notice indicating financial assistance is available
  • Provides a plain language summary of the FAP
  • Makes a reasonable effort to orally notify the individual about the FAP

These efforts generally must be completed at least 30 days before initiating ECAs. The hospital facility also must refrain from initiating ECAs for at least 120 days after the first post-discharge billing statement while determining if an individual is FAP-eligible.

Specific guidelines detail how to handle complete and incomplete financial assistance applications and the time frame during which hospitals must accept applications. These details and more will be discussed in our upcoming webinar, “Long-Awaited Final 501(r) Regulations Issued,” on March 3. To learn more about the Community Health Needs Assessment component of 501(r), you also can view an archived presentation of our previous webinar, “Preparing for Your Upcoming CHNA.”

If you have questions regarding the final regulations under 501(r)(6) or any of the final 501(r) regulations, contact your BKD advisor.

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