Tax Exempt Hospitals Must Refrain From Extraordinary Collections Actions

When You Can And Can’t Send Someone To Collections

If you’ve been following our blogs recently, you are aware that we have been providing additional education that was included in our “10-Step Checklist To Maintain Your Tax Exempt Status”. This week, we are focusing on item #5 in the checklist that states: “We have refrained from engaging in extraordinary collections actions.” There is a lot to decipher in that verbiage, so let’s look at a few aspects of this requirement.


What Are “Extraordinary Collections Actions (ECAs)?”

Extraordinary collections actions can be any of the following: A lien, property foreclosure, wage garnishment, seizing a bank account, filing a civil suit against the patient, or actions that would place the patient under arrest.

Also prohibited are the reporting of adverse activity to credit bureaus or selling the debt to a third party company.

Which Patients Can Be Turned Over To Collections?

First, it is important to remember that your patients must have received written notice of your FAP, must receive at least three billing statements, and must be informed in every verbal communication about the FAP. If they qualify for financial assistance, you can not proceed with ECAs. You must also provide them written notice of the extraordinary collections actions you intend to take.

If all the mandatory criteria have been met, and if the patient does not appear to qualify for your hospital’s FAP, you can then begin collections actions on those patients.

When Can Patients Be Turned Over To Collections?

Before turning any patient over to collections, you must let the “mandatory notification period” pass. This period represents 120 days from the date of the first billing statement. During this time, every effort must be made to inform your contacts that they may qualify for financial assistance for hospital patients. There are a number of exceptions to that time frame. More on that below.

What Happens If We Turn Someone Over To Collections Without Following These Guidelines?

You would be out of compliance with the new 501(r) regulations, and you risk losing your tax exempt status as a result.  

As with any set of tax regulations, there are many subtleties. These can sometimes be difficult to understand. Don’t stress! VARO Healthcare can help. If you need assistance understanding the new 501(r) tax requirements, contact us. You can begin with our free 10-step checklist to help make sure your hospital maintains its tax-exempt status.


Download Our 501c Checklist

Please note: This is only OUR understanding of the regulations – if you are unsure about the regulations, please contact a lawyer. 

Topics: 501r