President Obama signed The Patient Protection and Affordable Care Act (“the Act”) into law on March 23, 2010. Separately, on March 25, 2010, the Senate and House passed the Health Care and Education Reconciliation Act of 2010 (“the Reconciliation Act”) amending many provisions of the Act. The Reconciliation Act was signed into law by President Obama on March 30, 2010. The tax provisions contained in this major health care overhaul are the subject of a series of Insight articles. The focus of this article is on additional requirements for tax exempt hospitals contained in the healthcare legislation.
Under the Patient Protection and Affordable Care Act of 2010, nonprofit hospitals must meet certain additional requirements to maintain their tax exempt status under Section 501(c)(3) of the Internal Revenue Code. The new law imposes excise taxes on hospitals that fail to meet community health assessment mandates. It also expands reporting and disclosure requirements of nonprofit hospitals.
The new provisions are effective for taxable years beginning after March 23, 2010, except the community health needs assessment requirement, which is effective for tax years beginning two years after March 23, 2010.
Schedule H of IRS Form 990 contains information about a hospital’s community benefit activities. The Secretary of the Treasury is required to review this information at least once every three years. A failure to conduct a community health needs assessment for any three-year period results in an excise tax to the organization of up to $50,000.
In addition to Schedule H, Form 990 must be accompanied by a copy of the hospital’s audited financial statements as well as a description of how the organization is addressing the needs identified in each community health needs assessment and a description of any needs that are not being addressed with an explanation as to why they are not being addressed.
Financial Assistance Policy
Under the new law, nonprofit hospitals must implement a written financial assistance policy which specifies:
- Eligibility criteria for financial assistance and whether such assistance includes discounted or free care
- The basis for calculating amounts charged for patients
- The method for applying for financial assistance
- Actions the hospital will take in the event of non-payment including collections and reporting to credit agencies
- An emergency care policy that prevents discrimination against those eligible for financial or government assistance
- Measures to widely publicize the policy throughout the community
When charging individuals that qualify for financial assistance, hospitals must charge no more than the rates available to those that are covered by insurance.
Under the Act, a hospital may not engage in extraordinary collections actions unless it has made reasonable efforts to determine if the individual meets the requirements of the written financial assistance policy. Expected IRS guidance on what constitutes “reasonable efforts” has not yet been issued.
In order to protect their tax exempt status, hospitals should begin to align their policies with the requirements of the new legislation as soon as possible. Most of the new provisions are effective for tax years beginning after March 23, 2010. The community health needs assessments must be conducted for tax years beginning after March 23, 2012.
We encourage you to visit and bookmark our web page dedicated to Health Care Reform for periodic updates.
Schneider Downs provides accounting, tax, wealth management and business advisory services through innovative thought leaders who deliver the expertise to meet the individual needs of each client. Our offices are located in Pittsburgh, PA, and Columbus, OH.
This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax related matter.