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IRS 501(r) Compliance: Financial Assistance Policy and Amounts Generally Billed Calculation

Non-profit hospital organizations as defined by Section 501(c)(3) must meet requirements imposed by Section 501(r) on a facility-by-facility basis to be treated as a tax-exempt organization. According to the Internal Revenue Service (IRS), “in general, a hospital organization’s failure to meet the requirements of Section 501(r) with respect to one or more hospital facilities it operates may result in revocation of the organization’s tax-exempt status as an organization described in Section 501(c)(3).”

There are several ongoing tasks that must be regularly performed to ensure that hospitals stay in compliance with the regulation requirements. Hospitals can inadvertently become non-compliant by failing to monitor and update the key components of 501(r), when necessary.

Considerations for Compliance with 501(r) Requirements

Is your hospital’s financial assistance policy, plain language summary, and financial assistance application been published on its website? Are they located in conspicuous locations that are easily accessible for patients? Are there translations of the financial assistance policy, plain language summary, and application? Are the posted policies current and up to date?

Is the public notified of the hospital’s financial assistance policy within the hospital via signage or brochures in conspicuous locations in accordance with the regulatory requirements?

Have you calculated the amounts generally billed discount percentage for your financial assistance policy for this year? This calculation is required to be completed annually according to IRS 501(r) regulations. If your hospital is using the look back method, then you must begin applying the amounts generally billed percentage by the 120th day after the end of the proceeding 12-month period, according to 1.501(r)-5(b)(3). Is your current amounts generally billed discount percentage included in your financial assistance policy?

When was the last review or update to your financial assistance policy?

Does your hospital’s financial assistance policy (or appendix) include a list of providers that are covered and not covered by the policy? When was it last reviewed to ensure that the list is current?

Are you using the current federal poverty guidelines published by the Office of the Assistant Secretary for Planning and Evaluation?

Are you offering a copy of your hospital’s plain language summary to patients?

When are Extraordinary Collection Actions (ECAs) initiated?

Does the financial assistance application period end prior to 240 days after the first post discharge billing statement?

Contact Blue about IRS 501(r) Compliance 

Please note that this is not an exhaustive list of all items that must be in place to ensure compliance. If needed, Blue & Co. can assist your hospital with its 501(r) compliance. We can review your hospital’s financial assistance policy, plain language summary, amounts generally billed, billing and collections policy, and any related policies and procedures to provide your hospital with opportunities for improvements in key areas. Contact your local Blue & Co. advisor or a member of our Revenue Cycle team below for more information.

Maddie Gookins, MLT (ASCP), COC, Director
Kyle Myers, CRCR, Senior Manager

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