[Federal Register Volume 79, Number 250 (Wednesday, December 31, 2014)]
[Rules and Regulations]
[Pages 78954-79016]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-30525]
[[Page 78953]]
Vol. 79
Wednesday,
No. 250
December 31, 2014
Part II
Department of the Treasury
-----------------------------------------------------------------------
Internal Revenue Service
-----------------------------------------------------------------------
26 CFR Parts 1, 53, and 602
Additional Requirements for Charitable Hospitals; Community Health
Needs Assessments for Charitable Hospitals; Requirement of a Section
4959 Excise Tax Return and Time for Filing the Return; Final Rule
Federal Register / Vol. 79 , No. 250 / Wednesday, December 31, 2014 /
Rules and Regulations
[[Page 78954]]
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1, 53, and 602
[TD 9708]
RIN 1545-BK57; RIN 1545-BL30; RIN 1545-BL58
Additional Requirements for Charitable Hospitals; Community
Health Needs Assessments for Charitable Hospitals; Requirement of a
Section 4959 Excise Tax Return and Time for Filing the Return
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final regulations and removal of temporary regulations.
-----------------------------------------------------------------------
SUMMARY: This document contains final regulations that provide guidance
regarding the requirements for charitable hospital organizations added
by the Patient Protection and Affordable Care Act of 2010. The
regulations will affect charitable hospital organizations.
DATES: Effective Date: The final regulations are effective on December
29, 2014.
Applicability Date: For dates of applicability, see Sec. Sec.
1.501(r)-7(a); 1.6033-2(k)(4); 53.4959-1(b); and 53.6071-1(i)(2).
FOR FURTHER INFORMATION CONTACT: Amy F. Giuliano, Amber L. MacKenzie,
or Stephanie N. Robbins at (202) 317-5800 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information contained in these final regulations
has been reviewed and approved by the Office of Management and Budget
in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C.
3507(d)) under control number 1545-0047. The collection of information
in the final regulations is in Sec. Sec. 1.501(r)-3, 1.501(r)-4, and
1.501(r)-6(c). The collection of information is required for hospital
organizations to receive the benefits of being described in section
501(c)(3) of the Internal Revenue Code (Code) and flows from section
501(r)(3), which requires a hospital organization to conduct a
community health needs assessment (CHNA) and adopt an implementation
strategy to meet the community health needs identified through the CHNA
at least once every three years; section 501(r)(4), which requires a
hospital organization to establish a written financial assistance
policy (FAP) and a written policy related to care for emergency medical
conditions; and section 501(r)(6), which requires a hospital
organization to make reasonable efforts to determine whether an
individual is eligible for assistance under a FAP before engaging in
extraordinary collection actions. The expected recordkeepers are
hospital organizations described in sections 501(c)(3) and 501(r)(2).
1. 2012 Proposed Regulations
On June 26, 2012, the Department of the Treasury (Treasury
Department) and the IRS published a notice of proposed rulemaking
(NPRM) (REG-130266-11; 77 FR 38148) that contained proposed regulations
regarding the requirements of sections 501(r)(4) through 501(r)(6)
relating to FAPs, limitations on charges, and billing and collections
(the 2012 proposed regulations). The 2012 proposed regulations
estimated that the collection of information in the proposed
regulations relating to sections 501(r)(4) and 501(r)(6) would result
in an average annual paperwork burden per recordkeeper of 11.5 hours.
(The requirements of section 501(r)(3) were addressed in different
proposed regulations, released in 2013, and the collection of
information associated with those proposed regulations is addressed in
section 2 of this portion of the preamble relating to the Paperwork
Reduction Act.)
In response to this burden estimate, the Treasury Department and
the IRS received 15 comments generally stating that the estimates set
forth in the 2012 proposed regulations were too low and that the burden
was significantly higher, with some commenters offering estimates
ranging between 15 and 38,500 hours annually. However, these commenters
provided insufficient information regarding the hours necessary to
comply with the information collection requirements of Sec. Sec.
1.501(r)-4 and 1.501(r)-6(c) of the 2012 proposed regulations for the
IRS to determine why, or by how much, the proposed burden estimate
should be increased. A few commenters noted that they would have to
devote significant resources up-front to amending policies and
procedures and altering information systems.
The Treasury Department and the IRS anticipated an up-front
commitment of resources when they derived the 11.5-hour annual burden
estimate proposed in the 2012 proposed regulations by dividing an
estimated 34.5-hour burden over three years (the maximum OMB approval
period for a collection of information burden estimate) by three. It
was anticipated that a large share of those 34.5 hours would be devoted
to updating policies, procedures, and information systems in the first
year. The Treasury Department and the IRS also expected that hospitals
would be building upon existing policies and processes rather than
establishing entirely new policies. For example, Sec. 1.501(r)-6(c)(2)
of the 2012 proposed regulations was intended to enable hospitals to
notify patients about the FAP primarily by adding information to
billing statements, necessitating some time to change the template of
the billing statement but presumably relatively little time thereafter.
However, in light of the comments received, the Treasury Department and
the IRS have increased their estimate of the average amount of time a
hospital organization will devote to amending policies and procedures
and altering information systems in the first year to come into
compliance with Sec. Sec. 1.501(r)-4 and 1.501(r)-6(c) to 60 hours
(with additional time needed each year to implement the requirements).
One commenter stated that hospitals' experience in administering
charity care programs under existing state law required more than 100
annual staff hours per hospital, and that the 2012 proposed regulations
would increase that burden. However, the total amount of time spent
administering charity care programs in general under the commenter's
state law is not equivalent to the amount of time necessary to comply
with the collection of information requirements, in particular, in the
2012 proposed regulations.
Most of the 38,500 burden hours that one commenter estimated for
the paperwork burden resulting from the 2012 proposed regulations was
based on the time the commenter estimated would be spent by 16
financial counseling staff members to provide direct patient
counseling. While providing direct patient financial counseling is a
commendable activity that would help ensure that patients obtain the
financial assistance for which they are eligible, the burden estimates
under the Paperwork Reduction Act are limited to collections of
information authorized or imposed by the statute and regulations, and,
therefore, such counseling activity would not be captured in the
estimates.
The Treasury Department and the IRS also note that, in response to
comments, these final regulations contain several changes intended to
reduce the paperwork burden of the 2012 proposed regulations. Most
significantly, numerous commenters noted that the requirement in Sec.
1.501(r)-6(c)(2) to include a plain language summary of the FAP with
all (and at least three) billing statements during a 120-day
[[Page 78955]]
notification period would add significantly to the cost of mailing the
billing statements and be a waste of paper. In response to these
comments, rather than requiring a plain language summary with every
bill issued during the notification period, the final regulations
instead require a hospital facility to include on each billing
statement a conspicuous written notice that notifies and informs
patients about the availability of financial assistance, including both
a telephone number of the office or department that can provide
information about the FAP and FAP application process and the direct
Web site address (or URL) where copies of the FAP, FAP application
form, and plain language summary of the FAP may be obtained.
Additionally, the final regulations require a plain language summary to
be included with only one post-discharge communication and give a
hospital facility the flexibility to send this one plain language
summary only to the subset of patients against whom the hospital
facility actually intends to engage in extraordinary collection
actions. These changes are intended to maintain the frequent reminders
to patients of the availability of financial aid while reducing the
burden and cost of mailing multiple copies of a plain language summary
of the FAP.
The one change in the final regulations that may materially
increase the paperwork burden relates to translations of the FAP and
related documents. The 2012 proposed regulations required a hospital
facility to translate its FAP (as well as the FAP application form and
plain language summary of the FAP) into the primary language of any
populations with limited English proficiency (LEP) that constitute more
than 10 percent of the residents of the community served by the
hospital facility. In response to comments discussed in section
4.a.iv.F of this preamble, the final regulations change that threshold
to 5 percent or 1,000, whichever is less, of the population of
individuals likely to be affected or encountered by the hospital
facility. This may increase the overall number of translations that
hospital organizations affected by the final regulations will be
required to make.
Taking into account all of the comments received, as well as the
changes made in these final regulations that will affect the paperwork
burden, the Treasury Department and the IRS have adjusted their burden
estimate for Sec. Sec. 1.501(r)-4 and 1.501(r)-6(c) to 60 hours per
recordkeeper of up-front time to update information systems and draft
and amend policies, procedures, and template billing statements and
notifications, plus 15 hours per recordkeeper per year for each of
three years to implement the collection of information requirements.
This results in a total of 105 hours over a three-year period, or an
average of 35 hours per year per recordkeeper, up from the estimate of
11.5 hours per year per recordkeeper proposed in the 2012 proposed
regulations. The Treasury Department and the IRS note that the burden
estimates must be updated every three years and that future estimates
can be amended to reflect hospitals' actual experience in implementing
the collection of information requirements in Sec. Sec. 1.501(r)-4 and
1.501(r)-6(c).
2. 2013 Proposed Regulations
On April 5, 2013, the Treasury Department and the IRS published a
NPRM (REG-106499-12; 78 FR 20523) that contained proposed regulations
regarding the CHNA requirements under section 501(r)(3) (the 2013
proposed regulations). The 2013 proposed regulations estimated that the
collection of information in the proposed regulations would result in
an average annual paperwork burden per recordkeeper of 80 hours. In
response to this burden estimate, the Treasury Department and the IRS
received 10 comments stating generally that the estimates set forth in
the 2013 proposed regulations were too low and that the burden was
significantly higher, with most commenters stating that satisfying the
requirements described in the 2013 proposed regulations would
necessitate ``thousands of hours.'' However, because commenters
provided little specific information regarding the hourly burden of
activities that are required to comply with the collection of
information required by section 501(r)(3), it is difficult for the
Treasury Department and the IRS to determine how to appropriately
revise the burden estimate.
The Treasury Department and the IRS note that a hospital
organization only has to satisfy the CHNA requirements once every three
years, and the burden estimate reflected in the 2013 proposed
regulations was 240 hours per CHNA, averaged over three years. In
addition, the Treasury Department and the IRS recognize that the amount
of time hospitals devote to their CHNAs will vary greatly depending on
their size and resources and whether they choose to collaborate with
other organizations and facilities in conducting their CHNAs.
One commenter asked that the IRS clarify its definition of
``recordkeeper'' to indicate that the estimate is for a hospital
organization with a single hospital facility and that a hospital
organization with multiple hospital facilities would have an estimated
burden that would be multiplied by the number of hospital facilities.
However, both the 2013 proposed regulations and these final regulations
allow hospital organizations with multiple hospital facilities to
collaborate and produce one joint CHNA report and implementation
strategy for all of its hospital facilities, provided the hospital
facilities define their communities to be the same. As a result, the
Treasury Department and the IRS do not believe the burden estimate will
necessarily increase in direct relation to the number of hospital
facilities operated. On the other hand, the Treasury Department and the
IRS do recognize that some hospital facilities operated by the same
organization will define their communities to be different and will
therefore conduct separate CHNAs and produce separate CHNA reports. For
purposes of estimating the total paperwork burden, and in the absence
of data on which hospital facilities will conduct joint CHNAs and which
will not, the Treasury Department and the IRS have assumed that
hospital facilities operated by hospital organizations with three or
fewer hospital facilities will produce joint CHNA reports and hospital
facilities operated by hospital organizations with more than three
hospital facilities will conduct separate CHNA reports. Based on the
latest available IRS data on the number of hospital organizations and
facilities, the assumption that hospital organizations operating more
than three hospital facilities will conduct separate CHNAs for each
hospital facility increases the average annual burden associated with
the CHNA requirements per hospital organization from 80 to 101 hours.
The Treasury Department and the IRS note that the burden estimates must
be updated every three years and that future estimates can be amended
to reflect hospitals' actual experience in implementing the collection
of information requirements in Sec. 1.501(r)-3.
3. Adjusted Burden Estimates for Final Regulations
After taking into account all the comments and information
available and based on the latest IRS data on the number of hospital
organizations and facilities, the Treasury Department and the IRS have
reached the following reporting burden estimates:
Estimated total annual reporting burden: 401,905.
Estimated average annual burden hours per recordkeeper: 136 hours.
[[Page 78956]]
Estimated number of recordkeepers: 2,955.
Estimated frequency of collections of such information: Annual.
An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless it displays a valid
control number assigned by the Office of Management and Budget.
Books or records relating to a collection of information must be
retained as long as their contents may become material in the
administration of any internal revenue law. Generally, tax returns and
tax return information are confidential, as required by section 6103.
Background
Section 501(r) was added to the Code by the Patient Protection and
Affordable Care Act, Public Law 111-148 (124 Stat. 119 (2010)) (the
Affordable Care Act), enacted March 23, 2010, and imposes additional
requirements on charitable hospital organizations. Section 501(r)(1)
provides that a hospital organization described in section 501(r)(2)
will not be treated as a tax-exempt organization described in section
501(c)(3) unless the organization meets the requirements of sections
501(r)(3) through 501(r)(6). Section 501(r)(3) requires a hospital
organization to conduct a community health needs assessment (CHNA) at
least once every three years and to adopt an implementation strategy to
meet the community health needs identified through the CHNA. Section
501(r)(4) requires a hospital organization to establish a written
financial assistance policy (FAP) and a written policy relating to
emergency medical care. Section 501(r)(5) requires a hospital
organization to not use gross charges and to limit amounts charged for
emergency or other medically necessary care provided to individuals
eligible for assistance under the organization's FAP (FAP-eligible
individuals) to not more than the amounts generally billed to
individuals who have insurance covering such care (AGB). Section
501(r)(6) requires a hospital organization to make reasonable efforts
to determine whether an individual is FAP-eligible before engaging in
extraordinary collection actions. Section 501(r)(2)(B) requires a
hospital organization to meet each of these requirements separately
with respect to each hospital facility it operates.
The statutory requirements of section 501(r) (except for section
501(r)(3)) apply to taxable years beginning after March 23, 2010.
Section 501(r)(3) applies to taxable years beginning after March 23,
2012. A hospital organization has had to comply with the statutory
requirements of section 501(r) since these applicability dates.
The Affordable Care Act also added section 4959, which imposes a
$50,000 excise tax on a hospital organization that fails to meet the
CHNA requirements for any taxable year, and amended section 6033 to add
certain reporting requirements related to section 4959 and the CHNA
requirements and to require hospital organizations to file a copy of
their audited financial statements with their annual information
returns.
In May 2010, the Department of the Treasury (Treasury Department)
and the IRS issued Notice 2010-39 (2010-24 IRB 756 (June 14, 2010)),
which solicited comments regarding the additional requirements imposed
by section 501(r). Approximately 125 comments were received in response
to Notice 2010-39.
In July 2011, the Treasury Department and the IRS issued Notice
2011-52 (2011-30 IRB 60 (July 25, 2011)), which described (and
solicited comments regarding) provisions related to the CHNA
requirements that the Treasury Department and the IRS anticipated would
be included in proposed regulations. More than 80 comments were
received in response to Notice 2011-52.
On June 26, 2012, the Treasury Department and the IRS published a
notice of proposed rulemaking in the Federal Register (REG-130266-11,
77 FR 38148) (2012 proposed regulations) that contained proposed
regulations regarding the requirements of sections 501(r)(4) through
501(r)(6) relating to FAPs, limitations on charges, and billing and
collections. The 2012 proposed regulations also defined key terms used
throughout the regulations, such as ``hospital organization'' and
``hospital facility.'' More than 200 written comments were received in
response to the 2012 proposed regulations, and a public hearing was
held on December 5, 2012.
On April 5, 2013, the Treasury Department and the IRS published a
notice of proposed rulemaking in the Federal Register (REG-106499-12,
78 FR 20523) (2013 proposed regulations) that contained proposed
regulations regarding the CHNA requirements of section 501(r)(3), the
related reporting obligations under section 6033, the excise tax under
section 4959, and the consequences for failing to meet any of the
section 501(r) requirements. The 2013 proposed regulations also added a
few additional defined terms and made minor amendments to the
definitions of ``hospital organization'' and ``hospital facility''
contained in the 2012 proposed regulations. More than 90 written
comments were received in response to the 2013 proposed regulations. No
public hearing was requested or held.
On August 15, 2013, the Treasury Department and the IRS published
final and temporary regulations and a cross-reference notice of
proposed rulemaking in the Federal Register (TD 9629, 78 FR 49681; REG-
115300-13, 78 FR 49700) under sections 6011 and 6071, which provided
guidance regarding the requirement that a return accompany payment of
the section 4959 excise tax for failure to meet the CHNA requirements
for any taxable year. Specifically, the temporary regulations direct
hospital organizations liable for the tax imposed by section 4959 to
file Form 4720, ``Return of Certain Excise Taxes Under Chapters 41 and
42 of the Internal Revenue Code,'' by the 15th day of the fifth month
after the end of the organization's taxable year in which the liability
was incurred. The cross-reference notice of proposed rulemaking
solicited public comments. No public comments were received, and no
public hearing was requested or held.
In January 2014, the Treasury Department and the IRS published
Notice 2014-2 (2014-3 IRB 407 (January 13, 2014)) to confirm that
hospital organizations could rely on both the 2012 proposed regulations
and the 2013 proposed regulations, pending the publication of final
regulations or other applicable guidance. This Treasury decision
obsoletes Notice 2014-2, but the final regulations contained in this
Treasury decision continue to allow reliance on both the 2012 proposed
regulations and the 2013 proposed regulations until a hospital
organization's first taxable year beginning after December 29, 2015.
Also in January 2014, the Treasury Department and the IRS published
Notice 2014-3 (2014-3 IRB 408 (January 13, 2014)), which contained, and
solicited public comments on, a proposed revenue procedure that
provides correction and reporting procedures under which certain
failures to meet the requirements of section 501(r) will be excused for
purposes of sections 501(r)(1) and 501(r)(2)(B). The Treasury
Department and the IRS received six comments in response to Notice
2014-3.
After consideration of the comments received on the 2012 and 2013
proposed regulations, both sets of proposed regulations under section
501(r) are adopted as amended by this Treasury decision. In addition,
this Treasury decision removes the temporary regulations under sections
6011 and
[[Page 78957]]
6071 and adopts as amended the proposed regulations that cross-
referenced the text of those temporary regulations. The major areas of
comment and the revisions are discussed in this preamble. The comments
are available for public inspection at www.regulations.gov or on
request.
Summary of Comments and Explanation of Revisions
These final regulations provide guidance on the requirements
described in section 501(r), the entities that must meet these
requirements, and the reporting obligations relating to these
requirements under section 6033. In addition, the final regulations
provide guidance on the consequences described in sections 501(r)(1),
501(r)(2)(B), and 4959 for failing to satisfy the section 501(r)
requirements.
1. Hospital Facilities and Organizations
a. In General
In accordance with section 501(r)(2)(A)(i) and consistent with the
proposed regulations, the final regulations define ``hospital
organization'' as an organization recognized (or seeking to be
recognized) as described in section 501(c)(3) that operates one or more
hospital facilities and define ``hospital facility'' as a facility that
is required by a state to be licensed, registered, or similarly
recognized as a hospital. The final regulations refer to hospital
facilities taking certain actions, and such references are intended to
include instances in which the hospital organization operating the
hospital facility takes action through or on behalf of the hospital
facility.
Section 501(r)(2)(A)(ii) provides that a hospital organization also
includes ``any other organization that the Secretary determines has the
provision of hospital care as its principal function or purpose
constituting the basis for its exemption'' under section 501(c)(3). One
commenter requested that this language be incorporated into the
definition of ``hospital organization'' contained in the final
regulations.
At this time, the Treasury Department and the IRS have not
identified any additional categories of organizations or facilities
(other than hospital facilities and organizations operating them) with
the principal function or purpose of providing hospital care. If any
such categories of organizations or facilities are later identified,
the Treasury Department and the IRS will issue proposed regulations
identifying them, with the expanded definition applying prospectively
only if, and when, the proposed regulations are finalized, after an
opportunity for notice and comment.
b. Multiple Buildings Under a Single Hospital License
The definition of ``hospital facility'' in the 2012 proposed
regulations provided that a hospital organization ``may treat''
multiple buildings operated under a single state license as a single
hospital facility. To increase the certainty and consistency in the
designation of hospital facilities, the 2013 proposed regulations
revised this definition to indicate that multiple buildings operated by
a hospital organization under a single state license ``are'' considered
a single hospital facility for purposes of section 501(r).
In response to the 2013 proposed regulations, several commenters
stated that buildings in different geographic locations that share a
license (for example, a hospital facility with satellite sites in
various locations) may serve distinct communities and stakeholders,
whose needs could be missed or unaddressed if they are aggregated into
one large community served for purposes of the CHNA requirements.
Multiple commenters asked that such a hospital facility be given the
flexibility to conduct separate CHNAs for its separate buildings,
noting that state law may require the facility to file separate
implementation strategies for each building describing how each
building plans to meet the health needs in its community.
The Treasury Department and the IRS believe that a fixed rule
regarding the treatment of multiple buildings under a single state
license will provide for consistency and certainty in tax
administration and increase the ability of both the IRS and the public
to understand and to evaluate information reported on hospital
organizations' Forms 990 from year to year. Accordingly, the final
regulations continue to provide that multiple buildings operated by a
hospital organization under a single state license are considered to be
a single hospital facility. The final regulations also clarify that, in
the case of a hospital facility consisting of multiple buildings that
operate under a single state license and serve different geographic
areas or populations, the community served by the hospital facility is
the aggregate of such areas or populations. However, in such a case,
the hospital facility consisting of multiple buildings could, if
desired, assess the health needs of the different geographic areas or
populations served by the different buildings separately and document
the assessments in separate chapters or sections of the hospital
facility's CHNA report and implementation strategy.
c. One Building Under Multiple State Licenses
A few commenters asked that the final regulations allow a hospital
organization to treat operations in a single building under more than
one state license as a single ``hospital facility,'' a situation the
proposed regulations did not address. These commenters stated that
entities operating within the same building have a high degree of
integration and similar patient populations and that requiring each
licensed facility to comply separately with section 501(r) would impose
burdens without benefitting the community served.
The final regulations do not adopt this suggestion because the
Treasury Department and the IRS believe that having one definition of
``hospital facility'' based on state licensure alone is simpler and
more administrable. However, the Treasury Department and the IRS note
that, as discussed in section 4.c of this preamble, separate hospital
facilities within the same building may have identical FAPs and other
policies established for them or share one policy document as long as
the information in the policy or policies is accurate for all such
facilities and any joint policy clearly states that it is applicable to
each facility. Furthermore, as discussed in sections 3.a.v and 3.b.iii
of this preamble, separate hospital facilities within the same building
that define their communities to be the same may conduct a joint CHNA
and adopt a joint implementation strategy addressing the significant
health needs identified in the joint CHNA. Thus, the final regulations
allow for hospital facilities within the same building to jointly
comply with many of the section 501(r) requirements.
d. Government Hospital Organizations
The statutory language of section 501(r) applies to all hospital
organizations that are (or seek to be) recognized as described in
section 501(c)(3) and does not provide an exception for government
hospital organizations. Accordingly, the preamble to the 2012 proposed
regulations stated that the Treasury Department and the IRS intend to
apply section 501(r) to every hospital organization that has been
recognized (or seeks recognition) as an organization described in
section 501(c)(3), regardless of whether a hospital organization is a
government hospital organization. However, in recognition of the unique
position of government
[[Page 78958]]
hospital organizations, the Treasury Department and the IRS also
requested comments regarding alternative methods a government hospital
organization could use to satisfy the requirements of section 501(r).
A number of commenters noted that government hospital organizations
have long-standing relationships with their communities, are already
known as ``safety net'' health care providers, and are already
obligated to provide care regardless of ability to pay (although care
is sometimes limited to or prioritized for citizens of the locality
that is supporting the hospital). Commenters also stated that
government hospital organizations disproportionately serve patients who
are uninsured, Medicaid beneficiaries, or hard to reach (such as
homeless individuals, migrant workers, and undocumented individuals),
and have governance structures that reflect a level of public
accountability. Commenters added that, as stewards of public funds,
government hospital organizations have an obligation to local taxpayers
to ensure that scarce financial resources go toward patient care and
not toward unnecessary administrative costs. However, rather than
offering alternative methods a government hospital organization could
use to satisfy the requirements of section 501(r), these commenters
instead effectively requested that the Treasury Department and the IRS
provide exemptions from the requirements imposed by section 501(r) for
government hospital organizations. For example, commenters recommended
that government hospital organizations be exempted from all of the
documentation requirements related to CHNAs, be deemed to have met the
FAP requirements by virtue of their public status, or be permitted to
charge some FAP-eligible individuals more than AGB as long as the
average annual discounted charge provided to FAP-eligible individuals
did not exceed AGB.
Other commenters expressed support for applying the requirements of
section 501(r) to government hospital organizations, stating that no
exceptions for particular categories of section 501(c)(3) organizations
are permitted by the statute. Commenters also stated that, from the
point of view of individuals seeking or receiving care, most government
hospital organizations are indistinguishable from any other section
501(c)(3) hospital organization and that their practices with regard to
charges, billing, and collections are substantially the same.
Because section 501(r) has no express or implicit exceptions for
government hospital organizations, the final regulations require the
section 501(r) requirements to be met by all hospital organizations
that are (or seek to be) recognized as described in section 501(c)(3),
including those that are government hospital organizations. The
Treasury Department and the IRS note, however, that government hospital
organizations that have previously been recognized as described in
section 501(c)(3) but do not wish to comply with the requirements of
section 501(r) may submit a request to voluntarily terminate their
section 501(c)(3) recognition as described in section 7.04(14) of Rev.
Proc. 2014-4 (2014-1 IRB 125) (or a successor revenue procedure).
A number of commenters asked whether and how government hospital
organizations can satisfy the reporting requirements related to CHNAs,
given that they are excused from filing a Form 990, ``Return of
Organization Exempt From Income Tax,'' under Rev. Proc. 95-48 (1995-2
CB 418). The Affordable Care Act did not change the requirements
regarding which organizations are required to file a Form 990. Rev.
Proc. 95-48 provides that certain government entities are relieved from
any requirement to file a Form 990 (and therefore are relieved from
having to disclose information or documents on or with a Form 990).
Accordingly, a government hospital organization (other than one that is
described in section 509(a)(3)) described in Rev. Proc. 95-48 or a
successor revenue procedure is not required to file a Form 990 or
include any CHNA-related information with a Form 990. However, to be
treated as described in section 501(c)(3), government hospital
organizations still must meet all section 501(r) requirements that do
not involve disclosure on or with the Form 990, including making their
CHNA reports and FAPs widely available on a Web site.
e. Accountable Care Organizations
Several commenters asked that separate entities cooperating in
accountable care organizations (ACOs) or similar integrated care models
be treated as a single ``hospital organization'' for purposes of
section 501(r), arguing that this would create administrative
efficiencies as the participating organizations develop one standard
set of policies and procedures and result in less confusion for
patients as they move through a ``continuum of care.'' The final
regulations do not adopt this suggestion, but the Treasury Department
and the IRS note that, as discussed in section 4.c of this preamble,
multiple hospital facilities may have identical FAPs and other policies
established for them or share one joint policy document as long as the
information in the policy or policies is accurate for all such
facilities and any joint policy clearly states that it is applicable to
each facility. Furthermore, as discussed in sections 3.a.v and 3.b.iii
of this preamble, separate hospital facilities that define their
community to be the same may conduct a joint CHNA and adopt a joint
implementation strategy addressing the significant health needs
identified in the joint CHNA. Thus, the final regulations provide
opportunities for separate hospital facilities participating in an ACO
to jointly comply with many of the section 501(r) requirements.
f. ``Operating'' a Hospital Facility
The 2013 proposed regulations generally provided that an
organization operates a hospital facility if it owns a capital or
profits interest in an entity treated as a partnership for federal tax
purposes that operates the hospital facility. The final regulations
maintain this general rule with two additions.\1\ First, the final
regulations clarify that an organization is considered to own a capital
or profits interest in an entity treated as a partnership for federal
tax purposes if it owns such an interest directly or indirectly through
one or more lower-tier entities that are treated as partnerships for
federal tax purposes.\2\
---------------------------------------------------------------------------
\1\ The final regulations delete the specific reference to joint
ventures and limited liability companies contained in the 2013
proposed regulations because those entities are sufficiently covered
by the general phrase ``entity treated as a partnership for federal
tax purposes.'' The final regulations also delete the reference to
``members of'' an entity treated as a partnership for federal tax
purposes because the intended organizations should be captured by
the references to owners of a capital or profits interest in the
partnership. These changes are not intended to be substantive
changes.
\2\ The final regulations also provide that an organization
operates a hospital facility if it is the sole member or owner of a
disregarded entity that operates the hospital facility. Section
301.7701-2(a) provides that a disregarded entity's activities are
treated in the same manner as a branch or division of the owner.
Accordingly, if a hospital organization is the sole owner of one
disregarded entity that is, in turn, the sole owner of another
disregarded entity that operates a hospital facility, the hospital
organization would be considered to operate the hospital facility.
---------------------------------------------------------------------------
Second, the final regulations clarify how the question of whether
an organization ``operates'' a hospital facility relates to the
question of whether the organization needs to meet the requirements of
section 501(r) (and, therefore, would be subject to any
[[Page 78959]]
consequences for failing to meet such requirements). Specifically,
Sec. 1.501(r)-2(e) of the final regulations clarifies that a hospital
organization is not required to meet the requirements of section 501(r)
with respect to any hospital facility it is not ``operating'' within
the meaning of that defined term. In addition, as stated in the
preamble to the 2013 proposed regulations, the final regulations
provide that a hospital organization is not required to meet the
requirements of section 501(r) with respect to the operation of a
facility that is not a ``hospital facility'' because it is not required
by a state to be licensed, registered, or similarly recognized as a
hospital. The final regulations also provide that a hospital
organization is not required to meet the requirements of section 501(r)
with respect to any activities that constitute an unrelated trade or
business described in section 513 with respect to the hospital
organization.
g. Providing Care in a Hospital Facility Through Hospital-Owned
Entities
A number of commenters asked that the final regulations clarify the
extent to which certain section 501(r) requirements apply to hospital-
owned physician practices providing care in the hospital, with a few
commenters requesting that the section 501(r) requirements apply to all
care provided in a hospital facility by such practices.\3\
---------------------------------------------------------------------------
\3\ As discussed in section 4.a of this preamble, in response to
comments, the final regulations require a hospital facility's FAP to
identify the providers, other than the hospital facility itself,
that may deliver emergency or other medically necessary care in the
hospital facility and specify which providers are covered by the
hospital facility's FAP and which are not.
---------------------------------------------------------------------------
Whether or not the section 501(r) requirements apply to hospital-
owned physician practices or other entities providing care in a
hospital facility depends upon how the entities are classified for
federal tax purposes. For example, a hospital facility would not be
required to meet the section 501(r) requirements with respect to a
taxable corporation providing care in the hospital facility, even if
the corporation is wholly or partially owned by the hospital
organization that operates the hospital facility, because the
corporation is a separate taxable entity to which section 501(r) does
not apply.
By contrast, if a hospital organization is the sole member or owner
of an entity providing care in one of its hospital facilities and that
entity is disregarded as separate from the hospital organization for
federal tax purposes, the care provided by the entity would be
considered to be care provided by the hospital organization through its
hospital facility. Accordingly, the hospital organization would be
required to meet the section 501(r) requirements with respect to care
provided by the disregarded entity in any hospital facility that the
hospital organization operates.
If a hospital organization owns a capital or profits interest in an
entity providing care in a hospital facility that is treated as a
partnership for federal tax purposes, the activities of the partnership
are treated as the activities of the hospital organization for purposes
of determining whether the hospital organization is operated
exclusively for exempt purposes or engaged in an unrelated trade or
business under generally applicable tax principles. See Rev. Rul. 2004-
51 (2004-1 CB 974); Rev. Rul. 98-15 (1998-1 CB 718). Accordingly,
emergency or other medically necessary care provided in a hospital
facility by a partnership in which the hospital organization operating
the facility has a capital or profits interest is treated as care
provided by the hospital organization in its hospital facility for
purposes of section 501(r). If the provision of such care by the
partnership is an unrelated trade or business with respect to the
hospital organization, the hospital organization does not have to meet
the section 501(r) requirements with respect to the care because, as
noted in section 1.f of this preamble, the final regulations provide
that a hospital organization is not required to meet the requirements
of section 501(r) with respect to any activity that constitutes an
unrelated trade or business with respect to the hospital organization.
On the other hand, if the provision of emergency or other medically
necessary care by the partnership is not an unrelated trade or business
with respect to the hospital organization, the final regulations
clarify that the hospital organization must meet the requirements of
sections 501(r)(4) through 501(r)(6) with respect to such care. The
final regulations use a new defined term, ``substantially-related
entity,'' to refer to an entity that is treated as a partnership for
federal tax purposes in which a hospital organization owns a capital or
profits interest (or a disregarded entity of which the hospital
organization is the sole owner or member) and that provides, in a
hospital facility operated by the hospital organization, emergency or
other medically necessary care that is not an unrelated trade or
business with respect to the hospital organization.\4\
---------------------------------------------------------------------------
\4\ The final regulations also clarify that the term
``substantially-related entity'' does not include any partnership
that qualifies for a grandfather rule included in the 2013 proposed
regulations and adopted in the final regulations. Under that rule,
an organization will not be considered to ``operate'' a hospital
facility despite owning a capital or profits interest in an entity
treated as a partnership for federal tax purposes that operates the
hospital facility if it has met certain conditions since March 23,
2010.
---------------------------------------------------------------------------
h. Authorized Body
The 2013 proposed regulations defined the term ``authorized body of
a hospital facility'' to include: (1) The governing body (that is, the
board of directors, board of trustees, or equivalent controlling body)
of the hospital organization; (2) a committee of, or other party
authorized by, the governing body of the hospital organization, to the
extent permitted under state law; or (3) in the case of a hospital
facility that has its own governing body and is recognized as an entity
under state law but is a disregarded entity for federal tax purposes,
the governing body of that hospital facility, or a committee of, or
other party authorized by, that governing body to the extent permitted
under state law.
In cases in which a hospital organization owns a capital or profits
interest in a partnership that operates a hospital facility, the
Treasury Department and the IRS believe the governing body of the
partnership should also be considered an authorized body of the
hospital facility, and the final regulations are amended to reflect
this change. In particular, the final regulations provide that an
authorized body of a hospital facility may include the governing body
of an entity that operates the hospital facility and is disregarded or
treated as a partnership for federal tax purposes (or a committee of,
or other party authorized by, that governing body to the extent such
committee or other party is permitted under state law to act on behalf
of the governing body), and thus either the governing body (or
committee or other authorized party) of the hospital organization or of
the disregarded entity or partnership may be considered the authorized
body of the hospital facility.
Some questions have arisen regarding whether adoption of a CHNA
report, implementation strategy, FAP, or other policy by one authorized
official of a hospital facility would constitute adoption by an
authorized body of the hospital facility for purposes of the regulatory
requirements. Under the regulatory definition of ``authorized body of a
hospital facility'' in both the 2013 proposed regulations and these
final regulations, a single individual may constitute either a
committee of the
[[Page 78960]]
governing body or a party authorized by the governing body to act on
its behalf, provided that state law allows a single individual to act
in either of these capacities.\5\
---------------------------------------------------------------------------
\5\ This interpretation of ``authorized body of a hospital
facility'' is consistent with the interpretation of the term
``authorized body'' under Treas. Reg. Sec. 53.4958-6(c)(1)(i). See
TD 8978 (67 FR 3076, 3082).
---------------------------------------------------------------------------
2. Failures To Satisfy the Requirements of Section 501(r)
The Treasury Department and the IRS recognize that errors may occur
even in circumstances in which a hospital facility has practices and
procedures in place that are reasonably designed to facilitate overall
compliance with section 501(r) and has implemented safeguards
reasonably calculated to prevent errors. Thus, the 2013 proposed
regulations provided that a hospital facility's omission of required
information from a policy or report described in Sec. 1.501(r)-3 or
Sec. 1.501(r)-4, or an error with respect to the implementation or
operational requirements described in Sec. Sec. 1.501(r)-3 through
1.501(r)-6, would not be considered a failure to meet a requirement of
section 501(r) if: (1) The omission or error was minor, inadvertent,
and due to reasonable cause, and (2) the hospital facility corrected
such omission or error as promptly after discovery as is reasonable
given the nature of the omission or error.
In addition, to provide an incentive for hospital facilities to
take steps not only to avoid errors but also to correct and provide
disclosure when they occur, the 2013 proposed regulations provided that
a hospital facility's failure to meet one or more of the requirements
described in Sec. Sec. 1.501(r)-3 through 1.501(r)-6 that is neither
willful nor egregious would be excused if the hospital facility
corrects and makes disclosure in accordance with guidance set forth by
revenue procedure, notice, or other guidance published in the Internal
Revenue Bulletin. On January 13, 2014, the Treasury Department and the
IRS published Notice 2014-3, which contained a proposed revenue
procedure setting forth procedures for correction and disclosure of
such failures and solicited public comments regarding the proposed
revenue procedure. The Treasury Department and the IRS intend to
release a revenue procedure finalizing the guidance proposed in Notice
2014-3 in the near future.
a. Minor Omissions and Errors
Several commenters supported the proposed approach to minor and
inadvertent omissions and errors that are due to reasonable cause,
agreeing that if they are promptly corrected upon discovery they should
not result in sanctions. Accordingly, the final regulations retain this
general approach, with some modifications.
One commenter suggested modifying the proposed rule so that it will
apply to omissions or errors that are minor, inadvertent, ``or'' due to
reasonable cause (rather than ``and''), stating that an omission or
error was unlikely to satisfy all three conditions. The same commenter
noted that ``reasonable cause'' may be interpreted differently in a
variety of circumstances, potentially making this safe harbor too
narrow. The Treasury Department and the IRS believe that the
insignificance of an omission or error should always be a necessary
condition for receiving the benefit of correcting under Sec. 1.501(r)-
2(b) without any obligation to disclose to the IRS or the public. Thus,
the final regulations require an omission or error to be minor in order
to be corrected and not considered a failure under Sec. 1.501(r)-2(b).
However, in response to this comment, the final regulations provide
that the option for correction without disclosure provided in Sec.
1.501(r)-2(b) will be available if the omission or error is minor and
either inadvertent or due to reasonable cause. As noted later in this
section of the preamble, the final regulations also clarify the meaning
of ``reasonable cause'' for purposes Sec. 1.501(r)-2(b).
Numerous commenters asked for further guidance and specific
examples with respect to the types of omissions and errors that would
be considered minor, inadvertent, and/or due to reasonable cause, as
opposed to those that are excused only if they are corrected and
disclosed, as discussed in section 2.b of this preamble. As more
experience is gained regarding the types of omissions or errors that
typically occur in implementing the section 501(r) requirements, the
Treasury Department and the IRS will consider issuing further guidance
in this area. In the meantime, the final regulations provide additional
guidance regarding the factors that will be considered in determining
whether an omission or error is minor and either inadvertent or due to
reasonable cause. With respect to minor, the final regulations clarify
that, in the case of multiple omissions or errors, the omissions or
errors are considered minor only if they are minor in the aggregate.
The final regulations further provide that the fact that the same
omission or error has occurred and been corrected previously is a
factor tending to show that an omission or error is not inadvertent.
Finally, with respect to reasonable cause, the final regulations
provide that a hospital facility's establishment of practices or
procedures (formal or informal) reasonably designed to promote and
facilitate overall compliance with the section 501(r) requirements
prior to the occurrence of an omission or error is a factor tending to
show that the omission or error was due to reasonable cause.
Commenters also asked for guidance and examples demonstrating how
minor omissions or errors should be remedied to avoid sanctions. The
final regulations specify that correction of minor omissions or errors
must include establishment (or review and, if necessary, revision) of
practices or procedures (formal or informal) that are reasonably
designed to achieve overall compliance with the requirements of section
501(r). As more experience is gained regarding the types of omissions
or errors that typically occur in implementing the section 501(r)
requirements, the Treasury Department and the IRS will consider issuing
further guidance on the correction of minor omissions or errors.
A few commenters asked that hospital facilities be required to
disclose the minor omissions or errors that they correct, either on a
Web site or on the Form 990, to increase transparency and encourage
continuous improvement. The Treasury Department and the IRS expect that
minor omissions or errors will not have a significant impact on
individuals in a hospital facility's community and, therefore, will be
sufficiently inconsequential that they do not justify the additional
burden of disclosure. Instead, as discussed in section 2.b of this
preamble, disclosure is a requirement reserved for those omissions and
errors that rise above the level of ``minor'' and have a broader scope
and greater impact on individuals within the hospital facility's
community, as well as those that are neither inadvertent nor due to
reasonable cause and thus involve a degree of culpability on the part
of the hospital facility.
b. Excusing Certain Failures If a Hospital Facility Corrects and Makes
Disclosure
The 2013 proposed regulations provided that a hospital facility's
failure to meet one or more of the requirements described in Sec. Sec.
1.501(r)-3 through 1.501(r)-6 that is neither willful nor egregious
would be excused if the
[[Page 78961]]
hospital facility corrects and provides disclosure in accordance with
guidance set forth by revenue procedure, notice, or other guidance
published in the Internal Revenue Bulletin. The 2013 proposed
regulations indicated that, for purposes of this provision, a
``willful'' failure would be interpreted consistent with the meaning of
that term in the context of civil penalties, which would include a
failure due to gross negligence, reckless disregard, or willful
neglect. Several commenters indicated that the reference to ``civil
penalties'' was unclear. In response, the final regulations delete the
reference to civil penalties, but continue to provide that a
``willful'' failure includes a failure due to gross negligence,
reckless disregard, and willful neglect--all terms with well-
established meanings in case law--to assist hospital facilities in
distinguishing between a failure that is willful and a failure that may
be excused if it is corrected and disclosed.
Similarly, several commenters asked for guidance on what would
qualify as ``egregious'' noncompliance, recommending that the term
should be reserved for actions that are of the utmost seriousness and
that would undermine the intent of section 501(r) as a whole. The
Treasury Department and the IRS agree with commenters that the term
``egregious'' should encompass only very serious failures, taking into
account the severity of the impact and the number of affected persons,
and the final regulations are amended to reflect this. As the Treasury
Department and the IRS gain additional experience with the types of
failures to meet section 501(r) that occur, examples of failures that
are or are not willful or egregious may be provided in future guidance.
A number of commenters suggested that the final regulations should
create a rebuttable presumption that a failure that is corrected and
disclosed is neither willful nor egregious. Commenters reasoned that
such a presumption would ensure that hospital facilities that correct
and disclose failures would get some benefit in return for their
efforts and reduce uncertainty regarding their section 501(c)(3)
status. The final regulations do not provide for such a presumption
because correction and disclosure of a failure are not determinative of
a hospital facility's willfulness or the egregiousness of the failure.
However, the Treasury Department and the IRS do believe that a hospital
facility that corrects and discloses a failure to meet a section 501(r)
requirement is less likely to have acted willfully in failing to meet
that requirement, and thus the final regulations provide that
correction and disclosure of a failure is a factor tending to show that
an error or omission was not willful.
A few commenters questioned whether a system of correction and
disclosure should be sufficient to prevent revocation of section
501(c)(3) status, with one commenter asking that proposed Sec.
1.501(r)-2(c) be struck in its entirety. The Treasury Department and
the IRS believe that the statute's objectives of promoting transparency
of hospital facilities' CHNAs and FAPs and of providing protections to
FAP-eligible patients with respect to charges and collections are well
served by a system that encourages hospitals to adopt practices that
prevent failures and promptly discover and correct any failures that
happen to occur. In addition, disclosure of failures and what has been
done to correct them provides significant transparency. Accordingly,
the final regulations retain Sec. 1.501(r)-2(c).
The 2013 proposed regulations stated that a hospital facility may,
in the discretion of the IRS, be subject to an excise tax under section
4959 for a failure to meet the CHNA requirements, notwithstanding the
hospital facility's correction and disclosure of the failure in
accordance with the relevant procedures. Several commenters expressed
confusion as to whether and how the tax under section 4959 would apply
in the event of a failure that was corrected and disclosed. Although
some commenters did not think the excise tax should apply upon
correction and disclosure, at least one commenter suggested that the
statute does not permit the excise tax to be excused.
To eliminate the uncertainty, the final regulations under section
4959 provide that a hospital facility failing to meet the CHNA
requirements ``will'' (rather than ``may, in the discretion of the
IRS'') be subject to an excise tax under section 4959, notwithstanding
its correction and disclosure of the failure. However, as discussed in
section 2.a of this preamble, a hospital facility's omission or error
with respect to the CHNA requirements will not be considered a failure
to meet the CHNA requirements if the omission or error is minor and
either inadvertent or due to reasonable cause and if the hospital
facility corrects the omission or error in accordance with Sec.
