United States

Tax-exempt hospitals: Financial assistance policy compliance checks

INSIGHT ARTICLE  | 

Among the IRS’s compliance strategies for fiscal year 2021 is a focus on tax-exempt hospitals and their financial assistance policies. To this end, some tax-exempt hospitals have received compliance checks from the IRS inquiring about the adoption and implementation of their financial assistance policies. In general, a compliance check inquires about a taxpayer’s activities, operations, and reporting on a particular topic of interest to the IRS. Although it is not considered an examination, there may be situations when a compliance check is referred for examination.

Background

Section 501(r), enacted by the Affordable Care Act, imposes additional requirements on tax-exempt hospitals: (1) community health needs assessments, (2) financial assistance policies, (3) billing and collection policies, and (4) limitations on charges. Failure to meet any of these requirements may result in the hospital organization losing its tax-exempt status.

In particular, section 501(r)(4) requires each licensed hospital facility to establish a written financial assistance policy (FAP) and a written emergency medical care policy. Treas. Reg. section 1.501(r)-4 sets forth a number of specific criteria to satisfy these requirements. Tax-exempt hospitals demonstrate their compliance with these requirements on their annual Forms 990, Schedule H.

Financial assistance policy compliance checks

To identify hospitals with possible compliance issues, the IRS reviews a hospital’s Form 990, Schedule H and its external website. Rather than always conducting a full-scale IRS exam, the IRS has developed and sent compliance check questionnaires to some tax-exempt hospitals to evaluate their compliance with section 501(r)(4).

Hospitals have reported receiving compliance checks that request the following information

  • How the hospital makes its FAP widely available
  • The method for applying for financial assistance; and
  • The list of providers both covered and not covered by the FAP.

How Can RSM help?

RSM’s tax-exempt healthcare professionals can assist tax-exempt hospitals in responding to these compliance checks, reviewing their FAPs, and evaluating their compliance with section 501(r)(4). Our experience with the tax-exempt healthcare sector enables us to provide tax-exempt hospitals with insights about how to successfully demonstrate compliance, identify gaps relating to establishing and implementing FAPs, and evaluate overall compliance with section 501(r).

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