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Additional Requirements for Charitable Hospitals; Community Health Needs Assessments for Charitable Hospitals; Requirement of a Section 4959 Excise Tax Return and Time for Filing the Return

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Start Preamble Start Printed Page 78954

AGENCY:

Internal Revenue Service (IRS), Treasury.

ACTION:

Final regulations and removal of temporary regulations.

SUMMARY:

This document contains final regulations that provide guidance regarding the requirements for charitable hospital organizations added by the Patient Protection and Affordable Care Act of 2010. The regulations will affect charitable hospital organizations.

DATES:

Effective Date: The final regulations are effective on December 29, 2014.

Applicability Date: For dates of applicability, see §§ 1.501(r)-7(a); 1.6033-2(k)(4); 53.4959-1(b); and 53.6071-1(i)(2).

Start Further Info

FOR FURTHER INFORMATION CONTACT:

Amy F. Giuliano, Amber L. MacKenzie, or Stephanie N. Robbins at (202) 317-5800 (not a toll-free number).

End Further Info End Preamble Start Supplemental Information

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

The collection of information contained in these final regulations has been reviewed and approved by the Office of Management and Budget in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)) under control number 1545-0047. The collection of information in the final regulations is in §§ 1.501(r)-3, 1.501(r)-4, and 1.501(r)-6(c). The collection of information is required for hospital organizations to receive the benefits of being described in section 501(c)(3) of the Internal Revenue Code (Code) and flows from section 501(r)(3), which requires a hospital organization to conduct a community health needs assessment (CHNA) and adopt an implementation strategy to meet the community health needs identified through the CHNA at least once every three years; section 501(r)(4), which requires a hospital organization to establish a written financial assistance policy (FAP) and a written policy related to care for emergency medical conditions; and section 501(r)(6), which requires a hospital organization to make reasonable efforts to determine whether an individual is eligible for assistance under a FAP before engaging in extraordinary collection actions. The expected recordkeepers are hospital organizations described in sections 501(c)(3) and 501(r)(2).

1. 2012 Proposed Regulations

On June 26, 2012, the Department of the Treasury (Treasury Department) and the IRS published a notice of proposed rulemaking (NPRM) (REG-130266-11; 77 FR 38148) that contained proposed regulations regarding the requirements of sections 501(r)(4) through 501(r)(6) relating to FAPs, limitations on charges, and billing and collections (the 2012 proposed regulations). The 2012 proposed regulations estimated that the collection of information in the proposed regulations relating to sections 501(r)(4) and 501(r)(6) would result in an average annual paperwork burden per recordkeeper of 11.5 hours. (The requirements of section 501(r)(3) were addressed in different proposed regulations, released in 2013, and the collection of information associated with those proposed regulations is addressed in section 2 of this portion of the preamble relating to the Paperwork Reduction Act.)

In response to this burden estimate, the Treasury Department and the IRS received 15 comments generally stating that the estimates set forth in the 2012 proposed regulations were too low and that the burden was significantly higher, with some commenters offering estimates ranging between 15 and 38,500 hours annually. However, these commenters provided insufficient information regarding the hours necessary to comply with the information collection requirements of §§ 1.501(r)-4 and 1.501(r)-6(c) of the 2012 proposed regulations for the IRS to determine why, or by how much, the proposed burden estimate should be increased. A few commenters noted that they would have to devote significant resources up-front to amending policies and procedures and altering information systems.

The Treasury Department and the IRS anticipated an up-front commitment of resources when they derived the 11.5-hour annual burden estimate proposed in the 2012 proposed regulations by dividing an estimated 34.5-hour burden over three years (the maximum OMB approval period for a collection of information burden estimate) by three. It was anticipated that a large share of those 34.5 hours would be devoted to updating policies, procedures, and information systems in the first year. The Treasury Department and the IRS also expected that hospitals would be building upon existing policies and processes rather than establishing entirely new policies. For example, § 1.501(r)-6(c)(2) of the 2012 proposed regulations was intended to enable hospitals to notify patients about the FAP primarily by adding information to billing statements, necessitating some time to change the template of the billing statement but presumably relatively little time thereafter. However, in light of the comments received, the Treasury Department and the IRS have increased their estimate of the average amount of time a hospital organization will devote to amending policies and procedures and altering information systems in the first year to come into compliance with §§ 1.501(r)-4 and 1.501(r)-6(c) to 60 hours (with additional time needed each year to implement the requirements).

One commenter stated that hospitals' experience in administering charity care programs under existing state law required more than 100 annual staff hours per hospital, and that the 2012 proposed regulations would increase that burden. However, the total amount of time spent administering charity care programs in general under the commenter's state law is not equivalent to the amount of time necessary to comply with the collection of information requirements, in particular, in the 2012 proposed regulations.

Most of the 38,500 burden hours that one commenter estimated for the paperwork burden resulting from the 2012 proposed regulations was based on the time the commenter estimated would be spent by 16 financial counseling staff members to provide direct patient counseling. While providing direct patient financial counseling is a commendable activity that would help ensure that patients obtain the financial assistance for which they are eligible, the burden estimates under the Paperwork Reduction Act are limited to collections of information authorized or imposed by the statute and regulations, and, therefore, such counseling activity would not be captured in the estimates.

The Treasury Department and the IRS also note that, in response to comments, these final regulations contain several changes intended to reduce the paperwork burden of the 2012 proposed regulations. Most significantly, numerous commenters noted that the requirement in § 1.501(r)-6(c)(2) to include a plain language summary of the FAP with all (and at least three) billing statements during a 120-day Start Printed Page 78955notification period would add significantly to the cost of mailing the billing statements and be a waste of paper. In response to these comments, rather than requiring a plain language summary with every bill issued during the notification period, the final regulations instead require a hospital facility to include on each billing statement a conspicuous written notice that notifies and informs patients about the availability of financial assistance, including both a telephone number of the office or department that can provide information about the FAP and FAP application process and the direct Web site address (or URL) where copies of the FAP, FAP application form, and plain language summary of the FAP may be obtained. Additionally, the final regulations require a plain language summary to be included with only one post-discharge communication and give a hospital facility the flexibility to send this one plain language summary only to the subset of patients against whom the hospital facility actually intends to engage in extraordinary collection actions. These changes are intended to maintain the frequent reminders to patients of the availability of financial aid while reducing the burden and cost of mailing multiple copies of a plain language summary of the FAP.

The one change in the final regulations that may materially increase the paperwork burden relates to translations of the FAP and related documents. The 2012 proposed regulations required a hospital facility to translate its FAP (as well as the FAP application form and plain language summary of the FAP) into the primary language of any populations with limited English proficiency (LEP) that constitute more than 10 percent of the residents of the community served by the hospital facility. In response to comments discussed in section 4.a.iv.F of this preamble, the final regulations change that threshold to 5 percent or 1,000, whichever is less, of the population of individuals likely to be affected or encountered by the hospital facility. This may increase the overall number of translations that hospital organizations affected by the final regulations will be required to make.

Taking into account all of the comments received, as well as the changes made in these final regulations that will affect the paperwork burden, the Treasury Department and the IRS have adjusted their burden estimate for §§ 1.501(r)-4 and 1.501(r)-6(c) to 60 hours per recordkeeper of up-front time to update information systems and draft and amend policies, procedures, and template billing statements and notifications, plus 15 hours per recordkeeper per year for each of three years to implement the collection of information requirements. This results in a total of 105 hours over a three-year period, or an average of 35 hours per year per recordkeeper, up from the estimate of 11.5 hours per year per recordkeeper proposed in the 2012 proposed regulations. The Treasury Department and the IRS note that the burden estimates must be updated every three years and that future estimates can be amended to reflect hospitals' actual experience in implementing the collection of information requirements in §§ 1.501(r)-4 and 1.501(r)-6(c).

