IRS taking harder look at non-profit hospitals

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The Internal Revenue Service (IRS) is ratcheting up surveillance of non-profit hospitals regarding their levels of community benefits and patient financial assistance.

The IRS reviewed 692 hospitals in fiscal 2016, which ended late last month, Bloomberg BNA has reported. Of those, 166 were referred for a closer “field examination.” The increased scrutiny is specific to 501(r) requirements under the Affordable Care Act, which mandate that hospitals formulate clear written financial assistance policies for patients and make reasonable efforts to determine if patients are eligible for assistance prior to taking any collection actions. The IRS is supposed to review each hospital every three years.

The U.S. Treasury Department issued regulations as to how the rules are to be enforced in 2014. Penalties for non-compliance include being subject to an excise tax or even losing a tax exemption entirely.

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“We've entered into the enforcement phase now,” Donald B. Stuart, a partner with the law firm Waller Lansden Dortch & Davis LLP told Bloomberg BNA. “We've just moved into this new phase and new stage of 501(r), which is going to be a little bit of a wake-up call for a lot of people.”

The hospital sector has pushed back on enforcement, saying that some of the requirements were too burdensome.

Red flags included a hospital's lack of a community health needs assessment or financial assistance guidelines. Hospitals that are out of compliance risk being audited, which can lead to other issues, such as scrutiny of unrelated business income.

“It’s a matter of fairness to the many individuals and businesses that pay taxes. There have been some serious abuses at tax-exempt hospitals, such as aggressively suing low-income taxpayers instead of helping them with health care. The IRS needs to pay attention to problems that are contrary to the spirit and letter of the law,” Sen. Charles Grassley, an Iowa Republican who has led the legislative oversight of non-profit hospitals, told Bloomberg BNA.