Treasury Notes

 Charitable Hospitals: Roles and Responsibilities

By: Betsy Bourassa

More than half of the nation’s hospitals are charitable hospitals and they play a key role in improving the health of the communities they serve.  As charitable organizations, these hospitals receive many benefits, including a tax exemption on their earnings and the ability to receive tax-deductible contributions, and in return it is their responsibility to provide benefits back to their communities.  As we reach the end of the year, we want to remind charitable hospitals that they must also take important steps to protect patients – including protecting them from hidden and high prices, and unreasonable collection actions.  

Today, Treasury and the IRS issued two notices providing guidance for these charitable hospitals.  The Affordable Care Act added new requirements, which are already in effect, to help ensure access to financial assistance for patients of charitable hospitals, protect patients from abusive collections practices, and require hospitals to assess and address the health needs of the communities they serve.  The first notice includes a proposed revenue procedure providing a process for charitable hospitals that fail to satisfy the requirements under section 501(r) of the Internal Revenue Code – which provides their charitable, tax-exempt designation – to follow to correct and disclose those failures.  In return for following this corrections process, charitable hospitals would receive assurance that they will not face possible loss of tax-exempt status as long as their mistakes were not willful or egregious.  This also benefits the broader public because it encourages hospitals to closely review their procedures, quickly correct any errors, and remain transparent with the community and the IRS about any failures to meet section 501(r) requirements.

The second notice​ provides reliance on proposed regulations already released under section 501(r) regarding charitable hospitals’ responsibilities.  In June 2012, Treasury and the IRS published proposed regulations addressing the requirement that charitable hospitals, as a condition of receiving tax exemption, establish a financial assistance policy, an emergency medical care policy, and limitations on charges and collection activities against individuals that are eligible for financial assistance.  Specifically, the proposed rules require tax-exempt hospitals to clearly define the financial assistance available, how to apply for it, and publicize their policies so that community members are aware that aid is available.  The proposed regulations also set forth provisions to curb the use of discriminatory pricing and collection schemes – by providing that individuals eligible for financial assistance cannot be charged more for medically necessary care than insured individuals, explicitly prohibiting collections activities in emergency rooms, and requiring tax-exempt hospitals to re-issue previous bills at a discounted amount if a patient is later determined to be eligible for financial assistance.  Following this, in April 2013, Treasury and the IRS published proposed regulations addressing the requirement that charitable hospitals conduct community health needs assessments and adopt implementation strategies to address the community health needs identified.  The proposed regulations also address the consequences for failing to meet any of the section 501(r) requirements.

As background on the section 501(r) requirements, the Affordable Care Act requires charitable (tax-exempt) hospitals to:
  • Limit charges.  Hospitals may not charge individuals eligible for financial assistance more for emergency or other medically necessary care than the amounts generally billed to patients with Medicare or private commercial insurance.
  • Establish and disclose financial assistance policies.  Each hospital must establish and widely publicize a financial assistance policy that clearly describes to patients the eligibility criteria for obtaining financial assistance and the method for applying for financial assistance.
  • Abide by reasonable billing and collection requirements.  Charitable hospitals are prohibited from engaging in certain collection methods (for example, sending a debt to a credit agency or garnishing wages) until they make reasonable efforts to determine whether an individual is eligible for assistance under the hospital’s financial assistance policy.
  • Perform a community health needs assessment.  Each charitable hospital must conduct and publish a community health needs assessment at least once every three years – and disclose on the tax form it files annually the steps it is taking to address the health needs identified in the assessment.  
For the Notice of Proposed Procedures for Charitable Hospitals to Correct and Disclose Failures to Meet Section 501(r), click here.

For the Notice of Reliance on Proposed Regulations for Tax-Exempt Hospitals, click here.

Betsy Bourassa is a Media Specialist at the U.S. Department of the Treasury. ​
Posted in:  Tax Policy
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