Understanding IRS’s Proposed
Regulations related to 501(r), Schedule
H, Part V Reporting and Schedule S-10
Reporting
Presented by:
Scott Bezjak,
CPA
Partner
BKD, LLP
AGENDA
• Overview of Section 501(r)
• Sections 501(r)(4) – 501(r)(6) & Proposed
Regulations
• Section 501(r)(3) and IRS Notice 2011-52Anticipated Regulatory Provisions
• IRS Form 990, Schedule H
• Medicare Cost Report Worksheet S-10
Overview of Section 501(r)(3) –
501(r)(6)
Background
• 501(r) enacted March 23, 2010
• Notice 2010-39 – IRS requested comments regarding
new 501(r) requirements (May 27, 2010)
• Notice 2011-52 – IRS addressed CHNA requirement
(July 8, 2011)
• Proposed Regulation on requirements described in
501(r)(4) – (r)(6) (June 22, 2012)
Overview of IRC Section 501(r)
• Enacted by Patient Protection and Affordable
Care Act of 2010 (PPACA)
• Four new requirements for nonprofit hospitals to
obtain and maintain 501(c)(3) tax-exempt status:
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Community Health Needs Assessment (CHNA)
Financial Assistance Policy
Limitation on Charges
Billing and Collection Practices
IRC Section 501(r)(3)
• Community Health Needs Assessment (CHNA)
 Must be conducted once every three years for community served by
each hospital
 Include community input and public health expertise
 Be made “widely available” to public
 Hospital must adopt implementation strategy to meet identified
needs
 $50,000 excise tax applies for failure to meet assessment rules (IRC
sec. 4959)
 Tax potentially applicable annually
IRC Section 501(r)(4)
• Financial Assistance Policy (FAP)
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Eligibility criteria
Basis for calculating amounts charged
Method for applying
If no separate billing and collection policy exists, the actions the
organization may take in the event of non-payment
 Measures to widely publicize the policy
 Policy relating to emergency medical care
IRC Section 501(r)(5)
• 501(r)(5) – Limitation on Charges
 Limits amounts charged for emergency or other
medically necessary care provided to individuals
eligible for assistance under the FAP to not more than
the amounts generally billed to individuals having
insurance covering such care
 Prohibits the use of gross charges
IRC Section 501(r)(6)
• 501(r)(6) – Billing and Collection Requirement
 May not engage in extraordinary collection actions
before the organization has made reasonable efforts
to determine whether the individual is eligible for
assistance
Overview of IRC Section 501(r)
Section
501(r)(3)
501(r)(4)
501(r)(5)
501(r)(6)
Requirement
Community Health Needs Assessment – CHNA
required once every three years and adopt an
“implementation strategy” to meet the needs
identified by the assessment.
Financial Assistance Policy – Each tax exempt
hospital must establish, implement and make
widely available written policies regarding
financial assistance and emergency medical care.
Limitation on Charges – Charges for emergency
or other medically necessary care provided to
patients eligible for financial assistance can not be
more than the lowest amounts charged to insured
patients.
Billing and Collections – A tax exempt hospital
cannot take “extraordinary collection actions”
(lawsuits, arrests, liens or other similar actions)
until it has made “reasonable efforts” to determine
whether a patient is eligible for financial
assistance.
Effective Date
Taxable years
beginning after
March 23, 2012
Taxable years
beginning after
March 23, 2010
Taxable years
beginning after
March 23, 2010
Taxable years
beginning after
March 23, 2010
Issues
• Guidance before release of Proposed Regulations
and Advanced Regulatory Provisions was vague
• Requirements have been in place since March 23,
2010
• May rely on, but not required to comply with,
Proposed Regulations or Anticipated Regulatory
Provisions
Issues
• Does your FAP explain the basis for amounts
charged (i.e. discount applied against gross
charges)?
• Does your FAP document measures that you take
to publicize your FAP?
• Do you provide discounts for FAP eligible patients
that are less than those negotiated with
insurance companies?