1.501(r)-2(b)(1)(ii) of the final regulations. Accordingly, the final
regulations under section 4959 also make clear that such a minor
omission or error related to the CHNA requirements that is corrected
will not give rise to an excise tax under section 4959.
c. Facts and Circumstances Considered in Determining Whether To Revoke
Section 501(c)(3) Status
Consistent with the 2013 proposed regulations, the final
regulations provide that the IRS will consider all relevant facts and
circumstances when determining whether revocation of section 501(c)(3)
status is warranted as a result of a failure to meet one or more
requirements of section 501(r).
Several commenters asked that the regulatory text of the final
regulations include the statement found in the preamble to the 2013
proposed regulations that application of these facts and circumstances
will ordinarily result in revocation of section 501(c)(3) status only
if the organization's failures to meet the requirements of section
501(r) are willful or egregious. On the other hand, one commenter
expressed concern that this statement signals that revocation could
result due to failures that are willful, but not serious or material.
The final regulations provide that all of the relevant facts and
circumstances will be considered in determining whether to revoke a
hospital organization's section 501(c)(3) status, including the size,
scope, nature, and significance of the organization's failure, as well
as the reason for the failure and whether the same type of failure has
previously occurred. The IRS will also consider whether the hospital
organization had, prior to the failure, established practices or
procedures (formal or informal) reasonably designed to promote and
facilitate overall compliance with the section 501(r) requirements;
whether such practices or procedures were being routinely followed; and
whether the failure was corrected promptly.
d. Taxation of Noncompliant Hospital Facilities
Like the 2013 proposed regulations, the final regulations provide
for a facility-level tax for a hospital organization operating more
than one hospital facility that fails to meet one or more of the
requirements of section 501(r) separately with respect to a hospital
facility during a taxable year. Specifically, this facility-level tax
applies to a hospital organization that continues to be recognized as
described in section 501(c)(3) but would not continue to be so
recognized based on the facts and circumstances described in section
2.c of this preamble if the noncompliant facility were the only
hospital facility operated by the organization. The facility-level tax
is applied to income derived from the
[[Page 78962]]
noncompliant hospital facility during the taxable year of non-
compliance and is computed as provided in section 11 (or as provided in
section 1(e) if the hospital organization is a trust described in
section 511(b)(2)).
The 2013 proposed regulations also stated that the application of
the facility-level tax to income derived from a noncompliant hospital
facility would not, by itself, affect the tax-exempt status of bonds
issued to finance the noncompliant hospital facility. Numerous
commenters requested that the final regulations further specify that a
noncompliant hospital facility subject to the facility-level tax will
not be treated as an unrelated trade or business for purposes of tax-
exempt bonds issued to finance the noncompliant facility. In response
to these comments, the final regulations clarify that application of
the facility-level tax will not, by itself, result in the operation of
the noncompliant hospital facility being considered an unrelated trade
or business described in section 513.
3. Community Health Needs Assessments
Consistent with section 501(r)(3)(A), the final regulations provide
that a hospital organization meets the requirements of section
501(r)(3) in any taxable year with respect to a hospital facility it
operates only if the hospital facility has conducted a CHNA in such
taxable year or in either of the two immediately preceding taxable
years and an authorized body of the hospital facility has adopted an
implementation strategy to meet the community health needs identified
through the CHNA.
a. Conducting a Community Health Needs Assessment
Consistent with the 2013 proposed regulations, the final
regulations provide that, in conducting a CHNA, a hospital facility
must define the community it serves and assess the health needs of that
community. In assessing the community's health needs, the hospital
facility must solicit and take into account input received from persons
who represent the broad interests of its community. The hospital
facility must also document the CHNA in a written report (CHNA report)
that is adopted for the hospital facility by an authorized body of the
hospital facility. Finally, the hospital facility must make the CHNA
report widely available to the public. A hospital facility is
considered to have conducted a CHNA on the date it has completed all of
these steps, including making the CHNA report widely available to the
public.
Several commenters suggested that a hospital facility should be
considered to have conducted a CHNA if it updates a previously
conducted CHNA, as opposed to being required to create an entirely new
CHNA every three years. The Treasury Department and the IRS expect
that, in conducting CHNAs, hospital facilities will build upon
previously-conducted CHNAs, and nothing in either the 2013 proposed
regulations or the final regulations is intended to prevent this
practice. Hospital facilities should note, however, that both the 2013
proposed regulations and these final regulations require the
solicitation and consideration of input from persons representing the
broad interests of the community anew with each CHNA, even if the CHNA
builds upon a previously conducted CHNA.
i. Community Served by the Hospital Facility
The 2013 proposed regulations provided that a hospital facility may
take into account all of the relevant facts and circumstances in
defining the community it serves, including the geographic area served
by the hospital facility, target populations served (for example,
children, women, or the aged), and principal functions (for example,
focus on a particular specialty area or targeted disease). The 2013
proposed regulations further provided that a hospital facility may
define its community to include populations in addition to its patient
populations and geographic areas outside of those in which its patient
populations reside. However, the 2013 proposed regulations did not
permit a hospital facility to define its community in a way that
excluded medically underserved, low-income, or minority populations who
are served by the hospital facility, live in the geographic areas in
which its patient populations reside (unless such populations are not
part of the hospital facility's target population or affected by its
principal functions), or otherwise should be included based on the
method used by the hospital facility to define its community.
A few commenters expressed concern that the sentence suggesting
that a hospital facility could define its community to include
populations in addition to its patient populations and geographic areas
outside of those in which its patient populations reside could create
confusion among both hospital organizations and the public, as it
implies that the community that is defined for CHNA purposes may not
actually be the community served by the hospital facility. To avoid
potential confusion, the final regulations delete this language.
However, the final regulations continue to give hospital facilities
broad flexibility to define the communities they serve or intend to
serve (both in addressing needs identified through their CHNAs and
otherwise) taking into account all relevant facts and circumstances,
provided that they do not exclude medically underserved, low-income, or
minority populations.
With respect to the provision in the 2013 proposed regulations that
a hospital facility may not define its community in a way that excludes
medically underserved, low-income, or minority populations, several
commenters asked that the final regulations prohibit exclusion of
additional populations, such as populations with limited English
proficiency (LEP) or potential patients within the community who are
not currently receiving care. With respect to potential patients not
currently receiving care, commenters noted that individuals may live
within a hospital facility's service community but not use the facility
for reasons that include cost, lack of transportation, lack of adequate
language access services, stigma, or other barriers.
The 2013 proposed regulations and these final regulations define
``medically underserved'' populations as including populations ``at
risk of not receiving adequate medical care as a result of being
uninsured or underinsured or due to geographic, language, financial, or
other barriers.'' The reference to language barriers in the definition
of medically underserved already encompasses LEP populations. In
addition, the definition of ``medically underserved'' already prevents
the exclusion of those living within a hospital facility's service area
but not receiving adequate medical care from the facility because of
cost, transportation difficulties, stigma, or other barriers. The final
regulations also provide that hospital facilities may not exclude low-
income or minority populations living ``in the geographic areas from
which the hospital facility draws its patients,'' and not only those
already receiving care from the facility. Accordingly, the Treasury
Department and the IRS believe the concerns addressed by these
commenters are addressed by the final regulations.
ii. Assessing Community Health Needs
The 2013 proposed regulations provided that, to assess the health
needs of its community, a hospital facility must identify the
significant health needs of its community, prioritize those health
needs, and identify potential
[[Page 78963]]
measures and resources (such as programs, organizations, and facilities
in the community) available to address the health needs. For these
purposes, the 2013 proposed regulations stated that health needs
include requisites for the improvement or maintenance of health status
both in the community at large and in particular parts of the community
(such as particular neighborhoods or populations experiencing health
disparities). The preamble added that requisites for the improvement or
maintenance of health status in a community may include improving
access to care by removing financial and other barriers to care, such
as a lack of information regarding sources of insurance designed to
benefit vulnerable populations. Numerous commenters asked for
clarification that the term ``health needs'' also encompasses needs in
addition to access to care, such as access to proper nutrition and
housing, the mitigation of social, environmental, and behavioral
factors that influence health, or emergency preparedness. In response
to these comments, the final regulations expand the examples of health
needs that a hospital facility may consider in its CHNA to include not
only the need to address financial and other barriers to care but also
the need to prevent illness, to ensure adequate nutrition, or to
address social, behavioral, and environmental factors that influence
health in the community. The Treasury Department and the IRS note that
the list of possible health needs in the final regulations is only a
list of examples, and a hospital facility is not required to identify
all such types of health needs in its CHNA report if all such types are
not determined by the hospital facility to be significant health needs
in its community.
The 2013 proposed regulations provided that a hospital facility may
use any criteria to prioritize the significant health needs it
identifies, including, but not limited to, the burden, scope, severity,
or urgency of the health need; the estimated feasibility and
effectiveness of possible interventions; the health disparities
associated with the need; or the importance the community places on
addressing the need. One commenter supported the flexibility provided
to hospital facilities in determining how to prioritize significant
health needs, while several other commenters expressed concern that the
language in the proposed rule that a hospital facility may use ``any''
criteria when prioritizing significant health needs could be read to
include criteria that disregard community preferences. Two commenters
recommended requiring hospital facilities to use the listed criteria,
with one such commenter noting that these are commonly-used criteria in
health planning and program evaluation.
Section 501(r)(3) does not mandate the use of particular
prioritization criteria. Accordingly, the list of prioritization
criteria in the final regulations remains a non-exhaustive list of
examples, and hospital facilities have flexibility to choose how best
to prioritize the significant health needs of their particular
communities. However, to ensure transparency with respect to a hospital
facility's prioritization, the final regulations, like the 2013
proposed regulations, require a hospital facility's CHNA report to
describe the process and criteria used in prioritizing the significant
health needs identified. In addition, the final regulations require a
hospital facility to take into account community input not only in
identifying significant health needs but also in prioritizing them.
A few commenters asked for clarification regarding the requirement
in the 2013 proposed regulations that hospital facilities identify
potential measures and resources (such as programs, organizations, and
facilities in the community) available to address significant health
needs. For example, one commenter asked whether the term ``measures''
referred to how the hospital facility would measure the scope of the
health need, rather than actions the hospital facility might take to
address the health need. Another commenter interpreted the proposed
requirement as referring to the potential measures and resources only
of parties in the community other than the hospital facility itself. To
eliminate any confusion associated with the use of the term
``measures,'' the final regulations eliminate the term and require a
hospital facility to identify resources potentially available to
address the significant health needs, with the term ``resources''
including programs, organizations, or facilities. In addition, the
final regulations clarify that resources of the hospital facility
itself may be identified.
Numerous commenters recommended removing the requirement that a
CHNA include potential measures and resources to address the
significant health needs identified, stating that the implementation
strategy was a better place to discuss the means to address health
needs. Other commenters supported this requirement, with one such
commenter stating that it is important to consider potential measures
and resources early in the CHNA process to provide a framework for
determining which health needs to address in the implementation
strategy. The Treasury Department and the IRS agree that a vital part
of assessing and prioritizing health needs is to begin considering what
resources in the community could potentially be harnessed to help
address those health needs and thus believe that hospital facilities
should get community input on this important aspect of assessing health
needs while the CHNA is being conducted. The opportunity for
contemporaneous community input on potentially available resources
would not exist if such resources were identified as part of the
implementation strategy because a hospital facility is not required to
take into account input on an implementation strategy until it is
conducting the subsequent CHNA. Accordingly, the final regulations
retain the requirement that a CHNA identify resources potentially
available to address significant health needs.
iii. Input From Persons Representing the Broad Interests of the
Community
The 2013 proposed regulations provided that, in assessing the
health needs of its community, a hospital facility must take into
account input received from, at a minimum, the following three sources:
(1) At least one state, local, tribal, or regional governmental public
health department (or equivalent department or agency) with knowledge,
information, or expertise relevant to the health needs of the
community; (2) members of medically underserved, low-income, and
minority populations in the community, or individuals or organizations
serving or representing the interests of such populations; and (3)
written comments received on the hospital facility's most recently
conducted CHNA and most recently adopted implementation strategy.
Several commenters asked that the final regulations address the
situation in which a hospital facility, despite its best efforts, is
unable to secure input on its CHNA from a required category of persons.
In response, the final regulations retain the three categories of
persons representing the broad interests of the community specified in
the 2013 proposed regulations but clarify that a hospital facility must
``solicit'' input from these categories and take into account the input
``received.'' The Treasury Department and the IRS expect, however, that
a hospital facility claiming that it solicited, but could not obtain,
input from one of the required categories of persons will be able to
document that it made reasonable
[[Page 78964]]
efforts to obtain such input, and the final regulations require the
CHNA report to describe any such efforts.
Numerous commenters requested that the final regulations provide
for public input on the identification and prioritization of
significant health needs, with a few of these commenters expressing a
particular interest in ensuring ample opportunity for community input
and feedback on which community health needs should be deemed
``significant.'' By requiring hospital facilities to take into account
public input ``in assessing the health needs of the community'' and
defining ``assessing the health needs of the community'' to include
identifying and prioritizing significant health needs, the 2013
proposed regulations already required public input on the
identification and prioritization of significant health needs. The
final regulations clarify that the requirement to take into account
input in assessing the health needs of the community includes taking
into account input in identifying and prioritizing significant health
needs, as well as identifying resources potentially available to
address those health needs.
Finally, the final regulations do not adopt a suggestion from
several commenters that a hospital facility be required to take into
account public input in defining its community because such a
requirement would be circular, as a hospital facility must define its
community before it can take into account input from persons who
represent the broad interests of that community.
A. Governmental Public Health Departments
Numerous commenters supported requiring hospital facilities to take
into account input from a governmental public health department (or
equivalent department or agency), noting that governmental health
departments typically have access to statistical and other data that
may be helpful in assessing and prioritizing community health needs
and, in many cases, conduct community health assessments of their own.
One commenter asked what is meant by ``or equivalent department or
agency'' and whether the term was intended to be an exception to the
requirement that hospital facilities collaborate with governmental
public health departments. The parenthetical reference to an
``equivalent department or agency'' in the 2013 proposed regulations
and the final regulations is not intended to be an exception. Rather,
it is included in recognition of the fact that governments may have
different names for the particular unit with jurisdiction over and
expertise in public health. For example, the particular unit of a
government with jurisdiction over and expertise in public health might
be called an ``agency,'' ``division,'' ``authority,'' ``bureau,''
``office,'' or ``center'' rather than a department and may or may not
have the term ``public health'' in its name. As long as a hospital
facility is soliciting and taking into account input received from the
unit of a local, state, tribal, or regional government with
jurisdiction over and expertise in public health, it will satisfy the
requirement to solicit and take into account input received from a
governmental public health department.
The 2013 proposed regulations provided flexibility in allowing a
hospital facility to choose the level of government that it concluded
was most appropriate for its CHNA, and did not require a hospital
facility to solicit input from a local public health department, in
particular, because not all jurisdictions will have local public health
departments available to participate in the CHNA process. Several
commenters asked that the final regulations require a hospital facility
to solicit input from a local public health department if one exists in
its community. Other commenters, however, expressly supported allowing
flexibility to choose the particular governmental health department
from which to seek input.
The Treasury Department and the IRS believe that public health
departments represent the broad interests of the jurisdictions they
serve and have special knowledge of and expertise in public health,
regardless of whether they are local, state, tribal, or regional
departments. Several commenters noted that local public health
departments may vary greatly in their capacity to participate in a CHNA
process. In addition, the community served by a hospital facility may
span the jurisdictions of multiple local public health departments.
Thus, even when a hospital facility's locality has a local public
health department, the hospital facility still might reasonably decide
that a public health department at a different jurisdictional level may
be a more appropriate source of input for its CHNA. Accordingly, the
final regulations preserve the flexible approach of the 2013 proposed
regulations and allow a hospital facility to select the jurisdictional
level (local, state, tribal or regional) of the public health
department that is most appropriate for its CHNA.
One commenter asked that the final regulations identify State
Offices of Rural Health (SORHs) as governmental public health entities
from which hospital facilities may seek input. This commenter stated
that SORHs operate on a statewide basis and routinely conduct rural
health planning efforts, including both health service access
assessments and population health status assessments. The Treasury
Department and the IRS note that the substantial majority of SORHs are
located in state health departments, such that rural hospital
facilities soliciting input from these state SORHs would presumably be
soliciting input from a state public health department. However,
because some SORHs are located in state universities or other
nonprofits or government departments other than public health
departments, the final regulations separately identify SORHs as a
source of input from which hospital facilities may solicit and take
into account input to satisfy the relevant requirement.
One commenter stated that hospital facilities are increasingly
employing or contracting with public health experts. This commenter
further stated that it would seem illogical for a hospital facility to
be considered to have failed to meet the CHNA requirements because it
relied on more specific, in-depth advice and input from a public health
expert without necessarily working with a public health agency with
strained available resources that is attempting to serve a larger
geographic area with a broader set of public health needs than those
the hospital facility might address. The Treasury Department and the
IRS note that public health expertise alone does not result in a
person's representing the broad interests of the community, while a
governmental public health department both offers public health
expertise and is responsible for ensuring that the broad interests of
the community are represented. Thus, while hospital facilities are free
to contract with public health experts to assist with their CHNAs, the
final regulations require a hospital facility to solicit and take into
account input received from a governmental public health department.
B. Medically Underserved, Low-Income, and Minority Populations
Several commenters asked that hospital facilities be required to
seek input from certain specified groups, such as the disabled,
individuals with chronic diseases, women and children, and LEP
populations, in addition to the requirement in the 2013 proposed
regulations to seek input from medically
[[Page 78965]]
underserved, low-income, and minority populations. As noted in section
3.a.i of this preamble, ``medically underserved'' populations are
defined in the 2013 proposed regulations and these final regulations as
populations ``at risk of not receiving adequate medical care as a
result of being uninsured or underinsured or due to geographic,
language, financial, or other barriers.'' The Treasury Department and
the IRS believe this definition (along with the inclusion of low-income
and minority populations) should be sufficiently broad to encompass
many of the populations cited by commenters to the extent such
populations are at risk of not receiving adequate medical care.
Moreover, even if a hospital facility does not solicit input from a
particular population while conducting its CHNA, any person can
participate in the CHNA process by submitting written comments on the
hospital facility's most recently conducted CHNA and most recently
adopted implementation strategy, as described in section 3.a.iii.C of
this preamble. Accordingly, the final regulations do not expand the
populations from whom a hospital facility is required to solicit input
beyond medically underserved, minority, and low-income populations.
One commenter asked that the final regulations define the broader
category of ``minority populations'' to include certain sub-categories
of persons, such as persons with disabilities and LEP individuals, and
require hospital facilities to consult a member or representative of
each such sub-category identified in their community served. Because
the sub-categories within the broad categories of minority and
medically underserved populations will likely vary greatly from
community to community, the final regulations continue to provide
hospital facilities with the flexibility to identify the significant
minority and medically underserved populations in their communities
with whom they should consult and do not mandate any specific approach.
C. Written Comments
While some comments in response to Notice 2011-52 recommended a
requirement that a hospital facility take into account public input on
a draft version of its CHNA report before finalizing the report, this
recommendation was not adopted in the 2013 proposed regulations due to
the complexity of the additional timeframes and procedures such a
process would require. Instead, the 2013 proposed regulations required
hospital facilities to consider written comments received from the
public on the hospital facility's most recently conducted CHNA and most
recently adopted implementation strategy. Because a new CHNA must be
conducted and an implementation strategy adopted at least once every
three years, the Treasury Department and the IRS intended for this
requirement to establish the same sort of continual feedback on CHNA
reports suggested by commenters, albeit over a different timeframe.
In response to the 2013 proposed regulations, some commenters
continued to advocate for requiring comments on a draft CHNA report
before it is finalized, stating that the burdens of such a rule would
be reasonable and commensurate with the benefits of giving interested
individuals additional opportunities to participate in the CHNA. These
commenters added that without a mandatory opportunity to comment on the
draft CHNA report, interested individuals and organizations may not be
aware that a hospital facility is conducting its CHNA until the CHNA is
complete, and that opening up the CHNA report for comment in ``real
time'' would yield findings more indicative of community priorities and
provide a better framework for collaboration. Other commenters,
however, supported the proposed requirement that hospital facilities
take into account input in the form of written comments received on the
hospital facility's most recently conducted CHNA and most recently
adopted implementation strategy, stating that such comments may provide
extremely valuable information to guide future assessments and
implementation strategies and that this is a practical way of taking
various perspectives into account.
The Treasury Department and the IRS continue to believe that the
opportunity for the public to submit written comments on previously
adopted CHNA reports and implementation strategies will result in a
meaningful exchange over time and that the longer timeframe will both
give the public sufficient time to provide comments (including comments
reflecting changing circumstances) and give hospital facilities
sufficient time to take the comments into account when conducting their
next CHNA. The Treasury Department and the IRS also note that hospital
facilities' CHNA processes will be taking into account input in ``real
time'' from various community stakeholders, including, at a minimum,
governmental public health departments and medically underserved, low-
income, and minority populations (or persons serving or representing
them). Accordingly, the final regulations retain the requirement that a
hospital facility take into account written comments on the hospital
facility's most recently conducted CHNA report and most recently
adopted implementation strategy and do not adopt an additional
requirement to post a draft CHNA report for public comment before it is
finalized. In addition, the Treasury Department and the IRS note that
hospital facilities may choose to post a draft CHNA report for public
comment, and both the 2013 proposed regulations and these final
regulations facilitate this option by specifying that the posting of a
draft CHNA report will not trigger the start of a hospital facility's
next three-year CHNA cycle.
A few commenters asked how the public is expected to comment on the
implementation strategy if the information is not made available
outside of the Form 990 reporting process. As discussed in section 8.a
of this preamble, a hospital organization must either attach to its
Form 990 a copy of the most recently adopted implementation strategy
for each hospital facility it operates or provide on the Form 990 the
URL(s) of the Web page(s) on which it has made each implementation
strategy widely available on a Web site. Section 6104 requires Forms
990 to be made available to the public by both the filing organization
and the IRS, and members of the public may obtain a copy of a hospital
organization's Forms 990 from one of the privately-funded organizations
that gathers and disseminates Forms 990 online or by completing IRS
Form 4506-A, ``Request for Public Inspection or Copy of Exempt or
Political Organization IRS Form.''
One commenter requested clarification on how hospital facilities
should be collecting written comments from the public, asking, for
example, if written comments must be collected via a form on a Web site
or by email or mailed letter. The final regulations do not require a
specific method for collection of these written comments, providing
hospital facilities with the flexibility to set up a collection and
tracking system that works with their internal systems and makes the
most sense for their particular community.
A few commenters asked that the final regulations clarify how
hospital facilities should respond to written comments received from
the public. One commenter proposed that a hospital facility designate a
representative or division responsible for providing substantive
responses to written comments to demonstrate that the hospital facility
has received the
[[Page 78966]]
comment and to ensure that the public will be able to provide continual
feedback during the interim period between formal CHNAs. In contrast,
another commenter stated that requiring hospitals to individually
address each community concern through feedback could become
burdensome. As discussed in section 3.a.iv of this preamble, the final
regulations require hospital facilities to describe generally any input
received in the form of written comments (or from any other source) in
their CHNA reports. The Treasury Department and the IRS expect that
this description in the CHNA report will provide sufficient
confirmation that comments have been received and considered and intend
that hospital facilities will otherwise have flexibility in determining
whether further responses are necessary. Thus, the final regulations do
not adopt any specific requirements regarding how hospital facilities
must respond to written comments received from the public.
Finally, one commenter sought confirmation that the requirement to
take into account written comments on the hospital facility's ``most
recently conducted CHNA'' means that hospital facilities must take into
account public comments submitted after the CHNA or implementation
strategy is finalized to inform and influence future CHNAs and
implementation strategies. This is an accurate description of this
provision in both the 2013 proposed regulations and these final
regulations. The Treasury Department and the IRS intend that the phrase
``most recently conducted CHNA'' refers not to a CHNA that is in
process but rather to the last CHNA that was ``conducted,'' typically
determined as of the date the hospital facility makes an adopted and
complete CHNA report widely available to the public.
D. Additional Sources of Input
The 2013 proposed regulations provided that, in addition to
soliciting input from the three required sources, a hospital facility
may take into account input from a broad range of persons located in or
serving its community, including, but not limited to, health care
consumers and consumer advocates, nonprofit and community-based
organizations, academic experts, local government officials, local
school districts, health care providers and community health centers,
health insurance and managed care organizations, private businesses,
and labor and workforce representatives.
Numerous commenters requested that the final regulations require,
rather than simply permit, hospital facilities to solicit input from
additional sources, including from patient and health care consumer
organizations located in or serving the hospital facility's community,
county governing boards, experts in nutrition or the local food system,
and housing service providers. While these sources may have valuable
input to contribute to a hospital facility's CHNA, mandating input from
some or all of these sources could result in a final rule that is
unsuited for particular communities and further complicate the CHNA
process and the ability to collaborate. Accordingly, the final
regulations do not require hospitals to solicit input from additional
persons, although a hospital facility is free to solicit input from the
suggested sources (as well as other sources) and must take into account
input received from any person (including these sources) in the form of
written comments on the most recently conducted CHNA or most recently
adopted implementation strategy.
E. Input on Financial and Other Barriers
The 2012 proposed regulations requested comments on the potential
link between the needs of a hospital facility's community, as
determined through the hospital facility's most recently conducted
CHNA, and a hospital facility's FAP. The preamble to the 2013 proposed
regulations recognized that the need to improve access to care by
removing financial barriers can be among the significant health needs
assessed in a CHNA, and the 2013 proposed regulations themselves
provided that input from persons representing the broad interests of
the community includes, but is not limited to, input on any financial
and other barriers to access to care in the community.
Several commenters stated that the CHNA process offers an
opportunity to inquire about financial and other barriers to care,
which could provide useful information to a hospital facility in
updating and evaluating its FAP. However, other commenters noted that
section 501(r) does not require a link between a hospital facility's
CHNA and its FAP. These commenters further stated that because CHNAs
are already required to take into account input from persons who
represent the broad interests of the community and the decision of how
to meet those needs is the responsibility of the hospital's governing
board, a linkage should be allowed at the discretion of the hospital
facility but not required.
In acknowledgement of the importance of assessing financial
barriers to care in the CHNA process, the final regulations expressly
provide that the health needs of a community may include the need to
address financial and other barriers to access to care in the
community. However, consistent with the approach taken in Notice 2011-
52 and the 2013 proposed regulations, the final regulations focus on
ensuring transparency regarding the health needs identified through a
CHNA rather than requiring hospital facilities to identify any
particular categories of health needs. As with all significant health
needs identified through a CHNA, a hospital facility's decision as to
whether and how to address a significant health need involving
financial barriers to care (including through an amendment to a
hospital facility's FAP) will be disclosed publicly in the hospital
facility's implementation strategy and subject to public comments in
preparing the next CHNA. Thus, the final regulations do not require any
additional link between a hospital facility's CHNA and its FAP.
iv. Documentation of a CHNA
Similar to the 2013 proposed regulations, the final regulations
provide that a hospital facility must document its CHNA in a CHNA
report that is adopted by an authorized body of the hospital facility
and includes: (1) A definition of the community served by the hospital
facility and a description of how the community was determined; (2) a
description of the process and methods used to conduct the CHNA; (3) a
description of how the hospital facility solicited and took into
account input received from persons who represent the broad interests
of the community it serves; (4) a prioritized description of the
significant health needs of the community identified through the CHNA,
along with a description of the process and criteria used in
identifying certain health needs as significant and prioritizing those
significant health needs; and (5) a description of resources
potentially available to address the significant health needs
identified through the CHNA.
Both the 2013 proposed regulations and these final regulations
provide that a CHNA report will be considered to describe the process
and methods used to conduct the CHNA if the CHNA report describes the
data and other information used in the assessment, as well as the
methods of collecting and analyzing this data and information, and
identifies any parties with whom the hospital facility collaborated, or
with whom it contracted for assistance, in conducting the CHNA. Some
commenters requested that this provision be modified to permit the
referencing of publicly available source
[[Page 78967]]
materials (for example, public health agency data) on which the
hospital facility relied in conducting its CHNA. The final regulations
clarify that a hospital facility may rely on (and the CHNA report may
describe) data collected or created by others in conducting its CHNA
and, in such cases, may simply cite the data sources rather than
describe the ``methods of collecting'' the data.
A few commenters requested clarification on how a hospital
facility's CHNA report should describe input received in the form of
written comments, with one such commenter asking if a general summary
of the input provided, the number of comments received, and the time
period during which the comments were received will be sufficient. The
final regulations retain the provisions of the 2013 proposed
regulations, which stated that a CHNA report will be considered to
describe how the hospital facility took into account community input if
it summarizes, in general terms, the input provided and how and over
what time period it was provided. This language applies to written
comments, as well as to any other type of input provided. In addition,
like the 2013 proposed regulations, the final regulations provide that
a CHNA report does not need to name or otherwise identify any specific
individual providing input on the CHNA, which would include input
provided by individuals in the form of written comments.
v. Collaboration on CHNA Reports
The 2013 proposed regulations provided that a hospital organization
may choose to conduct its CHNA in collaboration with other
organizations and facilities, including related and unrelated hospital
organizations and facilities, for-profit and government hospitals,
governmental departments, and nonprofit organizations. In general,
every hospital facility must document its CHNA in a separate CHNA
report. However, the 2013 proposed regulations made clear that portions
of a hospital facility's CHNA report may be substantively identical to
portions of the CHNA reports of other facilities or organizations, if
appropriate under the facts and circumstances. The 2013 proposed
regulations further provided that collaborating hospital facilities
that define their community to be the same and that conduct a joint
CHNA process may produce a joint CHNA report. The final regulations
amend the proposed regulations to clarify that joint CHNA reports must
contain all of the same basic information that separate CHNA reports
must contain (discussed in section 3.a.iv of this preamble).
Numerous commenters expressed support for allowing joint CHNA
reports, noting that the purpose of collaboration is to make the most
efficient use of resources in assessing community needs and devising
strategies to address those needs and that communities would benefit
from strengthened collaborative partnerships that help build broad-
based support for community-wide solutions to the underlying causes of
health problems. In addition, several of these commenters stated that
joint CHNA reports would more effectively leverage the health data
expertise of governmental public health departments without placing an
unreasonable burden on departments that serve jurisdictions with more
than one tax-exempt hospital facility. Another commenter stated that
joint CHNA reports both enhance overall community health and lessen
confusion in the community by providing a more comprehensive view of
the identified needs and associated strategies for addressing those
needs. For these reasons, the final regulations continue to permit
collaborating hospital facilities to produce joint CHNA reports.
Several commenters recommended that the final regulations go beyond
simply permitting collaboration to expressly encouraging, or even
requiring, hospital facilities located in the same jurisdiction to
collaborate in conducting a CHNA and developing an implementation
strategy. One of these commenters stated that this would help ensure
that the community is not overburdened by multiple CHNA efforts, noting
that a ``go it alone'' approach in a jurisdiction with multiple
hospitals is likely to be neither the most efficient nor the most
effective way to improve the overall health of the community. Another
commenter, however, stated that the discretion to work collaboratively
with others should be left to each particular hospital facility, given
the many health care providers operating in a typical community.
Like the 2013 proposed regulations, the final regulations encourage
and facilitate collaboration among hospital facilities by allowing for
joint CHNA reports. However, section 501(r) applies separately to each
hospital organization (and, in the case of hospital organizations
operating more than one hospital facility, each hospital facility) and,
therefore, it is not appropriate to require hospital organizations to
meet the section 501(r)(3) requirements collaboratively with other
organizations. Accordingly, the final regulations facilitate, but do
not require, collaboration.
Two commenters asked whether the requirement that collaborating
hospital facilities must ``conduct a joint CHNA process'' to adopt a
joint CHNA report means that the collaborating hospital facilities must
make the joint CHNA report widely available to the public (including
posting the CHNA report on a Web site) on the same day. The Treasury
Department and the IRS do not intend for collaborating hospital
facilities to have to make a joint CHNA report widely available to the
public on the same day. Thus, in response to these comments and to
avoid potential confusion, the final regulations remove the reference
to a joint CHNA process.
A. Defining a Common Community
Several commenters expressed concern regarding the requirement that
hospital facilities that collaborate on a CHNA and intend to produce a
joint CHNA report must define their communities to be the same. Two of
these commenters requested that a hospital facility collaborating on a
CHNA being conducted for a larger shared community also be able to
identify and address needs that are highly localized in nature or
occurring within only a small portion of that community. The 2013
proposed regulations and these final regulations define ``health
needs'' to include requisites for the improvement or maintenance of
health status in particular parts of the community, such as particular
neighborhoods or populations experiencing health disparities.
Accordingly, a joint CHNA conducted for a larger area could identify as
a significant health need a need that is highly localized in nature or
occurs within only a small portion of that larger area. In addition,
nothing in the final regulations prevents a hospital facility
collaborating on a CHNA from supplementing a joint CHNA report with its
own assessment of more highly localized needs. Because the 2013
proposed regulations already allowed collaborating hospital facilities
to address highly localized needs experienced in a particular part of
their shared community, the final regulations do not amend the proposed
regulations in response to these comments.
One commenter requested that collaborating hospital facilities that
serve different communities be allowed to adopt a joint CHNA report,
stating that requiring all hospital facilities participating in a joint
CHNA report to define their community to be the same would appear to
prohibit collaboration between general and specialized
[[Page 78968]]
hospital facilities in the same geographic area if the specialized
hospital facilities define their communities in terms of service area
or principal function and the general hospital facilities define their
communities geographically.
The 2013 proposed regulations and these final regulations permit
hospital facilities with different but overlapping communities to
collaborate in conducting a CHNA and to include substantively identical
portions in their separate CHNA reports if appropriate under the facts
and circumstances. The final regulations elaborate upon this point with
an example of two hospital facilities with overlapping, but not
identical, communities that are collaborating in conducting a CHNA and
state that, in such a case, the portions of each hospital facility's
CHNA report relevant to the shared areas of their communities may be
identical. Thus, the final regulations not only expressly permit
hospital facilities with different communities (including general and
specialized hospitals) to collaborate but also allow such hospital
facilities to adopt substantively identical CHNA reports to the extent
appropriate.
A few commenters recommended that the final regulations make clear
that, to the extent that the communities served by collaborating
hospital facilities differ, a CHNA report must reflect the unique needs
of the community of the particular hospital facility adopting the
report. By stating that collaborating hospital facilities with
different but overlapping communities may include substantively
identical portions in their separate CHNA reports only ``if appropriate
under the facts and circumstances,'' the 2013 proposed regulations and
these final regulations convey that the CHNA reports of collaborating
hospital facilities should differ to reflect any material differences
in the communities served by those hospital facilities.
B. Collaborating With Public Health Departments
Two commenters requested that hospital facilities be permitted to
adopt the CHNA of a local public health department in the event that:
(1) The hospital facility has the same community as the local public
health department (as defined by the hospital facility), and (2) the
CHNA adopted by the local public health department meets the
requirements set forth in these regulations. The final regulations
clarify that if a governmental public health department has conducted a
CHNA for all or part of a hospital facility's community, portions of
the hospital facility's CHNA report may be substantively identical to
those portions of the health department's CHNA report that address the
hospital facility's community. The final regulations also clarify that
a hospital facility that collaborates with a governmental public health
department in conducting its CHNA may adopt a joint CHNA report
produced by the hospital facility and public health department, as long
as the other requirements applicable to joint CHNA reports are met.
vi. Making the CHNA Report Widely Available to the Public
The 2013 proposed regulations provided that a hospital facility
must make its CHNA report widely available to the public both by making
the CHNA report widely available on a Web site and by making a paper
copy of the CHNA report available for public inspection without charge
at the hospital facility. The 2013 proposed regulations further
provided that the CHNA report must be made widely available to the
public in this manner until the date the hospital facility has made
widely available to the public its two subsequent CHNA reports.
A few commenters recommended that the final regulations require the
CHNA report to be translated into multiple languages. Commenters also
recommended that the hospital facility be required to make paper copies
of the CHNA report available in locations other than the hospital
facility that may be more accessible to the community at large and
proactively inform the community when the report is available.
The Treasury Department and the IRS note that section 501(r)(3)
requires the CHNA to be made ``widely available'' to the public, in
contrast to the requirement in section 501(r)(4) regarding measures to
``widely publicize'' the FAP. The Treasury Department and the IRS have
interpreted the term ``widely publicize'' to require proactive efforts
to inform, and make a document available in, the community at large,
but have not so interpreted the term ``widely available.'' The Treasury
Department and the IRS interpret ``widely available'' in a manner
consistent with how that term is defined for purposes of section 6104
(relating to disclosure of annual information returns). See Sec.
301.6104(d)-2(b) (interpreting the term ``widely available'' in section
6104(d)(4) to include the posting of information returns and exemption
applications on a Web page). Accordingly, the final regulations retain
the definition of ``widely available'' set forth in the proposed
regulations and decline to adopt a definition that would include the
suggested measures to translate and proactively publicize the CHNA
report within the community served by the hospital facility.
Additional commenters requested that hospital facilities be
required to post their CHNA reports (and implementation strategies) on
a national, searchable Web site. Given that hospital facilities are
already required to conspicuously post their CHNA reports on a Web
site, any individual interested in a particular hospital facility's
CHNA report should be able to locate it. The Treasury Department and
the IRS do not have, and cannot require a third party to host, a
comprehensive Web site containing all hospital facilities' CHNA
reports. Accordingly, the final regulations do not adopt this
additional suggested requirement.
One commenter asked that the final regulations clarify how a
hospital facility is required to make a paper copy of its CHNA report
available for public inspection and, specifically, whether a paper copy
of the CHNA report must be publicly displayed or, rather, may be made
available only upon request. The final regulations clarify that a
hospital facility need only make a paper copy of the CHNA report
available for public inspection upon request.
vii. Frequency of the CHNA Cycle
The 2013 proposed regulations provided that, to satisfy the CHNA
requirements for a particular taxable year, a hospital facility must
conduct a CHNA in that taxable year or in either of the two taxable
years immediately preceding such taxable year. A few commenters
requested that the final regulations provide flexibility in the
timeline to limit impediments to collaboration amongst hospital
facilities with different taxable years. Commenters also requested that
the CHNA cycle match the five-year cycle that local public health
departments follow in conducting their community health assessments for
national accreditation by the Public Health Accreditation Board. One
such commenter stated that adopting this five-year timeline would avoid
duplication of effort and incentivize hospital facilities to
collaborate more fully with local public health departments. Because
section 501(r)(3)(A)(i) requires a hospital organization to conduct a
CHNA in the current or one of the two prior taxable years, the final
regulations do not adopt these suggestions.
[[Page 78969]]
b. Implementation Strategies
The final regulations provide, consistent with the 2013 proposed
regulations, that a hospital facility's implementation strategy is a
written plan that, with respect to each significant health need
identified through the CHNA, either: (1) Describes how the hospital
facility plans to address the health need, or (2) identifies the health
need as one the hospital facility does not intend to address and
explains why the hospital facility does not intend to address the
health need.
The preamble to the 2013 proposed regulations further provided that
although an implementation strategy must consider the significant
health needs identified through a hospital facility's CHNA, the
implementation strategy is not limited to considering only those health
needs and may describe activities to address health needs that the
hospital facility identifies in other ways. Several commenters
supported this proposed flexibility to discuss health needs identified
in ways other than through conducting a CHNA, with two such commenters
requesting that this language appear in the regulatory text of the
final regulations. Another commenter, however, stated that CHNA reports
and implementation strategies should be tightly integrated and
expressed concern that allowing or encouraging hospital facilities to
introduce in the implementation strategy additional needs beyond those
identified in the CHNA may undermine the role of community input.
In general, the final regulations under section 501(r) provide
detail only with respect to the minimum elements that must be included
in the various documents and policies required under sections 501(r)(3)
and 501(r)(4), preserving flexibility for hospital facilities to
otherwise determine the contents of such documents and policies.
Consistent with this approach, the final regulations do not prohibit
implementation strategies from discussing health needs identified
through means other than a CHNA, provided that all of the significant
health needs identified in the CHNA are also discussed.
Many commenters recommended that the statutory requirements that a
CHNA ``take into account input from persons who represent the broad
interests of the community'' and ``be made widely available to the
public'' should also apply to implementation strategies to allow
communities to monitor, assist, and provide input on hospital
facilities' efforts to address health needs. With respect to making the
implementation strategy more accessible to the public, commenters also
asked that the final regulations clarify how the public may access an
implementation strategy that is attached to the Form 990.
Section 501(r)(3)(B) applies the requirements regarding community
input and wide availability to the public only to CHNAs. In addition,
only section 501(r)(3)(A)(i), which refers to CHNAs, and not section
501(r)(3)(A)(ii), which refers to implementation strategies, cross-
references the requirements regarding community input and wide
availability to the public contained in section 501(r)(3)(B).
Accordingly, the final regulations do not adopt the suggested changes.
However, the 2013 proposed regulations and these final regulations
respond to commenters' requests to require public input on the
implementation strategy by requiring a hospital facility to take into
account comments received on the previously adopted implementation
strategy when the hospital facility is conducting the subsequent CHNA.
Furthermore, as discussed in section 8.a of this preamble, the 2013
proposed regulations and these final regulations respond to commenters'
requests to require the implementation strategy to be made widely
available to the public by requiring a hospital organization to attach
to its Form 990 a copy of the most recently adopted implementation
strategy for each hospital facility it operates (or provide on the Form
990 the URL(s) of the Web page(s) on which it has made each
implementation strategy widely available on a Web site). As noted in
section 3.a.iii.C of this preamble, section 6104 requires Forms 990 to
be made available to the public by both the filing organization and the
IRS, and members of the public may easily obtain a copy of a hospital
organization's Forms 990 from one of the privately-funded organizations
that gathers and disseminates Forms 990 online or by completing IRS
Form 4506-A.
i. Describing How a Hospital Facility Plans To Address a Significant
Health Need
In describing how a hospital facility plans to address a
significant health need identified through the CHNA, the 2013 proposed
regulations provided that the implementation strategy must: (1)
Describe the actions the hospital facility intends to take to address
the health need, the anticipated impact of these actions, and the plan
to evaluate such impact; (2) identify the programs and resources the
hospital facility plans to commit to address the health need; and (3)
describe any planned collaboration between the hospital facility and
other facilities or organizations in addressing the health need.
Many commenters supported the proposed requirement that a hospital
facility include a plan to evaluate the impact of its efforts in its
implementation strategy and further recommended that the final
regulations require hospital facilities to actually perform the planned
evaluation and publish the results of the evaluation. Some of these
commenters recommended publication of the results in the subsequent
CHNA report. Other commenters requested permission for hospital
facilities to accomplish the ``plan to evaluate the impact'' of the
implementation strategy through the process of conducting the next
CHNA. In response to these comments, the final regulations replace the
proposed requirement that the implementation strategy describe a plan
to evaluate its impact with a requirement that the CHNA report include
an evaluation of the impact of any actions that were taken since the
hospital facility finished conducting its immediately preceding CHNA to
address the significant health needs identified in the hospital
facility's prior CHNA(s).
The preamble to the 2013 proposed regulations provided the example
that if a hospital facility's CHNA identified high rates of financial
need or large numbers of uninsured individuals and families in the
community as a significant health need in its community, its
implementation strategy could describe a program to address that need
by expanding its financial assistance program and helping to enroll
uninsured individuals in sources of insurance such as Medicare,
Medicaid, Children's Health Insurance Program (CHIP), and the new
Health Insurance Marketplaces (also known as Exchanges), as
appropriate. A few commenters stated that, in addition to examples
involving access to health care, it would be helpful to have examples
of other interventions designed to prevent illness or to address
social, behavioral, and environmental factors that influence community
health. An implementation strategy may describe the actions the
hospital facility intends to take to address any significant health
needs identified through the CHNA process, and, as noted in section
3.a.ii of this preamble, the final regulations specify that the health
needs identified through a CHNA may, for example, include the need to
prevent illness, to ensure adequate nutrition, or to address social,
behavioral, and environmental factors that influence health in the
community.
[[Page 78970]]
Thus, the final regulations make clear that an implementation strategy
may describe interventions designed to prevent illness or to address
social, behavioral, and environmental factors that influence community
health.
ii. Describing Why a Hospital Facility Is Not Addressing a Significant
Health Need
The 2013 proposed regulations provided that a hospital facility may
provide a brief explanation of its reason for not addressing a
significant health need, including, but not limited to, resource
constraints, relative lack of expertise or competencies to effectively
address the need, a relatively low priority assigned to the need, a
lack of identified effective interventions to address the need, and/or
the fact that the need is being addressed by other facilities or
organizations in the community. Several commenters thought hospital
facilities should not be able to cite ``resource constraints'' or
``lack of expertise'' as reasons for not addressing a significant
health need. These commenters state that a hospital facility that is
unable, for reasons of lack of resources or expertise or other factors,
to address a community health need should instead collaborate with
community partners to address that need. Other commenters supported
allowing hospital facilities to provide any explanation as to why some
health needs will not be addressed, consistent with the proposed rule.
