Health Care Reform: Making it Unprofitable to be a Non-Profit

Section 9007 of the Patient Protection and Affordable Care Act (PPACA) has made being charitable a whole lot more difficult, particularly if you are a hospital.  Specifically, the legislation provides for the following additional requirements for charitable hospitals exempted from federal taxation under section 501(c)(3) of the Internal Revenue Code:

• Performance of periodic community needs assessments
• Financial assistance policy requirements for patients
• Limitation on charges (often referred to as price controls)
• Kinder, gentler billing and collection policies

Community Needs Assessments

Such tax exempt hospitals are required to conduct a community needs assessments at least once every three years.  Historically, a community needs assessment has been performed mainly to justify the recruitment incentives offered to physicians and other health care practitioners, thus avoiding unwanted scrutiny from regulators such as the Office of Inspector General (OIG) and others.   Now, however, the government's intent of requiring such studies appears to be to compel hospitals to develop strategies to meet the health care needs of the community to which it serves.  
The legislation requires that the hospital adopt a strategy to meet those community health needs identified as a result of the assessment.  Alternatively, hospitals may enumerate the needs that are not being addressed together with the reasons why such needs are not being addressed.
In order to be considered a "valid" needs assessment according to the legislation, the needs assessment must:

• "take into account input from persons who represent the broad interests of the community served by the hospital, including those with special knowledge of or expertise in public health"
• make results widely available to the public

At the forefront of concerns is the subjectivity of the measurement used to determine whether the assessment meets the first criteria. This concern is closely followed by inherent concerns of the release of certain proprietary data included in the assessment study.

Financial Assistance Policy

The legislation requires that the hospital have a written financial assistance policy that clearly sets forth:

• Eligibility for financial assistance
• Nature of such assistance - free or discounted care
• Basis for calculating amounts charged to patients
• Process for applying for assistance
• Potential actions the hospital may take in the event of nonpayment (collection efforts, credit agency reporting, etc.)
• Measures used to publicize the hospital's financial assistance policy to the community it serves
• Obligation to provide emergency medical care to any patient irrespective of their eligibility under the hospital's financial assistance policy

The legislation mostly codifies what many hospitals have already put in place following class action lawsuits filed on behalf of the uninsured.   For those that have not implemented such policies yet, the impact of this provision will be a bit more wrenching in balancing the pros and cons of respective income thresholds, asset limitations and other demographic considerations.  

The particular provision on emergency care seems all too redundant and unnecessary in light of the longstanding Emergency Medical Treatment and Active Labor Act (EMTALA) created in 1986 under which virtually all hospitals operate under.

Charge Limitations

This provision limits the amount that a hospital can charge for medically necessary care to anyone who qualifies under its financial assistance policy.  Specifically, a tax exempt hospital is required to grant such patients its "best price," which is the lowest price charged to individuals with insurance coverage.  The use of gross charges is specifically prohibited.    Given that such limitations apply to those patients eligible for financial assistance, considerable deference should be given in structuring the eligibility for such assistance.

Billing and Collection Policies

This provision prohibits the tax exempt hospital from engaging in extraordinary collection efforts before making reasonable efforts to determine a patient's eligibility under the hospital's financial assistance program.   In essence, this provision takes the responsibility for a patient's financial arrangements and places it squarely on the shoulders of the hospital provider.  

Enforcement and Oversight

In addition to an excise tax of $50,000 for compliance failure, a potential revocation of a hospital's tax exemption is possible.  Furthermore, the Secretary of the Treasury (IRS) will conduct a mandatory review of the hospital's community benefit activities at least once every three years. Noteworthy is the fact that each hospital location within multi-hospital systems will have to adhere to these requirements individually in order to maintain compliance.

While these provisions were technically effective upon enactment, implementing instructions are sorely lacking to achieve practical implementation of all aspects of the tax exempt provisions.  Such instructions and clarification are expected to be forthcoming.  One is left to ponder whether any other entity on the planet, save the federal government, could make it any harder to be charitable?

HORNE LLP can assist you with these additional requirements for charitable hospitals.  For more information, please contact HORNE Partner Shane Hariel at shane.hariel@horne-llp.com or 601.326.1316.