2. 2013 Proposed Regulations

On April 5, 2013, the Treasury Department and the IRS published a NPRM (REG-106499-12; 78 FR 20523) that contained proposed regulations regarding the CHNA requirements under section 501(r)(3) (the 2013 proposed regulations). The 2013 proposed regulations estimated that the collection of information in the proposed regulations would result in an average annual paperwork burden per recordkeeper of 80 hours. In response to this burden estimate, the Treasury Department and the IRS received 10 comments stating generally that the estimates set forth in the 2013 proposed regulations were too low and that the burden was significantly higher, with most commenters stating that satisfying the requirements described in the 2013 proposed regulations would necessitate “thousands of hours.” However, because commenters provided little specific information regarding the hourly burden of activities that are required to comply with the collection of information required by section 501(r)(3), it is difficult for the Treasury Department and the IRS to determine how to appropriately revise the burden estimate.

The Treasury Department and the IRS note that a hospital organization only has to satisfy the CHNA requirements once every three years, and the burden estimate reflected in the 2013 proposed regulations was 240 hours per CHNA, averaged over three years. In addition, the Treasury Department and the IRS recognize that the amount of time hospitals devote to their CHNAs will vary greatly depending on their size and resources and whether they choose to collaborate with other organizations and facilities in conducting their CHNAs.

One commenter asked that the IRS clarify its definition of “recordkeeper” to indicate that the estimate is for a hospital organization with a single hospital facility and that a hospital organization with multiple hospital facilities would have an estimated burden that would be multiplied by the number of hospital facilities. However, both the 2013 proposed regulations and these final regulations allow hospital organizations with multiple hospital facilities to collaborate and produce one joint CHNA report and implementation strategy for all of its hospital facilities, provided the hospital facilities define their communities to be the same. As a result, the Treasury Department and the IRS do not believe the burden estimate will necessarily increase in direct relation to the number of hospital facilities operated. On the other hand, the Treasury Department and the IRS do recognize that some hospital facilities operated by the same organization will define their communities to be different and will therefore conduct separate CHNAs and produce separate CHNA reports. For purposes of estimating the total paperwork burden, and in the absence of data on which hospital facilities will conduct joint CHNAs and which will not, the Treasury Department and the IRS have assumed that hospital facilities operated by hospital organizations with three or fewer hospital facilities will produce joint CHNA reports and hospital facilities operated by hospital organizations with more than three hospital facilities will conduct separate CHNA reports. Based on the latest available IRS data on the number of hospital organizations and facilities, the assumption that hospital organizations operating more than three hospital facilities will conduct separate CHNAs for each hospital facility increases the average annual burden associated with the CHNA requirements per hospital organization from 80 to 101 hours. The Treasury Department and the IRS note that the burden estimates must be updated every three years and that future estimates can be amended to reflect hospitals' actual experience in implementing the collection of information requirements in § 1.501(r)-3.

3. Adjusted Burden Estimates for Final Regulations

After taking into account all the comments and information available and based on the latest IRS data on the number of hospital organizations and facilities, the Treasury Department and the IRS have reached the following reporting burden estimates:

Estimated total annual reporting burden: 401,905.

Estimated average annual burden hours per recordkeeper: 136 hours.Start Printed Page 78956

Estimated number of recordkeepers: 2,955.

Estimated frequency of collections of such information: Annual.

An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a valid control number assigned by the Office of Management and Budget.

Books or records relating to a collection of information must be retained as long as their contents may become material in the administration of any internal revenue law. Generally, tax returns and tax return information are confidential, as required by section 6103.

Background

Section 501(r) was added to the Code by the Patient Protection and Affordable Care Act, Public Law 111-148 (124 Stat. 119 (2010)) (the Affordable Care Act), enacted March 23, 2010, and imposes additional requirements on charitable hospital organizations. Section 501(r)(1) provides that a hospital organization described in section 501(r)(2) will not be treated as a tax-exempt organization described in section 501(c)(3) unless the organization meets the requirements of sections 501(r)(3) through 501(r)(6). Section 501(r)(3) requires a hospital organization to conduct a community health needs assessment (CHNA) at least once every three years and to adopt an implementation strategy to meet the community health needs identified through the CHNA. Section 501(r)(4) requires a hospital organization to establish a written financial assistance policy (FAP) and a written policy relating to emergency medical care. Section 501(r)(5) requires a hospital organization to not use gross charges and to limit amounts charged for emergency or other medically necessary care provided to individuals eligible for assistance under the organization's FAP (FAP-eligible individuals) to not more than the amounts generally billed to individuals who have insurance covering such care (AGB). Section 501(r)(6) requires a hospital organization to make reasonable efforts to determine whether an individual is FAP-eligible before engaging in extraordinary collection actions. Section 501(r)(2)(B) requires a hospital organization to meet each of these requirements separately with respect to each hospital facility it operates.

The statutory requirements of section 501(r) (except for section 501(r)(3)) apply to taxable years beginning after March 23, 2010. Section 501(r)(3) applies to taxable years beginning after March 23, 2012. A hospital organization has had to comply with the statutory requirements of section 501(r) since these applicability dates.

The Affordable Care Act also added section 4959, which imposes a $50,000 excise tax on a hospital organization that fails to meet the CHNA requirements for any taxable year, and amended section 6033 to add certain reporting requirements related to section 4959 and the CHNA requirements and to require hospital organizations to file a copy of their audited financial statements with their annual information returns.

In May 2010, the Department of the Treasury (Treasury Department) and the IRS issued Notice 2010-39 (2010-24 IRB 756 (June 14, 2010)), which solicited comments regarding the additional requirements imposed by section 501(r). Approximately 125 comments were received in response to Notice 2010-39.

In July 2011, the Treasury Department and the IRS issued Notice 2011-52 (2011-30 IRB 60 (July 25, 2011)), which described (and solicited comments regarding) provisions related to the CHNA requirements that the Treasury Department and the IRS anticipated would be included in proposed regulations. More than 80 comments were received in response to Notice 2011-52.

On June 26, 2012, the Treasury Department and the IRS published a notice of proposed rulemaking in the Federal Register (REG-130266-11, 77 FR 38148) (2012 proposed regulations) that contained proposed regulations regarding the requirements of sections 501(r)(4) through 501(r)(6) relating to FAPs, limitations on charges, and billing and collections. The 2012 proposed regulations also defined key terms used throughout the regulations, such as “hospital organization” and “hospital facility.” More than 200 written comments were received in response to the 2012 proposed regulations, and a public hearing was held on December 5, 2012.

On April 5, 2013, the Treasury Department and the IRS published a notice of proposed rulemaking in the Federal Register (REG-106499-12, 78 FR 20523) (2013 proposed regulations) that contained proposed regulations regarding the CHNA requirements of section 501(r)(3), the related reporting obligations under section 6033, the excise tax under section 4959, and the consequences for failing to meet any of the section 501(r) requirements. The 2013 proposed regulations also added a few additional defined terms and made minor amendments to the definitions of “hospital organization” and “hospital facility” contained in the 2012 proposed regulations. More than 90 written comments were received in response to the 2013 proposed regulations. No public hearing was requested or held.

On August 15, 2013, the Treasury Department and the IRS published final and temporary regulations and a cross-reference notice of proposed rulemaking in the Federal Register (TD 9629, 78 FR 49681; REG-115300-13, 78 FR 49700) under sections 6011 and 6071, which provided guidance regarding the requirement that a return accompany payment of the section 4959 excise tax for failure to meet the CHNA requirements for any taxable year. Specifically, the temporary regulations direct hospital organizations liable for the tax imposed by section 4959 to file Form 4720, “Return of Certain Excise Taxes Under Chapters 41 and 42 of the Internal Revenue Code,” by the 15th day of the fifth month after the end of the organization's taxable year in which the liability was incurred. The cross-reference notice of proposed rulemaking solicited public comments. No public comments were received, and no public hearing was requested or held.

In January 2014, the Treasury Department and the IRS published Notice 2014-2 (2014-3 IRB 407 (January 13, 2014)) to confirm that hospital organizations could rely on both the 2012 proposed regulations and the 2013 proposed regulations, pending the publication of final regulations or other applicable guidance. This Treasury decision obsoletes Notice 2014-2, but the final regulations contained in this Treasury decision continue to allow reliance on both the 2012 proposed regulations and the 2013 proposed regulations until a hospital organization's first taxable year beginning after December 29, 2015.