As discussed in section 3.a.v of this preamble, the final
regulations permit but do not require collaboration. Thus, the final
regulations preserve the ability for a hospital facility to explain its
reasons for not addressing a significant health need (including
resource constraints or a lack of expertise), even if those reasons
could be mitigated through collaboration.
iii. Joint Implementation Strategies
The 2013 proposed regulations provided that a hospital facility
adopting a joint CHNA report along with other hospital facilities and
organizations (as described in section 3.a.v of this preamble) may also
adopt a joint implementation strategy as long as it meets certain
specified requirements.
Numerous commenters generally supported joint implementation
strategies, with some of these commenters stating that such
collaboration is an important way to conserve resources, promote cross-
system strategies, and yield better outcomes. Commenters also noted
that the proposed approach avoids the need to create duplicative
separate documents while still ensuring that information for each
hospital facility is clearly presented. Accordingly, the final
regulations adopt the proposed provision allowing for joint
implementation strategies.
iv. When the Implementation Strategy Must Be Adopted
To satisfy the CHNA requirements with respect to any taxable year,
section 501(r)(3)(A)(ii) requires a hospital facility to adopt an
implementation strategy to meet the health needs identified through the
CHNA described in section 501(r)(3)(A)(i). The 2013 proposed
regulations provided that, to satisfy this requirement, an authorized
body of the hospital facility must adopt an implementation strategy to
meet the health needs identified through a hospital facility's CHNA by
the end of the same taxable year in which the hospital facility
finishes conducting the CHNA. In addition, the Treasury Department and
the IRS sought comments on whether this rule would materially inhibit
the ability of hospital facilities with different taxable years to
collaborate with each other or otherwise burden hospital facilities
unnecessarily.
Some commenters requested additional time in which to adopt the
implementation strategy to accommodate collaboration between hospital
facilities, public health departments, and community organizations with
different fiscal years and on different CHNA schedules. Suggestions
from these commenters ranged from an additional four and a half months
to 12 months after the end of the taxable year in which the CHNA was
conducted.
In response to these comments, the final regulations provide
hospital facilities with an additional four and a half months to adopt
the implementation strategy, specifically requiring an authorized body
of the hospital facility to adopt an implementation strategy to meet
the health needs identified through a CHNA on or before the 15th day of
the fifth month after the end of the taxable year in which the hospital
facility finishes conducting the CHNA. By matching the date by which an
authorized body of the hospital facility must adopt the implementation
strategy to the due date (without extensions) of the Form 990 filed for
the taxable year in which the CHNA is conducted, this approach does not
materially reduce transparency, because an implementation strategy (or
the URL of the Web site on which it is posted) is made available to the
public through the Form 990. The final regulations do not go further
and permit a hospital facility to delay adoption of an implementation
strategy until the due date for the Form 990 including extensions. This
is because hospital facilities need to report on Form 4720 any excise
tax they owe under section 4959 as a result of failing to meet the CHNA
requirements in a taxable year by the 15th day of the fifth month
following the end of that taxable year and thus need to know whether
they have met the requirement to adopt an implementation strategy by
that date.
Because all hospital organizations now have until the 15th day of
the fifth month following the close of the taxable year in which they
conduct a CHNA to adopt the associated implementation strategy, the
final regulations remove the transition rule that allowed for this
result for CHNAs conducted in a hospital facility's first taxable year
beginning after March 23, 2012.
c. Exception for Hospital Facilities That Are New, Newly Acquired, or
Newly Subject to Section 501(r)
The 2013 proposed regulations provided that a hospital facility
that was newly acquired or placed into service by a hospital
organization, or that became newly subject to section 501(r) because
the hospital organization that operated it was newly recognized as
described in section 501(c)(3), must meet the CHNA requirements by the
last day of the second taxable year beginning after the date,
respectively, the hospital facility was acquired, placed into service,
or newly subject to section 501(r).
Several commenters interpreted the 2013 proposed regulations as
providing new and newly acquired hospital facilities with only two
taxable years to meet the CHNA requirements. Two such commenters
requested that these hospital facilities be given three taxable years,
to correspond to the length of the CHNA cycle provided in the statute.
The 2013 proposed regulations gave hospital facilities two complete
taxable years plus the portion of the taxable year of acquisition,
licensure, or section 501(c)(3) recognition (as applicable) to meet the
CHNA requirements. As noted in the preamble to the 2013 proposed
regulations, a short taxable year of less than twelve months is
considered a taxable year for purposes of section 501(r). Thus, the
portion of the taxable year in which a hospital facility is acquired or
placed into service, or becomes newly subject to section 501(r), is a
taxable year for purposes of the CHNA requirements, regardless of
whether that taxable year is less than twelve months. As a result, a
deadline of the last day of the second taxable year
[[Page 78971]]
beginning after the date of acquisition, licensure, or section
501(c)(3) recognition provides these new hospital facilities with three
taxable years (even if less than three full calendar years) to meet the
section 501(r)(3) requirements. By contrast, a deadline of the last day
of the third taxable year beginning after the date of acquisition,
licensure, or section 501(c)(3) recognition would provide these new
hospital facilities with more than three taxable years, and possibly
close to four taxable years, to meet the CHNA requirements.
Accordingly, the final regulations continue to require hospital
facilities that are newly acquired or placed into service (or become
newly subject to section 501(r)) to meet the CHNA requirements by the
last day of the second taxable year beginning after the later of the
date of acquisition, licensure, or recognition of section 501(c)(3)
status.
i. Acquired Hospital Facilities
The 2013 proposed regulations provided that a hospital facility
that was newly acquired must meet the CHNA requirements by the last day
of the second taxable year beginning after the date the hospital
facility was acquired. Several commenters asked for guidance on whether
and how this rule for acquisitions applies in the case of a merger of
two hospital organizations.
The final regulations provide that, in the case of a merger that
results in the liquidation of one organization and survival of another,
the hospital facilities formerly operated by the liquidated
organization will be considered ``acquired,'' meaning they will have
until the last day of the second taxable year beginning after the date
of the merger to meet the CHNA requirements. Thus, the final
regulations treat mergers equivalently to acquisitions.
ii. New Hospital Organizations
One commenter asked whether a new hospital organization must meet
the CHNA requirements by the last day of the second taxable year
beginning after the date of licensure or section 501(c)(3) recognition
if the organization seeks and obtains recognition of section 501(c)(3)
status based on its planned activities before the hospital facility it
plans to operate is licensed and placed into service. A facility is not
considered a ``hospital facility'' until it is licensed, registered, or
similarly recognized as a hospital by a state, and an organization
operating a hospital facility is not subject to section 501(r) until it
is recognized as described in section 501(c)(3). Thus, the Treasury
Department and the IRS intend that a new hospital organization must
meet the CHNA requirements by the last day of the second taxable year
beginning after the later of the effective date of the determination
letter or ruling recognizing the organization as described in section
501(c)(3) or the first date a facility operated by the organization was
licensed, registered, or similarly recognized by its state as a
hospital. The final regulations are amended to make this clarification.
iii. Transferred or Terminated Hospital Facilities
One commenter recommended that a hospital organization should not
be required to meet the CHNA requirements in a particular taxable year
with respect to a hospital facility if, before the end of that taxable
year, the hospital organization transfers the hospital facility to an
unaffiliated organization or otherwise terminates its operation of that
hospital facility. This commenter reasoned that requiring a hospital
organization to invest time and energy in conducting a CHNA and
developing an implementation strategy for a hospital facility will
create inefficiencies if the organization is transferring or
terminating its operation of the hospital facility, as the new hospital
organization may have different perceptions of the community's needs
and the optimal channels for addressing those needs. In response to
this comment, the final regulations provide that a hospital
organization is not required to meet the requirements of section
501(r)(3) with respect to a hospital facility in a taxable year if the
hospital organization transfers all ownership of the hospital facility
to another organization or otherwise ceases its operation of the
hospital facility before the end of the taxable year. The same rule
applies if the facility ceases to be licensed, registered, or similarly
recognized as a hospital by a state during the taxable year.
Another commenter asked whether a government hospital organization
that voluntarily terminates its section 501(c)(3) status must meet the
CHNA requirements in the taxable year of termination to avoid an excise
tax under section 4959. As noted in section 1.d of this preamble,
government hospital organizations that have previously been recognized
as described in section 501(c)(3) but do not wish to comply with the
requirements of section 501(r) may submit a request to voluntarily
terminate their section 501(c)(3) recognition as described in section
7.04(14) of Rev. Proc. 2014-4 (or a successor revenue procedure). A
government hospital organization that terminates its section 501(c)(3)
recognition in this manner is no longer considered a ``hospital
organization'' within the meaning of these regulations and therefore
will not be subject to excise tax under section 4959 for failing to
meet the CHNA requirements during the taxable year of its termination.
4. Financial Assistance Policies and Emergency Medical Care Policies
In accordance with the statute and the 2012 proposed regulations,
the final regulations require hospital organizations to establish
written FAPs as well as written emergency medical care policies.
a. Financial Assistance Policies
Consistent with the 2012 proposed regulations, the final
regulations provide that a hospital organization meets the requirements
of section 501(r)(4)(A) with respect to a hospital facility it operates
only if the hospital organization establishes for that hospital
facility a written FAP that applies to all emergency and other
medically necessary care provided by the hospital facility.
A number of commenters noted that patients, including emergency
room patients, are commonly seen (and separately billed) by private
physician groups or other third-party providers while in the hospital
setting. Commenters asked for clarification on the extent to which a
hospital facility's FAP must apply to other providers a patient might
encounter in the course of treatment in a hospital facility, including
non-employee providers in private physician groups or hospital-owned
practices. Some of these commenters noted that patients are often
unaware of the financial arrangements between various providers in the
hospital facility and may unknowingly be transferred to a provider that
separately bills the patients for care. A few commenters noted that
emergency room physicians in some hospital facilities separately bill
for emergency medical care provided to patients and recommended that
the section 501(r) requirements apply to such emergency room
physicians.
In response to comments and to provide transparency to patients,
the final regulations require a hospital facility's FAP to list the
providers, other than the hospital facility itself, delivering
emergency or other medically necessary care in the hospital facility
and to specify which providers are covered by the hospital facility's
FAP (and which are not). As discussed in section 1.g of this preamble,
the final
[[Page 78972]]
regulations also clarify that a hospital facility's FAP must apply to
all emergency and other medically necessary care provided in a hospital
facility by a partnership owned in part by, or a disregarded entity
wholly owned by, the hospital organization operating the hospital
facility, to the extent such care is not an unrelated trade or business
with respect to the hospital organization. In addition, the Treasury
Department and the IRS note that if a hospital facility outsources the
operation of its emergency room to a third party and the care provided
by that third party is not covered under the hospital facility's FAP,
the hospital facility may not be considered to operate an emergency
room for purposes of the factors considered in Rev. Rul. 69-545 (1969-2
CB 117) (providing examples illustrating whether a nonprofit hospital
claiming exemption under section 501(c)(3) is operated to serve a
public rather than a private interest, with one activity of the section
501(c)(3) hospital being the operation of a full time emergency room).
i. Eligibility Criteria and Basis for Calculating Amounts Charged to
Patients
Section 501(r)(4)(A)(i) and (ii) require a hospital facility's FAP
to specify the eligibility criteria for financial assistance, whether
such assistance includes free or discounted care, and the basis for
calculating amounts charged to patients. Accordingly, the 2012 proposed
regulations provided that a hospital facility's FAP must specify all
financial assistance available under the FAP, including all discounts
and free care and, if applicable, the amount(s) (for example, gross
charges) to which any discount percentages will be applied. The 2012
proposed regulations also provided that a hospital facility's FAP must
specify all of the eligibility criteria that an individual must satisfy
to receive each discount, free care, or other level of assistance.
A number of commenters asked that hospital facilities be allowed to
offer patients certain discounts--including self-pay discounts, certain
discounts mandated under state law, and discounts for out-of-state
patients--outside of their FAPs and that this assistance not be subject
to the requirements of sections 501(r)(4) through 501(r)(6), including
the AGB limitation of section 501(r)(5)(A). Several commenters noted
that subjecting all assistance provided by hospital facilities to the
AGB limitation could result in hospitals offering fewer discounts or
less assistance than they might otherwise provide to certain categories
of patients.
The Treasury Department and the IRS recognize that not all
discounts a hospital facility might offer its patients are properly
viewed as ``financial assistance'' and intend that hospital facilities
may offer payment discounts or other discounts outside of their FAPs
and may charge discounted amounts in excess of AGB to individuals that
are not FAP-eligible. Accordingly, the final regulations only require
the FAP to describe discounts ``available under the FAP'' rather than
all discounts offered by the hospital facility.\6\ The Treasury
Department and the IRS note, however, that only the discounts specified
in a hospital facility's FAP (and, therefore, subject to the AGB
limitation) may be reported as ``financial assistance'' on Schedule H,
``Hospitals,'' of the Form 990. Moreover, discounts provided by a
hospital facility that are not specified in a hospital facility's FAP
will not be considered community benefit activities for purposes of
section 9007(e)(1)(B) of the Affordable Care Act (relating to reports
on costs incurred for community benefit activities) nor for purposes of
the totality of circumstances that are considered in determining
whether a hospital organization is described in section 501(c)(3).
---------------------------------------------------------------------------
\6\ The 2012 proposed regulations stated that a hospital
facility's FAP must specify ``all financial assistance available
under the FAP, including all discount(s).'' Although the term ``all
discount(s)'' was not qualified with the phrase ``available under
the FAP,'' this interpretation was intended. The final regulations
add ``available under the FAP'' after ``all discounts'' to clarify
that discounts may be offered outside of the FAP.
---------------------------------------------------------------------------
Some commenters asked for the final regulations to confirm that
hospital facilities will be given the flexibility to develop FAP-
eligibility criteria that respond to local needs. Like the 2012
proposed regulations, the final regulations do not mandate any
particular eligibility criteria and require only that a FAP specify the
eligibility criteria for receiving financial assistance under the FAP.
A number of commenters recommended that the final regulations
require the FAP to contain a statement that explains the patient's
obligation to cooperate with the hospital facility's requests for
information needed to make an eligibility determination. The Treasury
Department and the IRS decline to impose this specific requirement but
note that hospital facilities have the flexibility to include any
additional information in the FAP that the hospital facility chooses to
convey or that may be helpful to the community, including such a
statement.
ii. Method for Applying for Financial Assistance
Section 501(r)(4)(A)(iii) requires a hospital facility's FAP to
include the method for applying for financial assistance under the FAP.
Accordingly, the 2012 proposed regulations provided that a hospital
facility's FAP must describe how an individual applies for financial
assistance under the FAP and that either the hospital facility's FAP or
FAP application form (including accompanying instructions) must
describe the information or documentation the hospital facility may
require an individual to submit as part of his or her FAP application.
The 2012 proposed regulations also made clear that financial assistance
may not be denied based on the omission of information or documentation
if such information or documentation was not specifically required by
the FAP or FAP application form.
Numerous commenters asked that the final regulations add language
to ensure that hospital facilities are not prohibited from granting
financial assistance despite an applicant's failure to provide any or
all information or documentation described in the FAP or FAP
application form and requested that hospital facilities have the
flexibility to grant financial assistance based on other evidence or an
attestation by the applicant. While the Treasury Department and the IRS
intend to require hospital facilities to establish a transparent
application process under which individuals may not be denied financial
assistance based on a failure to provide information or documentation
unless that information or documentation is described in the FAP or FAP
application form, they do not intend to restrict hospital facilities'
ability to grant financial assistance to an applicant who has failed to
provide such information or documentation. Accordingly, the final
regulations expressly state that a hospital facility may grant
financial assistance under its FAP notwithstanding an applicant's
failure to provide such information. Thus, a hospital facility may
grant financial assistance based on evidence other than that described
in a FAP or FAP application form or based on an attestation by the
applicant, even if the FAP or FAP application form does not describe
such evidence or attestations.
One commenter stated that the example in the 2012 proposed
regulations of a hospital facility with a FAP that requires certain
specified documentation demonstrating household income (including
federal tax returns or paystubs) or ``other reliable
[[Page 78973]]
evidence of the applicant's earned and unearned household income'' was
contrary to the idea that a FAP must ``describe the information and
documentation'' required. The Treasury Department and the IRS intended
for the reference to ``other reliable evidence'' in the example to
signal that a hospital facility may be flexible in allowing applicants
to provide alternative documentation to demonstrate eligibility. The
example was not intended to suggest that a reference in a FAP or FAP
application form to ``reliable evidence'' alone (without also
identifying specific documentation applicants could provide) would be
sufficient. To clarify this intent, the example of the FAP application
form in the final regulations is modified so that the instructions
identify specific documentation (including federal tax returns,
paystubs, or documentation establishing qualification for certain
specified state means-tested programs) but also state that if an
applicant does not have any of the listed documents to prove household
income, he or she may call the hospital facility's financial assistance
office and discuss other evidence that may be provided to demonstrate
eligibility.
A number of commenters noted that total reliance on paper
applications does not reflect current practices in which much
information is gathered from patients orally, with a few commenters
recommending that the final regulations expressly permit eligibility
determinations on the basis of information obtained through face-to-
face meetings or over the phone rather than through a paper application
process. The Treasury Department and the IRS did not intend to mandate
paper applications or to imply that information needed to determine
FAP-eligibility could not be obtained from an individual in other ways.
Accordingly, and in response to comments, the final regulations amend
the definition of ``FAP application'' to clarify that the term is not
intended to refer only to written submissions and that a hospital
facility may obtain information from an individual in writing or orally
(or a combination of both).
Numerous commenters stated that hospitals can, and commonly do,
rely on trustworthy methods and sources of information other than FAP
applications to determine FAP-eligibility and recommended that hospital
facilities be allowed to rely on these information sources and methods
to determine FAP-eligibility, provided that the sources and methods are
disclosed in the FAP or on the hospital facility's Form 990. Commenters
also recommended that a hospital should be able to rely on prior FAP-
eligibility determinations, provided that such reliance is disclosed in
its FAP.
As discussed in section 6.b.vi of this preamble, the final
regulations permit a hospital facility to determine that an individual
is eligible for assistance under its FAP based on information other
than that provided by the individual or based on a prior FAP-
eligibility determination, provided that certain conditions are met.
Given this change, and consistent with commenters' recommendations, the
final regulations require a hospital facility to describe in its FAP
any information obtained from sources other than individuals seeking
assistance that the hospital facility uses, and whether and under what
circumstances it uses prior FAP-eligibility determinations, to
presumptively determine that individuals are FAP-eligible.
Some commenters requested that the final regulations specifically
prohibit hospital facilities from using social security numbers or
credit card information or from running credit checks that damage
consumer credit, while another commenter would impose a requirement
that all requested information or documentation be reasonable and
adequate to establish eligibility for the hospital facility's FAP. The
final regulations do not prescribe or restrict the information or
documentation a hospital facility may request but do require that a
hospital facility describe such information or documentation in its FAP
or FAP application form. The Treasury Department and the IRS expect
that the transparency achieved by requiring the information or
documentation to be described in the FAP or FAP application form will
discourage hospital facilities from requesting information or
documentation that is unreasonable or unnecessary to establish
eligibility.
A number of commenters noted that a patient's financial status may
change over time and requested clarification on the point in time used
to determine financial eligibility. A few of these commenters requested
clarification that a hospital facility has the discretion to determine
that point in time in its FAP, a few recommended that a specific point
in time be used (for example, the date of service or the date of
application), and a few suggested that the final regulations should
require the point in time to be specified in a FAP.
The Treasury Department and the IRS intend for hospital facilities
to have the flexibility to choose the time period used to determine FAP
eligibility and expect that that the relevant point(s) in time will be
made clear based on the information and/or documentation requested from
applicants in the FAP or FAP application form. For example, if a
hospital facility's FAP application form asks for ``last month's''
income, the hospital facility presumably will look at the applicant's
income from the month preceding the submission of the FAP application
to determine whether the applicant satisfies the income-based
eligibility criteria. Similarly, the example regarding application
methods in these final regulations describes a hospital facility that
requests proof of household income in the form of payroll check stubs
``from the last month'' (which would reflect wages in the time period
shortly before the application) or, if last month's wages are not
representative of the applicant's annual income, a copy of the
applicant's ``most recent federal tax return'' (which would reflect
annual income in a year preceding the application). Because the
Treasury Department and the IRS expect that the time period(s) used to
assess eligibility should be evident from the information and/or
documentation requested to demonstrate eligibility, the final
regulations do not provide further elaboration on this point.
iii. Actions That May Be Taken in the Event of Nonpayment
In the case of a hospital facility that does not have a separate
billing and collections policy, section 501(r)(4)(A)(iv) requires a
hospital facility's FAP to include actions that may be taken in the
event of nonpayment. Accordingly, the 2012 proposed regulations
provided that either a hospital facility's FAP or a separate written
billing and collections policy established for the hospital facility
must describe the actions that the hospital facility (or other
authorized party) may take related to obtaining payment of a bill for
medical care, including, but not limited to, any extraordinary
collection actions described in section 501(r)(6).
A few commenters recommended that the final regulations require
governing board approval of the billing and collections policy of a
hospital facility. The Treasury Department and the IRS note that these
final regulations, like the 2012 proposed regulations, provide that a
FAP ``established'' by a hospital facility must describe the hospital
facility's actions in the event of nonpayment unless the hospital
facility has ``established'' a billing and collections policy that
describes these actions. As described in section 4.c of this preamble,
a billing and collections policy or a FAP is ``established'' only if
[[Page 78974]]
it is adopted by an authorized body of the hospital facility, which
includes the governing body of the hospital facility or a committee of,
or other party authorized by, such governing body. Thus, the final
regulations provide that an authorized body of the hospital facility
must adopt the hospital facility's FAP and, if applicable, billing and
collections policy.
Two commenters asked that hospital facilities with separate billing
and collections policies be required both to include some basic
information about those policies in their FAPs and to translate the
separate billing and collections policies into foreign languages. The
2012 proposed regulations provided that a hospital facility that
described its actions in the event of nonpayment in a separate billing
and collections policy must state in its FAP that the actions in the
event of nonpayment are described in a separate billing and collections
policy and explain how members of the public may readily obtain a free
copy of this separate policy. In addition, the definition of ``readily
obtainable information'' in the 2012 proposed regulations provided that
a separate billing and collections policy would be readily obtainable
if it were made available free of charge both on a Web site and in
writing upon request in the same manner that a FAP is made available on
a Web site and upon request, which included making translated copies
available on a Web site and upon request. To clarify that translations
were intended to be part of making a billing and collections policy
readily obtainable, Sec. 1.501(r)-4(b)(6) of the final regulations
relating to ``readily obtainable information'' has been amended to
expressly refer to the provision of translations.
iv. Widely Publicizing the FAP
Section 501(r)(4)(A)(v) requires a hospital facility's FAP to
include measures to widely publicize the FAP within the community
served by a hospital facility. To satisfy this requirement, the 2012
proposed regulations provided that a FAP must include, or explain how
members of the public may readily obtain a free written description of,
the measures taken by the hospital facility to--
Make the FAP, FAP application form, and a plain language
summary of the FAP (together, ``FAP documents'') widely available on a
Web site;
Make paper copies of the FAP documents available upon
request and without charge, both in public locations in the hospital
facility and by mail;
Notify and inform visitors to the hospital facility about
the FAP through conspicuous public displays or other measures
reasonably calculated to attract visitors' attention; and
Notify and inform residents of the community served by the
hospital facility about the FAP in a manner reasonably calculated to
reach those members of the community who are most likely to require
financial assistance.
Several commenters asked that hospitals be given the flexibility to
``widely publicize'' the FAP in any manner they see fit. The Treasury
Department and the IRS view the provisions in the 2012 proposed
regulations as already giving hospital facilities broad flexibility to
determine the methods they think are best to notify and inform their
patients and broader communities about their FAPs. In addition, the
Treasury Department and the IRS see the requirements to make the FAP
widely available on a Web site and to make paper copies available upon
request as minimal steps that are necessary to ensure patients have the
information they need to seek financial assistance. Accordingly, the
final regulations continue to require a hospital facility to make the
FAP documents available upon request and widely available on a Web site
and to notify and inform both visitors to the hospital and members of
the community served by the hospital about its FAP.
One commenter suggested that a hospital facility's FAP should only
be required to ``summarize'' the measures to widely publicize the FAP,
suggesting that requiring detailed information about such measures
would unnecessarily increase mailing, copying, and compliance costs. In
response to this comment and to reduce the documentation burden
associated with the FAP, these final regulations eliminate the
requirement that the FAP list the measures taken to widely publicize
the FAP and instead require only that a hospital facility implement the
measures to widely publicize the FAP in the community it serves. This
approach is consistent with the definition of ``establishing'' a FAP
discussed in section 4.c of this preamble, which includes not only
adopting the FAP but also implementing it, and with the Joint Committee
on Taxation's (JCT) Technical Explanation of the Affordable Care Act.
See Staff of the Joint Committee on Taxation, Technical Explanation of
the Revenue Provisions of the ``Reconciliation Act of 2010,'' as
Amended, in Combination with the ``Patient Protection and Affordable
Care Act'' (March 21, 2010), at 82 (Technical Explanation) (stating
that section 501(r)(4) requires each hospital facility to ``adopt,
implement, and widely publicize'' a written FAP).
A. Widely Available on a Web Site
A number of commenters stated that FAPs will be updated more
frequently than summaries, so that making the full FAP widely available
on a Web site would be burdensome. One of these commenters stated that
the full FAP is not especially useful for most patients, as it is
written for internal compliance and difficult for the general public to
understand. On the other hand, numerous other commenters strongly
supported the requirement to make these documents widely available on a
Web site, with some noting that doing so would allow patients to more
easily identify the assistance they might be eligible for and to speak
knowledgeably with financial assistance personnel at the hospital
facility. The Treasury Department and the IRS believe that making the
complete FAP widely available to the public on a Web site is important
in achieving transparency and that the benefits of this transparency
outweigh the burdens incurred in posting an updated document on a Web
site. Thus, the final regulations retain this requirement.
B. Making Paper Copies Available Upon Request
With respect to the requirement to make paper copies of the FAP
documents available upon request and without charge in public locations
in the hospital facility, one commenter stated that ``public
locations'' could be interpreted to mean all public locations in the
hospital and that essentially every area of the hospital could be
classified as a public location. Another commenter asked that ``public
locations'' specifically include the admissions areas and the emergency
room, noting that patients and their family members generally pass
through one of those two areas during their stay and that having at
least one uniform location where these documents are available would
help ensure that patients know where to go for paper copies. In
response to these comments, the final regulations specify that ``public
locations'' in a hospital facility where paper copies must be provided
upon request include, at a minimum, the emergency room (if any) and the
admissions areas.
Other commenters asked that making paper copies ``available upon
request'' should be required only with respect to patients who indicate
that they lack access to the Internet. The final
[[Page 78975]]
regulations clarify that hospital facilities may inform individuals
requesting copies that the various FAP documents are available on a Web
site or otherwise offer to provide the documents electronically (for
example, by email or on an electronic screen). However, the Treasury
Department and the IRS continue to believe that making paper copies of
the FAP documents available to those persons who request them is
important to achieve adequate transparency. Accordingly, the final
regulations also make clear that a hospital facility must provide a
paper copy unless the individual indicates he or she would prefer to
receive or access the document electronically.
C. Notifying and Informing Hospital Facility Patients
With respect to the requirement in the 2012 proposed regulations to
notify and inform visitors to a hospital facility about the FAP through
a conspicuous public display (or other measures reasonably calculated
to attract visitors' attention), a number of commenters asked for
clarification on what makes a public display ``conspicuous,'' with one
such commenter noting that placement of a small placard in a corner of
a financial assistance office that is rarely seen by patients should
not be sufficient.
The Treasury Department and the IRS believe that what makes a
public display ``conspicuous'' is both for the display to be of a
noticeable size and for the display to be placed in a location in the
hospital facility where visitors are likely to see it. Thus, similar to
the requirement regarding making paper copies of the FAP documents
available upon request in ``public locations'' in the hospital
facility, the final regulations clarify that hospital facilities must
notify and inform visitors about the FAP in ``public locations'' in the
hospital facility, including, at a minimum, the emergency room (if any)
and admissions areas.
In addition to notifying patients about the FAP through a
conspicuous public display (or through other measures reasonably
calculated to attract visitors' attention), the final regulations also
require hospital facilities to widely publicize their FAPs by providing
FAP information to patients before discharge and with billing
statements. The 2012 proposed regulations included the notification of
patients about the FAP before discharge and with billing statements as
part of the notification component of reasonable efforts to determine
FAP-eligibility under section 501(r)(6). However, these efforts to
notify and inform patients about the FAP before discharge and with
billing statements may also be appropriately categorized as measures to
widely publicize the FAP under section 501(r)(4). Thus, the final
regulations consolidate all of the requirements that involve notifying
patients generally about the FAP under the section 501(r)(4) widely
publicizing requirements. As a result, the notification component of
reasonable efforts to determine FAP-eligibility under the section
501(r)(6) final regulations is simplified and is focused primarily on
those patients against whom a hospital facility actually intends to
engage in extraordinary collection actions. The Treasury Department and
the IRS expect that moving the requirement that hospital facilities
notify and inform patients about the FAP with billing statements and as
part of their intake or discharge process from the section 501(r)(6)
regulations to the section 501(r)(4) regulations will increase
understanding of the requirements and compliance, without a loss of
notification to patients.
In addition to requiring hospital facilities to notify individuals
about their FAPs before discharge and on billing statements as part of
widely publicizing their FAPs, the final regulations also amend these
requirements in several important respects in response to comments to
the 2012 proposed regulations. First, rather than require a full plain
language summary with billing statements, the final regulations require
only that a hospital facility's billing statement include a conspicuous
written notice that notifies and informs the recipient about the
availability of financial assistance under the hospital facility's FAP
and includes the telephone number of the hospital facility office or
department that can provide information about the FAP and FAP
application process and the direct Web site address (or URL) where the
copies of the FAP documents may be obtained. This change responds to
those comments (discussed in greater length in section 6.b.iii of this
preamble) that noted that a reference on the billing statement to the
availability of the FAP and a brief description of how to obtain more
information should provide sufficient notification to patients while
minimizing costs for hospital facilities.
Second, some commenters appeared to interpret the phrase ``before
discharge'' in the 2012 proposed regulations as requiring distribution
``at discharge'' and suggested that the latter requirement would not
work because outpatients do not always revisit with a hospital
registration staff member after care is provided or may never be
physically present at the hospital facility. In response to these
comments, the final regulations refer to offering the plain language
summary as part of either the ``intake or discharge process,'' and the
Treasury Department and the IRS intend that those terms be interpreted
broadly to include whatever processes are used to initiate or conclude
the provision of hospital care to individuals who are patients of the
hospital facility. In addition, in response to commenters who noted
that many patients will have no interest in receiving a plain language
summary of the FAP because they know they are not FAP-eligible, the
final regulations require only that a hospital facility ``offer''
(rather than ``provide'') a plain language summary as part of the
intake or discharge process. Thus, a hospital facility will not have
failed to widely publicize its FAP because an individual declines to
take a plain language summary that the hospital facility offered on
intake or before discharge or indicates that he or she would prefer to
receive or access a plain language summary electronically rather than
receive a paper copy.
D. Notifying and Informing the Broader Community
Several commenters recommended eliminating altogether the
requirement to notify and inform members of the hospital facility's
community about the FAP, stating that the other three measures to
widely publicize the FAP are sufficient and that this additional
specification is vague, open to subjective interpretation, and overly
burdensome for hospitals. Other commenters, however, strongly supported
the requirement, particularly the special emphasis placed on members of
the community most likely to need financial help.
The Treasury Department and the IRS interpret the phrase ``widely
publicize . . . within the community to be served by the organization''
in section 501(r)(4)(v) as going beyond merely making a FAP ``widely
available'' on a Web site or upon request and requiring hospital
facilities to affirmatively reach out to the members of the communities
they serve to notify and inform them about the financial assistance
they offer. Accordingly, the final regulations retain the requirement
to notify and inform members \7\ of the hospital's community
[[Page 78976]]
in a manner reasonably calculated to reach those members who are most
likely to require financial assistance from the hospital facility.
---------------------------------------------------------------------------
\7\ In recognition of the fact that not all hospital facilities
will define the communities they serve along strictly geographic
lines, the final regulations are amended to refer to ``members'' of
the hospital facility's community rather than ``residents.''
---------------------------------------------------------------------------
E. Plain Language Summary of the FAP
The 2012 proposed regulations defined the plain language summary of
the FAP as a written statement that notifies an individual that the
hospital facility offers financial assistance under a FAP and provides
certain specified information, including but not limited to: (1) The
direct Web site address and physical location(s) (including a room
number, if applicable) where the individual can obtain copies of the
FAP and FAP application form; and (2) the contact information,
including telephone numbers and physical location (including a room
number, if applicable), of hospital facility staff who can provide the
individual with information about the FAP and the FAP application
process, as well as of the nonprofit organizations or government
agencies, if any, that the hospital facility has identified as
available sources of assistance with FAP applications.
A number of commenters noted that many hospitals currently assist
patients with the FAP application process and that such assistance can
be very important for low-income patients with literacy barriers. A few
commenters requested that the final regulations require hospitals to
assist and/or provide contact information for hospital staff who can
assist with the FAP application process. One commenter suggested that
the plain language summary should not have to include the contact
information of nonprofit organizations or government agencies that
assist with FAP applications, recommending instead that hospital
facilities be able to include the contact information for the hospital
facility's own community health clinics as sources of FAP application
assistance.
Although assisting patients with the FAP application process can be
an important step in ensuring that patients obtain the financial
assistance for which they are eligible, nonprofit organizations or
government agencies can be as effective sources of this assistance as
hospital facilities themselves. To ensure both that patients have
notice of how to obtain assistance with the FAP application process and
that hospital facilities have the flexibility to refer patients to
other organizations rather than provide assistance themselves, the
final regulations require the plain language summary to include the
contact information of a source of assistance with FAP applications but
allow for this source to be either the hospital facility itself or a
different organization. More specifically, the final regulations
provide that the plain language summary must include the contact
information of either the hospital facility office or department that
can provide assistance with (rather than just ``information about'')
the FAP application process or, if the hospital facility does not
provide assistance with the FAP application process, at least one
nonprofit organization or government agency that the hospital facility
has identified as an available source of such assistance.
One commenter recommended that the plain language summary of the
FAP only be required to list a department rather than a physical
location because hospital facility remodeling and redesign could mean
that the precise physical location could be subject to change,
therefore requiring re-drafting of the plain language summary. Another
commenter asked that the final regulations clarify that the plain
language summary may identify the location and phone number of the
appropriate office or department to contact for more information about
the FAP, without naming a specific staff person.
The Treasury Department and the IRS continue to think that the
physical location in the hospital facility where patients can obtain
copies of the FAP and FAP application form and information about and/or
assistance with the FAP application process is important, basic
information to provide to individuals in the plain language summary.
Therefore, the final regulations continue to require this information
regarding physical location. However, the final regulations remove a
specific reference to a room number to give hospital facilities more
flexibility to describe the physical location in the manner that makes
the most sense for the hospital facility. The final regulations also
clarify that the plain language summary may identify the location and
phone number of the appropriate office or department to contact for
more information about the FAP and, if applicable, assistance with the
FAP application process and does not need to name a specific staff
person.
One commenter recommended that, in addition to the required items
of information described in the 2012 proposed regulations, the plain
language summary should provide a basic outline of the FAP application
process and the appropriate times to apply. This commenter stated that
many patients will rely on the plain language summary for information
about the FAP, in lieu of reading the FAP itself, and that information
about when and how to apply for financial assistance is basic
information a patient needs to have. The Treasury Department and the
IRS agree that information about how to apply for financial assistance
is important information for individuals to have, and the final
regulations therefore require this information to be included in the
plain language summary. Any additional burden created by requiring this
information should be mitigated by the fact that the final regulations
do not require the plain language summary to be included with all
billing statements and other written communications provided during the
notification period. As for ``when'' to apply, while patients generally
have at least 240 days from the date of the first bill to apply for
financial assistance, the deadline for any particular patient's FAP
application will depend on whether and when the hospital facility sends
that patient the notice about potential extraordinary collection
actions described in section 6.b.iii.C of this preamble that states a
deadline. Given the resulting variability in deadlines, the final
regulations do not require the plain language summary to include a
description of the appropriate times to apply.
A few commenters asked that the plain language summary be required
to include a statement regarding patient responsibilities. The Treasury
Department and the IRS do not intend for the list of elements required
to be included in a plain language summary of the FAP to limit a
hospital facility's ability to provide additional information.
Accordingly, a hospital facility is permitted, but not required, to
include in its plain language summary any additional items of
information it deems relevant to the FAP and FAP application process.
F. Translating the FAP Documents
The 2012 proposed regulations provided that hospital facilities
must translate FAP documents into the primary language of any LEP
populations that constitute more than 10 percent of the members of the
community served by the hospital facility. One commenter asked that
this requirement be eliminated altogether, at least with regard to
small or rural hospital facilities, while two other commenters
supported the 10-percent threshold for translation. Many additional
commenters requested that the translation threshold be lowered from 10
percent to the lesser of 5 percent or 500 LEP individuals. They noted
that some federal translation thresholds are set as low as 500 LEP
individuals and that a 5-percent
[[Page 78977]]
threshold would result in greater consistency with translation guidance
provided by the Department of Health and Human Services (HHS). See HHS,
``Guidance to Federal Financial Assistance Recipients Regarding Title
VI Prohibition Against National Origin Discrimination Affecting Limited
English Proficient Persons,'' 68 FR 47,311 (August 8, 2003) (``HHS
Guidance''). The HHS Guidance includes a ``safe harbor'' that considers
it strong evidence that a hospital receiving federal financial
assistance is in compliance with written translation obligations under
Title VI of the Civil Rights Act of 1964 (42 U.S.C. 2000d, et seq.) if
it provides written translations of vital documents for each eligible
LEP language group that constitutes 5 percent or 1,000, whichever is
less, of the population of persons eligible to be served or likely to
be affected or encountered.\8\
---------------------------------------------------------------------------
\8\ If there are fewer than 50 persons in a language group that
reaches the 5-percent trigger, the recipient of federal financial
assistance does not have to translate vital written materials to
satisfy the safe harbor but rather may provide written notice in the
primary language of the LEP language group of the right to receive
competent oral interpretation of those written materials, free of
cost.
---------------------------------------------------------------------------
Both Medicaid and Medicare Part A constitute ``federal financial
assistance'' for purposes of Title VI of the Civil Rights Act, and the
Treasury Department and the IRS expect that virtually every hospital
facility operated by an organization described in section 501(c)(3)
accepts Medicaid and/or Medicare Part A. The Treasury Department and
the IRS also expect that documents that describe the financial
assistance offered by a hospital facility and that are necessary to
apply for such financial assistance would be considered ``vital'' for
purposes of the Title VI obligations. Therefore, the Treasury
Department and the IRS expect that many hospital facilities are already
translating these documents to meet their Title VI obligations, often
in accordance with the safe harbor in the HHS Guidance. As a result,
the Treasury Department and the IRS agree with commenters that it is
reasonable and appropriate to make the translation threshold applicable
to the FAP documents generally consistent with the 5-percent/1000
person threshold under the HHS Guidance safe harbor, and the final
regulations adopt this change.
The 2012 proposed regulations provided that a hospital facility
could determine whether a LEP group exceeded the relevant threshold
based on the latest data available from the U.S. Census Bureau or other
similarly reliable data. One commenter requested clarification on
whether to use the U.S. Census Bureau's decennial survey or more
updated information provided through the American Community Survey. The
Treasury Department and the IRS believe that a hospital facility basing
its determination of LEP populations in whole or in part on data from
the U.S. Census Bureau should be allowed to use either the latest
decennial census data or the latest American Community Survey data. In
addition, other data sources may also be reasonable to use to determine
LEP populations for purposes of these regulations. For example, the HHS
Guidance notes that, in determining the LEP persons eligible to be
served or likely to be affected or encountered, it may be appropriate
for hospitals to examine not only census data but also their prior
experiences with LEP patients, data from school systems and community
organizations, and data from state and local governments. See HHS
Guidance, 68 FR at 47314. The Treasury Department and the IRS intend
that a hospital facility be able to use these same data sources in
determining the LEP persons in the community it serves or likely to be
affected or encountered for purposes of these final regulations.
Therefore, rather than list the various data sources a hospital
facility may use to determine its LEP populations, the final
regulations provide that a hospital facility may use any reasonable
method to determine such populations.
Several commenters recommended that hospital facilities only be
required to translate the plain language summary of the FAP and the FAP
application form, not the full FAP, stating that the summary and
application form are the documents most useful to patients and that
few, if any, patients request the full FAP. The Treasury Department and
the IRS believe that the benefits of ensuring that LEP populations have
access to the details provided in the FAP that are not captured in a
summary or application form outweigh the additional costs that hospital
facilities may incur in translating the full FAP document. Accordingly,
the final regulations do not adopt this comment.
Several commenters recommended that the final regulations require
hospitals to provide access to oral interpreters or bilingual staff on
request, regardless of whether the thresholds for written translations
are met. The Treasury Department and the IRS believe it would be overly
burdensome to require hospital facilities to provide access to oral
interpreters or bilingual staff for every language possibly spoken in a
community. Accordingly, the final regulations do not adopt this
comment.
b. Emergency Medical Care Policy
To satisfy the requirements of section 501(r)(4)(B), the 2012
proposed regulations provided that a hospital facility must establish a
written policy that requires the hospital facility to provide, without
discrimination, care for emergency medical conditions (within the
meaning of the Emergency Medical Treatment and Labor Act (EMTALA),
section 1867 of the Social Security Act (42 U.S.C. 1395dd)) to
individuals, regardless of whether they are FAP-eligible. The 2012
proposed regulations further provided that an emergency medical care
policy will generally satisfy this standard if it requires the hospital
facility to provide the care for any emergency medical condition that
the hospital facility is required to provide under Subchapter G of
Chapter IV of Title 42 of the Code of Federal Regulations, which is the
subchapter regarding the Centers for Medicare and Medicaid Services'
(CMS) standards and certification that includes the regulations under
EMTALA. In addition, Sec. 1.501(r)-4(c)(2) of the 2012 proposed
regulations provided that a hospital facility's emergency medical care
policy would not meet the requirements of section 501(r)(4)(B) unless
it prohibited the hospital facility from engaging in actions that
discouraged individuals from seeking emergency medical care, such as by
demanding that emergency department patients pay before receiving
treatment or by permitting debt collection activities in the emergency
department or in other areas of the hospital facility where such
activities could interfere with the provision, without discrimination,
of emergency medical care.
Some commenters stated that the regulations under EMTALA already
establish rules for registration processes and discussions regarding a
patient's ability to pay in the emergency department and that the final
regulations should not go beyond those requirements. A number of
commenters noted that the broad language regarding ``debt collection in
the emergency department'' could be read to proscribe ordinary and
unobjectionable activities in the emergency room, such as collecting
co-payments on discharge, checking for qualification for financial or
public assistance, and asking for insurance information or co-pays
after patients are stabilized and waiting (sometimes for long periods
of time) for test results or follow-up visits from their physician.
[[Page 78978]]
Section 1.501(r)-4(c)(2) of the 2012 proposed regulations was
intended to apply only to debt collection activities in the emergency
department (or other areas of the hospital facility) that could
interfere with the provision of emergency care, not to all payment
activities in the emergency department regardless of their potential to
interfere with care. To make this intent clear, the final regulations
are revised to prohibit ``debt collection activities that interfere
with the provision, without discrimination, of emergency medical
care,'' regardless of where such activities occur.
In addition, the Treasury Department and the IRS note that, since
the publication of the 2012 proposed regulations, CMS has made clear
that the regulations under EMTALA prohibit applicable hospital
facilities from engaging in actions that delay the provision of
screening and treatment for an emergency medical condition to inquire
about method of payment or insurance status, or from using registration
processes that unduly discourage individuals from remaining for further
evaluation, such as by requesting immediate payment before or while
providing screening or stabilizing treatment for emergency medical
conditions. See CMS Memorandum S&C-14-06--Hospitals/CAHs re: EMTALA
Requirements & Conflicting Payor Requirements or Collection Practices,
at 6-7 (Dec. 13, 2013). As a result, a hospital facility that provides
the screening care and stabilizing treatment for emergency medical
conditions, as applicable, that the hospital facility is required to
provide under the regulations under EMTALA, should generally not be
engaging in the activities that Sec. 1.501(r)-4(c)(2) of the final
regulations requires emergency medical care policies to prohibit.
