IRS revokes hospital nonprofit status for the first time
- A hospital's nonprofit tax status has been revoked under Affordable Care Act 501(r) requirements, Healthcare Financial Management Association reported.
- The unidentified hospital received a tax status letter from the IRS dated Feb. 14 but publicly released earlier this month. It informed the organization that it had failed to comply with the 501(r) requirements, conduct a community health needs assessment (CHNA) and make the CHNA publicly available.
- HFMA's Rich Daly reports the move is a first for the IRS and experts expect increased enforcement of 501(r) requirements.
Increased enforcement of 501(r) requirements would be a big deal for hospitals wishing to maintain tax-exempt status.
According to IRS requirements, state hospital organizations that operate as a tax exempt entity must:
- Establish written financial assistance and emergency medical care policies;
- Limit amounts charged for emergency or other medically necessary care to individuals eligible for assistance under the hospital's financial assistance policy;
- Make reasonable efforts to determine whether an individual is eligible for assistance under the hospital’s financial assistance policy before engaging in extraordinary collection actions against the individual; and
- Conduct a CHNA and adopt an implementation strategy at least once every three years. This plan should be publicly available online.
In a June 2016 letter to Sen. Chuck Grassley (R-Iowa), the IRS stated it had completed 2,482 compliance reviews of charitable hospitals between 2014 and 2016. The agency went on to state it had "assigned 163 hospital organizations for examination as a result of our compliance reviews."
The ACA requires the IRS to conduct such reviews of charitable hospitals at least once every three years.
The news comes as a recent Politico analysis found the nation's top nonprofit hospitals have seen revenue increase since the ACA was implemented. However, the same analysis also found the same organizations have spent considerably less on charity care during that same time period.
Hospitals have undoubtedly benefited from the expansion of care coverage afforded by the Affordable Care Act, though, for some, their tax exempt status makes profits that much more attainable. On the other hand, nonprofit hospitals have not been immune to the national trends of declining reimbursements and rising drug and labor costs. Moody's found nonprofit hospital finances were strengthening in 2014 and 2015 but have recently slowed because of such factors.
But as the Politico analysis shows, there's a bit of controversy over tax-exempt hospitals and what their role should be in their community. As that issue is debated, there is another discussion about provider resources and keeping up with myriad administrative requirements. A CHNA could slip through the cracks if an organization isn't paying attention. But IRS enforcement should be a reminder to conduct due diligence over CHNA requirements.
- HFMA IRS Makes First Revocation of Hospital Not-for-Profit Status Under 501(r)
- Politico How hospitals got richer off Obamacare
- Healthcare Dive Nonprofit, for-profit hospitals play different roles but see similar financial struggles
- Bloomberg BNA IRS ACA Compliance Checks Give Nonprofit Hospitals ‘Nudge'
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