IRS regs’ impact on not-for-prof­its

IRS guid­ance on tax-ex­empt rules too pre­scrip­tive, hos­pi­tals say

Modern Healthcare - - FRONT PAGE - Me­lanie Evans

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.

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