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501r, IRS, ICD 10 and RCM challenges what?

It just ain't gettin' any easier is it?

Over the past few years, we’ve seen the Affordable Care Act receive much scrutiny and attention for its individual and employer mandate requirements. With the ACA presenting so many details and implications to understand and address, the Internal Revenue Service’s proposed 501(r) might have seemed buried under a heap of your other patient accounting and revenue cycle priorities.  But the new code addendum has the potential to significantly impact tax-exempt hospitals’ ability to bill and collect payment if not properly addressed.  In the midst of ICD-10’s certain implementation later this year and the insurance denial complexities it almost promises to deliver, you’re likely looking to avoid any additional delayed or forgone bill payments, right? Getting familiar with the new requirements and taking action to prepare is crucial to minimizing any negative consequences. 


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If you haven’t yet begun internalizing the details of these new rules, you’ll soon discover that the details are many and it’s likely you’ll quickly have questions about how the new regulation applies to you, and how it will affect your revenue cycle and RCM. Thankfully the IRS has recognized that hospitals will need time to adapt, and accordingly, have provided a “down-the-road” deadline for 501(c)(3) hospitals to comply with the final regulations- December 29, 2015.

What is 501(r)?

The ACA amended the Internal Revenue Code (IRC) and created Section 501(r), which details requirements for tax-exempt status for hospitals under 501(c)(3). A Community Health Needs Assessment (CHNA) is now mandatory every three years and a resulting implementation strategy must be created to specify how hospitals address community health needs, treatment and payment for these services.

Each hospital is required to comply with general requirements on a facility-by-facility basis including:

  • Establish a written financial assistance policy (FAP) that includes eligibility criteria and the method for applying for financial assistance, as well as an emergency medical care policy (EMCP) that requires provision of care for emergency medical conditions regardless of eligibility for financial assistance

  • Limit amounts charged to “not more than amounts generally billed” for emergency 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 hospitals financial assistance policy before engaging in extraordinary collection actions against the individual.

“Reasonable efforts”? “Extraordinary” collection actions? “Not more than amounts generally billed”? The ACA left the meaning of these important terms to be guessed by the hospitals creating their policies.

Three mandates with endless implications.  Is your action plan in place?  Are you scrambling to figure out how you can get ready before December 29th?  Either way you can benefit from the following advice to be as prepared as humanly possible.  And in matters of the IRS, preparation is EVERYTHING:

4 ways you can prepare:

  1. Prepare the Board for its role in approving updated financial assistance, billing and collections, and emergency medical care policies.

    • Board members should be made aware of their roles in adopting the policies required by 501(r) as soon as possible. Early information regarding the requirements and the extent to which current policies may change will facilitate decision-making.  Ensure decision makers are given ample educational resources for optimal due diligence and establish an organizational chain of command for questions regarding the new mandate.

  2. Revisit financial assistance policy eligibility requirements.

    • Hospitals should consider including presumptive and catastrophic eligibility components, and provisions requiring patients to apply for subsidized coverage for which they are eligible.

  3. Conduct a policy gap analysis.

    • Do current policies contain all required elements, such as statements regarding how individuals can apply for assistance, how discounts have been determined, and how the hospital will undertake reasonable eligibility determination efforts prior to taking legal action?

  4. Review how the current financial assistance policy is publicized and make adjustments where necessary.

    • The IRS proposes that a hospital be required to publish the entire financial assistance policy, the financial assistance policy application, and a plain-language summary on its website.  This patient-facing information is especially important given the growing significance being placed upon patient satisfaction with regards to insurance reimbursements.  Every effort your hospital can make to give patients a better experience (and that fundamentally includes a patient’s digital experience) increases your organization’s opportunity for higher patient satisfaction scores.

And in case you’re unclear or unaware of the consequences a lack of preparedness or readiness carries, here’ what you can expect.

Failure to comply can result in 3 scenarios:

  • Revocation of tax exempt status for willful and egregious failures

  • Imposition of a $50,000 fine/excise tax for each year of failure

  • No action depending on significance of failure

Though you may have 1001 other things to worry about, don’t get caught without a proper plan in place to handle 501(r) successfully. If you have significant work ahead to bring your financial assistance policies, billing and collections policies, and related procedures and systems into compliance with requirements of the Affordable Care Act, don’t waste another minute- get started now and notify all appropriate organizational team members of your need for help.  Efforts to prepare now for the issuance of new regulations by the IRS on December 29, 2015 will likely mean the difference between favorable tax exempt treatment and costly, profit-leaching fines.  

Contact VARO Healthcare if you want to understand more about the options and resources you can leverage to ensure 2015's regulatory changes don't drown your organization.

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