Senator Grassley Requests Update on 501(r) Compliance Efforts
Section 501(r) of the Code established a number of requirements for tax-exempt hospitals, including provisions related to financial assistance policies, limitations on charges, and billing and collection matters. Every § 501(c)(3) tax-exempt hospital, including “dual status” governmental hospitals (those governmental hospitals that separately obtained § 501(c)(3) status), must adopt and implement compliant financial assistance and billing and collection policies. This includes making “reasonable efforts” to determine whether a patient is eligible for financial assistance prior to engaging in extraordinary collection actions against the patient.
On February 19, 2019, Senate Finance Committee Chairman, Chuck Grassley, sent a letter to Commissioner Rettig of the IRS inquiring as to the IRS’s current efforts related to enforcement of § 501(r). The letter was sent, in part, due to reports of tax-exempt hospitals cutting charity care and as a follow-up to a similar 2018 inquiry. Senator Grassley requested, among other information, data related to the number of IRS reviews and the results of those reviews since April 2018, and inquired as to particular findings related to hospital debt collection practices and “reasonable efforts” to determine whether patients are eligible for financial assistance.
Commissioner Rettig responded via letter dated April 11, 2019. From February 24, 2018 through February 22, 2019, the IRS completed 832 reviews of tax-exempt hospitals related to § 501(r). Of those reviews, 625 were closed without further action and 129 were referred for a compliance check. 78 hospitals were referred for examination (audit), and 57 of those audits remain open.
Although the IRS’s published response letter was heavily redacted, Senator Grassley’s efforts related to § 501(r) compliance and the IRS’s response show the continued emphasis on financial assistance and billing and collection practices of tax-exempt hospitals. It reinforces the fact that the IRS continues to actively review and audit tax-exempt hospitals for § 501(r) compliance. The Affordable Care Act mandates the IRS to perform a desk review at least once every three years on each tax-exempt hospital. It is also clear that the IRS is checking hospital websites during these reviews for required § 501(r) documentation and referring hospitals out for audit where any inconsistencies are found. Tax-exempt hospitals should ensure they are compliant with § 501(r), both in policy and in practice, maintain appropriate § 501(r) documentation that is easy to locate on their websites, and ensure their Form 990 responses are consistent with actual practices and indicate compliance with the law.