IRS regs’ impact on not-for-profits
IRS guidance on tax-exempt rules too prescriptive, hospitals say
Not-for-profit hospitals that lobbied the Internal Revenue Service for guidance on the health reform law’s new rules for charity care, billing and collections now say they got more than is necessary.
A proposed regulation outlines how hospital can satisfy three new rules that address how to publicize financial aid policies; how much hospitals may charge those in need; and how hospitals may collect medical bills.
The Patient Protection and Affordable Care Act said not-for-profit hospitals must follow four new rules to hold onto significant tax breaks, but the law’s language raised questions about how hospitals would do so. Regulations for the fourth rule—which says hospitals must assess community needs every three years—will be released later, the IRS said.
Hospital groups contend the proposed regulations published in late June go too far and will hamper the sector.
Hospitals have developed innovative ways to inform patients about financial assistance, Elizabeth Lietz, an American Hospital Association spokeswoman, said in a written statement. “The IRS proposed rules could discourage hospitals’ innovations and best practices, because they are overly prescriptive.”
Lietz said no one from the trade group was available to be interviewed.
“This is very, very detailed and maybe a little too much overreach,” said Cidette Per- rin, senior director of government relations for VHA, an Irving, Texas-based supply chain and consulting co-op of not-for-prof- it healthcare providers.
Perrin said that tax officials went beyond what Congress intended with regulations that are far too exacting. To comply with all the proposed requirements will take more than the 11.5 hours per hospital per year according to IRS estimates, Perrin said.
For example, proposals spell out methods to publicize financial aid policies, outline how long hospitals must spend on financial aid outreach and dictate a 240-day window for patients to complete financial aid policies, she said.
“We feel this is prescriptive,” she said. “These are lengthy. We feel that the IRS has gone overboard on process.”
Proposed rules address one concern hospitals voiced as they prepared to comply with one of the Affordable Care Act rules. The law says hospitals must not undertake “extraordinary” bill collection before making a reasonable effort to figure out whether a patient qualifies for financial aid.
Hospitals said it was unclear from the law what would be considered an extraordinary collection effort (June 20, 2011, p. 14).
Extraordinary collections, under the IRS proposal, include collection efforts that require a legal or judicial process, such as liens, foreclosure, wage garnishment, civil action and other measures (See chart).
The IRS also said that contacting the credit bureaus would be an extraordinary measure as well, saying such action “can cause
significant financial harm to an individual for many years.”
Perrin said the VHA disagreed that credit reporting should be considered extraordinary.
Finally, the sale of patient debt to a third party would be considered extraordinary, but hospitals may continue to refer bills to thirdparty collection agencies. Hospitals lose control of collection efforts once debt is sold but can exert some influence when debt is referred, the IRS proposal said.
However, the tax agency said it would like comment on whether the sale or referral of debt should be considered extraordinary collections and how much control hospitals have over debt that is sold or referred to third parties.
Lawyer Douglas Anning, vice chairperson of Polsinelli Shughart’s not-for-profit practice, said tax officials’ interest in debt referred to third parties could be “dangerous ground” considering the number of hospitals that outsource billing and collection to outside companies, known in the industry as revenue-cycle vendors.
He said he believes that the proposal is correct to exclude bills referred to a bill collector but owned by the hospital from the definition of extraordinary collection efforts.
Hospitals may still: deny care or delay treatment based on payment history; require a deposit; and charge interest without violating the new bill collection rules, unless the action would interfere with federal law that protects access to emergency care.
Anning said the proposed rules clarified that following the federal emergency access law, known as the Emergency Medical Treatment and Labor Act, would be required to maintain tax-exempt status.