Two commenters asked whether the emergency medical care policy may
be in the same document as the FAP. The final regulations do not
prevent an emergency medical care policy from being included within the
same document as the FAP or from being added to an already existing
document related to emergency medical care (such as a document setting
forth EMTALA compliance).
c. Establishing the FAP and Other Policies
Consistent with the 2012 proposed regulations, the final
regulations provide that a hospital organization will have established
a FAP, a separate billing and collections policy, or an emergency
medical care policy for a hospital facility only if an authorized body
of the hospital facility has adopted the policy and the hospital
facility has implemented the policy.
The 2012 proposed regulations provided that a hospital facility has
``implemented'' a policy if it has ``consistently carried out'' the
policy. A number of commenters asked for more clarity on when a policy
will be deemed to be ``consistently carried out.'' Two of these
commenters would deem a hospital facility to have consistently carried
out a policy only if the hospital facility attests that a policy that
meets the requirements of section 501(r)(4) has been followed in all
cases.
As discussed in section 2.a of this preamble, the final regulations
provide that omissions or errors that are minor and either inadvertent
or due to reasonable cause will not result in a failure to meet the
requirements of section 501(r)(4) (or any other requirements under
section 501(r)) as long as they are corrected in accordance with Sec.
1.501(r)-2(b)(1)(ii) of the final regulations. Therefore, the final
regulations make clear that the Treasury Department and the IRS do not
intend that every error in implementing a policy described in section
501(r)(4) will result in a failure to meet the requirements of section
501(r)(4). On the other hand, a policy that is simply adopted by an
authorized body of a hospital facility but not followed in any regular
fashion has not been ``established'' for purposes of section 501(r)(4).
Whether a policy is ``consistently carried out'' is to be determined
based on all of the facts and circumstances. However, if the authorized
body of a hospital facility adopts a policy and provides reasonable
resources for and exercises due diligence regarding its implementation,
then the standard should be met.
The 2012 proposed regulations provided that, while a hospital
organization must separately establish a FAP for each hospital facility
it operates, such policies ``may contain the same operative terms.''
Several commenters asked that hospital organizations operating multiple
facilities be permitted to adopt one FAP for all of their facilities.
These commenters argued that many hospital systems have centralized
patient financial services operations, including FAPs, and that
adopting a single FAP would avoid both significant administrative costs
as well as patient confusion about differences in financial
responsibilities based on location.
The final regulations clarify that multiple hospital facilities may
have identical FAPs, billing and collections policies, and/or emergency
medical care policies established for them (or even share one joint
policy document), provided that the information in the policy or
policies is accurate for all such facilities and any joint policy
clearly states that it is applicable to each facility. The final
regulations also note, however, that different hospital facilities may
have different AGB percentages or use different methods to determine
AGB that would need to be reflected in each hospital facility's FAP
(or, in the case of AGB percentages, in a separate document that can be
readily obtained).
5. Limitation on Charges
The final regulations provide that a hospital organization meets
the requirements of section 501(r)(5) with respect to a hospital
facility it operates only if the hospital facility limits the amounts
charged for any emergency or other medically necessary care it provides
to a FAP-eligible individual to not more than AGB. The final
regulations also require a hospital facility to limit the amounts
charged to FAP-eligible individuals for all other medical care covered
under the FAP to less than the gross charges for that care.
a. Amounts Generally Billed
The 2012 proposed regulations provided two methods for hospital
facilities to use to determine AGB. The first was a ``look-back''
method based on actual past claims paid to the hospital facility by
either Medicare fee-for-service alone or Medicare fee-for-service
together with all private health insurers paying claims to the hospital
facility (including, in each case, any associated portions of these
claims paid by Medicare beneficiaries or insured individuals). The
second method was ``prospective,'' in that it required the hospital
facility to estimate the amount it would be paid by Medicare and a
Medicare beneficiary for the emergency or other medically necessary
care at issue if the FAP-eligible individual were a Medicare fee-for-
service beneficiary. For purposes of the 2012 proposed regulations, the
term ``Medicare fee-for-service'' included only health insurance
available under Medicare Parts A and B and not health insurance plans
administered under Medicare Advantage.
Many commenters stated that allowing hospital facilities only two
methods for calculating AGB was insufficiently flexible. Some
commenters asked that the final regulations only require hospital
facilities to fully disclose and describe the method they used to
determine AGB on their Forms 990, without requiring
[[Page 78979]]
hospital facilities to determine AGB in any particular manner. A few
commenters noted that Medicare and insurer reimbursement models may
shift over time and that flexibility will be needed to ensure that the
methods for determining AGB set forth in the final regulations do not
become antiquated or hamper evolution in reimbursement models. However,
no additional methods to determine AGB were identified.
Providing hospital facilities complete discretion to select methods
in determining AGB would make it very difficult for the IRS to enforce
the statutory requirement that hospital facilities not charge FAP-
eligible individuals more than AGB and difficult for the public to
understand and recognize whether hospital facilities are complying with
this requirement. However, the Treasury Department and the IRS
recognize that Medicare and insurer reimbursement methodologies may
evolve over time and that additional ways to determine AGB may be
identified in the future. Therefore, the final regulations allow the
Treasury Department and the IRS to provide for additional methods to
determine AGB in future published guidance as circumstances warrant.
Many commenters suggested that the options for determining AGB
should be expanded or amended to permit hospital facilities to base AGB
on the payments of private, commercial insurers only, without also
taking into account Medicare payments. Some commenters specifically
asked for the ability to determine AGB based on ``either the best, or
an average of the three best, negotiated commercial rates,'' as
suggested in the JCT's Technical Explanation. See Technical Explanation
at 82. These commenters reasoned that individuals with commercial
insurance are more representative of FAP-eligible populations than
Medicare beneficiaries (as the latter generally include the elderly). A
few commenters also suggested that Medicare rates are an inappropriate
proxy for AGB because they are not the result of negotiations between
parties and, according to these commenters, do not always cover the
costs of providing care to Medicare beneficiaries. On the other hand,
other commenters recommended that AGB be based on Medicare alone,
arguing that this would increase transparency because amounts
reimbursed by Medicare are publicly verifiable.
Because Medicare reimbursements constitute a large proportion of
most hospital facilities' total insurance reimbursements, the Treasury
Department and the IRS continue to believe a method of determining AGB
that excludes Medicare and is based only on the claims or rates of
private health insurers would be inconsistent with the statutory phrase
``amounts generally billed to individuals who have insurance.'' On the
other hand, the Treasury Department and the IRS find no support in
either the statutory language of section 501(r)(5) or the Technical
Explanation for requiring (rather than just allowing) AGB to be based
on Medicare alone. Thus, the final regulations continue to allow
hospital facilities using the look-back method to base AGB on the
claims of Medicare fee-for-service plus all private health insurers, as
well as on Medicare alone.
A few commenters noted that Medicaid is the largest governmental
payer for children's hospitals and recommended that hospital facilities
be able to use Medicaid rates in calculating AGB. The final regulations
adopt this recommendation and allow hospital facilities to base AGB on
Medicaid rates, either alone or in combination with Medicare (or, under
the look-back method, together with Medicare and all private health
insurers), at the hospital facility's option.
With respect to Medicaid, one commenter noted that, in many states,
private managed care organizations operate Medicaid managed care plans
and that the final regulations should expressly state whether Medicaid
managed care claims and rates are to be included when determining AGB.
In response to this comment, the final regulations provide that the
term ``Medicaid,'' as used in the final regulations, includes medical
assistance provided through a contract between the state and a Medicaid
managed care organization or a prepaid inpatient health plan and that
such assistance is not considered reimbursements from or claims allowed
by a private health insurer. By contrast, the final regulations, like
the 2012 proposed regulations, provide that a hospital facility must
treat health insurance plans administered by private health insurers
under Medicare Advantage as the plans of private health insurers.
Many commenters asked how the limitation on charges to AGB applies
to insured individuals who are eligible for financial assistance. Most
of these commenters recommended that the AGB limitation apply only to
uninsured individuals, asserting that section 501(r)(5) was enacted to
provide uninsured individuals in need of assistance with the benefit of
rates negotiated by insurance companies and that requiring the use of
AGB for insured patients could inadvertently reduce the availability of
financial assistance for insured patients. One commenter suggested
that, for insured patients who receive a partial financial assistance
discount, AGB should be equal to the amounts generally billed for the
care minus payments made by the third-party insurer. Another commenter
suggested that the AGB limitation should only apply to the patient
liability and not include payments made by third parties, such as
health insurers.
The Treasury Department and the IRS note that section 501(r)(5)
does not distinguish between insured and uninsured FAP-eligible
individuals. Accordingly, the final regulations continue to apply the
AGB limitation of section 501(r)(5) to all individuals eligible for
assistance under the hospital facility's FAP, without specific
reference to the individual's insurance status. In response to the
comments, however, the final regulations clarify that, for purposes of
the section 501(r)(5) limitation on charges, a FAP-eligible individual
is considered to be ``charged'' only the amount he or she is personally
responsible for paying, after all deductions and discounts (including
discounts available under the FAP) have been applied and less any
amounts reimbursed by insurers. Thus, in the case of a FAP-eligible
individual who has health insurance coverage, a hospital facility will
not fail to meet the section 501(r)(5) requirements because the total
amount required to be paid by the FAP-eligible individual and his or
her health insurer together exceeds AGB, as long as the FAP-eligible
individual is not personally responsible for paying (for example, in
the form of co-payments, co-insurance, or deductibles) more than AGB
for the care after all reimbursements by the insurer have been made.
The final regulations also add several examples demonstrating how the
limitation on charges works when applied to insured FAP-eligible
individuals.
A few commenters asked that the final regulations clarify that AGB
represents the maximum amount hospital facilities can charge to FAP-
eligible individuals and that hospital facilities may charge FAP-
eligible individuals less than AGB (that is, provide a more generous
discount under a FAP). The Treasury Department and the IRS have added
an example to the final regulations to confirm this point.
The 2012 proposed regulations provided that, after choosing a
particular method to determine AGB, a hospital facility must continue
using that method indefinitely. The preamble to the 2012 proposed
regulations
[[Page 78980]]
requested comments on whether a hospital facility should be allowed to
change its method of determining AGB under certain circumstances or
following a certain period of time and, if so, under what circumstances
or how frequently. Commenters uniformly noted that there could be many
practical reasons that a hospital facility might want to change its
method for determining AGB, such as changes in technologies or
processes that make a previously-selected method less administrable.
In response to these comments, the final regulations provide that a
hospital facility may change the method it uses to determine AGB at any
time. However, because the final regulations under section 501(r)(4)
require a hospital facility's FAP to describe the method used to
determine AGB, a hospital facility must update its FAP to describe a
new method before implementing it.
A number of commenters noted that the 2012 proposed regulations do
not define the term ``medically necessary care.'' Some commenters asked
that the final regulations provide that hospital facilities have the
discretion to determine how non-emergency and elective services are
considered under their FAPs. Other commenters recommended that the
final regulations define the term ``medically necessary care.''
Suggested definitions included the Medicaid definition used in the
hospital facility's state or other definitions provided by state law, a
definition that refers to the generally accepted medical practice in
the community, or a definition based on the determination made by the
examining physician or medical team.
The final regulations allow hospital facilities to define the term
``medically necessary care'' for purposes of their FAPs and the AGB
limitation in recognition of the fact that health care providers and
health insurers may have reasonable differences in opinion on whether
some health care services are medically necessary in particular
circumstances. In defining medically necessary care for purposes of
their FAPs and the AGB limitation, the final regulations clarify that
hospital facilities may (but are not required to) use the Medicaid
definition used in the hospital facility's state, other definitions
provided by state law, or a definition that refers to the generally
accepted standards of medicine in the community or an examining
physician's determination.
i. Look-Back Method
Under the look-back method for determining AGB, a hospital facility
determines AGB for any emergency or other medically necessary care
provided to a FAP-eligible individual by multiplying the hospital
facility's gross charges for that care by one or more percentages of
gross charges, called ``AGB percentages.'' Hospital facilities must
calculate their AGB percentages no less frequently than annually by
dividing the sum of certain claims for emergency and other medically
necessary care by the sum of the associated gross charges for those
claims. A hospital facility may use the look-back method to calculate
one average AGB percentage for all emergency and other medically
necessary care provided by the hospital facility, or multiple AGB
percentages for separate categories of care (such as inpatient and
outpatient care or care provided by different departments) or for
separate items or services. However, a hospital facility calculating
multiple AGB percentages must calculate AGB percentages for all
emergency and other medically necessary care it provides.
The 2012 proposed regulations provided that the AGB percentages
must be based on all claims that have been ``paid in full'' to the
hospital facility for emergency and other medically necessary care by
Medicare fee-for-service alone, or by Medicare fee-for-service together
with all private health insurers, during a prior 12-month period. A few
commenters asked whether the phrase ``claims . . . paid in full'' as
used in the 2012 proposed regulations was intended to include claims
that a hospital facility had partially written off as bad debt and/or
treated as paid in full after taking into account a discount it had
granted. If so, commenters asked whether the hospital facility should
only include the reduced amount actually paid when calculating the AGB
percentage(s). One commenter also asked whether the amount a hospital
facility has accepted for the claim in a sale to a third-party debt
collector should be treated as ``paid in full.'' Two commenters
suggested that, instead of being based on claims ``paid in full,'' the
AGB percentages should be based on ``contracted rates'' or the amounts
that are allowed by health insurers.
To eliminate the uncertainty created by the phrase ``paid in
full,'' the final regulations provide that, when calculating its AGB
percentage(s) under the look-back method, a hospital facility should
include in the numerator the full amount of all of the hospital
facility's claims for emergency and other medically necessary care that
have been ``allowed'' (rather than ``paid'') by health insurers during
the prior 12-month period. For these purposes, the full amount allowed
by a health insurer should include both the amount to be reimbursed by
the insurer and the amount (if any) the individual is personally
responsible for paying (in the form of co-payments, co-insurance, or
deductibles), regardless of whether and when the individual actually
pays all or any of his or her portion and disregarding any discounts
applied to the individual's portion (under the FAP or otherwise).
Several commenters interpreted the 2012 proposed regulations to
mean that hospital facilities had to include the claims for all
emergency and other medically necessary care provided during the prior
12-month period when calculating AGB percentages. These commenters
pointed out that many of the claims for care provided toward the end of
a 12-month period will not be adjudicated by an insurer until some
amount of time after the end of that 12-month period. Under both the
2012 proposed regulations and these final regulations, the inclusion of
a claim in a hospital facility's calculation of its AGB percentage(s)
is not based on whether the care associated with the claim was provided
during the prior 12-month period. Rather, it is based on whether the
claim is ``allowed'' (formerly, ``paid in full'') during the prior 12-
month period. The final regulations clarify this point. The final
regulations also state that, if the amount a health insurer will allow
for a claim has not been finally determined as of the last day of the
12-month period used to calculate the AGB percentage(s), a hospital
facility should exclude the amount of the claim from that calculation
and include it in the subsequent 12-month period during which the
amount allowed is finally determined.
A few commenters asked that hospital facilities be permitted to
calculate AGB percentages under the look-back method based on claims
for all medical care allowed in the prior 12-month period, rather than
just the claims for emergency and medically necessary care. These
commenters stated that it would be administratively burdensome to have
to sift out only the claims for emergency and medically necessary care.
Accordingly, the final regulations provide that a hospital facility may
include in the calculation of its AGB percentage(s) claims for all
medical care allowed during the prior 12-month period rather than just
the claims allowed for emergency and other medically necessary care.
The Treasury Department and the IRS note that the calculation of a
hospital facility's AGB
[[Page 78981]]
percentage(s) includes only claims allowed by insurers and that
insurers generally allow claims only for care that is medically
necessary. Thus, the Treasury Department and the IRS do not expect that
there will be a significant difference between AGB percentages based on
all claims allowed by insurers and AGB percentages based on all claims
allowed by insurers for emergency and other medically necessary care.
A few commenters noted that the health care delivery system is
migrating from a fee-for-service model to other methods of payment,
used by both public and private payers, that include ``value-based,''
accountable care, and shared savings payments. These commenters stated
that the 2012 proposed regulations failed to account for these other
methods of payment because the method of calculating AGB percentages
appeared to be based on claims for individual episodes of care, while
value-based, accountable care, shared savings, and similar payments are
not necessarily tied to individual episodes of care.
As a general matter, the Treasury Department and the IRS interpret
the statutory phrase ``amounts generally billed to individuals who have
insurance covering such care'' as referring to amounts billed or
reimbursed for care received by those insured individuals. It is not
clear, and commenters did not address, how lump sum payments from an
insurer with no direct connection to any specific individual's care
would appropriately be included in a determination of AGB. As a result,
the final regulations do not amend the look-back method or the
prospective method to specifically account for any such separate
payment streams. However, if a hospital facility can reasonably
allocate a capitated (or other lump sum) payment made by an insurer to
care received by particular patients during a twelve-month period and
has also tracked the gross charges for that care, it may be able to
reasonably incorporate such payments into its calculation of one or
more AGB percentages under the look-back method described in the final
regulations. In addition, the Treasury Department and the IRS will
continue to consider whether hospital facilities need alternative
methods of determining AGB that directly accommodate capitated payments
or value-based, accountable care, shared savings, and similar payments,
and, if so, such alternative methods may be provided in future
regulations, revenue rulings, or other published guidance.
The look-back method described in the 2012 proposed regulations
only included claims paid by Medicare fee-for-service and/or private
health insurers as primary payers. One commenter indicated that
payments made by secondary payers should also be included in a hospital
facility's calculation of its AGB percentage(s) because considering
only primary payers and patient co-insurance, co-payments, and
deductibles artificially depresses the AGB percentages. The Treasury
Department and the IRS intend for hospital facilities to be able to
include in the calculation of their AGB percentages the total amount of
claims for care allowed by primary insurers (including both the amounts
paid by primary insurers and the amounts insured individuals are
personally responsible for paying in the form of co-payments, co-
insurance, or deductibles), regardless of whether secondary insurers
end up paying some or all of the insured individual's portion. In
addition, if an individual's primary insurer does not cover a certain
procedure but his or her secondary insurer does, including the amount
allowed by the secondary insurer in the calculation of the hospital
facility's AGB percentage(s) will not result in any duplication because
only one amount was allowed by an insurer. Moreover, if the secondary
insurer is of the type that is otherwise being included in the hospital
facility's calculation of the AGB percentage (that is, Medicare,
Medicaid, and/or a private health insurer), the amounts allowed by the
secondary insurer should be included in the calculation to ensure that
the resulting AGB percentage(s) is fully representative of the amounts
allowed by the applicable type of insurer(s). Thus, to eliminate any
confusion, the final regulations remove the references to ``primary
payers'' contained in the 2012 proposed regulations.
Numerous commenters asked that hospital organizations be permitted
to calculate AGB percentages on a system-wide basis, stating that many
hospital systems have centralized patient financial services operations
and that permitting a system-wide calculation would avoid both
significant administrative costs and patient confusion about
differences in financial responsibilities based on location. Because
different hospital facilities within a system can serve distinct
geographic areas, offer significantly different services, and have
different negotiated rates with insurers, allowing hospital systems to
calculate AGB percentages across the entire system could result in AGB
percentages that would not accurately reflect the amounts generally
billed to individuals with insurance by the separate hospital
facilities within the system. Specifically, a system-wide AGB
percentage would be an average across hospital facilities, some of
which may have lower negotiated reimbursement rates with insurers or
more Medicare patients than others. Use of a system-wide AGB percentage
could result in higher charges for the FAP-eligible patients of those
hospital facilities in the system with lower negotiated reimbursement
rates or more Medicare patients than would be the case if the AGB were
calculated on a facility-by-facility basis. Accordingly, the final
regulations do not permit such system-wide calculations. However,
because hospital facilities that have satisfied CMS criteria to bill
and be covered under one Medicare provider number may find it
administratively difficult to separate claims by hospital facility, the
final regulations allow hospital facilities that are covered under the
same Medicare provider agreement (as identified by the same CMS
Certification Number) to calculate one AGB percentage (or multiple AGB
percentages for separate categories of care or separate items or
services) based on the claims and gross charges for all such hospital
facilities and implement the AGB percentage(s) across all such hospital
facilities.
One commenter asked that the final regulations clarify that a
hospital organization operating more than one hospital facility may
select the look-back method for some of its facilities and the
prospective method for others. The 2012 proposed regulations were not
intended to prevent different hospital facilities operated by the same
hospital organization from using different methods to determine AGB at
different hospital facilities, and these final regulations expressly
state that this is permissible.
The 2012 proposed regulations provided that a hospital facility
must begin applying its AGB percentage(s) by the 45th day after the end
of the 12-month period the hospital facility used in calculating the
AGB percentage(s) and requested comments regarding whether a hospital
facility needs more than 45 days. Numerous commenters stated that
hospital facilities need a period longer than 45 days both to complete
the calculation and to make the updates to their policies, processes,
systems, and communications necessary to implement the changes and
recommended periods ranging from 60 to 120 days. In response to these
[[Page 78982]]
comments, the final regulations allow a hospital facility to take up to
120 days after the end of the 12-month period used in calculating the
AGB percentage(s) to begin applying its new AGB percentage(s). The
Treasury Department and the IRS note that, because the final
regulations under section 501(r)(4) require a hospital facility's FAP
to state the hospital facility's AGB percentage(s) or explain how
members of the public may readily obtain such percentages, a hospital
facility must update its FAP (or other readily obtainable material) to
reflect new AGB percentage(s).
The 2012 proposed regulations requested comments regarding whether
a hospital facility using the look-back method should have the option
to base its AGB-percentage calculation on a representative sample of
claims (rather than all claims) that were paid in full over a prior 12-
month period and, if so, how hospital facilities would ensure that such
samples are representative and reliable. A few commenters suggested
that the final regulations should permit the use of samples, but they
did not provide much additional explanation of why samples were
necessary or how samples could be determined in a representative and
reliable way. Other commenters argued that samples would be inaccurate
and that permitting the use of sampling would give hospital facilities
an excessive ability to manipulate their computations and exacerbate
problems with transparency or protections for consumers. Because
legitimate concerns were raised by commenters with respect to sampling
and no comments explained why the use of samples was necessary or how
hospital facilities could ensure that such samples would be
representative and reliable, the final regulations do not allow
hospital facilities using the look-back method to base their
calculation of AGB percentage(s) on a sample of claims. The Treasury
Department and the IRS note, however, that, to the degree using all
claims in calculating AGB percentages takes longer than using a
representative sample, hospital facilities have 120, not 45, days after
the end of the applicable 12-month period to calculate and implement
AGB percentages under the final regulations.
The 2012 proposed regulations also requested comments regarding
whether hospital facilities might significantly increase their gross
charges after calculating one or more AGB percentages and whether such
an increase could mean that determining AGB by multiplying current
gross charges by an AGB percentage would result in charges that exceed
the amounts that are in fact generally billed to those with insurance
at the time of the charges. A number of commenters stated that such
safeguards are unnecessary, since most hospitals do not update their
gross charges more than once a year, increases are generally based on
an annual market analysis, and AGB calculations would not drive
hospitals to change their gross charges. After considering the comments
received on this issue, the final regulations do not modify the
proposed rule in this regard.
ii. Prospective Method
Under the prospective method described in the 2012 proposed
regulations, a hospital facility could determine AGB for any emergency
or other medically necessary care that the hospital facility provided
to a FAP-eligible individual by using the same billing and coding
process the hospital facility would use if the individual were a
Medicare fee-for-service beneficiary and setting AGB for that care at
the amount that Medicare and the Medicare beneficiary together would be
expected to pay for the care. The Treasury Department and the IRS
requested comments regarding whether a hospital facility should also
have the option of determining AGB based on the private health insurer
with the lowest rate or the three private health insurers with the
three lowest rates. Some commenters who responded to this request for
comments said hospital facilities should have this option under both
the prospective and the look-back methods, while other commenters
recommended that AGB be based on Medicare alone. For reasons discussed
previously in this section 5.a of the preamble (including the fact that
Medicare reimbursements constitute a large proportion of most hospital
facilities' total insurance reimbursements), the Treasury Department
and the IRS believe that excluding Medicare and basing AGB only on the
private health insurer with the lowest rate or the three private health
insurers with the three lowest rates would not accurately capture the
amounts generally billed by hospital facilities to individuals with
insurance in many cases. Thus, the final regulations do not permit
hospital facilities to determine AGB using the prospective method based
on the private health insurers with the lowest rate or the three
private health insurers with three lowest rates.
Consistent with changes made to the look-back method, the final
regulations allow hospital facilities to determine AGB under the
prospective method based on Medicaid, either alone or in combination
with Medicare fee-for service. More specifically, the final regulations
provide that a hospital facility using the prospective method may base
AGB on either Medicare fee-for-service or Medicaid or both, provided
that, if it uses both, its FAP describes the circumstances under which
it will use Medicare fee-for-service or Medicaid in determining AGB.
b. Gross Charges
The 2012 proposed regulations provided that a hospital facility
must charge a FAP-eligible individual less than the gross charges for
any medical care provided to that individual. Several commenters argued
that, unlike the AGB requirement in section 501(r)(5)(A), the language
regarding the prohibition on the use of gross charges in section
501(r)(5)(B) does not refer to FAP-eligible individuals, in particular.
As a result, these commenters recommended that the final regulations
prohibit the use of gross charges for all individuals, not just FAP-
eligible individuals.
The Treasury Department and the IRS believe it is reasonable to
interpret section 501(r)(5)(B)'s prohibition on gross charges in the
context of section 501(r)(5) as a whole, which is intended to limit the
amounts charged to FAP-eligible individuals. The JCT clarified this
intent in the Technical Explanation, remarking that ``[a] hospital
facility may not use gross charges . . . when billing individuals who
qualify for financial assistance.'' See Technical Explanation, at 82.
Thus, the final regulations continue to apply the prohibition on gross
charges only to FAP-eligible individuals.
The 2012 proposed regulations applied the AGB limitation only to
charges to FAP-eligible individuals for emergency or other medically
necessary care, while the prohibition on charging FAP-eligible
individuals gross charges would also apply to ``all other medical
care.'' A few commenters interpreted this language to mean that the
prohibition on gross charges applies even to elective procedures not
covered under the FAP. In response, the final regulations clarify that
this limitation applies only to charges for care covered under a
hospital facility's FAP, which may, but need not, cover care that is
neither emergency nor medically necessary care.
c. Safe Harbor for Certain Charges in Excess of AGB
The 2012 proposed regulations included a safe harbor under which a
[[Page 78983]]
hospital facility would not violate section 501(r)(5) if it charged
more than AGB for emergency or other medically necessary care, or
charged gross charges for any medical care, to a FAP-eligible
individual who had not submitted a complete FAP application as of the
time of the charge, provided that the hospital facility made and
continued to make reasonable efforts to determine whether the
individual was FAP-eligible (within the meaning of and during the
periods required under section 501(r)(6)).
Because the steps to notify individuals about the FAP that remain
in the regulations under section 501(r)(6) (as opposed to those that
have been moved to the regulations under section 501(r)(4)) are focused
on the individuals against whom a hospital facility actually intends to
initiate extraordinary collection actions, the Sec. 1.501(r)-5(d) safe
harbor in the final regulations does not retain the requirement in the
2012 proposed regulations that the hospital facility make reasonable
efforts to determine whether the individual is FAP-eligible within the
meaning of the section 501(r)(6) regulations. Instead, the safe harbor
focuses on remedying the overcharging by requiring that, if an
individual submits a complete FAP application and is determined to be
FAP-eligible for care, the hospital facility must refund any amounts
the individual has paid for the care that exceeds the amount he or she
is determined to be personally responsible for paying as a FAP-eligible
individual. For reasons discussed in section 6.b.v.B of this preamble,
the Sec. 1.501(r)-5(d) safe harbor in the final regulations also
contains an exception to this general requirement to refund under which
a hospital facility is not required to refund excess payments of less
than $5.
One commenter suggested that the Sec. 1.501(r)-5(d) safe harbor
should only require a hospital facility to refund amounts paid by a
FAP-eligible individual in excess of AGB. As part of properly
implementing their FAPs, hospital facilities should charge FAP-eligible
individuals only the amounts they are determined to owe as FAP-eligible
individuals. Thus, a hospital facility should not be permitted to
charge FAP-eligible individuals more than AGB and be able to avail
itself of the Sec. 1.501(r)-5(d) safe harbor unless it is willing to
refund any amounts paid by a FAP-eligible individual that exceed the
amount he or she is determined to owe as a FAP-eligible individual.
Two commenters recommended that the safe harbor under the section
501(r)(5) regulations require a hospital facility to charge all
individuals AGB or less during the application period unless it has
affirmatively determined that the individual is not FAP-eligible. The
Treasury Department and the IRS expect that a hospital facility will
not be able to affirmatively determine whether most of its patients are
FAP-eligible because most of its patients who are not FAP-eligible will
not apply for financial assistance. Accordingly, such a rule would
undercut the purpose of the safe harbor and is not adopted by these
final regulations.
As discussed further in section 6.a.iv of this preamble, two
commenters noted that charging individuals an upfront payment as a
condition of receiving care may be tantamount to denying that care in
the case of medically indigent people, and the final regulations
consider demanding payment of a past bill as a condition of receiving
future medically necessary care to be an extraordinary collection
action. In addition, the Treasury Department and the IRS believe that
the Sec. 1.501(r)-5(d) safe harbor should not protect hospital
organizations that charge an upfront payment in excess of AGB to FAP-
eligible individuals. Accordingly, the final regulations provide that
the Sec. 1.501(r)-5(d) safe harbor does not apply to charges made or
requested as a pre-condition of providing medically necessary care to a
FAP-eligible individual. Thus, if a hospital facility requires an
individual to make an upfront payment for medically necessary care that
exceeds the AGB for the care and the individual turns out to be FAP-
eligible, the hospital facility will have failed to meet the
requirements of section 501(r)(5).
6. Billing and Collection
Consistent with the statute, the final regulations provide that a
hospital organization meets the requirements of section 501(r)(6) with
respect to a hospital facility it operates only if the hospital
facility does not engage in extraordinary collection actions (ECAs)
against an individual to obtain payment for care before making
reasonable efforts to determine whether the individual is FAP-eligible
for the care. For these purposes, and consistent with the 2012 proposed
regulations, a hospital facility will be considered to have engaged in
ECAs against an individual to obtain payment for care if the hospital
facility engages in such ECAs against any other individual who has
accepted or is required to accept responsibility for the first
individual's hospital bill for the care.
One commenter interpreted the provision in the 2012 proposed
regulations regarding ECAs against individuals with responsibility for
a patient's hospital bill as applying to private and public insurers
covering all or a portion of the patient's hospital bill. Under the
Code, the term ``individual'' does not include any trust, estate,
partnership, association, company, corporation, or governmental entity
and, thus, would not include any private or public insurer.
Accordingly, the final regulations retain the provision in the 2012
proposed regulations regarding ECAs against individuals with
responsibility for a patient's hospital bill. This provision does not
require a hospital facility to make reasonable efforts to determine
FAP-eligibility before engaging in ECAs against private or public
insurers or any other liable third parties that are not individuals.
The 2012 proposed regulations also provided that a hospital
facility will be considered to have engaged in an ECA against an
individual to obtain payment for care if any purchaser of the
individual's debt or any debt collection agency or other party to which
the hospital facility has referred the individual's debt has engaged in
an ECA against the individual to obtain payment for the care. Many
commenters asked that the regulations relieve hospital facilities from
strict liability under section 501(r)(6) for the actions of third
parties, provided that the hospital facility acts in good faith to
supervise and enforce the section 501(r)(6) obligations of its
contractual agreements with collection agents and takes remedial steps
with respect to any contractual violations it discovers. These
commenters argued that a hospital's tax-exempt status should not be
placed in jeopardy by a debt collection agency's actions of which it is
unaware. Other commenters, however, recommended that the final
regulations retain the provision holding hospital facilities
accountable for the billing and collection actions of third-party
contractors and debt buyers.
The Treasury Department and the IRS continue to believe that
hospital facilities must be held accountable for the ECAs of the debt
collection agencies and debt buyers to which they refer or sell debt.
Otherwise, hospital facilities could easily avoid their
responsibilities under section 501(r)(6) by referring or selling their
debt to third parties. Nonetheless, the Treasury Department and the IRS
expect that the concerns of these commenters are largely addressed by
the provision, outlined in section 2.b of this preamble, under which a
hospital facility's failure to meet the requirements of section
501(r)(6) will be excused if the failure is not willful or egregious
and the hospital facility both
[[Page 78984]]
corrects and discloses the failure in accordance with published
guidance. Under this provision, if a hospital facility acts reasonably
and in good faith to supervise and enforce the section 501(r)(6)
obligations of its contractual agreements with debt collectors or
purchasers and corrects any contractual violations it discovers, then
an error on the part of the debt collectors or purchasers should not be
willful and, provided that it is not egregious, could be excused if the
hospital facility corrects and discloses the failure in accordance with
the procedures outlined in the revenue procedure described in Sec.
1.501(r)-2(c). Accordingly, the final regulations retain the provision
holding a hospital facility accountable for the ECAs of the third
parties collecting debt on its behalf or to which it sells debt.
One commenter interpreted the 2012 proposed regulations as
suggesting that a hospital facility must meet the section 501(r)(6)
requirements with respect to all care provided by the hospital
facility, even if that care is elective and not medically necessary.
Section Sec. 1.501(r)-6(b) of these final regulations and the 2012
proposed regulations define ECAs as actions related to obtaining
payment of bills ``for care covered under the hospital facility's
FAP.'' Both the proposed and final regulations under section 501(r)(4)
only require a FAP to cover emergency and other medically necessary
care. Because a hospital facility has discretion over whether its FAP
covers elective procedures that are not medically necessary, it has
discretion over whether or not it must meet the section 501(r)(6)
requirements with respect to such elective care.
a. Extraordinary Collection Actions
The 2012 proposed regulations defined ECAs as actions taken by a
hospital facility against an individual related to obtaining payment of
a bill for care covered under the hospital facility's FAP that require
a legal or judicial process, involve selling an individual's debt to
another party, or involve reporting adverse information about an
individual to consumer credit reporting agencies or credit bureaus
(collectively, ``credit agencies'').
Some commenters asked that the final regulations clarify that
certain additional actions, such as writing off an account to bad debt,
sending a patient a bill, or calling a patient by telephone to make
reasonable inquiries, are not ECAs. These actions do not require a
legal or judicial process or involve reporting adverse information to a
credit agency or the selling of an individual's debt and would not come
within the definition of ECAs under either the 2012 proposed
regulations or the final regulations. However, because there are many
possible actions that would not be ECAs and such actions cannot be
exhaustively listed in the regulations, the final regulations do not
respond to these comments by enumerating actions that are not ECAs
(although they do provide for some exceptions with respect to the ECAs
that are enumerated, as described in sections 6.a.ii and 6.a.iii of the
preamble).
i. Reports to Credit Agencies
Many commenters argued that reporting adverse information to a
credit agency should not be considered an ECA because such reporting is
not a collection action and is a common practice of hospital
facilities. One commenter argued that Congress could not have intended
credit agency reporting to be an ECA because section 501(r)(4)(A)(iv)
provides that a tax-exempt hospital facility's FAP or separate billing
and collection policy must include, among other items, ``the actions
the organization may take in the event of non-payment, including
collections action[s] and reporting to credit agencies.'' Other
commenters supported defining ECAs to include reporting an individual's
non-payment of a debt to a credit agency, noting that such an action is
a tool in collecting debt and can have extraordinarily detrimental
consequences for individuals by resulting in bad credit records for
many years.
The Treasury Department and the IRS view reporting to credit
agencies as a collection action because it is a tool to collect
delinquent debts, and bad credit reports can have extraordinarily
detrimental consequences for the affected individuals. Moreover, the
requirement under section 501(r)(4)(A)(iv) that a hospital facility
describe reporting to credit agencies in its FAP or billing and
collections policy evidences Congress's concern regarding such
reporting. In addition, the JCT's Technical Explanation states that ``
`reasonable efforts' includes notification . . . before collection
action or reporting to credit agencies is initiated.'' Technical
Explanation, at 82. Because section 501(r)(6) only requires a hospital
facility to make reasonable efforts before initiating an ECA, this
statement supports the conclusion that reporting to credit agencies is
an ECA. Accordingly, the final regulations continue to include the
reporting of adverse information to credit agencies as an ECA.
ii. Certain Liens
The 2012 proposed regulations provided a non-exclusive list of
examples of actions that require a legal or judicial process, which
included the placement of a lien on an individual's property. Numerous
commenters noted that, when a patient has sued a third party due to an
auto accident or other type of accident and, as a part of the
settlement, is entitled to receive reimbursement for medical bills,
state laws commonly allow hospitals to place a lien on that portion of
potential settlement proceeds. Commenters stated that they often need
to move quickly if they will ever be able to take possession of such
funds and asked that the final rule confirm that this common practice
will not be treated as an ECA against the patient.
The proceeds of settlements, judgments, or compromises arising from
a patient's suit against a third party who caused the patient's
injuries come from the third party, not from the injured patient, and
thus hospital liens to obtain such proceeds should not be treated as
collection actions against the patient. In addition, the portion of the
proceeds of a judgment, settlement, or compromise attributable under
state law to care that a hospital facility has provided may
appropriately be viewed as compensation for that care. Accordingly, in
response to comments, the final regulations expressly provide that
these liens are not ECAs.
iii. Sale of an Individual's Debt to Another Party
A number of commenters argued that debt sales should not be
considered ECAs because they are an important way for hospitals to
avoid having to collect debt themselves. Some commenters noted that
holding hospital facilities accountable for the actions of debt buyers
should be sufficient to ensure that debt buyers do not themselves
engage in ECAs before reasonable efforts are made. In addition, several
commenters argued that certain debt sales are beneficial to the patient
as well as to the hospital facility because, for example, the buyer may
service the debt more efficiently or be able to offer extended payment
plans at no or low interest that the hospital facility cannot. These
commenters recommended that debt sales should not be considered ECAs if
the purchaser of the debt is contractually obligated not to take any
actions that are ECAs and/or the debt is returnable to or recallable by
the hospital facility.
Other commenters stated that hospital facilities lose control of
the debt once
[[Page 78985]]
they sell it and that debt buyers typically purchase medical debts for
pennies on the dollar, without full information about the individual
patients, and are thus more likely to pursue flawed claims and engage
in abusive practices. These commenters recommended that debt sales be
prohibited altogether, even after reasonable efforts are made to
determine an individual's FAP-eligibility.
The Treasury Department and the IRS note that section 501(r)(6)
does not prohibit any collection actions outright; therefore, the final
regulations do not prohibit debt sales altogether. The final
regulations do, however, retain the general rule that debt sales are
ECAs because the Treasury Department and the IRS agree with those
commenters who noted that hospitals have less control over a debt once
it has been sold and that debt buyers will generally have less
information regarding the individual and the debt and more incentive to
engage in ECAs before making reasonable efforts to determine whether an
individual is FAP-eligible.
Nonetheless, the Treasury Department and the IRS believe these
concerns about debt sales are mitigated in certain cases in which
contractual arrangements with debt buyers both allow hospital
facilities to retain control over the debt and benefit patients.
Accordingly, the final regulations provide that the sale of an
individual's debt is not an ECA if, prior to the sale, the hospital
facility enters into a legally binding written agreement with the
purchaser of the debt containing four conditions. First, the purchaser
must agree not to engage in any ECAs to obtain payment of the debt.
Second, the purchaser must agree not to charge interest on the debt in
excess of the rate in effect under section 6621(a)(2) at the time the
debt is sold (or such other interest rate set by notice or other
guidance published in the Internal Revenue Bulletin).\9\ Third, the
debt must be returnable to or recallable by the hospital facility upon
a determination by the hospital facility or the purchaser that the
individual is FAP-eligible. And, fourth, if the individual is
determined to be FAP-eligible and the debt is not returned to or
recalled by the hospital facility, the purchaser must adhere to
procedures specified in the agreement that ensure that the individual
does not pay, and has no obligation to pay, the purchaser and the
hospital facility together more than he or she is personally
responsible for paying as a FAP-eligible individual. Because debt sales
subject to these four conditions are not considered to be ECAs under
the final regulations, a hospital facility may make these debt sales
without first having made reasonable efforts to determine FAP-
eligibility. Debt sales that do not satisfy these four conditions are
ECAs and therefore may not be made until after a hospital facility has
made reasonable efforts to determine FAP-eligibility, as described in
section 6.b of this preamble.
---------------------------------------------------------------------------
\9\ The interest rate in effect under section 6621(a)(2) was 3
percent at the time these final regulations were published. See Rev.
Rul. 2014-29, 2014-52 IRB 960 (Dec. 22, 2014).
---------------------------------------------------------------------------
iv. Including Additional Actions as ECAs
The preamble to the 2012 proposed regulations asked whether
deferring or denying care based on a pattern of nonpayment, requiring
deposits before providing care, or charging interest on medical debts
should constitute ECAs. Some commenters opined that these actions
should be categorized as ECAs to protect patients, with two commenters
adding that requiring deposits is tantamount to denying care for
medically indigent people. Other commenters recommended that these
activities should not be ECAs, noting that requiring some deposit from
patients prior to scheduling non-emergency care is a common practice
among health care providers and that interest is charged by many credit
providers. One of these commenters also stated that it is not
inappropriate or extraordinary for a hospital to defer provision of
care to a patient who has a documented pattern of non-payment unless
that patient is seeking emergency care covered under EMTALA through the
emergency department.
The Treasury Department and the IRS view the charging of interest
on medical debt as a charge for the extension of credit rather than a
collection action. In addition, the Treasury Department and the IRS
interpret the term ``collection action'' as applying to actions to
collect debts owed for services already rendered, not conditions
imposed before any services have been provided or any debts have been
incurred. Thus, the Treasury Department and the IRS do not believe that
requiring a payment (whether partial or full) before providing care is
a collection action unless it is related to an attempt to collect a
prior medical bill. Accordingly, the final regulations do not include
these activities as ECAs.
However, if a hospital facility defers or denies, or requires a
payment before providing, medically necessary care because of an
individual's nonpayment of one or more bills for previously provided
care, such actions constitute actions to collect the unpaid bills.
Moreover, these collection actions can properly be viewed as
extraordinary, given that such actions can potentially jeopardize the
health of the debtor. While one commenter asserted that ``it is not
inappropriate'' for a hospital to defer the provision of care on the
basis of a documented pattern of non-payment unless it is care sought
through the emergency department covered under EMTALA, the relevant
question for purposes of section 501(r)(6) is not whether deferring or
denying care based on past nonpayment is permitted under EMTALA but
rather whether it is a collection action that is extraordinary. In
addition, as two commenters pointed out, requiring deposits can be
tantamount to denying care for medically indigent people, and thus
requiring payment before providing medically necessary care because of
nonpayment of past bills is also an ECA with respect to those past
bills. Therefore, the final regulations include such collection actions
within the definition of ECAs. The final regulations also elaborate on
when a requirement for payment will be considered to be ``because of''
an individual's nonpayment of one or more bills for previously provided
care. In particular, the final regulations provide that, if a hospital
facility requires payment before providing care to an individual with
one or more outstanding bills, such a payment requirement will be
presumed to be because of the individual's nonpayment of the
outstanding bill(s) unless the hospital facility can demonstrate that
it required the payment from the individual based on factors other
than, and without regard to, his or her nonpayment of past bills.
Several commenters also recommended that patients who are eligible
for hospital financial assistance, means-tested public programs, or
subsidies should not be subject to any ECAs or other collection
actions. Section 501(r)(6) requires hospital facilities to determine
whether an individual is FAP-eligible before engaging in ECAs but does
not bar ECAs altogether against individuals that have been determined
to be FAP-eligible or eligible for assistance under public programs.
