Complaint Filed with IRS Concerning IRC §501(r) Compliance
BACKGROUND
The Patient Protection and Affordable Care Act (“Affordable Care Act”), Pub. L. No. 111-148, 124 Stat. 119, signed into law by President Obama on March 23, 2010, created new IRC §501(r) which introduced new requirements for tax-exempt hospital organizations and, more specifically, their hospital facilities. These four (4) new requirements include the following:
- Community health needs assessment (“CHNA”);
- Financial assistance policy;
- Limitation on charges; and
- Billing and collection practices.
These proposed regulations relate to a hospital organization’s financial assistance policy and emergency medical care policy, IRC §501(r)(4); limitation on charges, IRC §501(r)(5); and billing and collection practices, IRC §501(r)(6). The proposed regulations also include a section which includes definitions of certain significant terms including gross charges, hospital organization, hospital facility and financial assistance policy.
On December 30th, 2013, the IRS released Notices 2014-2 and 2014-3. These notices provide additional guidance for tax-exempt hospitals under IRC §501(r). IRS Notice 2014-2 confirms that “tax-exempt hospital organizations can rely on current proposed regulations under §501(r) pending the publication of final regulations or other applicable guidance”. IRS Notice 2014-3 provides guidance with respect to correction and disclosure procedures regarding IRC §501(r).
IRC §501(r)(1) provides that, unless a hospital organization meets all of the requirements of IRC §501(r)(3) through §501(r)(6), it will not be treated as an IRC §501(c)(3) tax-exempt organization. Additionally, IRC §501(r)(2)(B)(ii) states that “a hospital organization will not be treated as described in §501(c)(3) with respect to any such hospital facility for which the requirements of §501(r) are not separately met”.
Please refer to previous WithumSmith+Brown tax tips for a more detailed and complete background on IRC §501(r).
COMPLAINT AND MEMORANDUM
The Complaint was filed on IRS Form 13909, Tax-Exempt Organization Complaint (Referral) Form, along with an accompanying memorandum detailing all of Jackson’s alleged failures to comply with IRC §501(r). The Complaint and memorandum site that Jackson (1) fails to meet the financial assistance policy requirements (2) violates the billing and collection requirements and (3) fails to meet the CHNA requirement. Specifically, the memorandum states that Jackson fails to provide any written assurance to its uninsured patients who are eligible for financial assistance under its policy that they will not be charged more than insured patients. Additionally, it is alleged that Jackson does not widely publicize its financial assistance policy and that brochures detailing the policy are only made available in service areas. A summarization of the financial assistance policy is available on Jackson’s website. It was specifically noted that the brochure detailing Jackson’s financial assistance policy was not made available in the emergency room waiting area.
It was alleged that Jackson is noncompliant with respect to engaging in reasonable efforts to inform and assist individuals who may be eligible for the charity care program. As stated in the memorandum, “to the extent some individuals do become aware of the charity care program; JHS limits retroactive application of their financial classification to 90 days, as opposed to the required 240 day IRS standard.”
Jackson had not completed a CHNA by the date of the filing of the Complaint. Under IRC §501(r), a CHNA is required to be conducted once every three years for all tax years beginning on or after March 23, 2012. As stated in IRC §501(r), “A hospital organization meets the CHNA requirement in a taxable year “only if” it has conducted a community health needs assessment which “takes into account input from persons who represent the broad interests of the community served by the hospital facility, including those with special knowledge of or expertise in public health, and (ii) is made widely available to the public.” It is noted in the memorandum that Jackson does not have a CHNA available on its website. Additionally, numerous requests were made for a copy of the CHNA. Jackson has stated that they are in the process of completing a CHNA.
It continues to remain uncertain as to whether the requirements of IRC §501(r) are applicable to Jackson, which is a public hospital. IRC §501(r) applies only to those public hospitals which are also recognized by the IRS as IRC §501(c)(3) organizations. According to the memorandum “Jackson Health System (“JHS”) is a nonprofit academic medical system governed by the Public Health Trust (“PHT”), which acts on behalf of the Miami-Dade Board of County Commissioners and is empowered by the State of Florida to govern designated JHS facilities. JHS consists of its main hospital, Jackson Memorial Hospital, as well as multiple primary care and specialty care centers.” Even if it is determined that IRC §501(r) applies, when a complaint is filed, the IRS has discretion as to how to handle and all actions are kept strictly confidential, even from the complainants. As stated in the instructions to Form 13909, “Federal law prohibits the IRS from providing you with status updates or information about specific actions taken in response to the information you submit.”
CONCLUSION
The memorandum states, “While regulations are not yet final, they have received comments and can be considered substantially reliable. In other words, these proposed regulations instruct tax exempt hospitals how they can comply with the statutory requirements.” It is important for all tax-exempt hospitals that operate one or more hospital facilities to ensure that their policies are compliant and in accordance with those outlined in IRC §501(r). It is expected that the IRS will issue final regulations for IRC §501(r) by the end of 2014.
NEED MORE INFORMATION?
Please contact a member of WS+B’s Healthcare Services Group at [email protected] for further questions or assistance.
Resource
A copy of the Memorandum accompanying can be accessed below:
Jackson Health System Memorandum in Support of
IRS Form 13909 Tax-Exempt Organization Complaint Form
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The information contained herein is not necessarily all inclusive, does not constitute legal or any other advice, and should not be relied upon without first consulting with appropriate qualified professionals for your individual facts and circumstances.
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