Sections 501(r)(4) – 501(r)(6) &
Proposed Regulations
PROPOSED REGULATIONS
Hospital Facilities
• Licensed, registered, or similarly recognized by a state as a
hospital
• May treat multiple buildings operated under a single state
license as a single hospital facility
• Facilities outside U.S. are not required to comply
• Disregarded entities operating hospitals must comply
• Governmental hospitals with 501(c)(3) status must comply
Financial Assistance Policy
• Previous requirements still apply
• May publicize a summary of FAP as certain
information may change regularly (such as federal
poverty references)
• No mandate for a particular eligibility criteria
• Must state the amounts, such as gross charges, to
which any discount percentages will be applied
Eligibility Criteria and Basis Calculating
Amounts Charged
• Must state that a FAP eligible patient will not be charged
more than amounts generally billed (AGB) for emergency or
other medically necessary care
• Must state which of the IRS permitted methods used to
determine AGB will be used
• Must either state the % of gross charges the hospital facility
applies to determine AGB and how these AGB %’s were
calculated or how members of the public may readily obtain
this information in writing free of charge
Method for Applying and Actions Taken
for Nonpayment
• Financial assistance may not be denied based on the omission of
information not specifically required by the FAP or FAP application form
• Must describe actions that may be taken in the event of nonpayment if no
separate billing and collections policy exists
• Must describe the process and time frames the hospital will use in taking
these actions, including reasonable efforts to determine if the individual is
FAP eligible
• Must describe who has final authority for determining that the hospital
has made reasonable efforts
Widely Publicizing
• Four types of measures required
 Measures taken to make paper copies of the FAP, the FAP application,
and a plain language summary available (in English and language of
minority populations comprising > 10% of hospital’s community)
 Public display measures
 Measures to inform and notify members of the hospital’s community
 Measures to make the FAP, application form, and a plain language
summary available on the website
Establishing the FAP
• Authorized body must adopt the policy and the
hospital must implement in the policy
• Authorized body includes
 Governing body,
 A committee of the governing body permitted under state
law to act on behalf of the governing body,
 Other parties authorized by the governing body of the
hospital to act on its behalf
Limitations on Charges
• Must limit the charges to FAP-eligible patients to not more
than AGB to individuals with insurance covering that care and
charges must be less than gross charges
• Two methods for computing AGB
 Look-back method
 Prospective method
• Two methods are mutually exclusive
• Claims paid under Medicare Advantage are treated as claims
paid by private insurance
Look-Back Method
• Based on actual claims paid to the hospital by either
Medicare fee-for-service only or Medicare fee-forservice together with all private health insurers
paying claims
• Calculated by multiplying gross charges by one or
more AGB percentages
• Must calculate AGB percentages no less than
annually by dividing the sum of certain claims paid
by the sum of associated gross charges
Look-Back Method
• Must begin applying AGB percentages by the 45th
day after the end of the 12-month period used in
calculation
• May calculate one average AGB percentage for all
emergency and medically necessary care or
multiple AGB percentages for separate categories
of care
Prospective Method
• Determine AGB by using the same billing and
coding process the hospital would use if the
individual were a Medicare fee-for-service
beneficiary
Gross Charges
• May use gross charges as starting point to which
discounts are applied
• Safe harbor provided for situations where an
individual does not complete FAP application
before the time of charges
Billing and Collection
• Must engage in reasonable efforts to determine FAP
eligibility before engaging in extraordinary
collections actions (ECA)
• ECAs include
 Any action that requires legal or judicial process
 Reporting to credit agencies
 Sale of individual’s debt to another party
Reasonable Efforts
• Notify the individual about the FAP
• If an individual provides an incomplete
application, provide them with information
relevant to complete the application
• Make and document determination as to
whether an individual is FAP-eligible
Notification Period
• Period in which hospital must notify an individual
about the FAP
• Begins on the date care is provided and ends on
the 120th day after the hospital provides the first
billing statement
Application Period
• Must accept and process FAP applications during
a longer period that ends on the 240th day after
the hospital provides the individual with the first