Therefore, the final regulations do not adopt this comment.
b. Reasonable Efforts
The 2012 proposed regulations provided that, with respect to any
care provided by a hospital facility to an individual, the hospital
facility would have made reasonable efforts to determine whether the
individual is FAP-eligible only if the hospital facility
[[Page 78986]]
notified the individual about the FAP, provided a reasonably sufficient
amount of time for the individual to apply for financial assistance,
and processed FAP applications received from the individual during a
specified period. For purposes of meeting these requirements, the 2012
proposed regulations described both an initial 120-day ``notification
period'' during which the hospital facility was required to notify an
individual about the FAP and a 240-day ``application period'' during
which a hospital facility was required to process any application
submitted by the individual, with both periods starting on the date of
the first bill. A hospital facility providing the necessary
notification during the 120-day notification period could begin to
engage in ECAs against an individual after the end of the 120-day
notification period but was required to suspend any such ECAs if the
individual submitted a FAP application during the remainder of the
application period (and to reverse such ECAs if the individual was
determined to be FAP-eligible).
Many commenters stated that the reasonable efforts regime set forth
in the 2012 proposed regulations was too detailed and prescriptive and
asked that the final regulations adopt this regime as a safe harbor
rather than as a requirement. These commenters asked that hospital
facilities be allowed to maintain current practices regarding the
manner and timeframe of notification about the FAP and processing of
FAP applications, provided that these practices are made transparent,
such as by requiring that these practices be disclosed in FAPs, billing
and collection policies, or the hospital facility's Form 990.
The Treasury Department and the IRS do not believe that disclosure
alone of a hospital facility's notification and FAP-eligibility
determination processes constitutes reasonable efforts to determine
whether individuals are FAP-eligible. While the regulations under
section 501(r)(4) require such disclosure to be made in the FAP or a
separate billing and collections policy, such disclosure will not
meaningfully or adequately accomplish the requirement that Congress
intended when it enacted section 501(r)(6) and expressly called for the
Secretary to issue guidance defining reasonable efforts to determine
FAP-eligibility.\10\ Accordingly, the final regulations do not provide
hospital facilities with complete discretion over how to make
reasonable efforts to determine FAP-eligibility. However, the final
regulations do make a number of modifications, as described further in
this section of the preamble, that are designed to reduce the
compliance burden on hospital facilities while at the same time
ensuring that the reasonable efforts taken to determine whether
individuals are FAP-eligible adequately protect patients.
---------------------------------------------------------------------------
\10\ See section 501(r)(7) (providing that the Secretary ``shall
issue such regulations and guidance as may be necessary to carry out
the provisions of [section 501(r)], including guidance relating to
what constitutes reasonable efforts to determine the eligibility of
a patient under a'' FAP for purposes of section 501(r)(6)).
---------------------------------------------------------------------------
The final regulations also contain a number of changes to Sec.
1.501(r)-6(c) of the 2012 proposed regulations that are intended to
streamline and simplify the presentation of the applicable rules and
not to have a substantive effect.
i. Notification and Application Periods
The 2012 proposed regulations requested comments on whether the
notification and application periods should start later than the date
of the first billing statement, such as the date of discharge, in the
case of patients staying at a hospital facility for a prolonged period
of time and receiving billing statements in the mail before being
discharged. The majority of commenters responding to this request for
comments stated that the notification and application periods should
start no earlier than the time of discharge so that the ``clock'' on
the periods would not start until the patient was aware of the billing
statements and able to focus on the notifications about the FAP. On the
other hand, one commenter noted that inpatients present the best
opportunity for in-person financial counseling activity and that there
was therefore no need for the periods to begin after discharge rather
than the first billing statement. Another commenter opined that the
requirements relating to FAP notification and applications would be
confusing to both providers and consumers if the FAP notification and
application periods did not always start on the date of the first
billing statement.
In response to the majority of comments on the issue and to ensure
that patients who receive care over a prolonged period of time receive
adequate notification about the FAP and impending ECAs and have an
adequate opportunity to apply for financial assistance, the final
regulations provide that the applicable 120- and 240-day periods start
on the date that the first ``post-discharge'' billing statement is
provided, rather than just the first billing statement. For these
purposes, the final regulations clarify that a billing statement for
care is considered ``post-discharge'' if it is provided to an
individual after the care (whether inpatient or outpatient) is provided
and the individual has left the hospital facility.
Many commenters asked that the lengths of the proposed 120-day
notification period and/or 240-day application period be modified. Some
commenters suggested a shorter application period of 90, 120, or 180
days, with the notification period either being concurrent with, or a
shorter period within, the application period. Several of the
commenters who requested one concurrent notification and application
period noted the complexity associated with tracking two different,
overlapping periods. In arguing for a shorter application period, many
commenters stated that a 240-day application period would unduly
interfere with hospital facilities' ability to recover from patients
with resources available to pay the amounts due.
Other commenters, however, suggested longer notification or
application periods. One commenter suggested one concurrent
notification and application period of 240 days, stating that it would
be more effective and less burdensome for all involved to simply
prohibit all ECAs during the entire 240-day application period. Other
commenters requested an application period of one or two years, noting
that many times ECAs are not commenced until long after 240 days and
that many patients may not realize that money is owed until after 240
days, particularly if they believe that outstanding charges might be
covered by an insurer. Commenters also noted that FAP-eligible
individuals may not promptly respond to notifications regarding a
hospital facility's FAP if they are sick or have literacy issues.
Several commenters recommended that patients be allowed to raise FAP-
eligibility as an affirmative defense against ECAs at any time, not
just during the application period. One commenter requested
clarification that hospitals may extend the application period beyond
240 days.
The Treasury Department and the IRS continue to believe that 120
days from the first post-discharge billing statement is an appropriate
amount of time for hospital facilities to wait before initiating ECAs
against patients whose FAP-eligibility is undetermined so that patients
have sufficient time to learn about the FAP and apply for financial
assistance. As noted in the preamble to the 2012 proposed regulations,
such a 120-day period is consistent with some state requirements or
recommendations to wait 120 days before taking certain ECAs and, based
on typical billing cycles reported by commenters, should ensure
patients receive at least three
[[Page 78987]]
bills before facing an ECA. Moreover, since the release of the 2012
proposed regulations, a taskforce of healthcare finance professionals,
healthcare providers, consumer advocates, collections agencies, and
credit agencies has recommended that hospitals wait 120 days from the
date of the first billing statement before commencing ECAs ``to protect
patients from undue haste in use of ECAs.'' See Best Practices for
Resolution of Medical Accounts: A Report from the Medical Debt
Collection Task Force, at 9 (Jan. 2014), available at http://www.hfma.org/medicaldebt/. Therefore, the final regulations generally
provide that a hospital facility may not initiate ECAs against an
individual whose FAP-eligibility has not been determined before 120
days after the first post-discharge billing statement. However, due to
changes made in the final regulations regarding the notification
requirements described in section 6.b.iii of this preamble, the 120-day
period during which a hospital facility may not initiate ECAs is no
longer called a ``notification period.''
With respect to the application period, the Treasury Department and
the IRS agree with some commenters that it is generally a good practice
for hospital facilities to allow individuals to raise FAP-eligibility
as a defense against ECAs at any time and not just during a limited
application period. In fact, the Treasury Department and the IRS
understand that many hospital facilities currently will accept and
process FAP applications from patients at any time, and the definition
of ``application period'' in the final regulations expressly states
that hospital facilities may continue to do this. Moreover, many
hospital facilities may prefer simply to allow FAP applications to be
submitted at any time rather than track application periods for each
patient on an episode-of-care basis. However, in the interest of sound
tax administration and achieving certainty for hospital facilities, the
question of whether a hospital facility has met the requirements of
section 501(r)(6) should not be left open indefinitely. Accordingly,
although hospital facilities may continue to accept and process FAP
applications at any time, the final regulations provide an application
period after which a hospital facility is not required to accept and
process FAP applications for purposes of meeting section 501(r)(6).
The Treasury Department and the IRS continue to believe that about
eight months (240 days) after the first post-discharge bill is a
reasonable period of time for a hospital facility to give a patient to
apply for financial assistance to be considered to have made reasonable
efforts to determine whether the patient is FAP-eligible. As one
commenter pointed out, individuals may commonly have to wait several
months before they know how much of a charge for health care services
an insurer will cover and how much they are personally responsible for
paying. In addition, the amount of time allowed for FAP applications to
be submitted should take into account the fact that a large proportion
of applicants may face obstacles such as continuing illness, literacy
issues, or language barriers.
While some commenters asserted that an application period of 240
days from the first bill would unduly interfere with hospitals' ability
to collect debts from non-FAP-eligible individuals, they provided
little support or further explanation for this general claim, and other
commenters suggested that many ECAs are not commenced until long after
240 days from the first bill. Moreover, under both the 2012 proposed
regulations and these final regulations, hospital facilities may
initiate ECAs against an individual as early as 120 days after the
first post-discharge bill without failing to meet the requirements of
section 501(r)(6), provided the required notifications have been given
prior to the initiation of the ECAs. Some of these ECAs may have to be
suspended or reversed if the patients against whom the ECAs are taken
subsequently submit FAP applications, but the Treasury Department and
the IRS have no reason to believe that the costs associated with such
possible suspensions or reversals only for the subset of patients who
submit FAP applications during the application period will be so
significant as to render it impractical to initiate any ECAs during the
application period.
In addition, as discussed in section 6.b.vi of this preamble, many
commenters indicated that hospital facilities use a variety of methods
and sources of information other than FAP applications submitted by
individuals to predict potential FAP-eligibility with a high degree of
accuracy. Presumably, hospital facilities will be able to use such
methods and information sources to focus ECAs on those patients
unlikely to be FAP-eligible, thereby minimizing the risk that they will
have to reverse a significant number of ECAs. If a hospital facility
receives a complete FAP application during the application period from
an individual after initiating an ECA against the individual, it must
process the application, but, if the individual is determined to be
ineligible for financial assistance, no reversal of ECAs will be
necessary (and suspension will be necessary only for the period of time
the application is being processed).
For all of these reasons, the Treasury Department and the IRS
believe that an application period that ends no earlier than 240 days
from the first post-discharge bill appropriately balances the need to
protect FAP-eligible patients from ECAs before FAP-eligibility is
determined with the need to avoid undue interference with hospital
facilities' ability to collect debts from non-FAP-eligible individuals.
The final regulations further provide that the application period
for the care of an individual who has not been presumptively determined
to be FAP-eligible (as discussed in section 6.b.vi of the preamble)
will be longer than 240 days if the hospital facility provides the
individual with a written notice about available financial assistance
and potential ECAs (described in section 6.b.iii.C of this preamble)
that states a deadline that is after the 240th day from the first post-
discharge bill. For example, if a hospital facility provides an
individual with a written notice about potential ECAs to obtain payment
for care on the 250th day after the first post-discharge bill for the
care and informs the individual that he or she has 30 days to apply for
financial assistance before the identified ECAs may be initiated (the
minimum number of days the deadline may be from the date the written
notice is provided), the hospital facility would be required to process
any FAP application that the individual submits by the 280th day after
the first post-discharge bill. Thus, with the exception of individuals
who are presumptively determined to be FAP-eligible (as described
further in section 6.b.vi of this preamble), an individual's
application period will remain open until at least 30 days after the
hospital facility provides the individual with a written notice that
sets a deadline after which ECAs may be initiated.\11\
---------------------------------------------------------------------------
\11\ If the hospital facility never intends to initiate an ECA
against an individual, and therefore never sends a written notice
about potential ECAs (and/or a notice with a deadline for applying)
to the individual, the application period is irrelevant because
section 501(r)(6) only requires a hospital facility to make
reasonable efforts to determine FAP-eligibility before engaging in
an ECA.
---------------------------------------------------------------------------
ii. Meeting the Section 501(r)(6) Requirements on an ``Episode-of-
Care'' Basis
A number of commenters recommended that the reasonable efforts
requirements be applied on an ``individual patient'' basis rather than
[[Page 78988]]
on an ``episode-of-care'' basis to avoid unnecessary duplication of
notifications to one individual and complexity in tracking multiple
notification and application periods. In addition, one commenter noted
that, at such time as a hospital would engage in an ECA, it would seek
to identify and aggregate all outstanding and delinquent bills for a
patient and then initiate an ECA to obtain payment of all the bills
together rather than each bill separately.
In response to these comments, the final regulations clarify that a
hospital facility may satisfy the notification requirements
simultaneously for multiple episodes of care for purposes of notifying
the individual about its FAP and potential ECAs. Notwithstanding this
allowance for multiple episodes of care, the Treasury Department and
the IRS continue to believe that patients should not have less
opportunity or time to apply for financial assistance simply because
they received care from a hospital facility in the past, especially
since illness and accumulating hospital bills themselves could result
in a deterioration of an individual's financial circumstances. Thus,
the final regulations also provide that, if a hospital facility
aggregates an individual's outstanding bills for multiple episodes of
care before initiating one or more ECAs to obtain payment for those
bills, it may not initiate the ECA(s) until 120 days after it provided
the first post-discharge bill for the most recent episode of care
included in the aggregation. Similarly, although, as a formal matter, a
separate application period starts with each episode of care, as a
practical matter, hospital facilities have the option of measuring the
240-day period from the first post-discharge bill for the most recent
episode of care.
iii. Notification Requirements
To satisfy the notification component of ``reasonable efforts''
with respect to any care provided to an individual, the 2012 proposed
regulations required a hospital facility to take the following actions:
(1) Distribute a plain language summary of the FAP, and offer a FAP
application form, to the individual before discharge from the hospital
facility; (2) include a plain language summary of the FAP with all (and
at least three) billing statements for the care and with all other
written communications regarding the bill provided during a 120-day
notification period; (3) during the notification period, inform the
individual about the FAP in all oral communications regarding the
amount due for the care; and (4) provide the individual with at least
one written notice informing the individual about the ECAs the hospital
facility (or other authorized party) may take if the individual did not
submit a FAP application or pay the amount due.
As discussed in section 4.a.iv.C of this preamble, the requirement
to provide a plain language summary of the FAP as part of the discharge
or intake process is included under Sec. 1.501(r)-4 of the final
regulations as part of widely publicizing the FAP, rather than under
Sec. 1.501(r)-6(c) of the final regulations. Rather than require that
a plain language summary of the FAP be included with all (and at least
three) billing statements and with all other written communications
regarding the bill provided during a 120-day period after the first
bill, Sec. 1.501(r)-4 of the final regulations requires that all
billing statements include a notice informing patients about the
availability of financial assistance and how to get information about
and a copy of the FAP, and Sec. 1.501(r)-6(c) of the final regulations
requires that a plain language summary of the FAP be included with one
post-discharge written communication. The final regulations continue to
require oral notification about the FAP as part of reasonable efforts
to determine FAP-eligibility in Sec. 1.501(r)-6(c), but amend this
requirement to focus the oral notification on those patients against
whom the hospital facility intends to engage in ECAs rather than
require it for all patients who communicate with the hospital facility
about the amount due for the care. Finally, Sec. 1.501(r)-6(c) of the
final regulations continues to require a notice about potential ECAs
but requires notice only of the ECAs the hospital facility intends to
initiate rather than all ECAs that may be initiated. The comments
received on, and the modifications to the components of, the
notification actions that remain in Sec. 1.501(r)-6(c) of the final
regulations are discussed in greater detail in this section 6.b.iii of
the preamble. In general, the Treasury Department and the IRS expect
that these modifications will significantly reduce the burden on
hospital facilities without significantly reducing the notice given to
patients about the availability of financial assistance.
A. Providing Plain Language Summaries With Written Communications
Many commenters stated that requiring hospital facilities to
include plain language summaries with all billing statements (as well
as with all other written communications) during the notification
period would result in significant programming, printing, and mailing
costs. A number of commenters suggested that a reference to the
availability of the FAP and a brief description of how to obtain more
information should be sufficient information for patients, with some
commenters adding that if plain language summaries had to be included
with bills at all, the requirement should be limited to only one or two
bills. Other commenters noted that multiple notices over time are
important, as patients may be in varying states of readiness for
information on financial assistance, and these commenters singled out
notices with billing statements as especially effective.
In response to these comments, the notification component of
reasonable efforts under the final regulations requires a hospital
facility to provide a plain language summary of the FAP to an
individual only if and when it sends that individual the written notice
about potential ECAs described in section 6.b.iii.C of this preamble.
Thus, hospital facilities need only incur the additional costs that may
be associated with the provision of a plain language summary one time
and only with respect to the smaller pool of patients against whom the
hospital facility actually intends to engage in ECAs, not with respect
to all patients against whom it might one day want to engage in ECAs.
As a result, the final regulations significantly reduce the burden on
hospital facilities in notifying individuals about their FAPs.
At the same time, many of the commenters who argued that including
a plain language summary with every bill would be unnecessarily costly
also noted that a brief description of how to obtain more information
about the FAP should provide sufficient notification to patients. Other
commenters stressed the importance of repeated notices about the FAP
with bills. In response to these comments, and for reasons discussed in
section 4.a.iv.C of this preamble, the final regulations require a
conspicuous written notice about the FAP to be included on a hospital
facility's billing statement as part of ``widely publicizing'' the FAP
for purposes of meeting the requirements under section 501(r)(4).
Because the final regulations require this conspicuous notice about the
FAP to be included on billing statements, the Treasury Department and
the IRS do not expect that the final regulations significantly reduce
the information available to individuals who may be FAP-eligible or
their opportunity to learn about or apply for financial assistance.
[[Page 78989]]
B. Oral Notification
Some commenters stated that the requirement that the hospital
facility inform the individual about the FAP in all oral communications
regarding the amount due for care was overly burdensome, prohibitively
difficult to document, prone to human error, and too dependent on the
cooperation of the individual (who may, for example, hang up before
receiving information about the FAP). A few commenters asked that the
oral communication requirement be limited to those patients who
indicate they may have difficulty paying their bill rather than
applying to any patient with a question ``regarding the amount due for
care,'' as the latter could include many routine billing inquiries.
Other commenters stated that orally-conveyed information can be the
most effective way to ensure that patients know financial assistance is
available, especially in the case of LEP populations or individuals
with literacy issues.
In response to commenters, the final regulations replace the oral
notification requirement in the 2012 proposed regulations with a
requirement that a hospital facility make a reasonable effort to orally
notify an individual about the hospital facility's FAP and about how
the individual may obtain assistance with the FAP application process
at least 30 days before the initiation of ECAs against the individual.
By allowing hospital facilities to target their oral notifications to
those individuals against whom they actually intend to engage in ECAs,
the final regulations respond to the concern that the oral notification
rule in the 2012 proposed regulations was too burdensome by greatly
reducing the oral notifications that hospital facilities must make. At
the same time, the final regulations ensure that individuals who may
need financial assistance receive oral notification about a hospital
facility's FAP prior to the hospital facility's initiation of ECAs,
which addresses concerns raised by commenters who stressed the
importance of orally-conveyed information for potentially FAP-eligible
individuals.
C. Notification About Impending ECAs
A few commenters would eliminate the requirement in the 2012
proposed regulations of a written notice informing individuals about
the ECAs the hospital facility may take if the individual does not
submit a FAP application or pay the amount due by the specified
deadline, stating that such a written notice could be considered a
``threatening'' communication that is prohibited by the federal Fair
Debt Collection Practices Act (FDCPA) (15 U.S.C. 1601 et seq.).
The FDCPA does not prevent a debt collector from informing an
individual about an ECA if the ECA is lawful and the debt collector
``intends'' or has a ``present intention'' to take the action. See 15
U.S.C. 1692e(4)-(5), 1692f(6). In accordance with this language in the
FDCPA and in response to comments, the final regulations amend the
requirement regarding the written notice about ECAs to require that the
notice state the ECA(s) that the hospital facility (or other authorized
party) actually ``intends to take,'' rather than requiring a
description of every ECA a hospital ``may'' take in the future.
Furthermore, like the 2012 proposed regulations, the final regulations
do not require a hospital facility (or third party collecting a
hospital facility's debt) to provide this notice unless and until it
actually intends to initiate one or more ECA(s) against an individual.
This ability to wait to send the notice not only should eliminate any
conflict with the FDCPA but also limits the burden associated with
providing the notice because a hospital facility need only send it to
the subset of patients against whom it actually intends to initiate
ECAs.
Similar to the 2012 proposed regulations, the final regulations
also require the written notice to state a deadline after which the
identified ECA(s) may be initiated that is no earlier than 30 days
after the date that the written notice is provided. In addition, the
final regulations require the written notice to generally indicate that
financial assistance is available for eligible individuals.
D. Documenting Notification
The 2012 proposed regulations provided that, if an individual had
not submitted a FAP application and the hospital facility had notified
the individual as described in the 2012 proposed regulations and
documented that it had so notified the individual, the hospital
facility would be deemed to have met the reasonable efforts
requirements of section 501(r)(6) and could engage in ECAs against that
individual. With respect to documenting compliance with the
notification requirements, one commenter asked whether a hard copy or
electronic image of every relevant piece of paper given to every
individual would be required.
The final regulations eliminate any separate requirement under the
section 501(r)(6) regulations to document notification. The Treasury
Department and the IRS note, however, that hospital organizations will
have to report whether and how they made reasonable efforts to
determine FAP-eligibility before engaging in ECAs on their Forms 990
and, as a general matter, are responsible for maintaining records to
substantiate any information required by the Form 990. See section
6033(a)(1); Sec. 1.6001-1(c).
E. Miscellaneous Issues Involving Written Communications
Numerous commenters noted that hospital facilities' billing systems
are transitioning from paper to electronic delivery and stated that the
2012 proposed regulations seemed to envision that most written
communications would be provided in paper form. In response to these
comments, the final regulations clarify that a hospital facility may
provide any of the written notices or communications described in Sec.
1.501(r)-6 of the final regulations electronically (for example by
email) to any individual who indicates he or she prefers to receive the
written notice or communication electronically.
A number of provisions in the 2012 proposed regulations referred to
the date a written notice or communication was ``provided,'' and one
commenter asked whether ``provides'' means the date the statement is
placed into the U.S. mail or the date the statement is received by the
patient. The final regulations clarify that, in the case of any written
notice or communication that is mailed, the communication will be
considered ``provided'' on the date of mailing. A communication may
also be considered provided on the date it is sent electronically or
delivered by hand.
iv. Incomplete FAP Applications
In the case of an individual who submits an incomplete FAP
application during the application period, the 2012 proposed
regulations provided that a hospital facility must suspend ECAs
(defined as not initiating any ECAs or taking further action on any
previously initiated ECAs) taken against the individual until either
the individual's FAP application was completed and processed or the
``completion deadline'' had passed without the individual's having
completed the FAP application. The 2012 proposed regulations further
provided that the completion deadline could be no earlier than the
later of 30 days from the date of a written notice about impending ECAs
or the last day of the application period. Some commenters expressed
concern that these provisions in the 2012 proposed regulations
effectively allowed an individual to submit a FAP application
[[Page 78990]]
form with minimal information on it and thereby automatically defer
ECAs for up to 240 days.
In response to this concern, and to provide hospital facilities
with additional flexibility to work with individuals submitting
incomplete FAP applications in a manner appropriate to the particular
circumstances, the final regulations provide that a hospital facility
must suspend ECAs against the individual until either the individual
completes the FAP application and the hospital facility determines
whether the individual is FAP-eligible or until the individual has
failed to respond to requests for additional information and/or
documentation within a reasonable period of time. The Treasury
Department and the IRS expect the reasonableness of the period of time
individuals are given to complete a FAP application before ECAs may
resume will depend on the particular facts and circumstances, including
the amount of additional information and/or documentation that is being
requested. Although the final regulations potentially permit a hospital
facility to initiate or resume ECAs before the end of the application
period against an individual who has failed to respond to requests for
additional information and/or documentation, if the individual
subsequently completes the FAP application during the application
period, the final regulations would require the hospital facility to
again suspend any ECAs taken against the individual until the hospital
determines whether the individual is FAP-eligible (and, if the
individual is determined to be FAP-eligible, to reverse such ECAs).
A few commenters requested clarification that hospital facilities
are required to suspend only those ECAs relating to the care at issue
upon the submission of a FAP application, not ECAs relating to past
care for which the hospital facility has already satisfied the
reasonable efforts requirements. The final regulations include this
clarification (in the context of processing both incomplete as well as
complete FAP applications) by providing that a hospital facility must
only suspend any ECAs taken against the individual ``to obtain payment
for the care'' at issue.
Two commenters suggested that the requirement to suspend ECAs
ignores specific time frames that must be followed to prevent a
hospital facility's legal rights from being jeopardized, such as filing
a claim in a bankruptcy proceeding and filing a responsive pleading or
responding to a motion by prescribed deadlines in pending legal
actions. One of these commenters recommended that the final regulations
allow for ECAs to continue even when an incomplete FAP application is
submitted if suspending the ECA would result in the hospital facility's
legal rights being jeopardized.
In response to these comments, the final regulations add a
provision stating that filing a claim in a bankruptcy proceeding is not
an ECA, so the requirement to suspend ECAs will not jeopardize the
ability to file such claims. The final regulations do not adopt the
suggestion that ECAs be permitted to continue ``if suspending the ECA
would result in the hospital facility's legal rights being
jeopardized,'' as this is a vague standard that would be difficult to
enforce and could substantially diminish the protection afforded by the
suspension requirement. The Treasury Department and the IRS also note
that, under the final regulations, ECAs taken against an individual who
has submitted an incomplete FAP application only have to be suspended
for a ``reasonable period of time,'' not a period of at least 240 days
from the first post-discharge bill.
The final regulations require hospital facilities to provide a
notice about potential ECAs (and an accompanying plain language summary
of the FAP) to an individual who has submitted an incomplete FAP
application under the provisions relating to notification about the FAP
rather than separately requiring this notice under the provisions
relating to incomplete FAP applications (as had been done in the 2012
proposed regulations). This change is made to simplify the regulations
and is not intended to have any substantive effect for individuals who
submit an incomplete FAP application before ECAs have been initiated.
Finally, to ensure that individuals who submit an incomplete FAP
application during the application period know who they can contact for
assistance in completing the application, and in response to commenters
who stressed the importance of oral communication generally, the final
regulations require a hospital facility to provide such individuals
with the contact information of a hospital facility office or
department (or, alternatively, a nonprofit organization or government
agency) that can provide assistance with the FAP application process.
v. Complete FAP Applications
A. General Requirements Following Receipt of Complete FAP Applications
Like the 2012 proposed regulations, the final regulations provide
that, if a hospital facility receives a complete FAP application from
an individual during the application period, the hospital facility will
have made reasonable efforts to determine whether the individual is
FAP-eligible only if it suspends any ECAs taken against the individual
to obtain payment for the care, makes and documents an eligibility
determination in a timely manner, and notifies the individual in
writing of the determination and the basis for the determination.
A few commenters recommended that the final regulations require
FAP-eligibility determinations to be made within a specified period of
time, with the suggested time ranges being five business days, 30 days,
and 45 days. However, another commenter agreed with the proposed rule
that hospital facilities evaluate whether an applicant is eligible in
``a timely manner'' (while also adding that ``30 days seems
reasonable''). Yet another commenter noted that many FAPs will require
individuals to apply for Medicaid before the individual is eligible for
financial assistance from the hospital facility and requested that the
regulations suspend the time period in which the hospital facility must
make the FAP-eligibility determination to allow time for a Medicaid
application to be filed and a Medicaid eligibility determination to be
made.
The Treasury Department and the IRS believe that the reasonableness
of the time period required to make an eligibility determination will
vary depending upon particular facts and circumstances. For example, a
hospital facility's receipt of an unusually large number of FAP
applications in a particular week might reasonably result in that
hospital facility taking longer to process the applications than would
ordinarily be the case. In addition, the Treasury Department and the
IRS note that the final regulations require hospital facilities to
suspend ECAs between the time a complete FAP application is submitted
and the time an eligibility determination is made, providing some
protection for patients during this time period. Thus, the final
regulations do not adopt a specific period of time in which a hospital
facility must make a FAP-eligibility determination, opting instead to
continue to require the determination to be made ``in a timely manner''
to provide hospital facilities with the appropriate flexibility to
address varied situations. In addition, in cases in which a hospital
facility believes an individual who has submitted a complete FAP
application may qualify for Medicaid, the final regulations
[[Page 78991]]
clarify that a hospital facility may postpone making a FAP-eligibility
determination until after the individual's Medicaid application has
been completed and submitted and a determination as to Medicaid
eligibility has been made. However, as is generally the case when an
individual has submitted a complete FAP application, a hospital
facility may not initiate or resume any ECAs to obtain payment for the
care at issue until a FAP-eligibility determination has been made.
Like the 2012 proposed regulations, the final regulations make
clear that if a hospital facility determines whether an individual is
FAP-eligible for care based on a complete FAP application before
initiating any ECAs against the individual to obtain payment for the
care, it has made reasonable efforts to determine whether the
individual is FAP-eligible for the care, regardless of what
notification about the FAP (or, if applicable, about what the
individual needs to provide to complete an incomplete FAP application)
had been or continues to be provided to the individual.
B. Requirements When an Individual Is Determined To Be FAP-Eligible
The 2012 proposed regulations provided that if a hospital facility
determines an individual to be FAP-eligible, the hospital facility must
provide the individual with a billing statement that indicates the
amount the individual owes as a FAP-eligible individual and shows (or
describes how the individual can get information regarding) the AGB for
the care and how the hospital facility determined the amount the
individual owes as a FAP-eligible individual. The hospital facility
would also be required to refund any excess payments made by the FAP-
eligible individual and take all reasonably available measures to
reverse any ECA (with the exception of a sale of debt) taken against
the individual to obtain payment for the care at issue.
One commenter recommended that notification about FAP-eligibility
be optional in cases in which 100 percent of a patient's account has
been written off under a hospital facility's FAP. The Treasury
Department and the IRS believe that providing a patient who has been
determined to be eligible for free care with some written documentation
of that eligibility determination is necessary both to notify the
patient and to protect him or her in the event of any future erroneous
charges for the care. However, the Treasury Department and the IRS do
agree that a billing statement indicating a $0 balance is not necessary
in addition to a written notification about eligibility for free care.
Accordingly, the final regulations require written notification that an
individual is determined to be eligible for free care but do not
require a billing statement indicating that nothing is owed for the
care (or stating or describing how the individual can get information
regarding AGB for the care).
A few commenters asked about the time period to which the
requirement to refund FAP-eligible patients applies and requested
clarification that hospital facilities are not required to refund
amounts previously paid to the hospital for care unless the individual
is determined to be FAP-eligible for that care. The 2012 proposed
regulations and the final regulations refer only to refunds of payments
``for the care'' at issue and are intended to require refunds only of
payments for the episode(s) of care to which an individual's FAP
application (and therefore his or her FAP-eligibility determination)
relates. Thus, if an individual receives and pays for a hospital
facility's care in both year 1 and year 3 but only applies for
financial assistance in year 3 for the care received in year 3 and is
determined to be FAP-eligible for the care provided in year 3, the
hospital facility would only have to refund any excess amounts the
individual paid for the year 3 care, not any amount the individual paid
for the year 1 care. Because the 2012 proposed regulation required only
refunds for ``the care'' at issue, the Treasury Department and the IRS
do not believe that the final regulations need to be amended to further
clarify this point.
Two commenters asked that the final regulations set a reasonable
threshold, such as $5, for required refunds, noting that some states
apply such thresholds. The Treasury Department and the IRS agree that
the administrative costs associated with requiring hospital facilities
to process refunds in amounts of less than $5 would outweigh the
benefits to FAP-eligible patients. Accordingly, the final regulations
do not require a hospital facility to refund any amount a FAP-eligible
individual has paid for care that exceeds the discounted amount he or
she owes for the care as a FAP-eligible individual if such excess
amount is less than $5. In addition, recognizing that inflation and
other factors may create the need to increase the $5 threshold in the
future, the final regulations allow the Treasury Department or the IRS
to increase the threshold in a notice or other guidance published in
the Internal Revenue Bulletin.
One commenter sought clarification about whether hospital
facilities are required to make refunds only to individuals determined
to be FAP-eligible or also to their insurers. The 2012 proposed
regulations required refunds only of the amounts the FAP-eligible
individual had paid ``in excess of the amount he or she is determined
to owe as a FAP-eligible individual.'' Thus, only refunds to the
individual were intended to be required. However, to clarify this
intent, the final regulations require the hospital facility to provide
refunds ``to the individual'' and refer to the amount the individual is
``personally responsible for paying'' rather than the amount the
individual ``owes.''
One commenter recommended that reversal of ECAs only be required
upon a determination that an individual is FAP-eligible to the extent
of the adjustment to the bill made as a result of FAP-eligibility, so
that, for example, if a patient were still liable for 50 percent of a
bill after an adjustment for a FAP discount, ECAs could continue to be
used to collect the discounted amount owed. Other commenters, however,
supported the requirement to reverse ECAs, stating that it, along with
the requirement to provide refunds, were reasonable and sufficient
measures to protect patients.
As noted previously in this preamble, the Treasury Department and
the IRS believe that reasonable efforts to determine FAP-eligibility
necessitate giving patients a reasonable period of time of at least
eight months (240 days) after the first post-discharge bill to learn
about a hospital facility's FAP and apply for assistance. Nonetheless,
the final regulations, like the 2012 proposed regulations, allow
hospital facilities to initiate ECAs against individuals whose FAP-
eligibility has not been determined as early as 120 days after the
first post-discharge bill to avoid undue interference with hospital
facilities' ability to collect debts from non-FAP-eligible individuals.
However, if a hospital facility does initiate an ECA against an
individual before the end of the 240-day application period and the
individual is subsequently determined to be FAP-eligible, the Treasury
Department and the IRS believe the hospital facility should reverse the
ECA altogether and begin the collection process anew based on the
adjusted amount. The Treasury Department and the IRS expect that such a
rule will encourage hospital facilities not to begin ECAs during the
application period against individuals they believe are likely to be
FAP-eligible.
[[Page 78992]]
vi. Presumptive FAP-Eligibility Determinations Based on Third-Party
Information or Prior FAP-Eligibility Determinations
The 2012 proposed regulations provided that a hospital facility has
made reasonable efforts to determine whether an individual is FAP-
eligible if it determines that the individual is eligible for the most
generous assistance available under the FAP based on information other
than that provided by the individual, such as the individual's
eligibility under one or more means-tested public programs. The 2012
proposed regulations also provided that a hospital facility will not
have made reasonable efforts to determine whether an individual is FAP-
eligible as a result of obtaining a signed waiver from the individual
and defined a FAP-eligible individual as an individual eligible for FAP
assistance without regard to whether the individual has applied for
such assistance.
The Treasury Department and the IRS recognized that these
provisions, together, effectively left a hospital facility with two
options if it wanted to engage in an ECA against an individual who had
not submitted a FAP application: either notify the individual about the
FAP during the notification period or provide the individual with the
most generous assistance available under the FAP. Accordingly, the
preamble to the 2012 proposed regulations requested comments on how to
provide additional flexibility under the regulations to hospital
facilities seeking to determine whether an individual is FAP-eligible,
and, in particular, on how a hospital facility might reasonably
determine whether an individual is FAP-eligible in ways other than
soliciting and processing FAP applications. The preamble to the 2012
proposed regulations also requested comments regarding whether a
hospital facility might be able to rely on prior FAP-eligibility
determinations for a period of time to avoid having to re-determine
whether an individual is FAP-eligible every time he or she receives
care.
Numerous commenters stated that hospitals can, and commonly do,
rely on trustworthy methods and sources of information other than FAP
applications to determine FAP-eligibility. Some noted the use of public
and private records and data sources that, often in combination with
predictive models and algorithms, could presumptively determine FAP-
eligibility, including for discounts on a sliding scale that are less
than the most generous available under the FAP. A number of these
commenters suggested that allowing hospital facilities to use these
information sources and methods to presumptively determine eligibility
only for the most generous discounts under a FAP could inadvertently
result in fewer individuals receiving financial assistance. Other
commenters noted that hospital facilities could readily and accurately
determine the insurance status or residency of particular individuals
and, therefore, determine that such individuals are not FAP-eligible
when such eligibility depends on being uninsured or on being a resident
of the state in which the hospital facility is licensed. Most of these
commenters generally recommended that hospital facilities be allowed to
rely on information sources and methods other than FAP applications to
determine FAP-eligibility as long as the sources and methods are
disclosed (for example, in the FAP or on the hospital facility's Form
990) and/or the individual is given a reasonable opportunity to provide
information indicating FAP-eligibility or eligibility for a greater
discount than the one provided. A few commenters, however, recommended
against the use of predictive models that rely on credit scores, noting
that such methods assess creditworthiness rather than financial need. A
few commenters also suggested that predictive models should only be
used to approve someone for financial assistance, not to deem them
ineligible for it.
In addition, commenters recommended that hospital facilities should
be able to rely on prior FAP eligibility determinations, arguing that
it would be burdensome and costly to require a hospital facility to re-
determine whether an individual is FAP-eligible every time the
individual receives care. Suggestions ranged from allowing reliance on
prior FAP applications for a certain time period (90 days, four months,
six months, or twelve months) to allowing hospital facilities the
flexibility to determine how long FAP-eligibility status may last. Most
of these commenters recommended that a hospital facility's reliance on
prior FAP-eligibility determinations should be disclosed in its FAP
and/or that patients should be given a reasonable opportunity to
resubmit an application if and when their financial situation changes.
In response to these comments and to encourage hospital facilities
to provide discounts to potentially FAP-eligible individuals who have
not submitted FAP applications, the final regulations provide that, in
addition to presumptively determining that an individual is eligible
for the most generous assistance available under its FAP, a hospital
facility may also presumptively determine that an individual is
eligible for less than the most generous assistance available under the
FAP based on information other than that provided by the individual or
based on a prior FAP-eligibility determination (hereinafter referred to
as presumptive determinations). Most commenters recognized, though,
that presumptive determinations that an individual is eligible for less
than the most generous assistance available under a FAP should not
relieve a hospital facility of the obligation to give patients a
reasonable opportunity to seek more generous assistance by providing
additional information related to FAP-eligibility. Accordingly, the
final regulations provide that a presumptive determination that an
individual is eligible for less than most generous assistance available
under a FAP only constitutes reasonable efforts to determine FAP-
eligibility if three conditions are met. First, the hospital facility
must notify the individual regarding the basis for the presumptive FAP-
eligibility determination and the way he or she may apply for more
generous assistance available under the FAP. Second, the hospital
facility must give the individual a reasonable period of time to apply
for more generous assistance before initiating ECAs to obtain the
discounted amounted owed for the care. And, third, the hospital
facility must process any complete FAP application that the individual
submits by the end of the application period or, if later, by the end
of the reasonable time period given to apply for more generous
assistance.
The final regulations do not treat as reasonable efforts a
presumptive determination that an individual is not FAP-eligible. The
Treasury Department and the IRS believe that before being subjected to
ECAs, individuals who have received no financial assistance under a FAP
and who have not submitted a complete FAP application should, at a
minimum, receive a notice about the FAP (through a plain language
summary) and about the deadline for submitting a FAP application before
ECAs may be initiated, as described in section 6.b.iii of this
preamble. The Treasury Department and the IRS note, however, that even
though presumptive determinations of FAP-ineligibility do not
constitute reasonable efforts to determine FAP-eligibility for purposes
of section 501(r)(6), a hospital facility is not prohibited from using
third-party information sources and prior FAP-
[[Page 78993]]
eligibility determinations to try to predict which of its patients are
unlikely to be FAP-eligible.
A number of commenters asked that the definition of ``FAP-eligible
individual'' be revised such that it applies only to individuals
``known to be eligible for financial assistance.'' Allowing hospital
facilities to assume individuals are not FAP-eligible unless and until
they obtain knowledge to the contrary would relieve hospital facilities
of any obligation to make reasonable efforts to determine whether
individuals are FAP-eligible and thereby undercut the purpose of
section 501(r)(6). Accordingly, the definition of FAP-eligible
individual is not amended to apply only to individuals known to be FAP-
eligible.
Many commenters also asked that hospital facilities be allowed to
use targeted and limited waivers in determining FAP-eligibility, such
as waivers for individuals who the hospital facility has no reason to
believe may be FAP-eligible or individuals with adequate insurance and
the ability to meet any co-pays and deductibles. In addition, one
commenter asked that the final regulations provide that making
reasonable efforts to determine an individual is FAP-eligible includes
obtaining an attestation from the individual that his or her income
and/or assets exceed certain thresholds in the FAP and that the
attestation was not made under coercion.
The Treasury Department and the IRS continue to believe that
obtaining signatures from individuals on a waiver form is not a
meaningful way to determine that they are not FAP-eligible. The
Treasury Department and the IRS note, however, that the final
regulations define a complete FAP application as information and
documentation provided by an individual that is sufficient to determine
the individual's FAP-eligibility, and an individual's attestation
regarding his or her income or other criteria relevant to FAP-
eligibility could be sufficient to determine FAP-eligibility and
therefore could be considered a complete FAP application. Thus, if a
hospital facility makes a determination as to whether an individual is
FAP-eligible based an individual's attestation regarding his or her
income or other relevant eligibility criteria--and the hospital
facility has no reason to believe that the information on the statement
is incorrect and did not obtain the information from the individual
under duress or through the use of coercive practices--the hospital
facility will have made a determination based on a complete FAP
application and, thus, have made reasonable efforts to determine
whether the individual is FAP-eligible for purposes of section
501(r)(6).
vii. Reasonable Efforts in the Case of Denying or Deferring Care Based
on Past Nonpayment
As discussed in section 6.a.iv of this preamble and in response to
comments, the final regulations include as an ECA the deferral or
denial of (or the requirement of a payment before providing) medically
necessary care because of the individual's nonpayment of one or more
bills for previously provided care. Unlike other ECAs, the timing of
this ECA involving the deferral or denial of care will depend on when
an individual seeks medically necessary care from the hospital
facility, a contingency over which the hospital facility has no
control. In addition, if the provision of medically necessary care is
at stake, the individual's application for financial assistance should
be completed and his or her FAP-eligibility should be determined as
quickly as possible to avoid jeopardizing the individual's health.
Based on these considerations, the final regulations provide that,
in the case of an ECA involving deferral and denial of (or requiring
payment before providing) care only, a hospital facility is not
required to provide the oral and written notification about the FAP and
potential ECAs discussed in section 6.b.iii of this preamble at least
30 days in advance of initiating this ECA to have made reasonable
efforts to determine whether the individual is FAP-eligible. However,
to avail itself of this exception, a hospital facility (or other
authorized party) must satisfy several conditions. First, the hospital
facility must provide the individual with a FAP application form (to
ensure the individual may apply immediately, if necessary) and notify
the individual in writing about the availability of financial
assistance for eligible individuals and the deadline, if any, after
which the hospital facility will no longer accept and process a FAP
application submitted by the individual for the previously provided
care at issue. This deadline must be no earlier than the later of 30
days after the date that the written notice is provided or 240 days
after the date that the first post-discharge billing statement for the
previously provided care was provided. Thus, although the ECA involving
deferral or denial of care may occur immediately after the requisite
written (and oral) notice is provided, the individual must be afforded
at least 30 days after the notice to submit a FAP application for the
previously provided care. In addition, the hospital facility must
notify the individual about the FAP in the two other ways discussed in
section 6.b.iii of the preamble (though without regard to the
requirement to do so at least 30 days before the initiation of an ECA):
namely, by providing a plain language summary of the FAP and by orally
notifying the individual about the hospital facility's FAP and about
how the individual may obtain assistance with the FAP application
process. Finally, if an individual submits a FAP application for
previously provided care during the application period, the hospital
facility must process the application on an expedited basis, to ensure
that medically necessary care is not unnecessarily delayed.
In the case of the ECA involving the deferral or denial of care,
the final regulations also provide an exception to the general rule
that reasonable efforts to determine FAP-eligibility ordinarily will
require a hospital to wait at least 120 days after the first post-
discharge bill before initiating ECAs. Under the exception, a hospital
facility may defer or deny (or require payment before providing)
medically necessary care \12\ because of an individual's nonpayment of
one or more bills for previously provided care even though such
deferral or denial (or payment requirement) is within 120 days of the
first post-discharge bill for the previously provided care. Without
such an exception in the final regulations, hospital facilities would
effectively be required to provide medically necessary care to
individuals with past due bills when these individuals are seeking care
within 120 days of the first post-discharge bill.
---------------------------------------------------------------------------
\12\ With respect to deferring or denying (or requiring payment
before providing) emergency medical care, in particular, hospital
organizations are separately subject to the requirements under
Subchapter G of Chapter IV of Title 42 of the Code of Federal
Regulations, which includes the regulations under EMTALA, and the
emergency medical care policy they adopt to meet the requirements of
section 501(r)(4)(B) (as discussed in section 4.b of this preamble).