Also in January 2014, the Treasury Department and the IRS published Notice 2014-3 (2014-3 IRB 408 (January 13, 2014)), which contained, and solicited public comments on, a proposed revenue procedure that provides correction and reporting procedures under which certain failures to meet the requirements of section 501(r) will be excused for purposes of sections 501(r)(1) and 501(r)(2)(B). The Treasury Department and the IRS received six comments in response to Notice 2014-3.

After consideration of the comments received on the 2012 and 2013 proposed regulations, both sets of proposed regulations under section 501(r) are adopted as amended by this Treasury decision. In addition, this Treasury decision removes the temporary regulations under sections 6011 and Start Printed Page 789576071 and adopts as amended the proposed regulations that cross-referenced the text of those temporary regulations. The major areas of comment and the revisions are discussed in this preamble. The comments are available for public inspection at www.regulations.gov or on request.

Summary of Comments and Explanation of Revisions

These final regulations provide guidance on the requirements described in section 501(r), the entities that must meet these requirements, and the reporting obligations relating to these requirements under section 6033. In addition, the final regulations provide guidance on the consequences described in sections 501(r)(1), 501(r)(2)(B), and 4959 for failing to satisfy the section 501(r) requirements.

1. Hospital Facilities and Organizations

a. In General

In accordance with section 501(r)(2)(A)(i) and consistent with the proposed regulations, the final regulations define “hospital organization” as an organization recognized (or seeking to be recognized) as described in section 501(c)(3) that operates one or more hospital facilities and define “hospital facility” as a facility that is required by a state to be licensed, registered, or similarly recognized as a hospital. The final regulations refer to hospital facilities taking certain actions, and such references are intended to include instances in which the hospital organization operating the hospital facility takes action through or on behalf of the hospital facility.

Section 501(r)(2)(A)(ii) provides that a hospital organization also includes “any other organization that the Secretary determines has the provision of hospital care as its principal function or purpose constituting the basis for its exemption” under section 501(c)(3). One commenter requested that this language be incorporated into the definition of “hospital organization” contained in the final regulations.

At this time, the Treasury Department and the IRS have not identified any additional categories of organizations or facilities (other than hospital facilities and organizations operating them) with the principal function or purpose of providing hospital care. If any such categories of organizations or facilities are later identified, the Treasury Department and the IRS will issue proposed regulations identifying them, with the expanded definition applying prospectively only if, and when, the proposed regulations are finalized, after an opportunity for notice and comment.

b. Multiple Buildings Under a Single Hospital License

The definition of “hospital facility” in the 2012 proposed regulations provided that a hospital organization “may treat” multiple buildings operated under a single state license as a single hospital facility. To increase the certainty and consistency in the designation of hospital facilities, the 2013 proposed regulations revised this definition to indicate that multiple buildings operated by a hospital organization under a single state license “are” considered a single hospital facility for purposes of section 501(r).

In response to the 2013 proposed regulations, several commenters stated that buildings in different geographic locations that share a license (for example, a hospital facility with satellite sites in various locations) may serve distinct communities and stakeholders, whose needs could be missed or unaddressed if they are aggregated into one large community served for purposes of the CHNA requirements. Multiple commenters asked that such a hospital facility be given the flexibility to conduct separate CHNAs for its separate buildings, noting that state law may require the facility to file separate implementation strategies for each building describing how each building plans to meet the health needs in its community.

The Treasury Department and the IRS believe that a fixed rule regarding the treatment of multiple buildings under a single state license will provide for consistency and certainty in tax administration and increase the ability of both the IRS and the public to understand and to evaluate information reported on hospital organizations' Forms 990 from year to year. Accordingly, the final regulations continue to provide that multiple buildings operated by a hospital organization under a single state license are considered to be a single hospital facility. The final regulations also clarify that, in the case of a hospital facility consisting of multiple buildings that operate under a single state license and serve different geographic areas or populations, the community served by the hospital facility is the aggregate of such areas or populations. However, in such a case, the hospital facility consisting of multiple buildings could, if desired, assess the health needs of the different geographic areas or populations served by the different buildings separately and document the assessments in separate chapters or sections of the hospital facility's CHNA report and implementation strategy.

c. One Building Under Multiple State Licenses

A few commenters asked that the final regulations allow a hospital organization to treat operations in a single building under more than one state license as a single “hospital facility,” a situation the proposed regulations did not address. These commenters stated that entities operating within the same building have a high degree of integration and similar patient populations and that requiring each licensed facility to comply separately with section 501(r) would impose burdens without benefitting the community served.

The final regulations do not adopt this suggestion because the Treasury Department and the IRS believe that having one definition of “hospital facility” based on state licensure alone is simpler and more administrable. However, the Treasury Department and the IRS note that, as discussed in section 4.c of this preamble, separate hospital facilities within the same building may have identical FAPs and other policies established for them or share one policy document as long as the information in the policy or policies is accurate for all such facilities and any joint policy clearly states that it is applicable to each facility. Furthermore, as discussed in sections 3.a.v and 3.b.iii of this preamble, separate hospital facilities within the same building that define their communities to be the same may conduct a joint CHNA and adopt a joint implementation strategy addressing the significant health needs identified in the joint CHNA. Thus, the final regulations allow for hospital facilities within the same building to jointly comply with many of the section 501(r) requirements.

d. Government Hospital Organizations

The statutory language of section 501(r) applies to all hospital organizations that are (or seek to be) recognized as described in section 501(c)(3) and does not provide an exception for government hospital organizations. Accordingly, the preamble to the 2012 proposed regulations stated that the Treasury Department and the IRS intend to apply section 501(r) to every hospital organization that has been recognized (or seeks recognition) as an organization described in section 501(c)(3), regardless of whether a hospital organization is a government hospital organization. However, in recognition of the unique position of government Start Printed Page 78958hospital organizations, the Treasury Department and the IRS also requested comments regarding alternative methods a government hospital organization could use to satisfy the requirements of section 501(r).

A number of commenters noted that government hospital organizations have long-standing relationships with their communities, are already known as “safety net” health care providers, and are already obligated to provide care regardless of ability to pay (although care is sometimes limited to or prioritized for citizens of the locality that is supporting the hospital). Commenters also stated that government hospital organizations disproportionately serve patients who are uninsured, Medicaid beneficiaries, or hard to reach (such as homeless individuals, migrant workers, and undocumented individuals), and have governance structures that reflect a level of public accountability. Commenters added that, as stewards of public funds, government hospital organizations have an obligation to local taxpayers to ensure that scarce financial resources go toward patient care and not toward unnecessary administrative costs. However, rather than offering alternative methods a government hospital organization could use to satisfy the requirements of section 501(r), these commenters instead effectively requested that the Treasury Department and the IRS provide exemptions from the requirements imposed by section 501(r) for government hospital organizations. For example, commenters recommended that government hospital organizations be exempted from all of the documentation requirements related to CHNAs, be deemed to have met the FAP requirements by virtue of their public status, or be permitted to charge some FAP-eligible individuals more than AGB as long as the average annual discounted charge provided to FAP-eligible individuals did not exceed AGB.

Other commenters expressed support for applying the requirements of section 501(r) to government hospital organizations, stating that no exceptions for particular categories of section 501(c)(3) organizations are permitted by the statute. Commenters also stated that, from the point of view of individuals seeking or receiving care, most government hospital organizations are indistinguishable from any other section 501(c)(3) hospital organization and that their practices with regard to charges, billing, and collections are substantially the same.

Because section 501(r) has no express or implicit exceptions for government hospital organizations, the final regulations require the section 501(r) requirements to be met by all hospital organizations that are (or seek to be) recognized as described in section 501(c)(3), including those that are government hospital organizations. The Treasury Department and the IRS note, however, that government hospital organizations that have previously been recognized as described in section 501(c)(3) but do not wish to comply with the requirements of section 501(r) may submit a request to voluntarily terminate their section 501(c)(3) recognition as described in section 7.04(14) of Rev. Proc. 2014-4 (2014-1 IRB 125) (or a successor revenue procedure).

