There are several IRS codes that are mandatory rules for governmental hospitals that have 501(c)(3) status. One of the rules is Section 501(r), and it applies to organizations that operate one or more hospital facilities. Each hospital is required to meet a few general requirements, which are assessed on a case-by-case basis.

Any hospital hoping to qualify for tax-exempt status must meet these additional requirements. This overview will introduce you to the many requirements of this new section, but a closer examination of the rules will be necessary to fully understand them.

An Overview of 501(r) Requirements

The new rules of Section 501(r) are focused primarily on how hospitals can bill patients for necessary emergency care. There are four main components, which are broken down as follows:

  • 501(r)(3) – Establishes the requirement to conduct a Community Health Needs Assessment (CHNA)
  • 501(r)(4) – Governs financial assistance policies (FAP)
  • 501(r)(5) – Sets limits on charges and defines average general billing (AGB) and methodologies for calculating the limitations
  • 501(r)(6) – Sets communication requirements, timetables, and restrictions for billing and collections

Since each hospital is assessed independently, there is a measure of flexibility with how these requirements are met. The rules admit different processes for assessment. However, all four of these must be met in order to qualify for tax-exempt status.

501(r)(3) Requirements
This section deals with the Community Health Needs Assessment (CHNA) updates included in the new rules. Now, hospitals are required to develop or update a CHNA at least every three years. Find more detailed information on the IRS website.

New requirements concerning the Financial Assistance Policy (FAP) are introduced in this section. The rules have changed drastically enough such that nearly all hospitals will have to make updates in order to meet compliance. The specifics of 501(r)(4) are such that a more detailed look is necessary to understand the scope.

This section introduces charge limits based on average generally billed (AGB) amounts. These limitations to what hospitals can charge for necessary care eliminate sliding fee scales, as they no longer meet the requirements of the section.

Most of this section deals with the determination of patient eligibility for financial assistance. It also include restrictions on how facilities can bill patients and changes rules concerning patient accounts. As with the other sections, the details of 501(r)(6) are too complex to cover here.

Sarah Baker

Brian Russel Davis

Brian is a Full Stack Dev/Engineering professional with nearly 17 years of experience developing web media for global brands, and executing outside of the box thinking.