---------------------------------------------------------------------------
The Treasury Department and the IRS note that the modified
reasonable efforts to determine FAP-eligibility discussed in this
section 6.b.vii of the preamble would not be necessary if a hospital
facility had already determined whether the individual was FAP-eligible
for the previously provided care at issue based on a complete FAP
application or had presumptively determined the individual was FAP-
eligible for the previously provided care as described in section
6.b.vi of this preamble. The modified reasonable efforts would also not
be needed in cases in which 120
[[Page 78994]]
days had passed since the first post-discharge bill for the previously
provided care, and the hospital facility had already notified the
individual about intended ECAs as described in section 6.b.iii of this
preamble.
viii. Agreements With Other Parties
The 2012 proposed regulations provided that if a hospital facility
refers or sells an individual's debt to another party during the
application period, the hospital facility will have made reasonable
efforts to determine whether the individual is FAP-eligible only if it
first obtains a legally binding written agreement from the other party
to abide by certain specified requirements. The 2012 proposed
regulations requested comments regarding the feasibility of this rule.
Commenters who responded to this request for comments generally
indicated that imposing such contractual obligations on debt collection
agencies or debt buyers was not especially unusual or unworkable, and,
thus, the Treasury Department and the IRS adopt the provisions of the
2012 proposed regulations with only minor clarifying revisions that are
not intended to be substantive changes. In the event a hospital
facility does sell or refer an individual's debt and the debt buyer or
collection agent takes one or more of the steps required to have made
reasonable efforts to determine whether the individual is FAP-eligible,
the final regulations also clarify the hospital facility will be
treated as having taken those steps for purposes of making reasonable
efforts under section 501(r)(6).
7. Section 501(r) and State Law Requirements
Numerous commenters noted that their states already had laws in
effect covering some or most of the same subject matter as the
requirements described in Sec. Sec. 1.501(r)-3 through 1.501(r)-6 of
the proposed regulations and argued that requiring compliance with the
section 501(r) regulations in addition to what hospitals are already
required to do under state law would create unnecessary duplication of
effort and administrative burden. Others went further and argued that
the requirements described in Sec. Sec. 1.501(r)-3 through 1.501(r)-6
of the proposed regulations conflicted or were inconsistent with
certain state law requirements. Areas of inconsistency noted by
commenters included the timing and content of notices that must be
provided to patients, rules regarding the limitations on charges, and
the periods of time during which the hospital facilities must wait to
commence certain collection actions. Most of these commenters
recommended that a hospital facility should be deemed to have complied
with the section 501(r) requirements if it complies with the relevant
state law(s) applicable to it. On the other hand, some commenters asked
the Treasury Department and the IRS to clarify that nothing in the
proposed regulations will preempt state laws that contain additional or
more stringent requirements.
Given the wide variation among state laws covering some of the same
subject matter as section 501(r), providing that compliance with
section 501(r) requires only compliance with the applicable state law
would result in widely divergent rules for charitable hospitals in
different states. A rule equating compliance with state law to
compliance with section 501(r) would also mean that IRS revenue agents
assessing section 501(r) compliance would need to learn each state's
laws or that the state office responsible for enforcing the particular
state law would have to confirm a hospital facility's compliance with
the relevant state law in each taxable year under audit.
More importantly, the language in many of the state laws cited by
commenters as analogous does not match the statutory language in
section 501(r)--for example, by not including concepts such as AGB,
ECAs, or ``reasonable efforts'' to determine FAP-eligibility or by
requiring CHNAs every five years as opposed to every three years. In
these cases, simply deeming compliance with state law to result in
compliance with section 501(r) would be inconsistent with the statutory
language under section 501(r).
While many of the requirements in the state laws cited by
commenters do not match the provisions in the 2012 or 2013 proposed
regulations and while some state laws might require more or less of
hospital facilities than the comparable provision in the proposed
regulations, commenters failed to cite any state laws that conflict
with the proposed regulations in a way that would make it impossible
for a hospital facility to comply with both the state and the federal
requirement. For example, although some state laws set forth a
limitation on charges that is different from the limit that would
result from the AGB methods described in the 2012 proposed regulations,
none of the state laws identified by commenters prohibit hospital
facilities from charging FAP-eligible individuals less than the state
law limit. Similarly, AGB under section 501(r)(5) is only a maximum
amount that hospital facilities can charge FAP-eligible individuals,
and hospital facilities are free to provide more generous discounts in
their FAPs (including free care). As a result, hospital facilities are
always free to charge the lesser of AGB or a limitation on charges
imposed by state law or to establish a uniform discount that will
always fall below both the state and federal maximum charges.
Similarly, the periods of time during which hospital facilities must
wait to commence certain collection activities in both the 2012
proposed regulations and certain state laws cited by commenters are
minimum periods, and a hospital facility is always free to wait for the
longer of the two applicable periods without violating either section
501(r)(6) or state law requirements.
Accordingly, the final regulations do not contain any provisions
equating compliance with one or more requirements in applicable state
law to compliance with one or more of the requirements in the final
regulations. In addition, the final regulations are not intended to
preempt any state laws or regulations, and the Treasury Department and
the IRS expect that any additional or stricter requirements under a
state's laws or regulations will continue to apply to hospital
facilities licensed in that state.
8. Reporting Requirements Related to CHNAs
The final regulations state, consistent with the statute and the
2013 proposed regulations, that a hospital organization must provide
with its Form 990 a description of how it is addressing the community
health needs identified for each facility it operates, its audited
financial statements, and the amount of the excise tax imposed on the
organization under section 4959 during the taxable year.
a. Description of How Community Health Needs Are Being Addressed
In accordance with section 6033(b)(15)(A), the 2013 proposed
regulations required a hospital organization to furnish annually on its
Form 990 a description of the actions taken during the taxable year to
address the significant health needs identified through its most
recently conducted CHNA, or, if no actions were taken with respect to
one or more of those health needs, the reasons no actions were taken.
Numerous commenters expressed support for this requirement to annually
furnish a description of how a hospital facility is addressing health
needs identified through a CHNA, with some commenters stating that it
increases transparency and accountability and would provide written
documentation
[[Page 78995]]
of progress over time. Other commenters stated that the annual updates
would be burdensome and duplicative, given that the 2013 proposed
regulations also required hospital facilities to attach to their Forms
990 their most recently adopted implementation strategies (or provide
the URL where the implementation strategies are made widely available
on a Web site).
As discussed in section 3.b of this preamble, it is true that a
hospital facility's implementation strategy must describe, with respect
to each significant health need identified through the CHNA, how the
hospital facility plans to address the health need or why the hospital
facility does not intend to address the health need. However, as noted
in the preamble to the 2013 proposed regulations, section
6033(b)(15)(A) contemplates an annual furnishing of information
regarding how a hospital facility is actually addressing needs
identified through a CHNA each year, while an implementation strategy
is a plan for addressing these needs that only has to be updated every
three years. Accordingly, the final regulations retain the requirement
that hospital facilities annually furnish information on their Form
990s about how they are addressing the significant health needs
identified through their CHNAs.
b. Audited Financial Statements
The 2013 proposed regulations reiterated the requirement of section
6033(b)(15)(B) that a hospital organization attach to its Form 990 a
copy of its audited financial statements for the taxable year--or, in
the case of an organization the financial statements of which are
included in consolidated financial statements with other organizations,
such consolidated financial statements. In the preamble to the 2013
proposed regulations, the Treasury Department and the IRS requested
comments regarding whether hospital organizations whose financial
statements are included in consolidated financial statements should be
able to redact financial information about any taxable organizations
that are members of the consolidated group.
Two commenters stated that information about taxable organizations
should be redacted from publicly available financial statements without
further elaboration while another commenter stated that the information
provided on the Form 990 should be as detailed as possible to keep tax-
exempt hospitals accountable. Consolidated financial statements are
fully integrated, making redaction of one particular organization's
financial information difficult. The few comments received did not
provide any explanation as to how such redactions could be accomplished
without compromising the clarity of the statement. Accordingly, the
final regulations adopt the proposed requirement without change.
c. Reporting Requirements for Government Hospital Organizations
A number of commenters have asked whether and how government
hospital organizations can satisfy the reporting requirements related
to CHNAs, since they are excused from filing a Form 990 under Rev.
Proc. 95-48. As noted in the preamble to the 2013 proposed regulations,
the Affordable Care Act did not change the requirements regarding which
organizations are required to file a Form 990. Accordingly, a
government hospital organization (other than one that is described in
section 509(a)(3)) that has been excused from filing a Form 990 under
Rev. Proc. 95-48 or a successor revenue procedure is not required to
file a Form 990. Because government hospital organizations described in
Rev. Proc. 95-48 are relieved from the annual filing requirements under
section 6033, they are also relieved from any new reporting
requirements imposed on hospital organizations under section 6033,
including under section 6033(b)(10)(D) and (b)(15) and the requirement
to attach one or more implementation strategies to a Form 990. However,
to be treated as described in section 501(c)(3), government hospital
organizations still must meet all section 501(r) requirements that do
not involve disclosure on or with the Form 990, including making their
CHNA reports and FAPs widely available on a Web site.
9. Excise Tax on Failure To Meet CHNA Requirements
Section 4959 imposes a $50,000 excise tax on a hospital
organization that fails to meet the CHNA requirements with respect to
any taxable year. The 2013 proposed regulations provided that the
excise tax applies on a facility-by-facility basis and may be imposed
on a hospital organization for each taxable year that a hospital
facility fails to meet the section 501(r)(3) requirements.
One commenter suggested that the full $50,000 excise tax should
apply only in instances where a hospital facility fails to conduct a
CHNA altogether, with a sliding scale of tax applied to organizations
that conduct a CHNA but fail to substantially comply with all of the
CHNA requirements. Another commenter suggested applying the $50,000
excise tax separately for each failure of a hospital facility to meet
each component of the section 501(r)(3) requirements.
Section 4959 applies the $50,000 excise tax to a hospital
organization that fails to meet the requirements of section 501(r)(3)
for any taxable year. Section 501(r)(3) requires that, in conducting a
CHNA, a hospital must take into account input from persons who
represent the broad interests of the community, make the CHNA widely
available to the public, and adopt an implementation strategy to meet
the needs identified through the CHNA. Section 4959 appears to provide
for one $50,000 excise tax if a hospital facility fails one or any
combination of those components of satisfying section 501(r)(3). It
does not appear to provide for either a separate $50,000 excise tax for
each component or a tax of less than $50,000 if a hospital facility
fails some, but not all, of those components. Thus, the final
regulations do not adopt these commenters' suggestions.
However, as discussed in section 2.b of this preamble, a hospital
facility's omission or error with respect to the CHNA requirements will
not be considered a failure to meet the CHNA requirements if the
omission or error was minor and either inadvertent or due to reasonable
cause and the hospital facility corrects the omission or error in
accordance with Sec. 1.501(r)-2(b)(1)(ii). If, as a result of this
rule, an omission or error with respect to the CHNA requirements is not
considered a failure to meet the CHNA requirements, the omission or
error will not give rise to a $50,000 excise tax under section
4959.\13\
---------------------------------------------------------------------------
\13\ On the other hand, a hospital facility's failure to meet
the CHNA requirements will give rise to the excise tax under section
4959 notwithstanding its correction and disclosure pursuant to the
guidance described in section 2.c of this preamble.
---------------------------------------------------------------------------
10. Requirement of a Section 4959 Excise Tax Return and Time for Filing
the Return
Final and temporary regulations and a cross-reference notice of
proposed rulemaking published on August 15, 2013, amended the existing
regulations under sections 6011 and 6071 to require hospital
organizations liable for the excise tax imposed by section 4959 in any
taxable year to file Form 4720 by the 15th day of the fifth month after
the end of the taxable year. No public comments were received on these
amendments to sections 6011 and 6071. Therefore, these final
regulations adopt the text of the temporary and proposed regulations
without substantive change and remove the temporary regulations. The
final regulations make one non-
[[Page 78996]]
substantive change by moving the content of Sec. 53.6011-1T(c) into
existing paragraph Sec. 53.6011-1(b).
Effective/Applicability Dates
Numerous commenters requested a transition period for hospital
facilities to come into compliance with the final regulations to
provide adequate time for hospital facilities to make needed changes in
personnel, policies, procedures, and information systems. Specific
transition periods of six months and one year were recommended. Several
commenters also requested that the final regulations clarify how
hospital facilities' compliance with section 501(r) will be assessed
for the period between the date section 501(r) was enacted (March 23,
2010) and the date the final regulations are applicable.
In response to these comments, the final regulations under section
501(r) apply to a hospital facility's taxable years beginning after
December 29, 2015, which will give all hospital facilities at least a
year to come into compliance with the final regulations. For taxable
years beginning on or before December 29, 2015, the final regulations
provide that a hospital facility may rely on a reasonable, good faith
interpretation of section 501(r). A hospital facility will be deemed to
have operated in accordance with a reasonable, good faith
interpretation of section 501(r) if it has complied with the provisions
of the 2012 and/or 2013 proposed regulations or these final
regulations.
The final regulations under sections 4959 and 6033 either clarify
or confirm compliance with statutory requirements that are already in
effect and therefore do not require a transition period. Thus, the
final regulations under section 4959 apply on and after December 29,
2014, and the final regulations under section 6033 apply to returns
filed on or after December 29, 2014.
The temporary regulations under section 6071 have applied since
August 15, 2013, and this Treasury decision adopts the proposed
regulations that cross-referenced the text of those temporary
regulations without substantive change. Thus, the final regulations
under section 6071 apply on and after August 15, 2013.
Availability of IRS Documents
IRS notices, revenue rulings, and revenue procedures cited in this
preamble are made available by the Superintendent of Documents, U.S.
Government Printing Office, Washington, DC 20402.
Effect on Other Documents
The following publication is obsolete as of December 29, 2014:
Notice 2014-2 (2014-3 IRB 1).
Special Analyses
It has been determined that this rule is not a significant
regulatory action as defined in Executive Order 12866, as supplemented
by Executive Order 13563. Therefore, a regulatory assessment is not
required. It also has been determined that section 553(b) of the
Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to the
final regulations. It is hereby certified the collection of information
in these regulations will not have a significant economic impact on a
substantial number of small entities. The collection of information is
in Sec. 1.501(r)-3, Sec. 1.501(r)-4, Sec. 1.501(r)-6(c), Sec.
1.6033-2(a)(2)(ii)(l), Sec. 53.6011-1, and Sec. 53.6071-1 of the
regulations. The certification is based on the following:
Consistent with the requirements imposed by section 501(r)(3),
Sec. 1.501(r)-3 of the regulations requires hospital facilities to
conduct a CHNA and adopt an implementation strategy. However, these
requirements need only be satisfied once over a period of three taxable
years. Moreover, some hospital facilities already conduct similar
community needs assessments under state law, and the Treasury
Department and the IRS expect that these facilities will be able to
draw upon pre-existing processes and resources to some extent. In
addition, section 501(r)(3) itself already requires a hospital facility
to conduct and widely publicize a CHNA that takes into account input of
persons representing the broad interests of the community and to adopt
an implementation strategy, so much of the collection of information
burden associated with CHNAs is imposed by statute, not by these
regulations.
Consistent with the requirements imposed by section 501(r)(4),
Sec. 1.501(r)-4 of the regulations requires hospital facilities to
establish two written policies--a financial assistance policy (FAP) and
an emergency medical care policy--but much of the work involved in
putting such policies into writing will be performed once, with updates
made periodically thereafter. Moreover, while hospital facilities may
need to periodically modify these policies to reflect changed
circumstances, the proposed regulations attempt to minimize that
ongoing burden by giving hospital facilities the option of providing
certain information separately from the policy, as long as the policy
explains how members of the public can readily obtain this information
free of charge. In addition, section 501(r)(4) itself already requires
a hospital facility to establish a FAP that includes eligibility
criteria and other specified elements and an emergency medical care
policy, so much of the collection of information burden associated with
these policies is imposed by statute, not by regulations.
In addition, as a general matter, Sec. Sec. 1.501(r)-4(b)(5) and
1.501(r)-6(c) of the regulations, which, respectively, describe how a
hospital facility widely publicizes its FAP and makes reasonable
efforts to determine eligibility for assistance under its FAP, are
designed to ensure that a hospital facility can meet these requirements
by providing basic information about its FAP using pre-existing
processes (such as the issuance of billing statements) and resources
(such as its Web site and physician networks) in providing this
information.
The applicability date under the final regulations also gives all
hospital facilities at least one year to come into compliance with all
of the final regulations under section 501(r).
Consistent with the requirements imposed by section 6033(b)(15),
Sec. 1.6033-2(a)(2)(ii)(l) of the regulations requires affected
organizations to report annually on a Form 990 actions taken during the
year to address community health needs and to attach audited financial
statements to the Form 990. To assist the IRS and the public, the
regulations also require affected organizations to attach to the Form
990 a copy of the most recently adopted implementation strategy or
provide the URL of a Web page where it is available to the public. For
affected organizations, the burden of providing either a copy of the
implementation strategy or the address of a Web site where it can be
found will be minimal. Consequently, the regulations under section 6033
do not add significantly to the impact on small entities imposed by the
statutory scheme.
Sections 53.6011-1 and 53.6071-1 of the regulations merely provide
guidance as to the timing and filing of Form 4720 for charitable
hospital organizations liable for the section 4959 excise tax, and
completing the applicable portion (Schedule M) of the Form 4720 for
this purpose imposes little incremental burden in time or expense. The
liability for the section 4959 excise tax is imposed by statute, and
not these regulations. In addition, a charitable hospital organization
may already be required to file the Form 4720 under the existing final
regulations in Sec. Sec. 53.6011-
[[Page 78997]]
1 and 53.6071-1 if it is liable for another Chapter 41 or 42 excise
tax.
For these reasons, a Regulatory Flexibility Analysis under the
Regulatory Flexibility Act (5 U.S.C. chapter 6) is not required.
Pursuant to section 7805(f) of the Code, the 2012 and 2013 proposed
regulations (as well the cross-reference notice of proposed rulemaking
under sections 6011 and 6071) preceding these final regulations were
submitted to the Chief Counsel for Advocacy of the Small Business
Administration for comment on its impact on small entities and no
comments were received.
Drafting Information
The principal authors of these final regulations are Preston J.
Quesenberry, Amy F. Giuliano, Amber L. MacKenzie, and Stephanie N.
Robbins, Office of the Chief Counsel (Tax-Exempt and Government
Entities). However, other personnel from the Treasury Department and
the IRS participated in their development.
List of Subjects
26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
26 CFR Part 53
Excise taxes, Foundations, Investments, Lobbying, Reporting and
recordkeeping requirements.
26 CFR Part 602
Reporting and recordkeeping requirements.
Adoption of Amendment to the Regulations
Accordingly, 26 CFR parts 1, 53, and 602 are amended as follows:
PART 1--INCOME TAXES
0
Paragraph 1. The authority citation for part 1 continues to read in
part as follows:
Authority: 26 U.S.C. 7805 * * *
0
Par. 2. Section 1.501(r)-0 is added to read as follows:
Sec. 1.501(r)-0 Outline of regulations.
This section lists the table of contents for Sec. Sec. 1.501(r)-1
through 1.501(r)-7.
Sec. 1.501(r)-1 Definitions.
(a) Application.
(b) Definitions.
(1) Amounts generally billed (AGB).
(2) AGB percentage.
(3) Application period.
(4) Authorized body of a hospital facility.
(5) Billing and collections policy.
(6) Date provided.
(7) Discharge.
(8) Disregarded entity.
(9) Emergency medical care.
(10) Emergency medical conditions.
(11) Extraordinary collection action (ECA).
(12) Financial assistance policy (FAP).
(13) FAP application.
(14) FAP application form.
(15) FAP-eligible.
(16) Gross charges.
(17) Hospital facility.
(18) Hospital organization.
(19) Medicaid.
(20) Medicare fee-for-service.
(21) Noncompliant facility income.
(22) Operating a hospital facility.
(23) Partnership agreement.
(24) Plain language summary of the FAP.
(25) Presumptive FAP-eligibility determination.
(26) Private health insurer.
(27) Referring.
(28) Substantially-related entity.
(29) Widely available on a Web site.
Sec. 1.501(r)-2 Failures to satisfy section 501(r).
(a) Revocation of section 501(c)(3) status.
(b) Minor omissions and errors.
(1) In general.
(2) Minor.
(3) Inadvertent.
(4) Reasonable cause.
(c) Excusing certain failures if hospital facility corrects and
discloses.
(d) Taxation of noncompliant hospital facilities.
(1) In general.
(2) Noncompliant facility income.
(3) No aggregation.
(4) Interaction with other Code provisions.
(e) Instances in which a hospital organization is not required to
meet section 501(r).
Sec. 1.501(r)-3 Community health needs assessments.
(a) In general.
(b) Conducting a CHNA.
(1) In general.
(2) Date a CHNA is conducted.
(3) Community served by a hospital facility.
(4) Assessing community health needs.
(5) Persons representing the broad interests of the community.
(6) Documentation of a CHNA.
(7) Making the CHNA report widely available to the public.
(c) Implementation strategy.
(1) In general.
(2) Description of how the hospital facility plans to address a
significant health need.
(3) Description of why a hospital facility is not addressing a
significant health need.
(4) Joint implementation strategies.
(5) When the implementation strategy must be adopted.
(d) Exception for acquired, new, and terminated hospital
facilities.
(1) Acquired hospital facilities.
(2) New hospital organizations.
(3) New hospital facilities.
(4) Transferred or terminated hospital facilities.
(e) Transition rule for CHNAs conducted in taxable years beginning
before March 23, 2012.
Sec. 1.501(r)-4 Financial assistance policy and emergency medical
care policy.
(a) In general.
(b) Financial assistance policy.
(1) In general.
(2) Eligibility criteria and basis for calculating amounts charged
to patients.
(3) Method for applying for financial assistance.
(4) Actions that may be taken in the event of nonpayment.
(5) Widely publicizing the FAP.
(6) Readily obtainable information.
(7) Providing documents electronically.
(8) Medically necessary care.
(c) Emergency medical care policy.
(1) In general.
(2) Interference with provision of emergency medical care.
(3) Relation to federal law governing emergency medical care.
(4) Examples.
(d) Establishing the FAP and other policies.
(1) In general.
(2) Implementing a policy.
(3) Establishing a policy for more than one hospital facility.
Sec. 1.501(r)-5 Limitation on charges.
(a) In general.
(b) Amounts generally billed.
(1) In general.
(2) Meaning of charged.
(3) Look-back method.
(4) Prospective Medicare or Medicaid method.
(5) Examples.
(c) Gross charges.
(d) Safe harbor for certain charges in excess of AGB.
(e) Medically necessary care.
Sec. 1.501(r)-6 Billing and collection.
(a) In general.
(b) Extraordinary collection actions.
(1) In general.
(2) Certain debt sales that are not ECAs.
(3) Liens on certain judgments, settlements, or compromises.
[[Page 78998]]
(4) Bankruptcy claims.
(c) Reasonable efforts.
(1) In general.
(2) Presumptive FAP-eligibility determinations based on third-party
information or prior FAP-eligibility determinations.
(3) Reasonable efforts based on notification and processing of
applications.
(4) Notification.
(5) Incomplete FAP applications.
(6) Complete FAP applications.
(7) When no FAP application is submitted.
(8) Suspending ECAs while a FAP application is pending.
(9) Waiver does not constitute reasonable efforts.
(10) Agreements with other parties.
(11) Clear and conspicuous placement.
(12) Providing documents electronically.
Sec. 1.501(r)-7 Effective/applicability dates.
(a) Effective/applicability date.
(b) Reasonable interpretation for taxable years beginning on or
before December 29, 2015.
0
Par. 3. Sections 1.501(r)-1 through 1.501(r)-7 are added to read as
follows:
Sec. 1.501(r)-1 Definitions.
(a) Application. The definitions set forth in this section apply to
Sec. Sec. 1.501(r)-2 through 1.501(r)-7.
(b) Definitions--(1) Amounts generally billed (AGB) means the
amounts generally billed for emergency or other medically necessary
care to individuals who have insurance covering such care, determined
in accordance with Sec. 1.501(r)-5(b).
(2) AGB percentage means a percentage of gross charges that a
hospital facility uses under Sec. 1.501(r)-5(b)(3) to determine the
AGB for any emergency or other medically necessary care it provides to
an individual who is eligible for assistance under its financial
assistance policy (FAP).
(3) Application period means the period during which a hospital
facility must accept and process an application for financial
assistance under its FAP submitted by an individual in order to have
made reasonable efforts to determine whether the individual is FAP-
eligible under Sec. 1.501(r)-6(c). A hospital facility may accept and
process an individual's FAP application submitted outside of the
application period. With respect to any care provided by a hospital
facility to an individual, the application period begins on the date
the care is provided and ends on the later of the 240th day after the
date that the first post-discharge billing statement for the care is
provided or either--
(i) In the case of an individual who the hospital facility is
notifying as described in Sec. 1.501(r)-6(c)(4), the deadline
specified by a written notice described in Sec. 1.501(r)-6(c)(4); or
(ii) In the case of an individual who the hospital facility has
presumptively determined to be eligible for less than the most generous
assistance available under the FAP as described in Sec. 1.501(r)-
6(c)(2), the end of the reasonable period of time described in Sec.
1.501(r)-6(c)(2)(i)(B).
(4) Authorized body of a hospital facility means--
(i) The governing body (that is, the board of directors, board of
trustees, or equivalent controlling body) of the hospital organization
that operates the hospital facility or a committee of, or other party
authorized by, that governing body to the extent such committee or
other party is permitted under state law to act on behalf of the
governing body; or
(ii) The governing body of an entity that is disregarded or treated
as a partnership for federal tax purposes that operates the hospital
facility or a committee of, or other party authorized by, that
governing body to the extent such committee or other party is permitted
under state law to act on behalf of the governing body.
(5) Billing and collections policy means a written policy that
includes all of the elements described in Sec. 1.501(r)-4(b)(4)(i).
(6) Date provided means, in the case of any billing statement,
written notice, or other written communication that is mailed, the date
of mailing. The date that a billing statement, written notice, or other
written communication is provided can also be the date such
communication is sent electronically or delivered by hand.
(7) Discharge means to release from a hospital facility after the
care at issue has been provided, regardless of whether that care has
been provided on an inpatient or outpatient basis. Thus, a billing
statement for care is considered ``post-discharge'' if it is provided
to an individual after the care has been provided and the individual
has left the hospital facility.
(8) Disregarded entity means an entity that is generally
disregarded as separate from its owner for federal tax purposes under
Sec. 301.7701-3 of this chapter. One example of a disregarded entity
is a domestic single member limited liability company that does not
elect to be classified as an association taxable as a corporation for
federal tax purposes.
(9) Emergency medical care means care provided by a hospital
facility for emergency medical conditions.
(10) Emergency medical conditions means emergency medical
conditions as defined in section 1867 of the Social Security Act (42
U.S.C. 1395dd).
(11) Extraordinary collection action (ECA) means an action
described in Sec. 1.501(r)-6(b)(1).
(12) Financial assistance policy (FAP) means a written policy that
meets the requirements described in Sec. 1.501(r)-4(b).
(13) FAP application means the information and accompanying
documentation that an individual submits to apply for financial
assistance under a hospital facility's FAP. An individual is considered
to have submitted a complete FAP application if he or she provides
information and documentation sufficient for the hospital facility to
determine whether the individual is FAP-eligible and an incomplete FAP
application if he or she provides some, but not sufficient, information
and documentation to determine FAP-eligibility. The term ``FAP
application'' does not refer only to written submissions, and a
hospital facility may obtain information from an individual in writing
or orally (or a combination of both).
(14) FAP application form means the application form (and any
accompanying instructions) that a hospital facility makes available for
individuals to submit as part of a FAP application.
(15) FAP-eligible means eligible for financial assistance under a
hospital facility's FAP for care covered by the FAP, without regard to
whether an individual has applied for assistance under the FAP.
(16) Gross charges, or the chargemaster rate, means a hospital
facility's full, established price for medical care that the hospital
facility consistently and uniformly charges patients before applying
any contractual allowances, discounts, or deductions.
(17) Hospital facility means a facility that is required by a state
to be licensed, registered, or similarly recognized as a hospital.
Multiple buildings operated under a single state license are considered
to be a single hospital facility. For purposes of this paragraph
(b)(17), the term ``state'' includes only the 50 states and the
District of Columbia and not any U.S. territory or foreign country.
References to a hospital facility taking actions include instances in
which the hospital organization operating the hospital facility takes
actions through or on behalf of the hospital facility.
[[Page 78999]]
(18) Hospital organization means an organization recognized (or
seeking to be recognized) as described in section 501(c)(3) that
operates one or more hospital facilities. If the section 501(c)(3)
status of such an organization is revoked, the organization will, for
purposes of section 4959, continue to be treated as a hospital
organization during the taxable year in which such revocation becomes
effective.
(19) Medicaid means any medical assistance program administered by
the state in which a hospital facility is licensed in accordance with
Title XIX of the Social Security Act (42 U.S.C. 1396 through 1396w-5),
including programs in which such medical assistance is provided through
a contract between the state and a Medicaid managed care organization
or a prepaid inpatient health plan.
(20) Medicare fee-for-service means health insurance available
under Medicare Part A and Part B of Title XVIII of the Social Security
Act (42 U.S.C. 1395c through 1395w-5).
(21) Noncompliant facility income means income that a hospital
organization operating more than one hospital facility derives from a
hospital facility that fails to meet one or more of the requirements of
section 501(r) during a taxable year as determined in accordance with
Sec. 1.501(r)-2(d).
(22) Operating a hospital facility--(i) In general. Operating a
hospital facility includes operating the facility through the
organization's own employees or contracting out to another organization
to operate the facility. For example, if an organization hires a
management company to operate the facility, the hiring organization is
considered to operate the facility. An organization also operates a
hospital facility if it is the sole member or owner of a disregarded
entity that operates the hospital facility. In addition, an
organization operates a hospital facility if it owns a capital or
profits interest in an entity treated as a partnership for federal tax
purposes that operates the hospital facility, unless paragraph
(b)(22)(ii) of this section applies. For purposes of this paragraph
(b)(22), an organization is considered to own a capital or profits
interest in an entity treated as a partnership for federal tax purposes
if it owns such an interest directly or indirectly through one or more
lower-tier entities treated as partnerships for federal tax purposes.
(ii) Exception for certain partnerships. An organization does not
operate a hospital facility despite owning a capital or profits
interest in an entity treated as a partnership for federal tax purposes
that operates the hospital facility if--
(A) The organization does not have control over the operation of
the hospital facility operated by the partnership sufficient to ensure
that the operation of the hospital facility furthers an exempt purpose
described in section 501(c)(3) and thus treats the operation of the
hospital facility, including the facility's provision of medical care,
as an unrelated trade or business described in section 513 with respect
to the hospital organization; or
(B) At all times since March 23, 2010, the organization has been
organized and operated primarily for educational or scientific purposes
and has not engaged primarily in the operation of one or more hospital
facilities and, pursuant to a partnership agreement entered into before
March 23, 2010--
(1) Does not own more than 35 percent of the capital or profits
interest in the partnership (determined in accordance with section
707(b)(3));
(2) Does not own a general partner interest, managing-member
interest, or similar interest in the partnership; and
(3) Does not have control over the operation of the hospital
facility sufficient to ensure that the hospital facility complies with
the requirements of section 501(r).
(23) Partnership agreement means, for purposes of paragraph
(b)(22)(ii)(B) of this section, all written agreements among the
partners, or between one or more partners and the partnership and
concerning affairs of the partnership and responsibilities of the
partners, whether or not embodied in a document referred to by the
partners as the partnership agreement. A partnership agreement also
includes any modifications to the agreement agreed to by all partners,
or adopted in any other manner provided by the partnership agreement,
except for modifications adopted on or after March 23, 2010, that
affect whether or not the agreement is described in paragraph
(b)(22)(ii)(B) of this section. In addition, a partnership agreement
includes provisions of federal, state, or local law that were in effect
before March 23, 2010, and continue to be in effect that govern the
affairs of the partnership or are considered under such law to be part
of the partnership agreement.
(24) Plain language summary of the FAP means a written statement
that notifies an individual that the hospital facility offers financial
assistance under a FAP and provides the following additional
information in language that is clear, concise, and easy to understand:
(i) A brief description of the eligibility requirements and
assistance offered under the FAP.
(ii) A brief summary of how to apply for assistance under the FAP.
(iii) The direct Web site address (or URL) and physical locations
where the individual can obtain copies of the FAP and FAP application
form.
(iv) Instructions on how the individual can obtain a free copy of
the FAP and FAP application form by mail.
(v) The contact information, including telephone number and
physical location, of the hospital facility office or department that
can provide information about the FAP and of either--
(A) The hospital facility office or department that can provide
assistance with the FAP application process; or
(B) If the hospital facility does not provide assistance with the
FAP application process, at least one nonprofit organization or
government agency that the hospital facility has identified as an
available source of assistance with FAP applications.
(vi) A statement of the availability of translations of the FAP,
FAP application form, and plain language summary of the FAP in other
languages, if applicable.
(vii) A statement that a FAP-eligible individual may not be charged
more than AGB for emergency or other medically necessary care.
(25) Presumptive FAP-eligibility determination means a
determination that an individual is FAP-eligible based on information
other than that provided by the individual or based on a prior FAP-
eligibility determination, as described in Sec. 1.501(r)-6(c)(2).
(26) Private health insurer means any organization that is not a
governmental unit that offers health insurance, including
nongovernmental organizations administering a health insurance plan
under Medicare Advantage (Part C of Title XVIII of the Social Security
Act, 42 U.S.C. 1395w-21 through 1395w-29). For purposes of Sec.
1.501(r)-5(b), medical assistance provided through a contract between
the state and a Medicaid managed care organization or a prepaid
inpatient health plan is not considered to be a reimbursement from or a
claim allowed by a private health insurer.
(27) Referring an individual's debt to a debt collection agency or
other party means contracting with, delegating to, or otherwise using
the debt collection agency or other party to collect amounts owed by
the individual to the hospital facility while still maintaining
ownership of the debt.
(28) Substantially-related entity means, with respect to a hospital
facility operated by a hospital organization, an entity treated as a
partnership for
[[Page 79000]]
federal tax purposes in which the hospital organization owns a capital
or profits interest, or a disregarded entity of which the hospital
organization is the sole member or owner, that provides emergency or
other medically necessary care in the hospital facility, unless the
provision of such care is an unrelated trade or business described in
section 513 with respect to the hospital organization. Notwithstanding
the preceding sentence, a partnership that qualifies for the exception
described in paragraph (b)(22)(ii)(B) of this section is not considered
a substantially-related entity within the meaning of this paragraph
(b)(28).
(29) Widely available on a Web site means--
(i) The hospital facility conspicuously posts a complete and
current version of the document on--
(A) The hospital facility's Web site;
(B) If the hospital facility does not have its own Web site
separate from the hospital organization that operates it, the hospital
organization's Web site; or
(C) A Web site established and maintained by another entity, but
only if the Web site of the hospital facility or hospital organization
(if the facility or organization has a Web site) provides a
conspicuously-displayed link to the Web page where the document is
posted, along with clear instructions for accessing the document on
that Web site;
(ii) Individuals with access to the Internet can access, download,
view, and print a hard copy of the document from the Web site--
(A) Without requiring special computer hardware or software (other
than software that is readily available to members of the public
without payment of any fee);
(B) Without paying of a fee to the hospital facility, hospital
organization, or other entity maintaining the Web site; and
(C) Without creating an account or being otherwise required to
provide personally identifiable information; and
(iii) The hospital facility provides individuals who ask how to
access a copy of the document online with the direct Web site address,
or URL, of the Web page where the document is posted.
Sec. 1.501(r)-2 Failures to satisfy section 501(r).
(a) Revocation of section 501(c)(3) status. Except as otherwise
provided in paragraphs (b) and (c) of this section, a hospital
organization failing to meet one or more of the requirements of section
501(r) separately with respect to one or more hospital facilities it
operates may have its section 501(c)(3) status revoked as of the first
day of the taxable year in which the failure occurs. In determining
whether to continue to recognize the section 501(c)(3) status of a
hospital organization that fails to meet one or more of the
requirements of section 501(r) with respect to one or more hospital
facilities, the Commissioner will consider all relevant facts and
circumstances including, but not limited to, the following:
(1) Whether the organization has previously failed to meet the
requirements of section 501(r), and, if so, whether the same type of
failure previously occurred.
(2) The size, scope, nature, and significance of the organization's
failure(s).
(3) In the case of an organization that operates more than one
hospital facility, the number, size, and significance of the facilities
that have failed to meet the section 501(r) requirements relative to
those that have complied with these requirements.
(4) The reason for the failure(s).
(5) Whether the organization had, prior to the failure(s),
established practices or procedures (formal or informal) reasonably
designed to promote and facilitate overall compliance with the section
501(r) requirements.
(6) Whether the practices or procedures had been routinely followed
and the failure(s) occurred through an oversight or mistake in applying
them.
(7) Whether the organization has implemented safeguards that are
reasonably calculated to prevent similar failures from occurring in the
future.
(8) Whether the organization corrected the failure(s) as promptly
after discovery as is reasonable given the nature of the failure(s).
(9) Whether the organization took the measures described in
paragraphs (a)(7) and (a)(8) of this section before the Commissioner
discovered the failure(s).
(b) Minor omissions and errors--(1) In general. A hospital
facility's omission of required information from a policy or report
described in Sec. 1.501(r)-3 or Sec. 1.501(r)-4, or error with
respect to the implementation or operational requirements described in
Sec. Sec. 1.501(r)-3 through 1.501(r)-6, will not be considered a
failure to meet a requirement of section 501(r) if the following
conditions are satisfied:
(i) Such omission or error was minor and either inadvertent or due
to reasonable cause.
(ii) The hospital facility corrects such omission or error as
promptly after discovery as is reasonable given the nature of the
omission or error. Such correction must include establishment (or
review and, if necessary, revision) of practices or procedures (formal
or informal) that are reasonably designed to promote and facilitate
overall compliance with the requirements of section 501(r).
(2) Minor. In the case of multiple omissions or errors, the
omissions or errors are considered minor for purposes of this paragraph
(b) only if they are minor in the aggregate.
(3) Inadvertent. For purposes of this paragraph (b), the fact that
the same omission or error has been made and corrected previously is a
factor tending to show that an omission or error is not inadvertent.
(4) Reasonable cause. For purposes of this paragraph (b), the fact
that a hospital facility has established practices or procedures
(formal or informal) reasonably designed to promote and facilitate
overall compliance with the section 501(r) requirements prior to the
occurrence of an omission or error is a factor tending to show that the
omission or error is due to reasonable cause.
(c) Excusing certain failures if hospital facility corrects and
discloses. A hospital facility's failure to meet one or more of the
requirements described in Sec. Sec. 1.501(r)-3 through 1.501(r)-6 that
is neither willful nor egregious shall be excused for purposes of this
section if the hospital facility corrects and makes disclosure in
accordance with rules set forth by revenue procedure, notice, or other
guidance published in the Internal Revenue Bulletin. For purposes of
this paragraph (c), a ``willful'' failure includes a failure due to
gross negligence, reckless disregard, or willful neglect, and an
``egregious'' failure includes only very serious failures, taking into
account the severity of the impact and the number of affected persons.
Whether a failure is willful or egregious will be determined based on
all of the facts and circumstances. A hospital facility's correction
and disclosure of a failure in accordance with the relevant guidance is
a factor tending to show that the failure was not willful.
(d) Taxation of noncompliant hospital facilities--(1) In general.
Except as otherwise provided in paragraphs (b) and (c) of this section,
if a hospital organization that operates more than one hospital
facility fails to meet one or more of the requirements of section
501(r) separately with respect to a hospital facility during a taxable
year, the income derived from the noncompliant hospital facility
(``noncompliant facility income'') during that taxable year will be
subject
[[Page 79001]]
to tax computed as provided in section 11 (or as provided in section
1(e) if the hospital organization is a trust described in section
511(b)(2)), but substituting the term ``noncompliant facility income''
for ``taxable income,'' if--
(i) The hospital organization continues to be recognized as
described in section 501(c)(3) during the taxable year; but
(ii) The hospital organization would not continue to be recognized
as described in section 501(c)(3) during the taxable year based on the
facts and circumstances described in paragraph (a) of this section (but
disregarding paragraph (a)(3) of this section) if the noncompliant
hospital facility were the only hospital facility operated by the
organization.
(2) Noncompliant facility income--(i) In general. For purposes of
this paragraph (d), the noncompliant facility income derived from a
hospital facility during a taxable year will be the gross income
derived from that hospital facility during the taxable year, less the
deductions allowed by chapter 1 that are directly connected to the
operation of that hospital facility during the taxable year, excluding
any gross income and deductions taken into account in computing any
unrelated business taxable income described in section 512 that is
derived from the facility during the taxable year.
(ii) Directly connected deductions. For purposes of this paragraph
(d), to be directly connected with the operation of a hospital facility
that has failed to meet the requirements of section 501(r), an item of
deduction must have proximate and primary relationship to the operation
of the hospital facility. Expenses, depreciation, and similar items
attributable solely to the operation of a hospital facility are
proximately and primarily related to such operation, and therefore
qualify for deduction to the extent that they meet the requirements of
section 162, section 167, or other relevant provisions of the Internal
Revenue Code (Code). Where expenses, depreciation, and similar items
are attributable to a noncompliant hospital facility and other hospital
facilities operated by the hospital organization (and/or to other
activities of the hospital organization unrelated to the operation of
hospital facilities), such items shall be allocated among the hospital
facilities (and/or other activities) on a reasonable basis. The portion
of any such item so allocated to a noncompliant hospital facility is
proximately and primarily related to the operation of that facility and
shall be allowable as a deduction in computing the facility's
noncompliant facility income in the manner and to the extent it would
meet the requirements of section 162, section 167, or other relevant
provisions of the Code.
(3) No aggregation. In computing the noncompliant facility income
of a hospital facility, the gross income from (and the deductions
allowed with respect to) the hospital facility may not be aggregated
with the gross income from (and the deductions allowed with respect to)
the hospital organization's other noncompliant hospital facilities
subject to tax under this paragraph (d) or its unrelated trade or
business activities described in section 513.
(4) Interaction with other Code provisions--(i) Hospital
organization operating a noncompliant hospital facility continues to be
treated as tax-exempt. A hospital organization operating a noncompliant
hospital facility subject to tax under this paragraph (d) shall
continue to be treated as an organization that is exempt from tax under
section 501(a) because it is described in section 501(c)(3) for all
purposes of the Code. In addition, the application of this paragraph
(d) shall not, by itself, result in the operation of the noncompliant
hospital facility being considered an unrelated trade or business
described in section 513 with respect to the hospital organization.
Thus, for example, the application of this paragraph (d) shall not, by
itself, affect the tax-exempt status of bonds issued to finance the
noncompliant hospital facility.
(ii) Noncompliant hospital facility operated by a tax-exempt
hospital organization is subject to tax. A noncompliant hospital
facility described in paragraph (d)(1) of this section is subject to
tax under this paragraph (d), notwithstanding the fact that the
hospital organization operating the hospital facility is otherwise
exempt from tax under section 501(a) and subject to tax under section
511(a) and that Sec. 1.11-1(a) of this chapter states such
organizations are not liable for the tax imposed under section 11.
(iii) Noncompliant hospital facility not a business entity. A
noncompliant hospital facility subject to tax under this paragraph (d)
is not considered a business entity for purposes of Sec. 301.7701-
2(b)(7) of this chapter.
(e) Instances in which a hospital organization is not required to
meet section 501(r). A hospital organization is not required to meet
the requirements of section 501(r) (and, therefore, is not subject to
any consequence described in this section for failing to meet the
requirements of section 501(r)) with respect to--
(1) Any hospital facility it is not ``operating'' within the
meaning of Sec. 1.501(r)-1(b)(22);
(2) The operation of a facility that is not required by a state to
be licensed, registered, or similarly recognized as a hospital; or
(3) Any activities that constitute an unrelated trade or business
described in section 513 with respect to the hospital organization.
Sec. 1.501(r)-3 Community health needs assessments.
(a) In general. With respect to any taxable year, a hospital
organization meets the requirements of section 501(r)(3) with respect
to a hospital facility it operates only if--
(1) The hospital facility has conducted a community health needs
assessment (CHNA) that meets the requirements of paragraph (b) of this
section in such taxable year or in either of the two taxable years
immediately preceding such taxable year (except as provided in
paragraph (d) of this section); and
(2) An authorized body of the hospital facility (as defined in
Sec. 1.501(r)-1(b)(4)) has adopted an implementation strategy to meet
the community health needs identified through the CHNA, as described in
paragraph (c) of this section, on or before the 15th day of the fifth
month after the end of such taxable year.
(b) Conducting a CHNA--(1) In general. To conduct a CHNA for
purposes of paragraph (a) of this section, a hospital facility must
complete all of the following steps:
(i) Define the community it serves.
(ii) Assess the health needs of that community.
