The letter published below contains HFMA's submitted comments regarding the applications of certain requirements imposed by new section 501(r), added to the Internal Revenue Code by section 9007(a) of the Patient Protection and Affordable Care Act. As noted in the letter, these additional requirements have the potential to help tax-exempt healthcare providers demonstrate that they are fulfilling their tax-exempt purpose and are building upon an already high standard of community serivce.
In addition, HFMA has joined the American Hospital Association, Premier, and VHA in a July 22 comment letter that addresses the IRS requirements, and the American Hospital Association, Association of American Medical Colleges, and VHA in a July 26 comment letter regarding Schedule H consolidated hospital system reporting.
July 16, 2010
Internal Revenue Service
CC:PA:LPD:PR (Notice 2010-39)
P.O. Box 7604
Ben Franklin Station
Washington, DC 20044
RE: Request for Comments Regarding Additional Requirements for Tax-Exempt Hospitals (Notice 2010-39)
The Healthcare Financial Management Association (HFMA) is pleased to submit the following comments regarding the application of certain requirements imposed by new section 501(r), added to the Internal Revenue Code (Code) by section 9007(a) of the Patient Protection and Affordable Care Act (Affordable Care Act), enacted March 23, 2010, Pub. L. No. 111-148 and amended by Pub. L. No. 111-152. Section 501(r) affects hospital organizations that are currently described in section 501(c) (3) of the Code as exempt from Federal income taxation.
These additional requirements have the potential to help tax-exempt healthcare providers demonstrate that they are fulfilling their tax-exempt purpose and build upon an already high standard of community service. Revising the requirements to reflect today's complex healthcare environment is timely and laudable. We look forward to working with the IRS and our membership to ensure that these reporting tools achieve the stated goals of transparency and accountability while minimizing administrative burden.
The Affordable Care Act imposes four requirements on hospitals seeking to qualify for and maintain tax-exempt status under § 501(c) (3):
- Community Health Needs Assessment (CHNA) - Effective for tax years beginning March 23, 2012. Hospitals must conduct a community health needs assessment at least every three years, which must be made widely available to the public and must take into account input from persons who represent the broad interests of the community served by the hospital facility. In addition, hospitals must adopt an implementation strategy for the community health needs identified through such an assessment.
HFMA believes that a clarification needed here is in regard to the "widely available to the public" portion of this test and would recommend that this test be met if the CHNA is publicized consistent with the existing requirements for publication of the Form 990. Additionally, in regard to the definition of what constitutes a health need, we believe it should follow the instructions already established for the Form 990 Schedule H.
Many states, cities, or communities require hospitals to prepare or participate in community health needs assessments and/or community benefit plans. To minimize burden and increase transparency, when a hospital meets state/city/community requirements that are substantially equivalent to, or exceed the community health needs assessment requirements in Code § 501(r), the state/city/community report should be deemed to have satisfied the corresponding requirements of Code § 501(r).
- Financial Assistance Policy. Hospitals must establish a written financial assistance policy that includes: (i) eligibility criteria, and whether such assistance includes free or discounted care; (ii) the basis for calculating amounts charged to patients; (iii) the method for applying for financial assistance; (iv) if no separate billing and collections policy, the actions the organization may take in the event of nonpayment; and (v) measures to publicize the policy within the community. Hospitals must have a written emergency medical care policy that requires the organization to provide, without discrimination, care for emergency medical conditions.
HFMA has prepared significant guidance for the industry through our PATIENT FRIENDLY BILLING® project, our Principles & Practices Board Statement No. 15 (Valuation and Financial Statement Presentation of Charity Care and Bad Debts by Institutional Providers), as well as the Principles & Practices Board Sample Charity Care Policy and Procedures, which are in agreement with the IRS direction given above. As a point of clarification, we would recommend that section (v) noted above "measures to publicize the policy within the community" be deemed satisfied if the hospital publicizes their financial assistance policy consistent with the current regulations for publicizing the IRS Form 990.
- Limitation on Charges. Hospitals must limit the amounts charged for emergency or other medically necessary care provided to individuals eligible for assistance under the financial assistance policy described above to not more than the amounts generally billed to individuals who have insurance covering such care. Hospitals also must prohibit the use of gross charges, i.e., "chargemaster" rates, when billing individuals who are eligible for financial assistance. Amounts billed to those who are eligible for financial assistance may be based on either the best - or an average of the three best - negotiated commercial rates, or Medicare rates (Technical Explanation of the Revenue Provisions of the "Reconciliation Act of 2010" As Amended, in Combination with the "Patient Protection and Affordable Care Act" Joint Committee on Taxation Report, March 21, 2010 at 82).
