Final regulations for not-for-profit hospitals under the Affordable Care Act

On December 20, 2014, the Internal Revenue Service (IRS) released rules in the form of final regulations for not-for-profit hospitals. These rules mandated by the Affordable Care Act (ACA) add new criteria for not-for-profit hospitals to adhere to in order to maintain their not-for-profit 501(c) (3) status. 

These new rules finalize the proposed rules and include some modifications from those proposed in 2012 and 2013 by the IRS. Not-for-profit hospitals will have nearly a year to comply with these new rules, as they only apply to tax years beginning after December 29, 2015 (i.e., tax years beginning January 1, 2016 or July 1, 2016). For tax years beginning on or before December 29, 2015, a hospital has the option of relying on either the proposed regulations or the final regulations.

The final regulations apply to not-for-profit hospitals that are required to be licensed or registered under state law. If an organization operates multiple hospital facilities, each hospital facility must adhere to the rules separately, even if they are in the same location. However, any hospital operating under the same license, even if located in different buildings, is treated as a single hospital facility. The following are some of the key aspects to the new rules.

  • Community health needs assessment – Each not-for-profit hospital must complete a community health needs assessment (CHNA) every three years. The CHNA must define the community that the hospital serves, assess the health needs of that community, and solicit input from the community. The CHNA is required to be approved by an authorized body and must be made widely available to the public. Under the final regulations, hospitals may build upon previously conducted CHNAs, and must include an evaluation of the impact of any actions that were taken to address the needs identified in the prior CHNA. The IRS expanded the list of health needs that a CHNA may identify to include: preventing illness, ensuring adequate nutrition needs, or addressing behavioral, social, and environmental factors that affect the community’s health. The final rule also extended the timeframe for a hospital to adopt its implementation strategy from the end of the taxable year in which the CHNA was conducted to no later than the 15th day of the fifth month following the taxable year in which the CHNA was conducted (that is, the initial due date of the hospital’s Form 990).
  • Financial assistance – Each not-for-profit hospital must create and adopt a written financial assistance policy (FAP) that must be made available, at a minimum, on websites, in hardcopy form available to be mailed upon request, and in paper copies placed in public locations throughout the hospital, including admissions areas and the emergency room. The FAP must include criteria and instructions for receiving financial assistance, how the facility determines charges made to patients, and the actions the hospital may take to collect on a patient’s medical debt. Under the final rules, the FAP is required to list any other providers that deliver emergency or medically necessary care and to specify which providers are covered under the FAP. The final regulations requires  hospitals serving a community that contains five percent or 1,000 individuals  determined to have limited English proficiency to provide a translated version of the FAP, FAP application form, and plain language summary of the FAP in those languages. The proposed regulations had a 10 percent threshold for this purpose.
  • Limitation on charges – Not-for-profit hospitals must limit charges for emergency or medically necessary care to ensure that they are not higher than the amounts generally billed (AGB) for such services. Each hospital may have different methodologies for determining AGB and the FAP must include how those AGB are determined. The final rule allows not-for-profit hospitals to determine AGB beyond what was included in the proposed rule and it extends the time that hospitals have to implement a new AGB. Hospitals are also allowed to change their methodology for determining AGBs as long as those changes are clearly outlined in the FAP before implementing the new methodology in the final rule.
  • Billing and collection – A not-for-profit hospital cannot engage in extraordinary collection actions (ECAs) against a patient unless it has made “reasonable efforts” to determine whether that patient is eligible to receive financial assistance as outlined by the hospital’s FAP. ECAs include activities such as reporting on any outstanding debt information of an individual covered under the hospital’s FAP to a credit reporting agency or bureau, denying medically necessary care to a patient with outstanding medical bills, or, except in certain circumstances, selling an individual’s medical debt to a third party collector. The final rule made numerous changes to the definition of “reasonable efforts” compared to the proposed rules. Besides the minimal requirements that were outlined in the proposed rule, the final rule now includes, additional instructions and clarifications on how and when to notify an individual of their outstanding bills, when to suspend ECAs upon receipt or review of a FAP application, and additional requirements for hospitals to follow before they can deny or defer care to a patient for medically necessary care due to a patient’s outstanding medical bills. 

For more information on this topic, or to learn how Baker Tilly tax specialists can help, contact our team.


The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely.  The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.