(iii) In assessing the health needs of the community, solicit and
take into account input received from persons who represent the broad
interests of that community, including those with special knowledge of
or expertise in public health.
(iv) Document the CHNA in a written report (CHNA report) that is
adopted for the hospital facility by an authorized body of the hospital
facility.
(v) Make the CHNA report widely available to the public.
(2) Date a CHNA is conducted. For purposes of this section, a
hospital facility will be considered to have conducted a CHNA on the
date it has completed all of the steps described in paragraph (b)(1) of
this section. Solely for purposes of determining the taxable year in
which a CHNA has been conducted under this paragraph (b)(2), a hospital
facility will be considered to have completed the step of making a
[[Page 79002]]
CHNA report widely available to the public on the date it first makes
the CHNA report widely available to the public as described in
paragraph (b)(7)(i) of this section.
(3) Community served by a hospital facility. In defining the
community it serves for purposes of paragraph (b)(1)(i) of this
section, a hospital facility may take into account all of the relevant
facts and circumstances, including the geographic area served by the
hospital facility, target population(s) served (for example, children,
women, or the aged), and principal functions (for example, focus on a
particular specialty area or targeted disease). However, a hospital
facility may not define its community to exclude medically underserved,
low-income, or minority populations who live in the geographic areas
from which the hospital facility draws its patients (unless such
populations are not part of the hospital facility's target patient
population(s) or affected by its principal functions) or otherwise
should be included based on the method the hospital facility uses to
define its community. In addition, in determining its patient
populations for purposes of defining its community, a hospital facility
must take into account all patients without regard to whether (or how
much) they or their insurers pay for the care received or whether they
are eligible for assistance under the hospital facility's financial
assistance policy. In the case of a hospital facility consisting of
multiple buildings that operate under a single state license and serve
different geographic areas or populations, the community served by the
hospital facility is the aggregate of such areas or populations.
(4) Assessing community health needs. To assess the health needs of
the community it serves for purposes of paragraph (b)(1)(ii) of this
section, a hospital facility must identify significant health needs of
the community, prioritize those health needs, and identify resources
(such as organizations, facilities, and programs in the community,
including those of the hospital facility) potentially available to
address those health needs. For these purposes, the health needs of a
community include requisites for the improvement or maintenance of
health status both in the community at large and in particular parts of
the community (such as particular neighborhoods or populations
experiencing health disparities). These needs may include, for example,
the need to address financial and other barriers to accessing care, to
prevent illness, to ensure adequate nutrition, or to address social,
behavioral, and environmental factors that influence health in the
community. A hospital facility may determine whether a health need is
significant based on all of the facts and circumstances present in the
community it serves. In addition, a hospital facility may use any
criteria to prioritize the significant health needs it identifies,
including, but not limited to, the burden, scope, severity, or urgency
of the health need; the estimated feasibility and effectiveness of
possible interventions; the health disparities associated with the
need; or the importance the community places on addressing the need.
(5) Persons representing the broad interests of the community--(i)
In general. For purposes of paragraph (b)(1)(iii) of this section, a
hospital facility must solicit and take into account input received
from all of the following sources in identifying and prioritizing
significant health needs and in identifying resources potentially
available to address those health needs:
(A) At least one state, local, tribal, or regional governmental
public health department (or equivalent department or agency), or a
State Office of Rural Health described in section 338J of the Public
Health Service Act (42 U.S.C. 254r), with knowledge, information, or
expertise relevant to the health needs of that community.
(B) Members of medically underserved, low-income, and minority
populations in the community served by the hospital facility, or
individuals or organizations serving or representing the interests of
such populations. For purposes of this paragraph (b), medically
underserved populations include populations experiencing health
disparities or at risk of not receiving adequate medical care as a
result of being uninsured or underinsured or due to geographic,
language, financial, or other barriers.
(C) Written comments received on the hospital facility's most
recently conducted CHNA and most recently adopted implementation
strategy.
(ii) Additional sources of input. In addition to the sources
described in paragraph (b)(5)(i) of this section, a hospital facility
may solicit and take into account input received from a broad range of
persons located in or serving its community, including, but not limited
to, health care consumers and consumer advocates, nonprofit and
community-based organizations, academic experts, local government
officials, local school districts, health care providers and community
health centers, health insurance and managed care organizations,
private businesses, and labor and workforce representatives.
(6) Documentation of a CHNA--(i) In general. For purposes of
paragraph (b)(1)(iv) of this section, the CHNA report adopted for the
hospital facility by an authorized body of the hospital facility must
include--
(A) A definition of the community served by the hospital facility
and a description of how the community was determined;
(B) A description of the process and methods used to conduct the
CHNA;
(C) A description of how the hospital facility solicited and took
into account input received from persons who represent the broad
interests of the community it serves;
(D) A prioritized description of the significant health needs of
the community identified through the CHNA, along with a description of
the process and criteria used in identifying certain health needs as
significant and prioritizing those significant health needs;
(E) A description of the resources potentially available to address
the significant health needs identified through the CHNA; and
(F) An evaluation of the impact of any actions that were taken,
since the hospital facility finished conducting its immediately
preceding CHNA, to address the significant health needs identified in
the hospital facility's prior CHNA(s).
(ii) Process and methods used to conduct the CHNA. A hospital
facility's CHNA report will be considered to describe the process and
methods used to conduct the CHNA for purposes of paragraph (b)(6)(i)(B)
of this section if the CHNA report describes the data and other
information used in the assessment, as well as the methods of
collecting and analyzing this data and information, and identifies any
parties with whom the hospital facility collaborated, or with whom it
contracted for assistance, in conducting the CHNA. In the case of data
obtained from external source material, the CHNA report may cite the
source material rather than describe the method of collecting the data.
(iii) Input from persons who represent the broad interests of the
community served by the hospital facility. A hospital facility's CHNA
report will be considered to describe how the hospital facility took
into account input received from persons who represent the broad
interests of the community it serves for purposes of paragraph
(b)(6)(i)(C) of this section if the CHNA report summarizes, in general
terms, any input provided by such persons and how and over what
[[Page 79003]]
time period such input was provided (for example, whether through
meetings, focus groups, interviews, surveys, or written comments and
between what approximate dates); provides the names of any
organizations providing input and summarizes the nature and extent of
the organization's input; and describes the medically underserved, low-
income, or minority populations being represented by organizations or
individuals that provided input. A CHNA report does not need to name or
otherwise identify any specific individual providing input on the CHNA.
In the event a hospital facility solicits, but cannot obtain, input
from a source described in paragraph (b)(5)(i) of this section, the
hospital facility's CHNA report also must describe the hospital
facility's efforts to solicit input from such source.
(iv) Separate CHNA reports. While a hospital facility may conduct
its CHNA in collaboration with other organizations and facilities
(including, but not limited to, related and unrelated hospital
organizations and facilities, for-profit and government hospitals,
governmental departments, and nonprofit organizations), every hospital
facility must document the information described in this paragraph
(b)(6) in a separate CHNA report to satisfy paragraph (b)(1)(iv) of
this section unless it adopts a joint CHNA report as described in
paragraph (b)(6)(v) of this section. However, if a hospital facility is
collaborating with other facilities and organizations in conducting its
CHNA or if another organization (such as a state or local public health
department) has conducted a CHNA for all or part of the hospital
facility's community, portions of the hospital facility's CHNA report
may be substantively identical to portions of a CHNA report of a
collaborating hospital facility or other organization conducting a
CHNA, if appropriate under the facts and circumstances. For example, if
two hospital facilities with overlapping, but not identical,
communities are collaborating in conducting a CHNA, the portions of
each hospital facility's CHNA report relevant to the shared areas of
their communities might be identical. Similarly, if the state or local
public health department with jurisdiction over the community served by
a hospital facility conducts a CHNA for an area that includes the
hospital facility's community, the hospital facility's CHNA report
might include portions of the state or local public health department's
CHNA report that are relevant to its community.
(v) Joint CHNA reports--(A) In general. A hospital facility that
collaborates with other hospital facilities or other organizations
(such as state or local public health departments) in conducting its
CHNA will satisfy paragraph (b)(1)(iv) of this section if an authorized
body of the hospital facility adopts for the hospital facility a joint
CHNA report produced for the hospital facility and one or more of the
collaborating facilities and organizations, provided that the following
conditions are met:
(1) The joint CHNA report meets the requirements of paragraph
(b)(6)(i) of this section.
(2) The joint CHNA report is clearly identified as applying to the
hospital facility.
(3) All of the collaborating hospital facilities and organizations
included in the joint CHNA report define their community to be the
same.
(B) Example. The following example illustrates this paragraph
(b)(6)(v):
Example. P is one of 10 hospital facilities located in and
serving the populations of a particular Metropolitan Statistical
Area (MSA). P and seven other facilities in the MSA, some of which
are unrelated to P, decide to collaborate in conducting a CHNA for
the MSA and to each define their community as constituting the
entire MSA. The eight hospital facilities work together with the
state and local health departments of jurisdictions in the MSA to
assess the health needs of the MSA and collaborate in conducting
surveys and holding public forums to solicit and receive input from
the MSA's residents, including its medically underserved, low-
income, and minority populations. The hospital facilities also
consider the written comments received on their most recently
conducted CHNAs and most recently adopted implementation strategies.
The hospital facilities then work together to prepare a joint CHNA
report documenting this joint CHNA process that contains all of the
elements described in paragraph (b)(6)(i) of this section. The joint
CHNA report identifies all of the collaborating hospital facilities
included in the report, including P, by name, both within the report
itself and on the cover page. The board of directors of the hospital
organization operating P adopts the joint CHNA report for P. P has
complied with the requirements of this paragraph (b)(6)(v) and,
accordingly, has satisfied paragraph (b)(1)(iv) of this section.
(7) Making the CHNA report widely available to the public--(i) In
general. For purposes of paragraph (b)(1)(v) of this section, a
hospital facility's CHNA report is made widely available to the public
only if the hospital facility--
(A) Makes the CHNA report widely available on a Web site, as
defined in Sec. 1.501(r)-1(b)(29), at least until the date the
hospital facility has made widely available on a Web site its two
subsequent CHNA reports; and
(B) Makes a paper copy of the CHNA report available for public
inspection upon request and without charge at the hospital facility at
least until the date the hospital facility has made available for
public inspection a paper copy of its two subsequent CHNA reports.
(ii) Making draft CHNA reports widely available. Notwithstanding
paragraph (b)(7)(i) of this section, if a hospital facility makes
widely available on a Web site (and/or for public inspection) a version
of the CHNA report that is expressly marked as a draft on which the
public may comment, the hospital facility will not be considered to
have made the CHNA report widely available to the public for purposes
of determining the date on which the hospital facility has conducted a
CHNA under paragraph (b)(2) of this section.
(c) Implementation strategy--(1) In general. For purposes of
paragraph (a)(2) of this section, a hospital facility's implementation
strategy to meet the community health needs identified through the
hospital facility's CHNA is a written plan that, with respect to each
significant health need identified through the CHNA, either--
(i) Describes how the hospital facility plans to address the health
need; or
(ii) Identifies the health need as one the hospital facility does
not intend to address and explains why the hospital facility does not
intend to address the health need.
(2) Description of how the hospital facility plans to address a
significant health need. A hospital facility will have described a plan
to address a significant health need identified through a CHNA for
purposes of paragraph (c)(1)(i) of this section if the implementation
strategy--
(i) Describes the actions the hospital facility intends to take to
address the health need and the anticipated impact of these actions;
(ii) Identifies the resources the hospital facility plans to commit
to address the health need; and
(iii) Describes any planned collaboration between the hospital
facility and other facilities or organizations in addressing the health
need.
(3) Description of why a hospital facility is not addressing a
significant health need. In explaining why it does not intend to
address a significant health need for purposes of paragraph (c)(1)(ii)
of this section, a brief explanation of the hospital facility's reason
for not addressing the health need is sufficient. Such reasons may
include, for example, resource constraints, other facilities or
organizations in the community addressing the need, a relative lack of
expertise or competency to effectively
[[Page 79004]]
address the need, the need being a relatively low priority, and/or a
lack of identified effective interventions to address the need.
(4) Joint implementation strategies. A hospital facility may
develop an implementation strategy in collaboration with other hospital
facilities or other organizations, including, but not limited to,
related and unrelated hospital organizations and facilities, for-profit
and government hospitals, governmental departments, and nonprofit
organizations. In general, a hospital facility that collaborates with
other facilities or organizations in developing its implementation
strategy must still document its implementation strategy in a separate
written plan that is tailored to the particular hospital facility,
taking into account its specific resources. However, a hospital
facility that adopts a joint CHNA report described in paragraph
(b)(6)(v) of this section may also adopt a joint implementation
strategy that, with respect to each significant health need identified
through the joint CHNA, either describes how one or more of the
collaborating facilities or organizations plan to address the health
need or identifies the health need as one the collaborating facilities
or organizations do not intend to address and explains why they do not
intend to address the health need. For a collaborating hospital
facility to meet the requirements of paragraph (a)(2) of this section,
such a joint implementation strategy adopted for the hospital facility
must--
(i) Be clearly identified as applying to the hospital facility;
(ii) Clearly identify the hospital facility's particular role and
responsibilities in taking the actions described in the implementation
strategy and the resources the hospital facility plans to commit to
such actions; and
(iii) Include a summary or other tool that helps the reader easily
locate those portions of the joint implementation strategy that relate
to the hospital facility.
(5) When the implementation strategy must be adopted--(i) In
general. For purposes of paragraph (a)(2) of this section, an
authorized body of the hospital facility must adopt the implementation
strategy on or before the 15th day of the fifth month after the end of
the taxable year in which the hospital facility completes the final
step for the CHNA described in paragraph (b)(1) of this section,
regardless of whether the hospital facility began working on the CHNA
in a prior taxable year.
(ii) Example. The following example illustrates this paragraph
(c)(5):
Example. M is a hospital facility that last conducted a CHNA
and adopted an implementation strategy in Year 1. In Year 3, M
defines the community it serves, assesses the significant health
needs of that community, and solicits and takes into account input
received from persons who represent the broad interests of that
community. In Year 4, M documents its CHNA in a CHNA report that is
adopted by an authorized body of M, makes the CHNA report widely
available on a Web site, and makes paper copies of the CHNA report
available for public inspection. To meet the requirements of
paragraph (a)(2) of this section, an authorized body of M must adopt
an implementation strategy to meet the health needs identified
through the CHNA completed in Year 4 by the 15th day of the fifth
month of Year 5.
(d) Exception for acquired, new, and terminated hospital
facilities--(1) Acquired hospital facilities. A hospital organization
that acquires a hospital facility (whether through merger or
acquisition) must meet the requirements of section 501(r)(3) with
respect to the acquired hospital facility by the last day of the
organization's second taxable year beginning after the date on which
the hospital facility was acquired. In the case of a merger between two
organizations that results in the liquidation of one organization and
the survival of the other organization, the hospital facility or
facilities formerly operated by the liquidated organization will be
considered ``acquired'' for purposes of this paragraph (d)(1).
(2) New hospital organizations. An organization that becomes newly
subject to the requirements of section 501(r) because it is recognized
as described in section 501(c)(3) and is operating a hospital facility
must meet the requirements of section 501(r)(3) with respect to any
hospital facility by the last day of the second taxable year beginning
after the later of the effective date of the determination letter or
ruling recognizing the organization as described in section 501(c)(3)
or the first date that a facility operated by the organization was
licensed, registered, or similarly recognized by a state as a hospital.
(3) New hospital facilities. A hospital organization must meet the
requirements of section 501(r)(3) with respect to a new hospital
facility it operates by the last day of the second taxable year
beginning after the date the facility was licensed, registered, or
similarly recognized by its state as a hospital.
(4) Transferred or terminated hospital facilities. A hospital
organization is not required to meet the requirements of section
501(r)(3) with respect to a hospital facility in a taxable year if,
before the end of that taxable year, the hospital organization
transfers all ownership of the hospital facility to another
organization or otherwise ceases its operation of the hospital facility
or the facility ceases to be licensed, registered, or similarly
recognized as a hospital by a state.
(e) Transition rule for CHNAs conducted in taxable years beginning
before March 23, 2012. A hospital facility that conducted a CHNA
described in section 501(r)(3) in either its first taxable year
beginning after March 23, 2010, or its first taxable year beginning
after March 23, 2011, does not need to meet the requirements of section
501(r)(3) again until the third taxable year following the taxable year
in which the hospital facility conducted that CHNA, provided that the
hospital facility adopted an implementation strategy to meet the
community health needs identified through that CHNA on or before the
15th day of the fifth calendar month following the close of its first
taxable year beginning after March 23, 2012.
Sec. 1.501(r)-4 Financial assistance policy and emergency medical
care policy.
(a) In general. A hospital organization meets the requirements of
section 501(r)(4) with respect to a hospital facility it operates only
if the hospital organization establishes for that hospital facility--
(1) A written financial assistance policy (FAP) that meets the
requirements of paragraph (b) of this section; and
(2) A written emergency medical care policy that meets the
requirements of paragraph (c) of this section.
(b) Financial assistance policy--(1) In general. To satisfy
paragraph (a)(1) of this section, a hospital facility's FAP must--
(i) Apply to all emergency and other medically necessary care
provided by the hospital facility, including all such care provided in
the hospital facility by a substantially-related entity (as defined in
Sec. 1.501(r)-1(b)(28));
(ii) Be widely publicized as described in paragraph (b)(5) of this
section; and
(iii) Include--
(A) The eligibility criteria for financial assistance and whether
such assistance includes free or discounted care;
(B) The basis for calculating amounts charged to patients;
(C) The method for applying for financial assistance;
(D) In the case of a hospital facility that does not have a
separate billing and collections policy, the actions that may be taken
in the event of nonpayment;
(E) If applicable, any information obtained from sources other than
an
[[Page 79005]]
individual seeking financial assistance that the hospital facility
uses, and whether and under what circumstances it uses prior FAP-
eligibility determinations, to presumptively determine that the
individual is FAP-eligible, as described in Sec. 1.501(r)-6(c)(2); and
(F) A list of any providers, other than the hospital facility
itself, delivering emergency or other medically necessary care in the
hospital facility that specifies which providers are covered by the
hospital facility's FAP and which are not.
(2) Eligibility criteria and basis for calculating amounts charged
to patients--(i) In general. To satisfy paragraphs (b)(1)(iii)(A) and
(b)(1)(iii)(B) of this section, the FAP must specify the following:
(A) All financial assistance available under the FAP, including all
discounts and free care available under the FAP and, if applicable, the
amount(s) (for example, gross charges) to which any discount
percentages available under the FAP will be applied.
(B) The eligibility criteria that an individual must satisfy to
receive each discount, free care, or other level of assistance
available under the FAP.
(C) The method under Sec. 1.501(r)-5(b) the hospital facility uses
to determine the amounts generally billed to individuals who have
insurance covering emergency or other medically necessary care (AGB).
If the hospital facility uses the look-back method described in Sec.
1.501(r)-5(b)(3), the FAP also must state the AGB percentage(s) that
the hospital facility uses to determine AGB and describe how the
hospital facility calculated such percentage(s) or, alternatively,
explain how members of the public may readily obtain such percentage(s)
and accompanying description of the calculation in writing and free of
charge. In addition, the FAP must indicate that, following a
determination of FAP-eligibility, a FAP-eligible individual may not be
charged more than AGB for emergency or other medically necessary care.
(ii) Examples. The following examples illustrate this paragraph
(b)(2):
Example 1. (i) Q is a hospital facility that establishes a FAP
that provides assistance to all uninsured and underinsured
individuals whose family income is less than or equal to x% of the
Federal Poverty Level (FPL), with the level of discount for which an
individual is eligible under Q's FAP determined based upon the
individual's family income as a percentage of FPL. Q's FAP defines
the meaning of ``uninsured,'' ``underinsured,'' ``family income,''
and ``Federal Poverty Level.'' Q's FAP also states that Q determines
AGB by multiplying the gross charges for any emergency or other
medically necessary care it provides to a FAP-eligible individual by
an AGB percentage of 56%. The FAP states, further, that Q calculated
the AGB percentage of 56% based on all claims allowed by Medicare
and private health insurers over a specified 12-month period,
divided by the associated gross charges for those claims. Q's FAP
contains the following chart, specifying each discount available
under the FAP, the amounts (gross charges) to which these discounts
will be applied, and the specific eligibility criteria for each such
discount:
------------------------------------------------------------------------
Discount off of gross
Family income as % of FPL charges
------------------------------------------------------------------------
>y% - x%.................................. 50%.
>z% - y%.................................. 75%.
<=z%...................................... Free.
------------------------------------------------------------------------
(ii) Q's FAP also contains a statement that no FAP-eligible
individual will be charged more for emergency or other medically
necessary care than AGB because Q's AGB percentage is 56% of gross
charges and the most a FAP-eligible individual will be charged is
50% of gross charges. Q's FAP satisfies the requirements of this
paragraph (b)(2).
Example 2. (i) R is a hospital facility that establishes a FAP
that provides assistance based on household income. R's FAP defines
the meaning of ``household income.'' R's FAP contains the following
chart specifying the assistance available under the FAP and the
specific eligibility criteria for each level of assistance offered,
which R updates occasionally to account for inflation:
------------------------------------------------------------------------
Maximum amount individual will
Household income be responsible for paying
------------------------------------------------------------------------
>$b - $a............................... 40% of gross charges, up to the
lesser of AGB or x% of
household income.
>$c - $b............................... 20% of gross charges, up to the
lesser of AGB or y% of
household income.
<=$c................................... $0 (free).
------------------------------------------------------------------------
(ii) R's FAP contains a statement that no FAP-eligible
individual will be charged more for emergency or other medically
necessary care than AGB. R's FAP also states that R determines AGB
by multiplying the gross charges for any emergency or other
medically necessary care it provides by AGB percentages, which are
based on claims allowed under Medicare. In addition, the FAP
provides a Web site address individuals can visit, and a telephone
number they can call, if they would like to obtain an information
sheet stating R's AGB percentages and explaining how these AGB
percentages were calculated. This information sheet, which R makes
available on its Web site and provides to any individual who
requests it, states that R's AGB percentages are 35% of gross
charges for inpatient care and 61% of gross charges for outpatient
care. It also states that these percentages were based on all claims
allowed for R's emergency or other medically necessary inpatient and
outpatient care by Medicare over a specified 12-month period,
divided by the associated gross charges for those claims. R's FAP
satisfies the requirements of this paragraph (b)(2).
(3) Method for applying for financial assistance--(i) In general.
To satisfy paragraph (b)(1)(iii)(C) of this section, a hospital
facility's FAP must describe how an individual applies for financial
assistance under the FAP. In addition, either the hospital facility's
FAP or FAP application form (including accompanying instructions) must
describe the information and documentation the hospital facility may
require an individual to provide as part of his or her FAP application
and provide the contact information described in Sec. 1.501(r)-
1(b)(24)(v). A hospital facility may not deny financial assistance
under its FAP based on an applicant's failure to provide information or
documentation unless that information or documentation is described in
the FAP or FAP application form. However, a hospital facility may grant
financial assistance under its FAP notwithstanding an applicant's
failure to provide information or documentation described in the FAP or
FAP application form and may, for example, rely on other evidence of
eligibility or an attestation by the applicant to determine that the
applicant is FAP-eligible.
(ii) Example. The following example illustrates this paragraph
(b)(3):
Example. S is a hospital facility with a FAP that bases
eligibility solely on an individual's household income. S's FAP
provides that an individual may apply for financial assistance by
completing and submitting S's FAP application form. S's FAP also
describes how individuals can obtain copies of the FAP application
form. S's FAP application form contains lines on which the applicant
lists all items of household income received by the applicant's
household over the last month and the names of the applicant's
household members. The instructions to S's FAP application form tell
applicants where to submit the application and provide that an
applicant must attach to his or her FAP application form proof of
household income in the form of payroll check stubs from the last
month or, if last month's wages are not representative of the
applicant's annual income, a copy of the applicant's most recent
federal tax return. Alternatively, the instructions state that an
applicant may provide documentation of his or her qualification for
certain specified state means-tested programs. The instructions also
state that if an applicant does not have any of the listed documents
proving household income, he or she may call S's financial
assistance office and discuss other evidence that may be provided to
demonstrate eligibility. S does not deny financial assistance to FAP
applicants based on a failure to submit any information or
documentation not mentioned in the FAP
[[Page 79006]]
application form or instructions. S's FAP application form
instructions also provide the contact information of the hospital
facility office that can provide an applicant with information about
the FAP and assistance with the FAP application process. S's FAP
satisfies the requirements of this paragraph (b)(3).
(4) Actions that may be taken in the event of nonpayment--(i) In
general. To satisfy paragraph (b)(1)(iii)(D) of this section, either a
hospital facility's FAP or a separate written billing and collections
policy established for the hospital facility must describe--
(A) Any actions that the hospital facility (or other authorized
party) may take related to obtaining payment of a bill for medical
care, including, but not limited to, any extraordinary collection
actions (ECAs) described in Sec. 1.501(r)-6(b);
(B) The process and time frames the hospital facility (or other
authorized party) uses in taking the actions described in paragraph
(b)(4)(i)(A) of this section, including, but not limited to, the
reasonable efforts it will make to determine whether an individual is
FAP-eligible before engaging in any ECAs, as described in Sec.
1.501(r)-6(c); and
(C) The office, department, committee, or other body with the final
authority or responsibility for determining that the hospital facility
has made reasonable efforts to determine whether an individual is FAP-
eligible and may therefore engage in ECAs against the individual.
(ii) Separate billing and collections policy. In the case of a
hospital facility that satisfies paragraph (b)(1)(iii)(D) of this
section by establishing a separate written billing and collections
policy, the hospital facility's FAP must state that the actions the
hospital facility may take in the event of nonpayment are described in
a separate billing and collections policy and explain how members of
the public may readily obtain a free copy of this separate policy.
(5) Widely publicizing the FAP--(i) In general. To satisfy the
requirement in paragraph (b)(1)(ii) of this section to widely publicize
its FAP, a hospital facility must--
(A) Make the FAP, FAP application form, and plain language summary
of the FAP (as defined in Sec. 1.501(r)-1(b)(24)) widely available on
a Web site (as defined in Sec. 1.501(r)-1(b)(29));
(B) Make paper copies of the FAP, FAP application form, and plain
language summary of the FAP available upon request and without charge,
both by mail and in public locations in the hospital facility,
including, at a minimum, in the emergency room (if any) and admissions
areas;
(C) Notify and inform members of the community served by the
hospital facility about the FAP in a manner reasonably calculated to
reach those members who are most likely to require financial assistance
from the hospital facility; and
(D) Notify and inform individuals who receive care from the
hospital facility about the FAP by--
(1) Offering a paper copy of the plain language summary of the FAP
to patients as part of the intake or discharge process;
(2) Including a conspicuous written notice on billing statements
that notifies and informs recipients about the availability of
financial assistance under the hospital facility's FAP and includes the
telephone number of the hospital facility office or department that can
provide information about the FAP and FAP application process and the
direct Web site address (or URL) where copies of the FAP, FAP
application form, and plain language summary of the FAP may be
obtained; and
(3) Setting up conspicuous public displays (or other measures
reasonably calculated to attract patients' attention) that notify and
inform patients about the FAP in public locations in the hospital
facility, including, at a minimum, the emergency room (if any) and
admissions areas.
(ii) Accessibility to limited English proficient individuals. To
widely publicize its FAP, a hospital facility must accommodate all
significant populations that have limited English proficiency (LEP) by
translating its FAP, FAP application form, and plain language summary
of the FAP into the primary language(s) spoken by such populations. A
hospital facility will satisfy this translation requirement in a
taxable year if it makes available translations of its FAP, FAP
application form, and plain language summary of the FAP in the language
spoken by each LEP language group that constitutes the lesser of 1,000
individuals or 5 percent of the community served by the hospital
facility or the population likely to be affected or encountered by the
hospital facility. For purposes of this paragraph (b)(5)(ii), a
hospital facility may determine the percentage or number of LEP
individuals in the hospital facility's community or likely to be
affected or encountered by the hospital facility using any reasonable
method.
(iii) Meaning of notify and inform. For purposes of paragraphs
(b)(5)(i)(C) and (b)(5)(i)(D)(3) of this section, a measure will notify
and inform members of a community or patients about the hospital
facility's FAP if the measure, at a minimum, notifies the reader or
listener that the hospital facility offers financial assistance under a
FAP and informs him or her about how or where to obtain more
information about the FAP and FAP application process and to obtain
copies of the FAP, FAP application form, and plain language summary of
the FAP.
(iv) Meaning of reasonably calculated. Whether one or more measures
to widely publicize a hospital facility's FAP are reasonably calculated
to notify and inform members of a community or patients about the
hospital facility's FAP in the manner described in paragraphs
(b)(5)(i)(C) and (b)(5)(i)(D)(3) of this section will depend on all of
the facts and circumstances, including the primary language(s) spoken
by the members of the community served by the hospital facility and
other attributes of the community and the hospital facility.
(v) Examples. The following examples illustrate this paragraph
(b)(5):
Example 1. (i) Z is a hospital facility. The home page and main
billing page of Z's Web site conspicuously display the following
message: ``Need help paying your bill? You may be eligible for
financial assistance. Click here for more information.'' When
readers click on the link, they are taken to a Web page that
explains the various discounts available under Z's FAP and the
specific eligibility criteria for each such discount. This Web page
also provides all of the other information required to be included
in a plain language summary of the FAP (as defined in Sec.
1.501(r)-1(b)(24)), including a telephone number of Z that
individuals can call and a room number of Z that individuals can
visit for more information about the FAP and assistance with FAP
applications. In addition, the Web page contains prominently-
displayed links that allow readers to download PDF files of the FAP
and the FAP application form, free of charge and without being
required to create an account or provide personally identifiable
information. Z provides any individual who asks how to access a copy
of the FAP, FAP application form, or plain language summary of the
FAP online with the URL of this Web page. By implementing these
measures, Z has made its FAP widely available on a Web site within
the meaning of paragraph (b)(5)(i)(A) of this section.
(ii) Z distributes copies of the plain language summary of its
FAP and its FAP application form to all of its referring staff
physicians and to the community health centers serving its
community. Z also distributes copies of these documents to the local
health department and to numerous public agencies and nonprofit
organizations in its community that address the health issues and
other needs of low-income populations, in quantities sufficient to
meet demand. In addition, every issue of the quarterly newsletter
that Z mails to the individuals in its customer database contains
[[Page 79007]]
a prominently-displayed advertisement informing readers that Z
offers financial assistance and that people having trouble paying
their hospital bills may be eligible for financial assistance. The
advertisement provides readers with the URL of the Web page where
Z's FAP and FAP application form can be accessed and a telephone
number of Z that individuals can call and a room number of Z that
individuals can visit with questions about the FAP or assistance
with the FAP application process. By implementing these measures, Z
notifies and informs members of its community about the FAP within
the meaning of paragraph (b)(5)(i)(C) of this section.
(iii) Z makes paper copies of the FAP, FAP application form, and
plain language summary of the FAP available upon request and without
charge, both by mail and in its admissions areas and emergency room.
Z also conspicuously displays a sign in large font regarding the FAP
in its admissions areas and emergency room. The sign says:
``Uninsured? Having trouble paying your hospital bill? You may be
eligible for financial assistance.'' The sign also provides the URL
of the Web page where Z's FAP and FAP application form can be
accessed. In addition, the sign provides a telephone number of Z
that individuals can call and a room number of Z that individuals
can visit with questions about the FAP or assistance with the FAP
application process. Underneath each sign, Z conspicuously displays
copies of a brochure that contains all of the information required
to be included in a plain language summary of the FAP (as defined in
Sec. 1.501(r)-1(b)(24)). Z makes these brochures available in
quantities sufficient to meet visitor demand. Z also offers a plain
language summary of the FAP as part of its intake process. Z's
billing statements include a conspicuously-placed statement in large
font containing the same information that Z includes on its signs.
By implementing these measures, Z makes a paper copy of the FAP, FAP
application form, and plain language summary of the FAP available
upon request within the meaning of paragraph (b)(5)(i)(B) of this
section and notifies and informs individuals who receive care from
the hospital facility about the FAP within the meaning of paragraph
(b)(5)(i)(D) of this section.
(iv) Because Z takes measures to widely publicize the FAP
described in paragraphs (b)(5)(i)(A), (b)(5)(i)(B), (b)(5)(i)(C),
and (b)(5)(i)(D) of this section, Z meets the requirement to widely
publicize its FAP under paragraph (b)(1)(ii) of this section.
Example 2. Assume the same facts as Example 1, except that Z
serves a community in which 6% of the members speak Spanish and have
limited proficiency in English. Z translates its FAP, FAP
application form, and FAP brochure (which constitutes a plain
language summary of the FAP) into Spanish, and displays and
distributes both Spanish and English versions of these documents in
its hospital facility using all of the measures described in Example
1. Z also distributes Spanish versions of its FAP application form
and FAP brochure to organizations serving Spanish-speaking members
of its community. Moreover, the home page and main billing page of
Z's Web site conspicuously display an ``[iquest]Habla
Espa[ntilde]ol?'' link that takes readers to a Web page that
summarizes the FAP in Spanish and contains links that allow readers
to download PDF files of the Spanish versions of the FAP and FAP
application form, free of charge and without being required to
create an account or provide personally identifiable information. Z
meets the requirement to widely publicize its FAP under paragraph
(b)(1)(ii) of this section.
(6) Readily obtainable information. For purposes of paragraphs
(b)(2)(i)(C) and (b)(4)(ii) of this section, information is readily
obtainable by members of the public if a hospital facility--
(i) Makes the information available free of charge on a Web site
and via a paper copy upon request in a manner similar to that described
in paragraphs (b)(5)(i)(A) and (b)(5)(i)(B) of this section; and
(ii) Provides translations of the information as described in
paragraph (b)(5)(ii) of this section.
(7) Providing documents electronically. A hospital facility may
provide electronically (for example, on an electronic screen, by email,
or by providing the direct Web site address, or URL, of the Web page
where the document or information is posted) any document or
information that is required by this paragraph (b) to be provided in
the form of a paper copy to any individual who indicates he or she
prefers to receive or access the document or information
electronically.
(8) Medically necessary care. For purposes of meeting the
requirements of this section, a hospital facility may (but is not
required to) use a definition of medically necessary care applicable
under the laws of the state in which it is licensed, including the
Medicaid definition, or a definition that refers to the generally
accepted standards of medicine in the community or to an examining
physician's determination.
(c) Emergency medical care policy--(1) In general. To satisfy
paragraph (a)(2) of this section, a hospital organization must
establish a written policy for a hospital facility that requires the
hospital facility to provide, without discrimination, care for
emergency medical conditions to individuals regardless of whether they
are FAP-eligible.
(2) Interference with provision of emergency medical care. A
hospital facility's emergency medical care policy will not be described
in paragraph (c)(1) of this section unless it prohibits the hospital
facility from engaging in actions that discourage individuals from
seeking emergency medical care, such as by demanding that emergency
department patients pay before receiving treatment for emergency
medical conditions or by permitting debt collection activities that
interfere with the provision, without discrimination, of emergency
medical care.
(3) Relation to federal law governing emergency medical care.
Subject to paragraph (c)(2) of this section, a hospital facility's
emergency medical care policy will be described in paragraph (c)(1) of
this section if it requires the hospital facility to provide the care
for emergency medical conditions that the hospital facility is required
to provide under Subchapter G of Chapter IV of Title 42 of the Code of
Federal Regulations (or any successor regulations).
(4) Examples. The following examples illustrate this paragraph (c):
Example 1. F is a hospital facility with a dedicated emergency
department that is subject to the Emergency Medical Treatment and
Labor Act (EMTALA) and is not a critical access hospital. F
establishes a written emergency medical care policy requiring F to
comply with EMTALA by providing medical screening examinations and
stabilizing treatment and referring or transferring an individual to
another facility, when appropriate, and providing emergency services
in accordance with 42 CFR 482.55 (or any successor regulation). F's
emergency medical care policy also states that F prohibits any
actions that would discourage individuals from seeking emergency
medical care, such as by demanding that emergency department
patients pay before receiving treatment for emergency medical
conditions or permitting debt collection activities that interfere
with the provision, without discrimination, of emergency medical
care. F's emergency medical care policy is described in paragraph
(c)(1) of this section.
Example 2. G is a rehabilitation hospital facility. G does not
have a dedicated emergency department, nor does it have specialized
capabilities that would make it appropriate to accept transfers of
individuals who need stabilizing treatment for an emergency medical
condition. G establishes a written emergency medical care policy
that addresses how it appraises emergencies, provides initial
treatment, and refers or transfers an individual to another
facility, when appropriate, in a manner that complies with 42 CFR
482.12(f)(2) (or any successor regulation). G's emergency medical
care policy also prohibits G from engaging in actions that
discourage individuals from seeking emergency medical care, such as
by demanding that patients pay before receiving initial treatment
for emergency medical conditions or permitting debt collection
activities that interfere with the facility's appraisal and
provision, without discrimination, of such initial treatment. G's
emergency medical care policy is described in paragraph (c)(1) of
this section.
(d) Establishing the FAP and other policies--(1) In general. A
hospital organization has established a FAP, a billing and collections
policy, or an
[[Page 79008]]
emergency medical care policy for a hospital facility only if an
authorized body of the hospital facility (as defined in Sec. 1.501(r)-
1(b)(4)) has adopted the policy for the hospital facility and the
hospital facility has implemented the policy.
(2) Implementing a policy. For purposes of this paragraph (d), a
hospital facility will be considered to have implemented a policy if
the hospital facility has consistently carried out the policy.
(3) Establishing a policy for more than one hospital facility. A
hospital organization may establish a FAP, billing and collections
policy, and/or emergency medical care policy for a hospital facility
that is identical to that of other hospital facilities or a joint
policy that is shared with multiple hospital facilities provided that
any joint policy clearly identifies each facility to which it applies.
However, hospital facilities that have different AGB percentages or use
different methods to determine AGB must include in their FAPs (or, in
the case of information related to AGB percentages, otherwise make
readily obtainable) different information regarding AGB to meet the
requirements of paragraph (b)(2)(i)(C) of this section.
Sec. 1.501(r)-5 Limitation on charges.
(a) In general. A hospital organization meets the requirements of
section 501(r)(5) with respect to a hospital facility it operates only
if the hospital facility (and any substantially-related entity, as
defined in Sec. 1.501(r)-1(b)(28)) limits the amount charged for care
it provides to any individual who is eligible for assistance under its
financial assistance policy (FAP) to--
(1) In the case of emergency or other medically necessary care, not
more than the amounts generally billed to individuals who have
insurance covering such care (AGB), as determined under paragraph (b)
of this section; and
(2) In the case of all other medical care covered under the FAP,
less than the gross charges for such care, as described in paragraph
(c) of this section.
(b) Amounts generally billed--(1) In general. For purposes of
meeting the requirements of paragraph (a)(1) of this section, a
hospital facility must determine AGB for emergency or other medically
necessary care using a method described in paragraph (b)(3) or (b)(4)
of this section or any other method specified in regulations or other
guidance published in the Internal Revenue Bulletin. A hospital
facility may use only one of these methods to determine AGB at any one
time, but different hospital facilities operated by the same hospital
organization may use different methods. A hospital facility may change
the method it uses to determine AGB at any time.
(2) Meaning of charged. For purposes of paragraph (a)(1) of this
section, a FAP-eligible individual is considered to be ``charged'' only
the amount he or she is personally responsible for paying, after all
deductions, discounts (including discounts available under the FAP),
and insurance reimbursements have been applied. Thus, in the case of a
FAP-eligible individual who has health insurance coverage, a hospital
facility will meet the requirements of paragraph (a)(1) of this section
if the FAP-eligible individual is not personally responsible for paying
(for example, in the form of co-payments, co-insurance, and
deductibles) more than AGB for the care after all reimbursements by the
health insurer have been applied, even if the total amount paid by the
FAP-eligible individual and his or her health insurer together exceeds
AGB.
(3) Look-back method--(i) In general. A hospital facility may
determine AGB for any emergency or other medically necessary care it
provides to a FAP-eligible individual by multiplying the hospital
facility's gross charges for the care by one or more percentages of
gross charges (AGB percentage(s)). A hospital facility using this
method must calculate its AGB percentage(s) at least annually by
dividing the sum of the amounts of all of its claims for emergency and
other medically necessary care that have been allowed by health
insurers described in paragraph (b)(3)(ii) of this section during a
prior 12-month period by the sum of the associated gross charges for
those claims. Whether a claim is used in calculating a hospital
facility's AGB percentage(s) depends on whether the claim was allowed
by a health insurer during the 12-month period used in the calculation,
not on whether the care resulting in the claim was provided during that
12-month period. If the amount a health insurer will allow for a claim
has not been finally determined as of the last day of the 12-month
period used to calculate the AGB percentage(s), a hospital facility
should exclude the amount of the claim from that calculation and
include it in the subsequent 12-month period during which the amount
allowed is finally determined. When including allowed claims in
calculating its AGB percentage(s), the hospital facility should include
the full amount that has been allowed by the health insurer, including
both the amount the insurer will pay or reimburse and the amount (if
any) the individual is personally responsible for paying in the form of
co-payments, co-insurance, and deductibles, regardless of whether or
when the full amount allowed is actually paid and disregarding any
discounts applied to the individual's portion.
(ii) Health insurers used in calculating AGB percentage(s). In
calculating its AGB percentage(s), a hospital facility must include the
claims allowed during a prior 12-month period by--
(A) Medicare fee-for-service;
(B) Medicare fee-for-service and all private health insurers that
pay claims to the hospital facility; or
(C) Medicaid, either alone or in combination with the insurer(s)
described in paragraph (b)(3)(ii)(A) or (b)(3)(ii)(B) of this section.
(iii) One or multiple AGB percentages. A hospital facility's AGB
percentage that is calculated using the method described in this
paragraph (b)(3) may be one average percentage of gross charges for all
emergency and other medically necessary care provided by the hospital
facility. Alternatively, a hospital facility may calculate multiple AGB
percentages for separate categories of care (such as inpatient and
outpatient care or care provided by different departments) or for
separate items or services, as long as the hospital facility calculates
AGB percentages for all emergency and other medically necessary care
provided by the hospital facility.
(iv) Start date for applying AGB percentages. For purposes of
determining AGB under this paragraph (b)(3), with respect to any AGB
percentage that a hospital facility has calculated, the hospital
facility must begin applying the AGB percentage by the 120th day after
the end of the 12-month period the hospital facility used in
calculating the AGB percentage.
(v) Use of all claims for medical care. A hospital facility
determining AGB under this paragraph (b)(3) may use claims allowed for
all medical care during a prior 12-month period rather than just those
allowed for emergency and other medically necessary care.
(vi) Determining AGB percentages for more than one hospital
facility. Although generally a hospital organization must calculate AGB
percentage(s) separately for each hospital facility it operates,
hospital facilities that are covered under the same Medicare provider
agreement (as defined in 42 CFR 489.3 or any successor regulations) may
calculate one
[[Page 79009]]
AGB percentage (or multiple AGB percentages for separate categories of
care or for separate items or services) using the method described in
this paragraph (b)(3) based on the claims and gross charges for all
such hospital facilities and implement the AGB percentage(s) across all
such hospital facilities.
(4) Prospective Medicare or Medicaid method. A hospital facility
may determine AGB for any emergency or other medically necessary care
provided to a FAP-eligible individual by using the billing and coding
process the hospital facility would use if the FAP-eligible individual
were a Medicare fee-for-service or Medicaid beneficiary and setting AGB
for the care at the amount the hospital facility determines would be
the total amount Medicare or Medicaid would allow for the care
(including both the amount that would be reimbursed by Medicare or
Medicaid and the amount the beneficiary would be personally responsible
for paying in the form of co-payments, co-insurance, and deductibles).
A hospital facility using the method described in this paragraph (b)(4)
may base AGB on Medicare fee-for-service or Medicaid or both, provided
that, if it uses both, its FAP describes the circumstance under which
it will use Medicare fee-for-service or Medicaid in determining AGB.