A number of commenters asked whether and how government hospital organizations can satisfy the reporting requirements related to CHNAs, given that they are excused from filing a Form 990, “Return of Organization Exempt From Income Tax,” under Rev. Proc. 95-48 (1995-2 CB 418). The Affordable Care Act did not change the requirements regarding which organizations are required to file a Form 990. Rev. Proc. 95-48 provides that certain government entities are relieved from any requirement to file a Form 990 (and therefore are relieved from having to disclose information or documents on or with a Form 990). Accordingly, a government hospital organization (other than one that is described in section 509(a)(3)) described in Rev. Proc. 95-48 or a successor revenue procedure is not required to file a Form 990 or include any CHNA-related information with a Form 990. However, to be treated as described in section 501(c)(3), government hospital organizations still must meet all section 501(r) requirements that do not involve disclosure on or with the Form 990, including making their CHNA reports and FAPs widely available on a Web site.

e. Accountable Care Organizations

Several commenters asked that separate entities cooperating in accountable care organizations (ACOs) or similar integrated care models be treated as a single “hospital organization” for purposes of section 501(r), arguing that this would create administrative efficiencies as the participating organizations develop one standard set of policies and procedures and result in less confusion for patients as they move through a “continuum of care.” The final regulations do not adopt this suggestion, but the Treasury Department and the IRS note that, as discussed in section 4.c of this preamble, multiple hospital facilities may have identical FAPs and other policies established for them or share one joint policy document as long as the information in the policy or policies is accurate for all such facilities and any joint policy clearly states that it is applicable to each facility. Furthermore, as discussed in sections 3.a.v and 3.b.iii of this preamble, separate hospital facilities that define their community to be the same may conduct a joint CHNA and adopt a joint implementation strategy addressing the significant health needs identified in the joint CHNA. Thus, the final regulations provide opportunities for separate hospital facilities participating in an ACO to jointly comply with many of the section 501(r) requirements.

f. “Operating” a Hospital Facility

The 2013 proposed regulations generally provided that an organization operates a hospital facility if it owns a capital or profits interest in an entity treated as a partnership for federal tax purposes that operates the hospital facility. The final regulations maintain this general rule with two additions.[1] First, the final regulations clarify that an organization is considered to own a capital or profits interest in an entity treated as a partnership for federal tax purposes if it owns such an interest directly or indirectly through one or more lower-tier entities that are treated as partnerships for federal tax purposes.[2]

Second, the final regulations clarify how the question of whether an organization “operates” a hospital facility relates to the question of whether the organization needs to meet the requirements of section 501(r) (and, therefore, would be subject to any Start Printed Page 78959consequences for failing to meet such requirements). Specifically, § 1.501(r)-2(e) of the final regulations clarifies that a hospital organization is not required to meet the requirements of section 501(r) with respect to any hospital facility it is not “operating” within the meaning of that defined term. In addition, as stated in the preamble to the 2013 proposed regulations, the final regulations provide that a hospital organization is not required to meet the requirements of section 501(r) with respect to the operation of a facility that is not a “hospital facility” because it is not required by a state to be licensed, registered, or similarly recognized as a hospital. The final regulations also provide that a hospital organization is not required to meet the requirements of section 501(r) with respect to any activities that constitute an unrelated trade or business described in section 513 with respect to the hospital organization.

g. Providing Care in a Hospital Facility Through Hospital-Owned Entities

A number of commenters asked that the final regulations clarify the extent to which certain section 501(r) requirements apply to hospital-owned physician practices providing care in the hospital, with a few commenters requesting that the section 501(r) requirements apply to all care provided in a hospital facility by such practices.[3]

Whether or not the section 501(r) requirements apply to hospital-owned physician practices or other entities providing care in a hospital facility depends upon how the entities are classified for federal tax purposes. For example, a hospital facility would not be required to meet the section 501(r) requirements with respect to a taxable corporation providing care in the hospital facility, even if the corporation is wholly or partially owned by the hospital organization that operates the hospital facility, because the corporation is a separate taxable entity to which section 501(r) does not apply.

By contrast, if a hospital organization is the sole member or owner of an entity providing care in one of its hospital facilities and that entity is disregarded as separate from the hospital organization for federal tax purposes, the care provided by the entity would be considered to be care provided by the hospital organization through its hospital facility. Accordingly, the hospital organization would be required to meet the section 501(r) requirements with respect to care provided by the disregarded entity in any hospital facility that the hospital organization operates.

If a hospital organization owns a capital or profits interest in an entity providing care in a hospital facility that is treated as a partnership for federal tax purposes, the activities of the partnership are treated as the activities of the hospital organization for purposes of determining whether the hospital organization is operated exclusively for exempt purposes or engaged in an unrelated trade or business under generally applicable tax principles. See Rev. Rul. 2004-51 (2004-1 CB 974); Rev. Rul. 98-15 (1998-1 CB 718). Accordingly, emergency or other medically necessary care provided in a hospital facility by a partnership in which the hospital organization operating the facility has a capital or profits interest is treated as care provided by the hospital organization in its hospital facility for purposes of section 501(r). If the provision of such care by the partnership is an unrelated trade or business with respect to the hospital organization, the hospital organization does not have to meet the section 501(r) requirements with respect to the care because, as noted in section 1.f of this preamble, the final regulations provide that a hospital organization is not required to meet the requirements of section 501(r) with respect to any activity that constitutes an unrelated trade or business with respect to the hospital organization. On the other hand, if the provision of emergency or other medically necessary care by the partnership is not an unrelated trade or business with respect to the hospital organization, the final regulations clarify that the hospital organization must meet the requirements of sections 501(r)(4) through 501(r)(6) with respect to such care. The final regulations use a new defined term, “substantially-related entity,” to refer to an entity that is treated as a partnership for federal tax purposes in which a hospital organization owns a capital or profits interest (or a disregarded entity of which the hospital organization is the sole owner or member) and that provides, in a hospital facility operated by the hospital organization, emergency or other medically necessary care that is not an unrelated trade or business with respect to the hospital organization.[4]

h. Authorized Body

The 2013 proposed regulations defined the term “authorized body of a hospital facility” to include: (1) The governing body (that is, the board of directors, board of trustees, or equivalent controlling body) of the hospital organization; (2) a committee of, or other party authorized by, the governing body of the hospital organization, to the extent permitted under state law; or (3) in the case of a hospital facility that has its own governing body and is recognized as an entity under state law but is a disregarded entity for federal tax purposes, the governing body of that hospital facility, or a committee of, or other party authorized by, that governing body to the extent permitted under state law.

In cases in which a hospital organization owns a capital or profits interest in a partnership that operates a hospital facility, the Treasury Department and the IRS believe the governing body of the partnership should also be considered an authorized body of the hospital facility, and the final regulations are amended to reflect this change. In particular, the final regulations provide that an authorized body of a hospital facility may include the governing body of an entity that operates the hospital facility and is disregarded or treated as a partnership for federal tax purposes (or a committee of, or other party authorized by, that governing body to the extent such committee or other party is permitted under state law to act on behalf of the governing body), and thus either the governing body (or committee or other authorized party) of the hospital organization or of the disregarded entity or partnership may be considered the authorized body of the hospital facility.

Some questions have arisen regarding whether adoption of a CHNA report, implementation strategy, FAP, or other policy by one authorized official of a hospital facility would constitute adoption by an authorized body of the hospital facility for purposes of the regulatory requirements. Under the regulatory definition of “authorized body of a hospital facility” in both the 2013 proposed regulations and these final regulations, a single individual may constitute either a committee of the Start Printed Page 78960governing body or a party authorized by the governing body to act on its behalf, provided that state law allows a single individual to act in either of these capacities.[5]

2. Failures To Satisfy the Requirements of Section 501(r)

The Treasury Department and the IRS recognize that errors may occur even in circumstances in which a hospital facility has practices and procedures in place that are reasonably designed to facilitate overall compliance with section 501(r) and has implemented safeguards reasonably calculated to prevent errors. Thus, the 2013 proposed regulations provided that a hospital facility's omission of required information from a policy or report described in § 1.501(r)-3 or § 1.501(r)-4, or an error with respect to the implementation or operational requirements described in §§ 1.501(r)-3 through 1.501(r)-6, would not be considered a failure to meet a requirement of section 501(r) if: (1) The omission or error was minor, inadvertent, and due to reasonable cause, and (2) the hospital facility corrected such omission or error as promptly after discovery as is reasonable given the nature of the omission or error.

