The Patient Protection and Affordable Care Act (Pub. L. No. 111-148) includes four primary adjustments to the federal income tax exemption requirements for nonprofit hospitals. Under the act, tax-exempt hospitals must take the following actions:
- Conduct a community health needs analysis at least once every three years, soliciting input from the communities that they serve
- Make widely available their financial assistance policies, which must specify eligibility criteria and, for discounted care, how they determine amounts that are billed to patients
- Notify patients of financial assistance policies through “reasonable efforts” before initiating various collection actions or reporting accounts to a credit rating agency
- Restrict charges of uninsured, indigent patients to those amounts generally charged to insured patients
The act imposes penalties on hospitals that fail to timely conduct their community health needs assessments. Under the act, the Internal Revenue Service must review the exempt status of hospitals every three years. In addition, the act requires the U.S. Department of the Treasury, in consultation with the U.S. Department of Health and Human Services (HHS), to prepare an annual report for the U.S. Congress on charity care, bad debt expenses, certain unreimbursed costs and costs incurred for community benefit activities. In five years, Treasury and HHS must also provide Congress with a report on community benefit-related trends.
What’s at Stake
In light of a recent Illinois Supreme Court decision denying property tax exemption to a nonprofit hospital, these new standards contribute to the ongoing dialogue with respect to whether and to what extent nonprofit hospitals are distinguishable from for-profit hospitals and deserve federal income tax exemption. These provisions can be viewed as requirements that will differentiate tax-exempt hospitals and improve transparency of how they fulfill their charitable, patient-care missions.
Steps to Consider
Tax-exempt hospitals should quickly consider how to comply with the act’s new requirements for federal income tax exemption. While most of the act’s provisions have postponed effective dates, the tax-exempt specific requirements for hospitals will be effective very soon, perhaps as soon as tax years beginning April 1, 2010.