billing statement
Notification About the FAP
• Must distribute a plain language summary of the FAP and
offer an application before discharge
• Must distribute a plain language summary of the FAP with all
(and at least 3) billing statements during the notification
period
• Must inform the individual of the FAP in all oral
communications during the notification period
• Must provide at least one written notice about the ECAs the
hospital may take if the individual does not submit an FAP
application or pay the amount due by the last day of the
notification period
Plain Language Summary
• Brief description of eligibility requirements and assistance
offered
• Direct website address and physical location copies may be
obtained
• Instructions on how to obtain a free copy by mail
• Contact information
• Statement of availability of translations if applicable
• Statement that no FAP-eligible patient will be charged more
than AGB
Incomplete FAP Applications
• If received during application period, the hospital must
 Suspend ECAs when received
 Provide written notice that describes additional information needed
 Provide at least one written notice describing ECAs that may be
initiated or resumed if the individual does not complete by a deadline
that is no earlier than the later of 30 days from the written notice or
the last day of the application period
Complete FAP Applications
• If received during the application period, the
hospital must
 Provide a billing statement indicating the amount
owed
 Refund any excess payments made by the individual
 Take all reasonably available measures to reverse any
ECA
Section 501(r)(3) and IRS Notice 2011-52
Anticipated Regulatory Provisions
IRS Notice 2011-52
IRS Notice 2011-52: Notice and Request for Comments
Regarding the Community Health Needs Assessment
Requirements for Tax Exempt Hospitals
Section 1
• Purpose
Section 2
• Background
Section 3
• Anticipated Regulatory Provisions
Section 4
• Reliance
Section 5
• Request for Comments
Section 6
• Drafting Information
IRS Notice 2011-52
Key Guidance
• 12 Parts within section 3 of the Notice
• Provides Key Guidance on the following:
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Which Hospitals are required to conduct CHNA
Required Documentation for CHNA
Level and Type of Input Required for CHNA
Implementation Strategy
Timing
IRS Notice 2011-52
Anticipated Regulatory Provisions
• Organization that operates a facility which is
required by state to be licensed, registered or
similarly recognized as a hospital
 Includes disregarded entities, joint ventures, partnerships
 Excludes hospital facilities located outside the United States
• Hospital must meet requirements for each facility
it operates
IRS Notice 2011-52
Anticipated Regulatory Provisions
• Treasury and IRS intend to require a hospital
organization to document a CHNA for a hospital
facility in a written report that includes
descriptions of the following information:
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Community
Process and methods
Community input
Community needs
Existing health care facilities
IRS Notice 2011-52
Anticipated Regulatory Provisions
• CHNA must involve Persons Representing the Broad
Interests of the Community with special knowledge
of or expertise in public health:
• Health departments or other agencies, with current data
or other information relevant to the health needs of the
community served by the hospital.
• Leaders, representatives or members of medically
underserved, low-income and minority populations and
populations with chronic disease needs.
IRS Notice 2011-52
Anticipated Regulatory Provisions
• When is a CHNA Considered Conducted?
 Taxable year the written report is made widely
available to the public
• CHNA Must be made widely available to the Public
 Post CHNA and findings on hospital website
 CHNA report must be made “widely available” to the
public until the date it makes a subsequent CHNA report
“widely available”
IRS Notice 2011-52
Anticipated Regulatory Provisions
 Implementation Strategy:
 Written Plan that is attached to Form 990
 A separate plan for each hospital facility
 Adopted the date it is approved by an authorized
governing body of the hospital organization
 Must be adopted by the end of the SAME tax year
in which it conducts that CHNA
IRS Notice 2011-52
Anticipated Regulatory Provisions
• CHNA must be conducted once every three years for
community served by each hospital – first must be
completed by end of tax year beginning after March
23, 2012
Summary of Initial Cycle for CHNA
Year End
Beginning of
Fiscal Year
Due Date for
Initial CHNA
03/31/2012
04/01/2012
03/31/2013
06/30/2012
07/01/2012
06/30/2013
09/30/2012
10/01/2012
09/30/2013
12/31/2012
01/01/2013
12/31/2013
01/31/2013
02/01/2014
01/31/2014
To-Do Item
Assess if Your Hospital is Required to Conduct a
CHNA and Determine the Due Date of Your
Initial CHNA
Hospital needs to “Conduct” the CHNA and
“Adopt” an Implementation Strategy by the Due
Date!