(5) Examples. The following examples illustrate this paragraph (b):
Example 1. On March 15 of Year 1, Y, a hospital facility,
generates data on the amount of all of Y's claims for emergency and
other medically necessary care that were allowed by all private
health insurers and Medicare fee-for-service over the immediately
preceding calendar year. Y determines that the private health
insurers allowed a total amount of $250 million and Medicare fee-
for-service allowed a total amount of $150 million, with the total
allowed amounts including both the portion the insurers agreed to
reimburse and the portion that the insured patients were personally
responsible for paying. Y's gross charges for these claims totaled
$800 million. Y calculates that its AGB percentage is 50% of gross
charges ($400 million/$800 million). Y updates its FAP to reflect
the new AGB percentage of 50% and makes the updated FAP widely
available (both on its Web site and via paper copies upon request)
on April 1 of Year 1. Between April 1 of Year 1 (less than 120 days
after the end of the preceding calendar year) and March 31 of Year
2, Y determines AGB for any emergency or other medically necessary
care it provides to a FAP-eligible individual by multiplying the
gross charges for the care provided to the individual by 50%. Y has
determined AGB between April 1 of Year 1 and March 31 of Year 2 in
accordance with this paragraph (b) by using the look-back method
described in paragraph (b)(3) of this section.
Example 2. On August 20 of Year 1, X, a hospital facility,
generates data on the amount of all of X's claims for emergency and
other medically necessary care that were allowed by Medicare fee-
for-service over the 12 months ending on July 31 of Year 1. X
determines that, of these claims for inpatient services, Medicare
allowed a total amount of $100 million (including both the portion
Medicare agreed to reimburse and the portion Medicare beneficiaries
were personally responsible for paying). X's gross charges for these
inpatient claims totaled $250 million. Of the claims for outpatient
services, Medicare allowed a total amount of $125 million. X's gross
charges for these outpatient claims totaled $200 million. X
calculates that its AGB percentage for inpatient services is 40% of
gross charges ($100 million/$250 million) and its AGB percentage for
outpatient services is 62.5% of gross charges ($125 million/$200
million). Y discloses its AGB percentages and describes how they
were calculated on the Web page where its FAP can be accessed, and
it updates this Web page to reflect the new AGB percentages on
November 1. Y also starts making an updated information sheet with
the new AGB percentages available upon request on and after November
1. Between November 1 of Year 1 (less than 120 days after the end of
the 12-month claim period) and October 31 of Year 2, X determines
AGB for any emergency or other medically necessary inpatient care it
provides to a FAP-eligible individual by multiplying the gross
charges for the inpatient care it provides to the individual by 40%
and AGB for any emergency or other medically necessary outpatient
care it provides to a FAP-eligible individual by multiplying the
gross charges for the outpatient care it provides to the individual
by 62.5%. X has determined AGB between November 1 of Year 1 and
October 31 of Year 2 in accordance with this paragraph (b) by using
the look-back method described in paragraph (b)(3) of this section.
Example 3. Whenever Z, a hospital facility, provides emergency
or other medically necessary care to a FAP-eligible individual, Z
determines the AGB for the care by using the billing and coding
process it would use if the individual were a Medicare fee-for-
service beneficiary and setting AGB for the care at the amount it
determines Medicare and the Medicare beneficiary together would be
expected to pay for the care. Z has determined AGB in accordance
with this paragraph (b) by using the prospective Medicare method
described in paragraph (b)(4) of this section.
Example 4. Using the look-back method described in paragraph
(b)(3) of this section, W, a hospital facility, calculates that its
AGB percentage for Year 1 is 60% of gross charges. Under W's FAP,
which applies to all emergency and other medically necessary care
provided by W and which has been updated to reflect the AGB
percentage for Year 1, the most that W charges a FAP-eligible
individual is 50% of gross charges. W properly implements its FAP
and charges no FAP-eligible individual more for emergency or other
medically necessary care than 50% of gross charges in Year 1. W has
met the requirements of paragraphs (a)(1) and (b) of this section in
Year 1.
Example 5. A, an individual, receives medically necessary care
from hospital facility V for which the AGB is $3y. A is insured by
U, a health insurer. Under U's contracts with V and A, the amount
allowed for the care V provided to A is $5y. Of that amount allowed,
A is personally responsible for paying $1y (in co-payments and
deductibles) while U is responsible for paying $4y. Based on the
eligibility criteria specified in its FAP, V determines that A is
FAP-eligible. Pursuant to paragraph (b)(2) of this section, V may
charge U and A collectively $5y while still meeting the requirements
of paragraph (a)(1) of this section because the amount A is
personally responsible for paying in co-payments and deductibles
($1y) is less than the AGB for the care ($3y).
Example 6. Assume the same facts as Example 5, except that under
U's contracts with V and A, A is personally responsible for paying
$4y (in co-payments and deductibles) for the care while U is
responsible for paying V $1y. Because A is FAP-eligible under V's
FAP, paragraph (a)(1) of this section requires that A not be
personally responsible for paying V more than $3y (the AGB for the
care provided).
(c) Gross charges. A hospital facility must charge a FAP-eligible
individual less than the gross charges for any medical care covered
under the hospital facility's FAP. A billing statement issued by a
hospital facility to a FAP-eligible individual for medical care covered
under the FAP may state the gross charges for such care and apply
contractual allowances, discounts, or deductions to the gross charges,
provided that the actual amount the individual is personally
responsible for paying is less than the gross charges for such care.
(d) Safe harbor for certain charges in excess of AGB. A hospital
facility will be deemed to meet the requirements of paragraph (a) of
this section, even if it charges more than AGB for emergency or other
medically necessary care (or gross charges for any medical care covered
under the FAP) provided to a FAP-eligible individual, if--
(1) The charge in excess of AGB was not made or requested as a pre-
condition of providing medically necessary care to the FAP-eligible
individual (for example, an upfront payment that a hospital facility
requires before providing medically necessary care);
(2) As of the time of the charge, the FAP-eligible individual has
not submitted a complete FAP application to the hospital facility to
obtain financial assistance for the care or has not otherwise been
determined by the hospital facility to be FAP-eligible for the care;
and
(3) If the individual subsequently submits a complete FAP
application and
[[Page 79010]]
is determined to be FAP-eligible for the care, the hospital facility
refunds any amount the individual has paid for the care (whether to the
hospital facility or any other party to whom the hospital facility has
referred or sold the individual's debt for the care) that exceeds the
amount he or she is determined to be personally responsible for paying
as a FAP-eligible individual, unless such excess amount is less than $5
(or such other amount set by notice or other guidance published in the
Internal Revenue Bulletin).
(e) Medically necessary care. For purposes of meeting the
requirements of this section, a hospital facility may (but is not
required to) use a definition of medically necessary care applicable
under the laws of the state in which it is licensed, including the
Medicaid definition, or a definition that refers to the generally
accepted standards of medicine in the community or to an examining
physician's determination.
Sec. 1.501(r)-6 Billing and collection.
(a) In general. A hospital organization meets the requirements of
section 501(r)(6) with respect to a hospital facility it operates only
if the hospital facility does not engage in extraordinary collection
actions (ECAs), as defined in paragraph (b) of this section, against an
individual to obtain payment for care before the hospital facility has
made reasonable efforts to determine whether the individual is eligible
for assistance for the care under its financial assistance policy
(FAP), as described in paragraph (c) of this section. For purposes of
this section, with respect to any debt owed by an individual for care
provided by a hospital facility--
(1) ECAs against the individual include ECAs to obtain payment for
the care against any other individual who has accepted or is required
to accept responsibility for the individual's hospital bill for the
care; and
(2) The hospital facility will be deemed to have engaged in an ECA
against the individual to obtain payment for the care, or to have taken
one or more of the steps necessary to have made reasonable efforts to
determine whether the individual is FAP-eligible for the care, if any
purchaser of the individual's debt, any debt collection agency or other
party to which the hospital facility has referred the individual's
debt, or any substantially-related entity (as defined in Sec.
1.501(r)-1(b)(28)) has engaged in such an ECA or taken such steps
(whichever is applicable).
(b) Extraordinary collection actions--(1) In general. Except as
otherwise provided in this paragraph (b), the following actions taken
by a hospital facility against an individual related to obtaining
payment of a bill for care covered under the hospital facility's FAP
are ECAs:
(i) Selling an individual's debt to another party (other than debt
sales described in paragraph (b)(2) of this section).
(ii) Reporting adverse information about the individual to consumer
credit reporting agencies or credit bureaus.
(iii) Deferring or denying, or requiring a payment before
providing, medically necessary care because of an individual's
nonpayment of one or more bills for previously provided care covered
under the hospital facility's FAP (which is considered an ECA to obtain
payment for the previously provided care, not the care being
potentially deferred or denied). If a hospital facility requires a
payment before providing medically necessary care to an individual with
one or more outstanding bills for previously provided care, such a
requirement for payment will be presumed to be because of the
individual's nonpayment of such bill(s) unless the hospital facility
can demonstrate that it required the payment from the individual based
on factors other than, and without regard to, the individual's
nonpayment of past bills.
(iv) Actions that require a legal or judicial process, including
but not limited to--
(A) Placing a lien on an individual's property (other than a lien
described in paragraph (b)(3) of this section);
(B) Foreclosing on an individual's real property;
(C) Attaching or seizing an individual's bank account or any other
personal property;
(D) Commencing a civil action against an individual;
(E) Causing an individual's arrest;
(F) Causing an individual to be subject to a writ of body
attachment; and
(G) Garnishing an individual's wages.
(2) Certain debt sales that are not ECAs. A hospital facility's
sale of an individual's debt for care provided by the hospital facility
will not be considered an ECA if, prior to the sale, the hospital
facility has entered into a legally binding written agreement with the
purchaser of the debt pursuant to which--
(i) The purchaser is prohibited from engaging in any ECAs to obtain
payment for the care;
(ii) The purchaser is prohibited from charging interest on the debt
in excess of the rate in effect under section 6621(a)(2) at the time
the debt is sold (or such other interest rate set by notice or other
guidance published in the Internal Revenue Bulletin);
(iii) The debt is returnable to or recallable by the hospital
facility upon a determination by the hospital facility or the purchaser
that the individual is FAP-eligible; and
(iv) If the individual is determined to be FAP-eligible and the
debt is not returned to or recalled by the hospital facility, the
purchaser is required to adhere to procedures specified in the
agreement that ensure that the individual does not pay, and has no
obligation to pay, the purchaser and the hospital facility together
more than he or she is personally responsible for paying as a FAP-
eligible individual.
(3) Liens on certain judgments, settlements, or compromises. Any
lien that a hospital facility is entitled to assert under state law on
the proceeds of a judgment, settlement, or compromise owed to an
individual (or his or her representative) as a result of personal
injuries for which the hospital facility provided care is not an ECA.
(4) Bankruptcy claims. The filing of a claim in any bankruptcy
proceeding is not an ECA.
(c) Reasonable efforts--(1) In general. A hospital facility will
have made reasonable efforts to determine whether an individual is FAP-
eligible for care only if the hospital facility meets the requirements
described in paragraph (c)(2) or (c)(3) of this section.
(2) Presumptive FAP-eligibility determinations based on third-party
information or prior FAP-eligibility determinations--(i) In general.
With respect to any care provided by a hospital facility to an
individual, the hospital facility will have made reasonable efforts to
determine whether the individual is FAP-eligible for the care if it
determines that the individual is FAP-eligible for the care based on
information other than that provided by the individual or based on a
prior FAP-eligibility determination and, if the individual is
presumptively determined to be eligible for less than the most generous
assistance available under the FAP, the hospital facility--
(A) Notifies the individual regarding the basis for the presumptive
FAP-eligibility determination and the way to apply for more generous
assistance available under the FAP;
(B) Gives the individual a reasonable period of time to apply for
more generous assistance before initiating ECAs to obtain the
discounted amount owed for the care; and
(C) If the individual submits a complete FAP application seeking
more generous assistance during the
[[Page 79011]]
application period (as defined in Sec. 1.501(r)-1(b)(3)), determines
whether the individual is eligible for a more generous discount and
otherwise meets the requirements described in paragraph (c)(6) of this
section with respect to that complete FAP application.
(ii) Examples. The following examples illustrate this paragraph
(c)(2):
Example 1. V is a hospital facility with a FAP under which the
specific assistance for which an individual is eligible depends
exclusively upon that individual's household income. The most
generous assistance offered for care under V's FAP is free care. V's
FAP states that V uses enrollment in certain specified means-tested
public programs to presumptively determine that individuals are FAP-
eligible. D, an individual, receives care from V. Although D does
not submit a FAP application to V, V learns that D is eligible for
certain benefits under a state program that bases eligibility on
household income. Based on this knowledge, V presumptively
determines that D is eligible to receive free care under its FAP. V
notifies D that it has determined he is eligible for free care based
on his eligibility for the benefits under the state program and
therefore does not owe V anything for the care he received. V has
made reasonable efforts to determine whether D is FAP-eligible under
this paragraph (c)(2).
Example 2. X is a hospital facility with a FAP that describes
the data, including both hospital and publicly-available data, X
uses to make presumptive FAP-eligibility determinations. On January
16, F, an individual, receives care from X. Using the hospital and
publicly-available data described in its FAP, X presumptively
determines that F is eligible for a 50% discount under its FAP, a
discount that is not the most generous discount available under the
FAP. The first billing statement that X sends to F indicates that F
has been given a 50% discount under X's FAP, explains the basis for
this presumptive FAP-eligibility determination, and informs F that
she may apply for financial assistance if she believes she is
eligible for a more generous discount. The billing statement
indicates that F may call 1-800-888-xxxx or visit X's Web site at
www.hospitalX.org/FAP to learn more about the FAP or the FAP
application process. X sends F three more billing statements, each
of which contains the standard written notice about the FAP that X
includes on all of its billing statements in accordance with Sec.
1.501(r)-4(b)(5), but F neither pays the amount she is personally
responsible for paying nor applies for more generous financial
assistance. The time between the first and fourth billing statement
constitutes a reasonable period of time for F to apply for more
generous assistance. V has made reasonable efforts to determine
whether D is FAP-eligible under this paragraph (c)(2).
(3) Reasonable efforts based on notification and processing of
applications. With respect to any care provided by a hospital facility
to an individual, the hospital facility will have made reasonable
efforts to determine whether the individual is FAP-eligible for the
care if it--
(i) Notifies the individual about the FAP as described in paragraph
(c)(4) of this section before initiating any ECAs to obtain payment for
the care and refrains from initiating such ECAs (with the exception of
an ECA described in paragraph (b)(1)(iii) of this section) for at least
120 days from the date the hospital facility provides the first post-
discharge billing statement for the care;
(ii) In the case of an individual who submits an incomplete FAP
application during the application period, notifies the individual
about how to complete the FAP application and gives the individual a
reasonable opportunity to do so as described in paragraph (c)(5) of
this section; and
(iii) In the case of an individual who submits a complete FAP
application during the application period, determines whether the
individual is FAP-eligible for the care and otherwise meets the
requirements described in paragraph (c)(6) of this section.
(4) Notification--(i) In general. With respect to any care provided
by a hospital facility to an individual and except as provided in
paragraph (c)(4)(iii) of this section, a hospital facility will have
notified an individual about its FAP for purposes of paragraph
(c)(3)(i) of this section only if the hospital facility does the
following at least 30 days before first initiating one or more ECA(s)
to obtain payment for the care:
(A) Provides the individual with a written notice that indicates
financial assistance is available for eligible individuals, identifies
the ECA(s) that the hospital facility (or other authorized party)
intends to initiate to obtain payment for the care, and states a
deadline after which such ECA(s) may be initiated that is no earlier
than 30 days after the date that the written notice is provided.
(B) Provides the individual with a plain language summary of the
FAP (as defined in Sec. 1.501(r)-1(b)(24)) with the written notice
described in paragraph (c)(4)(i)(A) of this section (or, if applicable,
paragraph (c)(4)(iii) of this section).
(C) Makes a reasonable effort to orally notify the individual about
the hospital facility's FAP and about how the individual may obtain
assistance with the FAP application process.
(ii) Notification in the event of multiple episodes of care. A
hospital facility may satisfy the notification requirements described
in paragraph (c)(4)(i) of this section simultaneously for multiple
episodes of care and notify the individual about the ECA(s) the
hospital facility intends to initiate to obtain payment for multiple
outstanding bills for care. However, if a hospital facility aggregates
an individual's outstanding bills for multiple episodes of care before
initiating one or more ECAs to obtain payment for those bills, it will
have not have made reasonable efforts to determine whether the
individual is FAP-eligible under paragraph (c)(3) of this section
unless it refrains from initiating the ECA(s) until 120 days after it
provided the first post-discharge billing statement for the most recent
episode of care included in the aggregation.
(iii) Notification before deferring or denying care due to
nonpayment for prior care. In the case of an ECA described in paragraph
(b)(1)(iii) of this section, a hospital facility may notify the
individual about its FAP less than 30 days before initiating the ECA,
provided that the hospital facility does the following:
(A) Otherwise meets the requirements of paragraph (c)(4)(i) of this
section but, instead of the notice described in paragraph (c)(4)(i)(A)
of this section, provides the individual with a FAP application form
and a written notice indicating that financial assistance is available
for eligible individuals and stating the deadline, if any, after which
the hospital facility will no longer accept and process a FAP
application submitted (or, if applicable, completed) by the individual
for the previously-provided care at issue. This deadline must be no
earlier than the later of 30 days after the date that the written
notice is provided or 240 days after the date that the first post-
discharge billing statement for the previously provided care was
provided.
(B) If the individual submits a FAP application for the previously
provided care on or before the deadline described in paragraph
(c)(4)(iii)(A) of this section (or at any time, if the hospital
facility didn't provide any such deadline to the individual), processes
the FAP application on an expedited basis.
(iv) Examples. The following example illustrates this paragraph
(c)(4):
Example 1. A, an individual, receives care from T, a hospital
facility, in February. T provides A with the first post-discharge
billing statement for that care on March 3. This and subsequent
billing statements that T sends to A contain the standard written
notice about the FAP that X includes on all of its billing
statements in accordance with Sec. 1.501(r)-4(b)(5). A has not paid
her bill or submitted a FAP application when T provides her with the
third billing statement for the care, postmarked June 1. With this
third billing statement, T includes a plain language summary of the
FAP and a letter informing A that if she does not pay the
[[Page 79012]]
amount owed or submit a FAP application by July 1, T intends to
report A's delinquency to credit reporting agencies. T also calls A
and informs her about the financial assistance available to eligible
patients under T's FAP and about how to obtain assistance with the
FAP application process. A does not pay her bill or submit a FAP
application by July 1. T has made reasonable efforts to determine
whether A is FAP-eligible, and thus may report A's delinquency to
credit reporting agencies, as of July 2.
Example 2. G, an individual, receives care from Y, a hospital
facility, on May 25 of Year 1. G does not pay or submit a FAP
application over the next year, despite Y's sending out numerous
bills beginning on June 24 that contain the standard written notice
about the FAP that Y includes on all of its billing statements in
accordance with the requirements under Sec. 1.501(r)-4(b)(5). Y
also makes numerous attempts to encourage E to apply for financial
assistance, including by calling G to inform her about the financial
assistance available to eligible patients under Y's FAP and to offer
assistance with the FAP application process. By June 24 of Year 2,
Y, which had not previously initiated any ECAs against G to obtain
payment for the care, notifies G in writing that if G does not pay
or complete a FAP application by July 24 of Year 2, Y intends to
file a lawsuit seeking a judgment for the amount G owes for the care
and to seek court permission to enforce the judgment by either
seizing G's bank account or garnishing G's wages. The written notice
also includes a plain language summary of the FAP. G fails to pay or
submit a FAP application by July 24 of Year 2. Y has made reasonable
efforts to determine whether G is FAP-eligible, and may seek a
judgment for the amount G owes and court permission to enforce the
judgment by seizing G's bank account or garnishing G's wages, as of
July 25 of Year 2.
(5) Incomplete FAP applications--(i) In general. With respect to
any care provided by a hospital facility to an individual, if an
individual submits an incomplete FAP application during the application
period, the hospital facility will have notified the individual about
how to complete the FAP application and given the individual a
reasonable opportunity to do so for purposes of paragraph (c)(3)(ii) of
this section only if the hospital facility--
(A) Suspends any ECAs to obtain payment for the care as described
in paragraph (c)(8) of this section; and
(B) Provides the individual with a written notice that describes
the additional information and/or documentation required under the FAP
or FAP application form that must be submitted to complete the FAP
application and that includes the contact information described in
Sec. 1.501(r)-1(b)(24)(v).
(ii) FAP application completed. If an individual who has submitted
an incomplete FAP application during the application period
subsequently completes the FAP application during the application
period (or, if later, within a reasonable timeframe given to respond to
requests for additional information and/or documentation), the
individual will be considered to have submitted a complete FAP
application during the application period, and the hospital facility
will have made reasonable efforts to determine whether the individual
is FAP-eligible only if it meets the requirements for complete FAP
applications described in paragraph (c)(6) of this section.
(iii) Examples. The following examples illustrate this paragraph
(c)(5):
Example 1. (i) Assume the same facts as Example 1 in paragraph
(c)(4)(iv) of this section and the following additional facts: A
submits an incomplete FAP application to T on July 15, which is
before the last day of the application period on October 29 but
after T has already initiated ECAs. Eligibility for assistance under
T's FAP is based solely on an individual's family income and the
instructions to T's FAP application form require applicants to
attach to their application forms certain documentation verifying
family income. The FAP application form that A submits to T on July
15 includes all of the required income information, but A fails to
attach the required documentation verifying her family income. On
July 22, a member of T's staff calls A to inform her that she failed
to attach any of the required documentation of her family income and
explains what kind of documentation A needs to submit and how she
can submit it. T indicates that the documentation should be provided
by September 22. T also sends A a letter that describes the missing
documentation that A must submit by September 22 (and how to submit
it) and provides a telephone number A can call and room number she
can visit to get assistance with the FAP application process. T does
not initiate any new ECAs against A and does not take any further
action on the ECAs T previously initiated against A between July 15
and September 22. A does not respond to T's letter and does not
submit any missing documentation by September 22. T has made
reasonable efforts to determine whether A is FAP-eligible, and may
initiate or resume ECAs against A, as of September 23.
(ii) On October 10, before the last day of the application
period on October 29, A provides T with the missing documentation.
Because A has submitted a complete FAP application during the
application period, to meet the requirements of paragraph (a) of
this section, T must process the FAP application documentation to
determine whether A is FAP-eligible and otherwise meet the
requirements for complete FAP applications described in paragraph
(c)(6) of this section.
Example 2. (i) B, an individual, receives care from U, a
hospital facility, on January 10. U has established a FAP that
provides assistance to all individuals whose household income is
less than $y, and the instructions to U's FAP application form
specify the documentation that applicants must provide to verify
their household income. Shortly after receiving care, B submits a
FAP application form to U indicating that he has household income of
less than $y. B's FAP application form includes all of the required
income information, but B fails to attach the required documentation
verifying household income.
(ii) On February 9, U sends B the first post-discharge billing
statement for the care that contains the standard written notice
about the FAP that U includes on all of its billing statements in
accordance with Sec. 1.501(r)-4(b)(5). With this first post-
discharge billing statement, U includes a letter informing B that
the income information he provided on his FAP application form
indicates that he may be eligible to pay only x% of the amount
stated on the billing statement if he can provide documentation that
verifies his household income. In addition, this letter describes
the type of documentation (which is also described in the
instructions to U's FAP application form) that B needs to provide to
complete his FAP application and provides a telephone number that B
may call and room number he may visit if he has questions or needs
assistance with the FAP application process. By the time U is
getting ready to send B a third billing statement for the care, B
has not provided any response to U's request for the missing
documentation. Accordingly, with the third billing statement
postmarked May 10, U includes a plain language summary of the FAP
plus a written notice informing B that U intends to report B's
delinquency to credit reporting agencies if B does not submit the
missing documentation or pay the amount due by June 9. U also calls
B to inform B about the impending ECA and to see if he has questions
about the missing documentation that U has requested. B does not
provide any response to U's request for the missing documentation by
June 9. U has made reasonable efforts to determine whether B is FAP-
eligible, and thus may report B's delinquency to credit reporting
agencies, as of June 10.
(6) Complete FAP applications--(i) In general. With respect to any
care provided by a hospital facility to an individual, if an individual
submits a complete FAP application during the application period, the
hospital facility will have made reasonable efforts to determine
whether the individual is FAP-eligible for the care only if the
hospital facility does the following in a timely manner:
(A) Suspends any ECAs to obtain payment for the care as described
in paragraph (c)(8) of this section.
(B) Makes a determination as to whether the individual is FAP-
eligible for the care and notifies the individual in writing of this
eligibility determination (including, if applicable, the assistance for
which the individual is eligible) and the basis for this determination.
(C) If the hospital facility determines the individual is FAP-
eligible for the care, does the following:
[[Page 79013]]
(1) If the individual is determined to be eligible for assistance
other than free care, provides the individual with a billing statement
that indicates the amount the individual owes for the care as a FAP-
eligible individual and how that amount was determined and states, or
describes how the individual can get information regarding, the AGB for
the care.
(2) Refunds to the individual any amount he or she has paid for the
care (whether to the hospital facility or any other party to whom the
hospital facility has referred or sold the individual's debt for the
care) that exceeds the amount he or she is determined to be personally
responsible for paying as a FAP-eligible individual, unless such excess
amount is less than $5 (or such other amount set by notice or other
guidance published in the Internal Revenue Bulletin).
(3) Takes all reasonably available measures to reverse any ECA
(with the exception of a sale of debt and an ECA described in paragraph
(b)(1)(iii) of this section) taken against the individual to obtain
payment for the care. Such reasonably available measures generally
include, but are not limited to, measures to vacate any judgment
against the individual, lift any levy or lien (other than a lien
described in paragraph (b)(3) of this section) on the individual's
property, and remove from the individual's credit report any adverse
information that was reported to a consumer reporting agency or credit
bureau.
(ii) Anti-abuse rule for complete FAP applications. A hospital
facility will not have made reasonable efforts to determine whether an
individual is FAP-eligible if the hospital facility bases its
determination that the individual is not FAP-eligible on information
that the hospital facility has reason to believe is unreliable or
incorrect or on information obtained from the individual under duress
or through the use of coercive practices. For purposes of this
paragraph (c)(6)(ii), a coercive practice includes delaying or denying
emergency medical care to an individual until the individual has
provided information requested to determine whether the individual is
FAP-eligible for the care being delayed or denied.
(iii) Determination based on complete FAP applications sufficient
for reasonable efforts. A hospital facility will have made reasonable
efforts to determine whether an individual is FAP-eligible with respect
to any ECAs it initiates to obtain payment for care if, before
initiating any such ECAs, it determines whether the individual is FAP-
eligible for the care based on a complete FAP application and otherwise
meets the requirements described in this paragraph (c)(6). If these
conditions are satisfied, the hospital facility will have made
reasonable efforts to determine whether the individual is FAP-eligible
for the care regardless of whether it has notified the individual as
described in paragraph (c)(4) of this section or, if applicable, in
paragraph (c)(5)(i)(B) of this section.
(iv) Determining Medicaid eligibility. A hospital facility will not
fail to have made reasonable efforts to determine whether an individual
is FAP-eligible for care if, upon receiving a complete FAP application
from an individual who the hospital facility believes may qualify for
Medicaid, the hospital facility postpones determining whether the
individual is FAP-eligible for the care until after the individual's
Medicaid application has been completed and submitted and a
determination as to the individual's Medicaid eligibility has been
made.
(v) Examples. The following examples illustrate this paragraph
(c)(6):
Example 1. C, an individual, receives care from W, a hospital
facility, on September 1. W has established a FAP that provides
assistance only to individuals whose family income is less than or
equal to x% of the Federal Poverty Level (FPL), which, in the case
of C's family size, is $y. Upon discharge, W's staff gives C a plain
language summary of the FAP and informs C that if she needs
assistance filling out a FAP application form, W has a social worker
on staff who can assist her. C expresses interest in getting
assistance with a FAP application while she is still on site and is
directed to K, one of W's social workers. K explains the eligibility
criteria in W's FAP to C, and C realizes that to determine her
family income as a percentage of FPL she needs to look at her prior
year's tax returns. On September 20, after returning home and
obtaining the necessary information, C submits a FAP application to
W that contains all of the information and documentation required in
the FAP application form instructions. W's staff promptly examines
C's FAP application and, based on the information and documentation
therein, determines that C's family income is well in excess of $y.
On October 1, W sends C her first post-discharge billing statement
for the care she received on September 1. With the billing
statement, W includes a letter informing C that she is not eligible
for financial assistance because her FAP application indicates that
she has family income in excess of x% of FPL ($y for a family the
size of C's family) and W only provides financial assistance to
individuals with family income that is less than x% of FPL. W has
made reasonable efforts to determine whether C is FAP-eligible as of
October 1.
Example 2. E, an individual, receives care from P, a hospital
facility, from February 24 to 28. E pays a co-payment of $30 at
discharge and is determined by her insurer to be personally
responsible for paying another $550 in deductibles. P sends E
several billing statements starting on March 20 indicating that E
owes $550. By July 30, E has not paid the $550 or submitted a FAP
application. On July 30, P notifies E in writing that if E does not
pay or complete a FAP application by August 30, P intends to report
B's delinquency to credit reporting agencies. The written notice
also includes a plain language summary of the FAP. In addition, P
calls E and informs her about the financial assistance available to
eligible patients under P's FAP and about how to obtain assistance
with the FAP application process. E fails to pay or submit a FAP
application by August 30. P subsequently reports E's delinquency to
credit reporting agencies. E then provides a complete FAP
application to P on November 10, before the last day of the
application period on November 15. P promptly examines the
application and determines that E is eligible for free care under
P's FAP. P contacts the credit reporting agencies to which it had
reported E's delinquency and asks them to remove the adverse
information from E's credit report. P also sends E a letter that
informs her that she is eligible for free care under P's FAP and
explains the basis for this eligibility determination and includes
with this letter a check for $30 (the co-payment E had paid). P has
made reasonable efforts to determine whether E is FAP-eligible.
Example 3. R, a hospital facility, has established a FAP that
provides financial assistance only to individuals whose family
income is less than or equal to x% of the Federal Poverty Level
(FPL), based on their prior year's federal tax return. L, an
individual, receives care from R. While L is being discharged from
R, she is approached by M, an employee of a debt collection company
that has a contract with R to handle all of R's patient billing. M
asks L for her family income information, telling L that this
information is needed to determine whether L is eligible for
financial assistance. L tells M that she does not know what her
family income is and would need to consult her tax returns to
determine it. M tells L that she can just provide a ``rough
estimate'' of her family income. L states that her family income may
be around $y, an amount slightly above the amount that would allow
her to qualify for financial assistance. M enters $y on the income
line of a FAP application form with L's name on it and marks L as
not FAP-eligible. Based on M's information collection, R determines
that L is not FAP-eligible and notifies L of this determination with
her first billing statement. Because M had reason to believe that
the income estimate provided by L was unreliable, R has violated the
anti-abuse rule described in paragraph (c)(6)(ii) of this section.
Thus, R has not made reasonable efforts to determine whether L is
FAP-eligible.
(7) When no FAP application is submitted. Unless and until an
individual submits a FAP application during the application period, any
paragraphs of this section that are conditioned on an individual's
submitting a FAP application (namely,
[[Page 79014]]
paragraphs (c)(2)(i)(C), (c)(3)(ii), and (c)(3)(iii) of this section)
do not apply, and the hospital facility will have made reasonable
efforts to determine whether the individual is FAP-eligible for care,
and may initiate one or more ECAs to obtain payment for the care, once
it has met the requirements of this section that are not contingent on
an individual's submission of a FAP application. For example, unless
and until a hospital facility receives a FAP application from an
individual during the application period, the hospital facility has
made reasonable efforts to determine whether the individual is FAP-
eligible for care (and thus may initiate ECAs to obtain payment for the
care) once it has notified the individual about the FAP as described in
paragraph (c)(3)(i) of this section.
(8) Suspending ECAs while a FAP application is pending. With
respect to any care provided by a hospital facility to an individual,
if an individual submits a FAP application during the application
period, the hospital facility (or other authorized party) will have
suspended ECAs for purposes of this paragraph (c) only if, after
receiving the application, the hospital facility (or other authorized
party) does not initiate, or take further action on any previously-
initiated, ECAs (with the exception of an ECA described in paragraph
(b)(1)(iii) of this section) to obtain payment for the care until
either--
(i) The hospital facility has determined whether the individual is
FAP-eligible based on a complete FAP application and otherwise met the
requirements of paragraph (c)(6) of this section; or
(ii) In the case of an incomplete FAP application, the individual
has failed to respond to requests for additional information and/or
documentation within a reasonable period of time given to respond to
such requests.
(9) Waiver does not constitute reasonable efforts. For purposes of
this paragraph (c), obtaining a signed waiver from an individual, such
as a signed statement that the individual does not wish to apply for
assistance under the FAP or receive the information described in
paragraphs (c)(4) or (c)(5) of this section, will not itself constitute
a determination that the individual is not FAP-eligible and will not
satisfy the requirement to make reasonable efforts to determine whether
the individual is FAP-eligible before engaging in ECAs against the
individual.
(10) Agreements with other parties. With the exception of sales
described in paragraph (b)(2) of this section, if a hospital facility
sells or refers an individual's debt related to care to another party,
the hospital facility will have made reasonable efforts to determine
whether the individual is FAP-eligible for the care only if it first
enters into (and, to the extent applicable, enforces) a legally binding
written agreement with the party that is reasonably designed to ensure
that no ECAs are taken to obtain payment for the care until reasonable
efforts have been made to determine whether the individual is FAP-
eligible for the care. At a minimum, such an agreement must provide the
following:
(i) If the individual submits a FAP application after the referral
or sale of the debt but before the end of the application period, the
party will suspend ECAs to obtain payment for the care as described in
paragraph (c)(8) of this section.
(ii) If the individual submits a FAP application after the referral
or sale of the debt but before the end of the application period and is
determined to be FAP-eligible for the care, the party will do the
following in a timely manner:
(A) Adhere to procedures specified in the agreement that ensure
that the individual does not pay, and has no obligation to pay, the
party and the hospital facility together more than he or she is
required to pay for the care as a FAP-eligible individual.
(B) If applicable and if the party (rather than the hospital
facility) has the authority to do so, take all reasonably available
measures to reverse any ECA (other than the sale of a debt or an ECA
described in paragraph (b)(1)(iii) of this section) taken against the
individual as described in paragraph (c)(6)(i)(C)(3) of this section.
(iii) If the party refers or sells the debt to yet another party
during the application period, the party will obtain a written
agreement from that other party including all of the elements described
in this paragraph (c)(10).
(11) Clear and conspicuous placement. A hospital facility may print
any written notice or communication described in this paragraph (c),
including any plain language summary of the FAP, on a billing statement
or along with other descriptive or explanatory matter, provided that
the required information is conspicuously placed and of sufficient size
to be clearly readable.
(12) Providing documents electronically. A hospital facility may
provide any written notice or communication described in this paragraph
(c) electronically (for example, by email) to any individual who
indicates he or she prefers to receive the written notice or
communication electronically.
Sec. 1.501(r)-7 Effective/applicability dates.
(a) Effective/applicability date. The rules of Sec. Sec. 1.501(r)-
1 through 1.501(r)-6 apply to taxable years beginning after December
29, 2015.
(b) Reasonable interpretation for taxable years beginning on or
before December 29, 2015. For taxable years beginning on or before
December 29, 2015, a hospital facility may rely on a reasonable, good
faith interpretation of section 501(r). A hospital facility will be
deemed to have operated in accordance with a reasonable, good faith
interpretation of section 501(r) if it has complied with the provisions
of the proposed or final regulations under section 501(r) (REG-130266-
11 and/or REG-106499-12). Accordingly, a hospital facility may rely on
Sec. 1.501(r)-3 of the proposed or final regulations, or another
reasonable interpretation of section 501(r)(3), for any CHNA conducted
or implementation strategy adopted before the first day of the hospital
organization's first taxable year beginning after December 29, 2015.
0
Par. 4. Section 1.6012-2 is amended by redesignating paragraphs (i)
through (k) as paragraphs (j) through (l) and adding new paragraph (i)
to read as follows:
Sec. 1.6012-2 Corporations required to make returns of income.
* * * * *
(i) Hospital organizations with noncompliant hospital facilities.
Every hospital organization (as defined in Sec. 1.501(r)-1(b)(18))
that is subject to the tax imposed by Sec. 1.501(r)-2(d) shall make a
return on Form 990-T. The filing of a return to pay the tax described
in Sec. 1.501(r)-2(d) does not relieve the organization of the duty of
filing other required returns.
* * * * *
0
Par. 5. Section 1.6012-3 is amended by adding new paragraph (a)(10) to
read as follows:
Sec. 1.6012-3 Returns by fiduciaries.
(a) * * *
(10) Hospital organizations organized as trusts with noncompliant
hospital facilities. Every fiduciary for a hospital organization (as
defined in Sec. 1.501(r)-1(b)(18)) organized as a trust described in
section 511(b)(2) that is subject to the tax imposed by Sec. 1.501(r)-
2(d) shall make a return on Form 990-T. The filing of a return to pay
the tax described in Sec. 1.501(r)-2(d) does not relieve the
organization of the duty of filing other required returns.
* * * * *
[[Page 79015]]
0
Par. 6. Section 1.6033-2 is amended by adding paragraphs (a)(2)(ii)(l)
and (k)(4) to read as follows:
Sec. 1.6033-2 Returns by exempt organizations (taxable years
beginning after December 31, 1969) and returns by certain nonexempt
organizations (taxable years beginning after December 31, 1980).
(a) * * *
(2) * * *
(ii) * * *
(I) In the case of a hospital organization (as defined in Sec.
1.501(r)-1(b)(18)) described in section 501(c)(3) during the taxable
year--
(1) A copy of its audited financial statements for the taxable year
(or, in the case of an organization the financial statements of which
are included in consolidated financial statements with other
organizations, such consolidated financial statements);
(2) Either a copy of the most recently adopted implementation
strategy, within the meaning of Sec. 1.501(r)-3(c), for each hospital
facility it operates or the URL of each Web page where it has made each
such implementation strategy widely available on a Web site within the
meaning of Sec. 1.501(r)-1(b)(29) along with or as part of the report
documenting the community health needs assessment (CHNA) to which the
implementation strategy relates;
(3) For each hospital facility it operates, a description of the
actions taken during the taxable year to address the significant health
needs identified through its most recently conducted CHNA, within the
meaning of Sec. 1.501(r)-3(b), or, if no actions were taken with
respect to one or more of these health needs, the reason(s) why no
actions were taken; and
(4) The amount of the excise tax imposed on the organization under
section 4959 during the taxable year.
* * * * *
(k) * * *
(4) The applicability of paragraph (a)(2)(ii)(l) of this section
shall be limited to returns filed on or after December 29, 2014.
PART 53--FOUNDATION AND SIMILAR EXCISE TAXES
0
Par. 7. The authority citation for part 53 continues to read in part as
follows:
Authority: 26 U.S.C. 7805 * * *
0
Par. 8. Section 53.4959-1 is added to read as follows:
Sec. 53.4959-1 Taxes on failures by hospital organizations to meet
section 501(r)(3).
(a) Excise tax for failure to meet the section 501(r)(3)
requirements--(1) In general. If a hospital organization (as defined in
Sec. 1.501(r)-1(b)(18)) fails to meet the requirements of section
501(r)(3) separately with respect to a hospital facility it operates in
any taxable year, there is imposed on the hospital organization a tax
equal to $50,000. If a hospital organization operates multiple hospital
facilities and fails to meet the requirements of section 501(r)(3) with
respect to more than one facility it operates, the $50,000 tax is
imposed on the hospital organization separately for each hospital
facility's failure. The tax is imposed for each taxable year that a
hospital facility fails to meet the requirements of section 501(r)(3).
(2) Examples. The following examples illustrate this paragraph (a):
Example 1. (i) U is a hospital organization that operates only
one hospital facility, V. In Year 1, V conducts a community health
needs assessment (CHNA) and adopts an implementation strategy to
meet the health needs identified through the CHNA. In Years 2 and 3,
V does not conduct a CHNA. V fails to conduct a CHNA by the last day
of Year 4. Accordingly, U has failed to meet the requirements of
section 501(r)(3) with respect to V in Year 4 because V has failed
to conduct a CHNA in Years 2, 3, and 4. U is subject to a tax equal
to $50,000 for Year 4.
(ii) V also fails to conduct a CHNA by the last day of Year 5.
Accordingly, U has failed to meet the requirements of section
501(r)(3) with respect to V in Year 5 because V has failed to
conduct a CHNA in Years 3, 4, and 5. U is subject to a tax equal to
$50,000 for Year 5.
Example 2. P is a hospital organization that operates only one
hospital facility, Q. In Year 1, Q conducts a CHNA and adopts an
implementation strategy to meet the health needs identified through
the CHNA. In Years 2 and 3, Q does not conduct a CHNA. In Year 4, Q
conducts a CHNA but does not adopt an implementation strategy to
meet the health needs identified through that CHNA by the 15th day
of the fifth month of Year 5. Accordingly, P has failed to meet the
requirements of section 501(r)(3) with respect to Q in Year 4
because Q has failed to adopt an implementation strategy by the 15th
day of the fifth month after the end of the taxable year in which Q
conducted its CHNA. P is subject to a tax equal to $50,000 for Year
4.
Example 3. R is a hospital organization that operates two
hospital facilities, S and T. In Year 1, S and T each conduct a CHNA
and adopt an implementation strategy to meet the health needs
identified through the CHNA. In Years 2 and 3, S and T do not
conduct a CHNA. S and T each fail to conduct a CHNA by the last day
of Year 4. Accordingly, R has failed to meet the requirements of
section 501(r)(3) with respect to both S and T in Year 4. R is
subject to a tax equal to $100,000 ($50,000 for S's failure plus
$50,000 for T's failure) for Year 4.
(b) Interaction with other provisions--(1) Correction. Unless a
hospital organization's failure to meet the requirements of section
501(r)(3) involves an omission or error that is described in and
corrected in accordance with Sec. 1.501(r)-2(b) (and is thus not
considered a failure), a failure to meet the requirements of section
501(r)(3) will result in a tax being imposed on the organization under
this section, notwithstanding the organization's correction and
disclosure of the failure in accordance with the guidance described in
Sec. 1.501(r)-2(c).
(2) Interaction with other taxes. The tax imposed by this section
is in addition to any tax imposed by Sec. 1.501(r)-2(d) or as a result
of revocation of a hospital organization's section 501(c)(3) status.
(c) Effective/applicability dates. Paragraph (a) of this section
applies on and after December 29, 2014.
0
Par. 9. Section 53.6011-1 is amended by:
0
1. Removing from the first sentence of paragraph (b) the language ``or
4965(a),'' and adding ``4959, or 4965(a),'' in its place.
0
2. Adding a sentence at the end of paragraph (b).
0
3. Removing paragraphs (c) and (g).
0
4. Redesignating paragraphs (d) through (f) as (c) through (e).
The addition reads as follows:
Sec. 53.6011-1 General requirement of return, statement, or list.
* * * * *
(b) * * * In the case of a tax imposed by section 4959 on a
hospital organization (as defined in Sec. 1.501(r)-1(b)(18)), the
annual return must include the required information for each of the
organization's hospital facilities that failed to meet the requirements
of section 501(r)(3) for the taxable year.
* * * * *
Sec. 53.6011-1T [Removed]
0
Par. 10. Section 53.6011-1T is removed.
0
Par. 11. Section 53.6071-1 is amended by revising paragraphs (h) and
(i)(2) to read as follows:
Sec. 53.6071-1 Time for filing returns.
* * * * *
(h) Taxes on failures by charitable hospital organizations to
satisfy the community health needs assessment requirements of section
501(r)(3). A hospital organization (as defined in Sec. 1.501(r)-
1(b)(18)) liable for tax imposed by section 4959 must file a Form 4720
as required by Sec. 53.6011-1(b), on or before the 15th day of the
fifth month after the end of the hospital organization's taxable year
for which it
[[Page 79016]]
failed to meet the requirements of section 501(r)(3).
(i) * * *
(2) Paragraph (h) of this section applies on and after August 15,
2013.
Sec. 53.6071-1T [Removed]
0
Par. 12. Section 53.6071-1T is removed.
PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT
0
Par. 13. The authority citation for part 602 continues to read as
follows:
Authority: 26 U.S.C. 7805.
0
Par. 14. In Sec. 602.101, paragraph (b) is amended by adding the
following entries in numerical order to the table to read as follows:
Sec. 602.101 OMB Control numbers.
* * * * *
(b) * * *
------------------------------------------------------------------------
CFR part or section where
identified and described Current OMB Control No.
------------------------------------------------------------------------
* * * * *
1.501(r)-3 1545-0047
1.501(r)-4 1545-0047
1.501(r)-6 1545-0047
* * * * *
------------------------------------------------------------------------
John M. Dalrymple,
Deputy Commissioner for Services and Enforcement.
Approved: December 22, 2014.
Mark J. Mazur,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2014-30525 Filed 12-29-14; 4:15 pm]
BILLING CODE 4830-01-P