In addition, to provide an incentive for hospital facilities to take steps not only to avoid errors but also to correct and provide disclosure when they occur, the 2013 proposed regulations provided that a hospital facility's failure to meet one or more of the requirements described in §§ 1.501(r)-3 through 1.501(r)-6 that is neither willful nor egregious would be excused if the hospital facility corrects and makes disclosure in accordance with guidance set forth by revenue procedure, notice, or other guidance published in the Internal Revenue Bulletin. On January 13, 2014, the Treasury Department and the IRS published Notice 2014-3, which contained a proposed revenue procedure setting forth procedures for correction and disclosure of such failures and solicited public comments regarding the proposed revenue procedure. The Treasury Department and the IRS intend to release a revenue procedure finalizing the guidance proposed in Notice 2014-3 in the near future.

a. Minor Omissions and Errors

Several commenters supported the proposed approach to minor and inadvertent omissions and errors that are due to reasonable cause, agreeing that if they are promptly corrected upon discovery they should not result in sanctions. Accordingly, the final regulations retain this general approach, with some modifications.

One commenter suggested modifying the proposed rule so that it will apply to omissions or errors that are minor, inadvertent, “or” due to reasonable cause (rather than “and”), stating that an omission or error was unlikely to satisfy all three conditions. The same commenter noted that “reasonable cause” may be interpreted differently in a variety of circumstances, potentially making this safe harbor too narrow. The Treasury Department and the IRS believe that the insignificance of an omission or error should always be a necessary condition for receiving the benefit of correcting under § 1.501(r)-2(b) without any obligation to disclose to the IRS or the public. Thus, the final regulations require an omission or error to be minor in order to be corrected and not considered a failure under § 1.501(r)-2(b). However, in response to this comment, the final regulations provide that the option for correction without disclosure provided in § 1.501(r)-2(b) will be available if the omission or error is minor and either inadvertent or due to reasonable cause. As noted later in this section of the preamble, the final regulations also clarify the meaning of “reasonable cause” for purposes § 1.501(r)-2(b).

Numerous commenters asked for further guidance and specific examples with respect to the types of omissions and errors that would be considered minor, inadvertent, and/or due to reasonable cause, as opposed to those that are excused only if they are corrected and disclosed, as discussed in section 2.b of this preamble. As more experience is gained regarding the types of omissions or errors that typically occur in implementing the section 501(r) requirements, the Treasury Department and the IRS will consider issuing further guidance in this area. In the meantime, the final regulations provide additional guidance regarding the factors that will be considered in determining whether an omission or error is minor and either inadvertent or due to reasonable cause. With respect to minor, the final regulations clarify that, in the case of multiple omissions or errors, the omissions or errors are considered minor only if they are minor in the aggregate. The final regulations further provide that the fact that the same omission or error has occurred and been corrected previously is a factor tending to show that an omission or error is not inadvertent. Finally, with respect to reasonable cause, the final regulations provide that a hospital facility's establishment of practices or procedures (formal or informal) reasonably designed to promote and facilitate overall compliance with the section 501(r) requirements prior to the occurrence of an omission or error is a factor tending to show that the omission or error was due to reasonable cause.

Commenters also asked for guidance and examples demonstrating how minor omissions or errors should be remedied to avoid sanctions. The final regulations specify that correction of minor omissions or errors must include establishment (or review and, if necessary, revision) of practices or procedures (formal or informal) that are reasonably designed to achieve overall compliance with the requirements of section 501(r). As more experience is gained regarding the types of omissions or errors that typically occur in implementing the section 501(r) requirements, the Treasury Department and the IRS will consider issuing further guidance on the correction of minor omissions or errors.

A few commenters asked that hospital facilities be required to disclose the minor omissions or errors that they correct, either on a Web site or on the Form 990, to increase transparency and encourage continuous improvement. The Treasury Department and the IRS expect that minor omissions or errors will not have a significant impact on individuals in a hospital facility's community and, therefore, will be sufficiently inconsequential that they do not justify the additional burden of disclosure. Instead, as discussed in section 2.b of this preamble, disclosure is a requirement reserved for those omissions and errors that rise above the level of “minor” and have a broader scope and greater impact on individuals within the hospital facility's community, as well as those that are neither inadvertent nor due to reasonable cause and thus involve a degree of culpability on the part of the hospital facility.

b. Excusing Certain Failures If a Hospital Facility Corrects and Makes Disclosure

The 2013 proposed regulations provided that a hospital facility's failure to meet one or more of the requirements described in §§ 1.501(r)-3 through 1.501(r)-6 that is neither willful nor egregious would be excused if the Start Printed Page 78961hospital facility corrects and provides disclosure in accordance with guidance set forth by revenue procedure, notice, or other guidance published in the Internal Revenue Bulletin. The 2013 proposed regulations indicated that, for purposes of this provision, a “willful” failure would be interpreted consistent with the meaning of that term in the context of civil penalties, which would include a failure due to gross negligence, reckless disregard, or willful neglect. Several commenters indicated that the reference to “civil penalties” was unclear. In response, the final regulations delete the reference to civil penalties, but continue to provide that a “willful” failure includes a failure due to gross negligence, reckless disregard, and willful neglect—all terms with well-established meanings in case law—to assist hospital facilities in distinguishing between a failure that is willful and a failure that may be excused if it is corrected and disclosed.

Similarly, several commenters asked for guidance on what would qualify as “egregious” noncompliance, recommending that the term should be reserved for actions that are of the utmost seriousness and that would undermine the intent of section 501(r) as a whole. The Treasury Department and the IRS agree with commenters that the term “egregious” should encompass only very serious failures, taking into account the severity of the impact and the number of affected persons, and the final regulations are amended to reflect this. As the Treasury Department and the IRS gain additional experience with the types of failures to meet section 501(r) that occur, examples of failures that are or are not willful or egregious may be provided in future guidance.

A number of commenters suggested that the final regulations should create a rebuttable presumption that a failure that is corrected and disclosed is neither willful nor egregious. Commenters reasoned that such a presumption would ensure that hospital facilities that correct and disclose failures would get some benefit in return for their efforts and reduce uncertainty regarding their section 501(c)(3) status. The final regulations do not provide for such a presumption because correction and disclosure of a failure are not determinative of a hospital facility's willfulness or the egregiousness of the failure. However, the Treasury Department and the IRS do believe that a hospital facility that corrects and discloses a failure to meet a section 501(r) requirement is less likely to have acted willfully in failing to meet that requirement, and thus the final regulations provide that correction and disclosure of a failure is a factor tending to show that an error or omission was not willful.

A few commenters questioned whether a system of correction and disclosure should be sufficient to prevent revocation of section 501(c)(3) status, with one commenter asking that proposed § 1.501(r)-2(c) be struck in its entirety. The Treasury Department and the IRS believe that the statute's objectives of promoting transparency of hospital facilities' CHNAs and FAPs and of providing protections to FAP-eligible patients with respect to charges and collections are well served by a system that encourages hospitals to adopt practices that prevent failures and promptly discover and correct any failures that happen to occur. In addition, disclosure of failures and what has been done to correct them provides significant transparency. Accordingly, the final regulations retain § 1.501(r)-2(c).

The 2013 proposed regulations stated that a hospital facility may, in the discretion of the IRS, be subject to an excise tax under section 4959 for a failure to meet the CHNA requirements, notwithstanding the hospital facility's correction and disclosure of the failure in accordance with the relevant procedures. Several commenters expressed confusion as to whether and how the tax under section 4959 would apply in the event of a failure that was corrected and disclosed. Although some commenters did not think the excise tax should apply upon correction and disclosure, at least one commenter suggested that the statute does not permit the excise tax to be excused.

