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If your hospital is a nonprofit, Section 501(r) shapes how you bill and collect from patients. It also affects every partner that works your accounts.
Here’s a quick guide to the 501(r) requirements, and what they mean once accounts move to collections.
Key Takeaways
- 501(r) applies to tax-exempt hospitals. It covers financial assistance, community health needs, charges and collections.
- Timing matters. Extraordinary collection actions have to wait until reasonable efforts to determine eligibility have been made.
- Your partners count too. The hospital is held accountable for ECAs a collection agency takes on its behalf.
501(r) Requirements at a Glance
Section 501(r) was added to the Internal Revenue Code by the Affordable Care Act in 2010. Tax-exempt hospital organizations must have:
- A written Financial Assistance Policy (FAP) and emergency medical care policy
- A Community Health Needs Assessment at least once every three years
- Limits on charges for patients eligible for financial assistance
- Limits on billing and collection, including reasonable efforts to determine eligibility before any extraordinary collection action (ECA)
Key 501(r) Timelines
- 120 days: Hospitals generally can’t start an ECA until at least 120 days after the first post-discharge billing statement.
- 30 days: Patients must get written notice of the ECAs the hospital may take at least 30 days before they begin.
- 240 days: Patients generally have 240 days from the first post-discharge statement to apply for financial assistance.
What 501(r) Means When Accounts Go to Collections
Referring an account to a collection agency is not, on its own, an ECA.
But the IRS holds the hospital accountable for ECAs taken by third parties collecting on its behalf. That’s why any agency working nonprofit hospital accounts needs to follow the hospital’s FAP and timelines.
Questions about how these rules apply to your own policies are best directed to your organization’s internal compliance team.
Frequently Asked Questions (FAQ)
What is an extraordinary collection action?
The IRS defines ECAs to include selling a patient’s debt (with limited exceptions), reporting adverse information to credit bureaus, deferring or denying medically necessary care because of unpaid past bills, and actions that require a legal or judicial process.
Is sending an account to a collection agency an ECA?
Not on its own. But the hospital is held accountable for any ECA an agency takes on its behalf.
What happens if a hospital doesn’t comply?
The IRS can revoke a hospital organization’s tax-exempt status, and failing the CHNA requirements triggers a $50,000 excise tax for each noncompliant hospital facility, for each year of the failure.
Backed by more than 100 years of industry experience, Sherloq partners with healthcare providers across the revenue cycle, including insurance, pre-service resolution, early-out self-pay and bad debt recovery.
Learn more about Sherloq’s bad debt recovery services.
This article is for general informational purposes only and is not legal or compliance advice. If it raises questions about your organization’s policies, please consult your internal compliance team.