HFMA believes that clarification needs to be given surrounding the "prohibit the use of gross charges, i.e., "chargemaster rates," when billing individuals who are eligible for financial assistance" portion of the above section. As a general practice, hospitals use gross charges as the starting point for the billing of all patients and third-party payers (insurance companies) and then apply the appropriate discounts from there to arrive at the final amount due, which is consistent with Medicare, Medicaid, and private insurance rules and regulations. HFMA believes that hospitals should apply this rule consistently, billing the patient using gross charges, subtracting the agreed upon discount to those gross charges to equal the net amount due from the patient so as not to establish multiple systems of charging, which would place a confusing and undue burden on the hospital.
- Billing and Collection. Hospitals must not engage in extraordinary collection actions before making reasonable efforts to determine whether the individual is eligible for assistance under its financial assistance policy.
HFMA would recommend that the IRS define what is meant by "reasonable efforts" in their guidance following the guidance provided to the industry within our PATIENT FRIENDLY BILLING® project. The PATIENT FRIENDLY BILLING® project, which is a collaborative endeavor spearheaded by HFMA to promote clear, concise, and correct patient-friendly financial communications, has been recognized by the industry. Patients have a responsibility in this process, just as the hospital does, to provide financial information to ensure they are receiving the best possible financial assistance, and that responsibility should not be overlooked. We would recommend that if the following processes from the February 2005 PATIENT FRIENDLY BILLING® Project Report(Hospitals Share Insights to Improve Financial Policies for Uninsured and Underinsured Patients) occur, then the measure of "reasonable efforts" is attained.
- Communicate to patients available financial assistance. This includes assistance from governmental programs and the hospital's charity care programs. Effective communications are clear, concise, easy to understand, and designed from the patient's perspective. The objective is for patients to understand the steps they need to take and the steps the hospital will take to help them resolve their account balances.
- Develop improved methods to communicate with the patients the amounts they owe for services and the basis for billed amounts. This includes communicating financial expectations as early in the process as possible and communicating in a way that treats patients with dignity, respect, and compassion.
Additionally, some clarification is needed on what constitutes "extraordinary collection" action. Lawsuits, liens on residences, arrests, and body attachments are all "extraordinary" collection measures. Thus, IRS guidance should follow the legislative history and include these items as examples. However, actions such as reporting an individual to a credit agency are not and should not be treated as an "extraordinary collection" effort. Further, the phrase "other similary collection processes" is vague and undefined, and therefore we believe this phrase should be dropped, or it will lead to inconsistent application and confusion among providers and patients.
We appreciate the interest and objectives of Congress and others to ensure that tax-exempt status is granted appropriately. However, we have learned from past governmental approaches to oversight that overly burdensome reporting discourages the creation of, and impedes the functioning of, nongovernmental entities, many of which fill important societal needs that government will not or cannot meet. Minimizing the burden and providing flexibility in reporting is paramount to the continuation of the critical services provided by many charitable, tax-exempt organizations.
The revised additional requirements offer tremendous potential to bring transparency to the value that tax-exempt hospitals provide to their communities while improving the quality of data used in making health policy decisions. However, achieving this potential is a profoundly complex undertaking that requires close collaboration between the government and hospitals to improve community benefits while minimizing administrative burden to providers.
HFMA hopes that these comments and recommendations are useful as the IRS pursues the best interests of patients, taxpayers, and the nation's healthcare system. We are at your service to provide additional background material or perspective on this complex issue. You may reach me, or Richard Gundling, Vice President in HFMA's Washington, D.C., office, at (202) 296-2920. We look forward to working with you.
Richard L. Clarke, DHA, FHFMA
President and CEO
HFMA is the nation's leading membership organization for more than 35,000 healthcare financial management professionals. Our members are widely diverse, employed by a variety of healthcare providers, accounting and consulting firms, and insurance companies. Members' positions range from chief executive officer and chief financial officer to patient accounts manager and accountant.
HFMA is a nonpartisan professional practice organization. As part of its education, information, and professional development services, HFMA develops and promotes ethical, high-quality healthcare finance practices. HFMA works with a broad cross-section of stakeholders to improve health care by identifying and bridging gaps in knowledge, best practices, and standards.
Publication Date: Wednesday, July 21, 2010