Compliance with Internal Revenue Code §501(r) – the IRS (and Others) are Watching

Two public interest groups recently filed a complaint (Complaint) with the IRS claiming that Jackson Health System (JHS) failed to comply with the requirements of Internal Revenue Code (IRC) § 501(r) as enacted as part of the Patient Protection and Affordable Care Act. Failure to comply with the new law can subject a hospital to sanctions up to $50,000.

IRC § 501(r) imposes new requirements on 501(c)(3) organizations that operate one or more hospital facilities. Such organizations, referred to in the IRC as “hospital organizations”, are required to meet four general requirements on a facility-by-facility basis:

• Establish written financial assistance and emergency medical care policies;
• Limit amounts charged for emergency or other medically necessary care to individuals eligible for assistance under the hospital's financial assistance policy;
• Make reasonable efforts to determine whether an individual is eligible for assistance under the hospital’s financial assistance policy before engaging in extraordinary collection actions against the individual; and
• Conduct a Community Health Needs Assessment (CHNA) and adopt an implementation strategy at least once every three years.

Regardless the outcome, this Complaint is a wakeup call to any hospitals that are not yet compliant with IRC § 501(r), especially those that may have thought no one was watching. Because the IRS (like many other government agencies) has limited resources and relies on the public, including public interest groups, to be its eyes and ears. The Complaint serves as a practical reminder of what is required under IRC § 501(r) and a warning to note that there is “always someone watching” and it may not necessarily be the IRS at first glance. You may want to take this opportunity to review your hospital’s compliance with IRC § 501(r). In particular, you may want to make sure that your financial assistance and collection policies and your community health needs assessment report are readily available and transparent to the public vis-à-vis, for example, your institution’s website.