To eliminate the uncertainty, the final regulations under section 4959 provide that a hospital facility failing to meet the CHNA requirements “will” (rather than “may, in the discretion of the IRS”) be subject to an excise tax under section 4959, notwithstanding its correction and disclosure of the failure. However, as discussed in section 2.a of this preamble, a hospital facility's omission or error with respect to the CHNA requirements will not be considered a failure to meet the CHNA requirements if the omission or error is minor and either inadvertent or due to reasonable cause and if the hospital facility corrects the omission or error in accordance with § 1.501(r)-2(b)(1)(ii) of the final regulations. Accordingly, the final regulations under section 4959 also make clear that such a minor omission or error related to the CHNA requirements that is corrected will not give rise to an excise tax under section 4959.

c. Facts and Circumstances Considered in Determining Whether To Revoke Section 501(c)(3) Status

Consistent with the 2013 proposed regulations, the final regulations provide that the IRS will consider all relevant facts and circumstances when determining whether revocation of section 501(c)(3) status is warranted as a result of a failure to meet one or more requirements of section 501(r).

Several commenters asked that the regulatory text of the final regulations include the statement found in the preamble to the 2013 proposed regulations that application of these facts and circumstances will ordinarily result in revocation of section 501(c)(3) status only if the organization's failures to meet the requirements of section 501(r) are willful or egregious. On the other hand, one commenter expressed concern that this statement signals that revocation could result due to failures that are willful, but not serious or material.

The final regulations provide that all of the relevant facts and circumstances will be considered in determining whether to revoke a hospital organization's section 501(c)(3) status, including the size, scope, nature, and significance of the organization's failure, as well as the reason for the failure and whether the same type of failure has previously occurred. The IRS will also consider whether the hospital organization had, prior to the failure, established practices or procedures (formal or informal) reasonably designed to promote and facilitate overall compliance with the section 501(r) requirements; whether such practices or procedures were being routinely followed; and whether the failure was corrected promptly.

d. Taxation of Noncompliant Hospital Facilities

Like the 2013 proposed regulations, the final regulations provide for a facility-level tax for a hospital organization operating more than one hospital facility that fails to meet one or more of the requirements of section 501(r) separately with respect to a hospital facility during a taxable year. Specifically, this facility-level tax applies to a hospital organization that continues to be recognized as described in section 501(c)(3) but would not continue to be so recognized based on the facts and circumstances described in section 2.c of this preamble if the noncompliant facility were the only hospital facility operated by the organization. The facility-level tax is applied to income derived from the Start Printed Page 78962noncompliant hospital facility during the taxable year of non-compliance and is computed as provided in section 11 (or as provided in section 1(e) if the hospital organization is a trust described in section 511(b)(2)).

The 2013 proposed regulations also stated that the application of the facility-level tax to income derived from a noncompliant hospital facility would not, by itself, affect the tax-exempt status of bonds issued to finance the noncompliant hospital facility. Numerous commenters requested that the final regulations further specify that a noncompliant hospital facility subject to the facility-level tax will not be treated as an unrelated trade or business for purposes of tax-exempt bonds issued to finance the noncompliant facility. In response to these comments, the final regulations clarify that application of the facility-level tax will not, by itself, result in the operation of the noncompliant hospital facility being considered an unrelated trade or business described in section 513.

3. Community Health Needs Assessments

Consistent with section 501(r)(3)(A), the final regulations provide that a hospital organization meets the requirements of section 501(r)(3) in any taxable year with respect to a hospital facility it operates only if the hospital facility has conducted a CHNA in such taxable year or in either of the two immediately preceding taxable years and an authorized body of the hospital facility has adopted an implementation strategy to meet the community health needs identified through the CHNA.

a. Conducting a Community Health Needs Assessment

Consistent with the 2013 proposed regulations, the final regulations provide that, in conducting a CHNA, a hospital facility must define the community it serves and assess the health needs of that community. In assessing the community's health needs, the hospital facility must solicit and take into account input received from persons who represent the broad interests of its community. The hospital facility must also document the CHNA in a written report (CHNA report) that is adopted for the hospital facility by an authorized body of the hospital facility. Finally, the hospital facility must make the CHNA report widely available to the public. A hospital facility is considered to have conducted a CHNA on the date it has completed all of these steps, including making the CHNA report widely available to the public.

Several commenters suggested that a hospital facility should be considered to have conducted a CHNA if it updates a previously conducted CHNA, as opposed to being required to create an entirely new CHNA every three years. The Treasury Department and the IRS expect that, in conducting CHNAs, hospital facilities will build upon previously-conducted CHNAs, and nothing in either the 2013 proposed regulations or the final regulations is intended to prevent this practice. Hospital facilities should note, however, that both the 2013 proposed regulations and these final regulations require the solicitation and consideration of input from persons representing the broad interests of the community anew with each CHNA, even if the CHNA builds upon a previously conducted CHNA.

i. Community Served by the Hospital Facility

The 2013 proposed regulations provided that a hospital facility may take into account all of the relevant facts and circumstances in defining the community it serves, including the geographic area served by the hospital facility, target populations served (for example, children, women, or the aged), and principal functions (for example, focus on a particular specialty area or targeted disease). The 2013 proposed regulations further provided that a hospital facility may define its community to include populations in addition to its patient populations and geographic areas outside of those in which its patient populations reside. However, the 2013 proposed regulations did not permit a hospital facility to define its community in a way that excluded medically underserved, low-income, or minority populations who are served by the hospital facility, live in the geographic areas in which its patient populations reside (unless such populations are not part of the hospital facility's target population or affected by its principal functions), or otherwise should be included based on the method used by the hospital facility to define its community.

A few commenters expressed concern that the sentence suggesting that a hospital facility could define its community to include populations in addition to its patient populations and geographic areas outside of those in which its patient populations reside could create confusion among both hospital organizations and the public, as it implies that the community that is defined for CHNA purposes may not actually be the community served by the hospital facility. To avoid potential confusion, the final regulations delete this language. However, the final regulations continue to give hospital facilities broad flexibility to define the communities they serve or intend to serve (both in addressing needs identified through their CHNAs and otherwise) taking into account all relevant facts and circumstances, provided that they do not exclude medically underserved, low-income, or minority populations.

With respect to the provision in the 2013 proposed regulations that a hospital facility may not define its community in a way that excludes medically underserved, low-income, or minority populations, several commenters asked that the final regulations prohibit exclusion of additional populations, such as populations with limited English proficiency (LEP) or potential patients within the community who are not currently receiving care. With respect to potential patients not currently receiving care, commenters noted that individuals may live within a hospital facility's service community but not use the facility for reasons that include cost, lack of transportation, lack of adequate language access services, stigma, or other barriers.

The 2013 proposed regulations and these final regulations define “medically underserved” populations as including populations “at risk of not receiving adequate medical care as a result of being uninsured or underinsured or due to geographic, language, financial, or other barriers.” The reference to language barriers in the definition of medically underserved already encompasses LEP populations. In addition, the definition of “medically underserved” already prevents the exclusion of those living within a hospital facility's service area but not receiving adequate medical care from the facility because of cost, transportation difficulties, stigma, or other barriers. The final regulations also provide that hospital facilities may not exclude low-income or minority populations living “in the geographic areas from which the hospital facility draws its patients,” and not only those already receiving care from the facility. Accordingly, the Treasury Department and the IRS believe the concerns addressed by these commenters are addressed by the final regulations.

ii. Assessing Community Health Needs

The 2013 proposed regulations provided that, to assess the health needs of its community, a hospital facility must identify the significant health needs of its community, prioritize those health needs, and identify potential Start Printed Page 78963measures and resources (such as programs, organizations, and facilities in the community) available to address the health needs. For these purposes, the 2013 proposed regulations stated that health needs include requisites for the improvement or maintenance of health status both in the community at large and in particular parts of the community (such as particular neighborhoods or populations experiencing health disparities). The preamble added that requisites for the improvement or maintenance of health status in a community may include improving access to care by removing financial and other barriers to care, such as a lack of information regarding sources of insurance designed to benefit vulnerable populations. Numerous commenters asked for clarification that the term “health needs” also encompasses needs in addition to access to care, such as access to proper nutrition and housing, the mitigation of social, environmental, and behavioral factors that influence health, or emergency preparedness. In response to these comments, the final regulations expand the examples of health needs that a hospital facility may consider in its CHNA to include not only the need to address financial and other barriers to care but also the need to prevent illness, to ensure adequate nutrition, or to address social, behavioral, and environmental factors that influence health in the community. The Treasury Department and the IRS note that the list of possible health needs in the final regulations is only a list of examples, and a hospital facility is not required to identify all such types of health needs in its CHNA report if all such types are not determined by the hospital facility to be significant health needs in its community.

