On March 23, 2010, President Obama signed into law the Patient Protection and Affordable Care Act (the “PPACA”). This law modifies the tax-exemption standards applicable to charitable hospitals by adding to the Internal Revenue Code new section 501(r), new section 4959, new section 6033(b)(15), and new section 6033(b)(10)(D). The following is a brief summary of these new provisions:

1. Organizations to Which These New Rules Apply

a. The new tax-exemption requirements in the PPACA apply to any organization that operates a facility required by any state to be licensed, registered, or otherwise recognized as a hospital.

b. If an organization has more than one hospital facility, these new requirements must be satisfied separately by each facility.

2. The New Requirements for Section 501(c)(3) Status

a. Community Health Needs Assessment

i. The organization must conduct a “community health needs assessment” not less frequently than every three years and adopt an implementation strategy to meet the community health needs identified through the assessment.

ii. A “community health needs assessment” must include input from persons “represent[ing] the broad interests of the community served by the hospital facility,” including those “with special knowledge of or expertise in public health.” 

iii. The assessment must be made widely available to the public.

b. Financial Assistance Policy Requirements

i. The organization must establish a financial assistance policy that –

1. Is in writing.
2. Includes the eligibility criteria for financial assistance and specifies whether such assistance includes free or discounted care.
3. States the method for applying for financial assistance.
4. Includes a description of the actions the hospital may take in the event of non-payment where the organization does not have a separate billing and collections policy.
5. Includes measures to widely publicize the policy within the community served by the organization.

ii. The organization must establish an emergency medical care policy that –

1. Is in writing.
2. Requires the organization to provide non-discriminatory emergency medical care to an individual, regardless of that individual’s eligibility under the financial assistance policy required above.

c. Requirements Regarding Charges

i. Charges for emergency or other medically necessary care provided to persons who are eligible for assistance under the financial assistance policy described above cannot exceed “the amounts generally billed to individuals who have insurance covering such care.”

ii. The use of gross charges is prohibited.

d. Billing and Collection Requirements

i. The organization cannot engage in “extraordinary collection efforts” before it has made a reasonable effort to determine whether the individual is eligible for assistance under the organization’s financial assistance policy.

3. Administrative Requirements and Penalties

a. The PPACA imposes a $50,000 excise tax for each year that a tax-exempt hospital subject to these provisions fails to satisfy the community needs assessment requirement.

b. The Internal Revenue Service is required to review the “community benefit activities” of each tax-exempt hospital at least once every three years.

c. Tax-exempt hospitals subject to these new requirements must report or provide annually –

i. A description of how the organization is meeting the community needs identified in the community health needs assessment.

ii. A list of any unmet needs together with an explanation of the reasons such needs remain unmet.

iii. Audited financial statements.

For more information, please contact Vinson & Elkins lawyer Lina Dimachkieh. Visit our website to learn more about V&E's Tax-Exempt Organizations and Finance practice, or e-mail one of the practice contacts.