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CHNA Planning & Execution
Sample Time Line
CHNA - Common Missing Elements
Observations from the Field
• Implementation Strategy
• Documentation of Processes
• Proper Identification of Hospital “Community”
 County may not be the service area
• Community Input
 Persons with specialized knowledge or public health expertise
 Representatives or members of medically underserved
populations/minority populations
• List and Description of Existing Health Resources
• Listing/Prioritization of Identified Health Needs
 Document Process
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IRS Form 990, Schedule H
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Reporting Requirements
• Affordable Care Act added two specific reporting
requirements to §6033(b).
1. §6033(b)(10)(D) - hospital organization required to
report on Form 990 amount of excise tax imposed
under §4959
2. §6033(b)(15)(A) - hospital organization required to
report on Form 990 a description of how it is
addressing the needs identified in each CHNA and a
description of any needs not being addressed with
the reasons why needs are not being addressed
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Reporting Requirements
• Questions added to Form 990, Schedule H to
reflect the new reporting requirements under
§6033(b)(15)(A)
• Questions reflecting the new reporting
requirements under §6033(b)(10)(D) will be
added to the Form 990 in the future.
• Responses to Schedule H, Part V, Section B
questions are optional for taxable years
beginning on or before March 23, 2012.
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Reporting Requirements
• §501(r)(3)(A)(ii) requires a hospital organization
to adopt an implementation strategy for each of
its hospital facilities.
• Hospital required to attach to its Form 990 its
most recently adopted implementation strategy
for each of its hospital facilities.
 If only one CHNA and one implementation strategy in
a 3-year period, hospital may attach the same
implementation strategy for that hospital facility to
the Form 990 for each of those three years.
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Reporting Requirements
• 2012 Form 990 – organizations with tax years
beginning after March 23, 2012 will be required
to attached implementation strategy to Form 990
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To-Do Item
Evaluate whether your Hospital’s CHNA and
Implementation Strategy will adhere to the
guidance provided by Notice 2011-52
Most Hospitals have not contemplated their
“Implementation Strategy” and associated
timing constraints of the Due Date!
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Reporting Requirements
• Rev. Proc. 95-48 - Relieved certain governmental
units and affiliates of governmental units from
the requirement to file Form 990.
• Affordable Care Act did not change the
requirements regarding what organizations are
required to file Form 990
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Reporting Requirements
• A government hospital (other than one described
in §509(a)(3)) excused from filing Form 990 under
Rev. Proc. 95-48 is not required to file Form 990.
 Relieved from the annual filing requirements under
§6033.
 Also relieved from any new reporting requirements
imposed §6033, including the requirements under
§6033(b)(10)(D) and (b)(15)(A) and the anticipated
requirement to attach one or more implementation
strategies to a Form 990.
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Schedule H, Part V – Section B
Schedule H (Form 990) 2011
Part V
Facility Information
ER–other
ER–24 hours
Research facility
Critical access hospital
1
Teaching hospital
Name and address
Children’s hospital
How many hospital facilities did the organization operate
during the tax year? _____________________________
General medical & surgical
(list in order of size, from largest to smallest)
Licensed hospital
Section A. Hospital Facilities
Other (describe)
Schedule H, Part V – Section A-Facility
Information
• List all hospital facilities operated by the
organization during the tax year.
 “Hospital facilities” are facilities that, at any time
during the tax year, were required to be licensed,
registered, or similarly recognized as a hospital under
state law.
 A hospital facility is operated by an organization
whether the facility is operated directly by the
organization or indirectly through a disregarded entity
or joint venture treated as a partnership.
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Schedule H, Part V – Section A-Facility
Information
• The organization must complete Section B for
each of its hospital facilities listed in Section A.
• Proper identification of “hospital facilities” is
very important!
 Each hospital facility identified in Section A must meet
the requirements of §501(r).
 Verify the hospital facility is licensed with State.
• State’s department of health or similar state department
responsible for licensing hospitals.
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Schedule H, Part V – Section B-CHNA
• Compliance with new rules outlined in Part V,
Section B, Facility Policies and Practices
 For 2010, Section B was optional
 For 2011, Section B is required
• Must be completed on a facility by facility basis
• Be prepared to respond to all questions
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To-Do Item
Make certain that your CHNA and
Implementation Strategy will include the
documentation required to complete Schedule
H of the Hospital’s Form 990
Can you sit with your CHNA document and
Implementation Strategy and check yes to the
questions on Schedule H?