The 2013 proposed regulations provided that a hospital facility may use any criteria to prioritize the significant health needs it identifies, including, but not limited to, the burden, scope, severity, or urgency of the health need; the estimated feasibility and effectiveness of possible interventions; the health disparities associated with the need; or the importance the community places on addressing the need. One commenter supported the flexibility provided to hospital facilities in determining how to prioritize significant health needs, while several other commenters expressed concern that the language in the proposed rule that a hospital facility may use “any” criteria when prioritizing significant health needs could be read to include criteria that disregard community preferences. Two commenters recommended requiring hospital facilities to use the listed criteria, with one such commenter noting that these are commonly-used criteria in health planning and program evaluation.

Section 501(r)(3) does not mandate the use of particular prioritization criteria. Accordingly, the list of prioritization criteria in the final regulations remains a non-exhaustive list of examples, and hospital facilities have flexibility to choose how best to prioritize the significant health needs of their particular communities. However, to ensure transparency with respect to a hospital facility's prioritization, the final regulations, like the 2013 proposed regulations, require a hospital facility's CHNA report to describe the process and criteria used in prioritizing the significant health needs identified. In addition, the final regulations require a hospital facility to take into account community input not only in identifying significant health needs but also in prioritizing them.

A few commenters asked for clarification regarding the requirement in the 2013 proposed regulations that hospital facilities identify potential measures and resources (such as programs, organizations, and facilities in the community) available to address significant health needs. For example, one commenter asked whether the term “measures” referred to how the hospital facility would measure the scope of the health need, rather than actions the hospital facility might take to address the health need. Another commenter interpreted the proposed requirement as referring to the potential measures and resources only of parties in the community other than the hospital facility itself. To eliminate any confusion associated with the use of the term “measures,” the final regulations eliminate the term and require a hospital facility to identify resources potentially available to address the significant health needs, with the term “resources” including programs, organizations, or facilities. In addition, the final regulations clarify that resources of the hospital facility itself may be identified.

Numerous commenters recommended removing the requirement that a CHNA include potential measures and resources to address the significant health needs identified, stating that the implementation strategy was a better place to discuss the means to address health needs. Other commenters supported this requirement, with one such commenter stating that it is important to consider potential measures and resources early in the CHNA process to provide a framework for determining which health needs to address in the implementation strategy. The Treasury Department and the IRS agree that a vital part of assessing and prioritizing health needs is to begin considering what resources in the community could potentially be harnessed to help address those health needs and thus believe that hospital facilities should get community input on this important aspect of assessing health needs while the CHNA is being conducted. The opportunity for contemporaneous community input on potentially available resources would not exist if such resources were identified as part of the implementation strategy because a hospital facility is not required to take into account input on an implementation strategy until it is conducting the subsequent CHNA. Accordingly, the final regulations retain the requirement that a CHNA identify resources potentially available to address significant health needs.

iii. Input From Persons Representing the Broad Interests of the Community

The 2013 proposed regulations provided that, in assessing the health needs of its community, a hospital facility must take into account input received from, at a minimum, the following three sources: (1) At least one state, local, tribal, or regional governmental public health department (or equivalent department or agency) with knowledge, information, or expertise relevant to the health needs of the community; (2) members of medically underserved, low-income, and minority populations in the community, or individuals or organizations serving or representing the interests of such populations; and (3) written comments received on the hospital facility's most recently conducted CHNA and most recently adopted implementation strategy.

Several commenters asked that the final regulations address the situation in which a hospital facility, despite its best efforts, is unable to secure input on its CHNA from a required category of persons. In response, the final regulations retain the three categories of persons representing the broad interests of the community specified in the 2013 proposed regulations but clarify that a hospital facility must “solicit” input from these categories and take into account the input “received.” The Treasury Department and the IRS expect, however, that a hospital facility claiming that it solicited, but could not obtain, input from one of the required categories of persons will be able to document that it made reasonable Start Printed Page 78964efforts to obtain such input, and the final regulations require the CHNA report to describe any such efforts.

Numerous commenters requested that the final regulations provide for public input on the identification and prioritization of significant health needs, with a few of these commenters expressing a particular interest in ensuring ample opportunity for community input and feedback on which community health needs should be deemed “significant.” By requiring hospital facilities to take into account public input “in assessing the health needs of the community” and defining “assessing the health needs of the community” to include identifying and prioritizing significant health needs, the 2013 proposed regulations already required public input on the identification and prioritization of significant health needs. The final regulations clarify that the requirement to take into account input in assessing the health needs of the community includes taking into account input in identifying and prioritizing significant health needs, as well as identifying resources potentially available to address those health needs.

Finally, the final regulations do not adopt a suggestion from several commenters that a hospital facility be required to take into account public input in defining its community because such a requirement would be circular, as a hospital facility must define its community before it can take into account input from persons who represent the broad interests of that community.

A. Governmental Public Health Departments

Numerous commenters supported requiring hospital facilities to take into account input from a governmental public health department (or equivalent department or agency), noting that governmental health departments typically have access to statistical and other data that may be helpful in assessing and prioritizing community health needs and, in many cases, conduct community health assessments of their own.

One commenter asked what is meant by “or equivalent department or agency” and whether the term was intended to be an exception to the requirement that hospital facilities collaborate with governmental public health departments. The parenthetical reference to an “equivalent department or agency” in the 2013 proposed regulations and the final regulations is not intended to be an exception. Rather, it is included in recognition of the fact that governments may have different names for the particular unit with jurisdiction over and expertise in public health. For example, the particular unit of a government with jurisdiction over and expertise in public health might be called an “agency,” “division,” “authority,” “bureau,” “office,” or “center” rather than a department and may or may not have the term “public health” in its name. As long as a hospital facility is soliciting and taking into account input received from the unit of a local, state, tribal, or regional government with jurisdiction over and expertise in public health, it will satisfy the requirement to solicit and take into account input received from a governmental public health department.

The 2013 proposed regulations provided flexibility in allowing a hospital facility to choose the level of government that it concluded was most appropriate for its CHNA, and did not require a hospital facility to solicit input from a local public health department, in particular, because not all jurisdictions will have local public health departments available to participate in the CHNA process. Several commenters asked that the final regulations require a hospital facility to solicit input from a local public health department if one exists in its community. Other commenters, however, expressly supported allowing flexibility to choose the particular governmental health department from which to seek input.

The Treasury Department and the IRS believe that public health departments represent the broad interests of the jurisdictions they serve and have special knowledge of and expertise in public health, regardless of whether they are local, state, tribal, or regional departments. Several commenters noted that local public health departments may vary greatly in their capacity to participate in a CHNA process. In addition, the community served by a hospital facility may span the jurisdictions of multiple local public health departments. Thus, even when a hospital facility's locality has a local public health department, the hospital facility still might reasonably decide that a public health department at a different jurisdictional level may be a more appropriate source of input for its CHNA. Accordingly, the final regulations preserve the flexible approach of the 2013 proposed regulations and allow a hospital facility to select the jurisdictional level (local, state, tribal or regional) of the public health department that is most appropriate for its CHNA.

One commenter asked that the final regulations identify State Offices of Rural Health (SORHs) as governmental public health entities from which hospital facilities may seek input. This commenter stated that SORHs operate on a statewide basis and routinely conduct rural health planning efforts, including both health service access assessments and population health status assessments. The Treasury Department and the IRS note that the substantial majority of SORHs are located in state health departments, such that rural hospital facilities soliciting input from these state SORHs would presumably be soliciting input from a state public health department. However, because some SORHs are located in state universities or other nonprofits or government departments other than public health departments, the final regulations separately identify SORHs as a source of input from which hospital facilities may solicit and take into account input to satisfy the relevant requirement.