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Medicare Cost Report
Worksheet S-10
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S-10 Uncompensated Care
• Computes difference between net revenue & cost for:
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Medicaid
SCHIP
Other state or local government indigent programs
Charity
Bad Debt
• Uses overall CCR (see changes to Worksheet C)
• Now required for Critical Access Hospitals
• Data should exclude physician and/or other professional
services for all lines
S-10 Uncompensated Care
• Line 2 Report net patient service revenue for Medicaid
inpatient & outpatient covered services
 Includes payments from Medicaid managed care programs
 Include payments for any expansion SCHIP program which
covers recipients who have been eligible for coverage under
Medicaid
 Disproportionate share (DSH) and supplemental payments can
be reported here if not separately identifiable
 DSH and/or supplemental payments should be reported net of
provider taxes or assessments
• Line 3 Answer yes if you received or expect to receive DSH
and/or supplemental payments from Medicaid
S-10 Uncompensated Care
• Line 4 If you answered yes to Line 3; enter yes if all of the
DSH and/or supplemental payments you received from
Medicaid are included in Line 2. Otherwise answer no
and complete Line 5
• Line 5 Enter DSH and/or supplemental payments
received or expects to receive from Medicaid not
included on Line 2. Must be net of provider taxes or
assessments
 What if your provider tax has been allowable and is
included in the cost to charge ratio from
Worksheet C?
S-10 Uncompensated Care
• Line 17 Enter the amount of all non-government grants, gifts,
and investment income received that is restricted to funding
uncompensated care or indigent care
• Line 18 Enter all grants, appropriations or transfers received
or expected from government entities for purposes related to
hospital operations (including but not limited to funding
uncompensated care)
 Include 1011 funds for undocumented aliens, if applicable
 Do not include funds from government entities designated for
non-operating purposes (e.g., research or capital projects)
S-10 Uncompensated Care
• Charity care defined as
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Hospital demonstrates patient unable to pay
Patient qualifies under hospital’s charity care policy
Includes full & partial charity care write-offs
Excludes courtesy discounts
Excludes discounts to uninsured who fail to qualify for charity
Unpaid amounts associated with charity care are not considered as an
allowable Medicare bad debt
• Line 20 is separated into two columns
 Uninsured patients
 Insured patients
• Line 20 is used within E series for EHR computation
S-10 Uncompensated Care
• Line 20 Charity Care
 Column 1 enter full charges of patients who are given a full or
partial charity write-off
 Column 2 for patients covered by a government or private
insurer enter the deductible and/or coinsurance payments
given a charity write-off
• Non-covered services to Medicaid eligible patients or other
indigent care programs can be included in charity care; if such
inclusion is specified in the hospital’s charity care policy.
 Includes charges for days exceeding a length of stay
requirement
 Must answer the question on Line 24 and complete
Line 25
S-10 Uncompensated Care
• Line 22 enter partial payments received or
expected from patients who have been approved
for partial charity care write-offs
 Exclude payments from payers
• The expected payment is necessary to not double
dip bad debt and charity
S-10 Uncompensated Care
• Bad Debt Line 26
 Enter total facility charges for bad debts written off or expected
to be written off (bad debt expense)
 Exclude physician and/or other professional services
 Include the sum of all Medicare allowable bad debts (the
amount before the reduction)
 Insured patients do not include bad debts that are the
obligation of the insurer rather than the patient (e.g., denials)
• Bad Debt Line 27
 Enter the Medicare reimbursable bad debts (e.g., WS E Part A
Line 65)
Additional To-do List
• Read “Assessing & Addressing Community Health Needs”
from Catholic Health Association

http://www.chausa.org/Assessing_and_Addressing_Community_Health_Needs.aspx
• Obtain and read a copies of Federal Rules and Regulations (
IRS Notice 2011-52)
• Consider Related Compliance, Operational and Public
Relations Issues
• Any multi-disciplinary approach must include Finance
personnel
• Make Certain that your Hospital and is compliant with 501(r)!
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Questions