One commenter stated that hospital facilities are increasingly employing or contracting with public health experts. This commenter further stated that it would seem illogical for a hospital facility to be considered to have failed to meet the CHNA requirements because it relied on more specific, in-depth advice and input from a public health expert without necessarily working with a public health agency with strained available resources that is attempting to serve a larger geographic area with a broader set of public health needs than those the hospital facility might address. The Treasury Department and the IRS note that public health expertise alone does not result in a person's representing the broad interests of the community, while a governmental public health department both offers public health expertise and is responsible for ensuring that the broad interests of the community are represented. Thus, while hospital facilities are free to contract with public health experts to assist with their CHNAs, the final regulations require a hospital facility to solicit and take into account input received from a governmental public health department.

B. Medically Underserved, Low-Income, and Minority Populations

Several commenters asked that hospital facilities be required to seek input from certain specified groups, such as the disabled, individuals with chronic diseases, women and children, and LEP populations, in addition to the requirement in the 2013 proposed regulations to seek input from medically Start Printed Page 78965underserved, low-income, and minority populations. As noted in section 3.a.i of this preamble, “medically underserved” populations are defined in the 2013 proposed regulations and these final regulations as populations “at risk of not receiving adequate medical care as a result of being uninsured or underinsured or due to geographic, language, financial, or other barriers.” The Treasury Department and the IRS believe this definition (along with the inclusion of low-income and minority populations) should be sufficiently broad to encompass many of the populations cited by commenters to the extent such populations are at risk of not receiving adequate medical care. Moreover, even if a hospital facility does not solicit input from a particular population while conducting its CHNA, any person can participate in the CHNA process by submitting written comments on the hospital facility's most recently conducted CHNA and most recently adopted implementation strategy, as described in section 3.a.iii.C of this preamble. Accordingly, the final regulations do not expand the populations from whom a hospital facility is required to solicit input beyond medically underserved, minority, and low-income populations.

One commenter asked that the final regulations define the broader category of “minority populations” to include certain sub-categories of persons, such as persons with disabilities and LEP individuals, and require hospital facilities to consult a member or representative of each such sub-category identified in their community served. Because the sub-categories within the broad categories of minority and medically underserved populations will likely vary greatly from community to community, the final regulations continue to provide hospital facilities with the flexibility to identify the significant minority and medically underserved populations in their communities with whom they should consult and do not mandate any specific approach.

C. Written Comments

While some comments in response to Notice 2011-52 recommended a requirement that a hospital facility take into account public input on a draft version of its CHNA report before finalizing the report, this recommendation was not adopted in the 2013 proposed regulations due to the complexity of the additional timeframes and procedures such a process would require. Instead, the 2013 proposed regulations required hospital facilities to consider written comments received from the public on the hospital facility's most recently conducted CHNA and most recently adopted implementation strategy. Because a new CHNA must be conducted and an implementation strategy adopted at least once every three years, the Treasury Department and the IRS intended for this requirement to establish the same sort of continual feedback on CHNA reports suggested by commenters, albeit over a different timeframe.

In response to the 2013 proposed regulations, some commenters continued to advocate for requiring comments on a draft CHNA report before it is finalized, stating that the burdens of such a rule would be reasonable and commensurate with the benefits of giving interested individuals additional opportunities to participate in the CHNA. These commenters added that without a mandatory opportunity to comment on the draft CHNA report, interested individuals and organizations may not be aware that a hospital facility is conducting its CHNA until the CHNA is complete, and that opening up the CHNA report for comment in “real time” would yield findings more indicative of community priorities and provide a better framework for collaboration. Other commenters, however, supported the proposed requirement that hospital facilities take into account input in the form of written comments received on the hospital facility's most recently conducted CHNA and most recently adopted implementation strategy, stating that such comments may provide extremely valuable information to guide future assessments and implementation strategies and that this is a practical way of taking various perspectives into account.

The Treasury Department and the IRS continue to believe that the opportunity for the public to submit written comments on previously adopted CHNA reports and implementation strategies will result in a meaningful exchange over time and that the longer timeframe will both give the public sufficient time to provide comments (including comments reflecting changing circumstances) and give hospital facilities sufficient time to take the comments into account when conducting their next CHNA. The Treasury Department and the IRS also note that hospital facilities' CHNA processes will be taking into account input in “real time” from various community stakeholders, including, at a minimum, governmental public health departments and medically underserved, low-income, and minority populations (or persons serving or representing them). Accordingly, the final regulations retain the requirement that a hospital facility take into account written comments on the hospital facility's most recently conducted CHNA report and most recently adopted implementation strategy and do not adopt an additional requirement to post a draft CHNA report for public comment before it is finalized. In addition, the Treasury Department and the IRS note that hospital facilities may choose to post a draft CHNA report for public comment, and both the 2013 proposed regulations and these final regulations facilitate this option by specifying that the posting of a draft CHNA report will not trigger the start of a hospital facility's next three-year CHNA cycle.

A few commenters asked how the public is expected to comment on the implementation strategy if the information is not made available outside of the Form 990 reporting process. As discussed in section 8.a of this preamble, a hospital organization must either attach to its Form 990 a copy of the most recently adopted implementation strategy for each hospital facility it operates or provide on the Form 990 the URL(s) of the Web page(s) on which it has made each implementation strategy widely available on a Web site. Section 6104 requires Forms 990 to be made available to the public by both the filing organization and the IRS, and members of the public may obtain a copy of a hospital organization's Forms 990 from one of the privately-funded organizations that gathers and disseminates Forms 990 online or by completing IRS Form 4506-A, “Request for Public Inspection or Copy of Exempt or Political Organization IRS Form.”

One commenter requested clarification on how hospital facilities should be collecting written comments from the public, asking, for example, if written comments must be collected via a form on a Web site or by email or mailed letter. The final regulations do not require a specific method for collection of these written comments, providing hospital facilities with the flexibility to set up a collection and tracking system that works with their internal systems and makes the most sense for their particular community.

A few commenters asked that the final regulations clarify how hospital facilities should respond to written comments received from the public. One commenter proposed that a hospital facility designate a representative or division responsible for providing substantive responses to written comments to demonstrate that the hospital facility has received the Start Printed Page 78966comment and to ensure that the public will be able to provide continual feedback during the interim period between formal CHNAs. In contrast, another commenter stated that requiring hospitals to individually address each community concern through feedback could become burdensome. As discussed in section 3.a.iv of this preamble, the final regulations require hospital facilities to describe generally any input received in the form of written comments (or from any other source) in their CHNA reports. The Treasury Department and the IRS expect that this description in the CHNA report will provide sufficient confirmation that comments have been received and considered and intend that hospital facilities will otherwise have flexibility in determining whether further responses are necessary. Thus, the final regulations do not adopt any specific requirements regarding how hospital facilities must respond to written comments received from the public.

Finally, one commenter sought confirmation that the requirement to take into account written comments on the hospital facility's “most recently conducted CHNA” means that hospital facilities must take into account public comments submitted after the CHNA or implementation strategy is finalized to inform and influence future CHNAs and implementation strategies. This is an accurate description of this provision in both the 2013 proposed regulations and these final regulations. The Treasury Department and the IRS intend that the phrase “most recently conducted CHNA” refers not to a CHNA that is in process but rather to the last CHNA that was “conducted,” typically determined as of the date the hospital facility makes an adopted and complete CHNA report widely available to the public.

D. Additional Sources of Input

The 2013 proposed regulations provided that, in addition to soliciting input from the three required sources, a hospital facility may take into account input from a broad range of persons located in or serving its community, including, but not limited to, health care consumers and consumer advocates, nonprofit and community-based organizations, academic experts, local government officials, local school districts, health care providers and community health centers, health insurance and managed care organizations, private businesses, and labor and workforce representatives.

Numerous commenters requested that the final regulations require, rather than simply permit, hospital facilities to solicit input from additional sources, including from patient and health care consumer organizations located in or serving the hospital facility's community, county governing boards, experts in nutrition or the local food system, and housing service providers. While these sources may have valuable input to contribute to a hospital facility's CHNA, mandating input from some or all of these sources could result in a final rule that is unsuited for particular communities and further complicate the CHNA process and the ability to collaborate. Accordingly, the final regulations do not require hospitals to solicit input from additional persons, although a hospital facility is free to solicit input from the suggested sources (as well as other sources) and must take into account input received from any person (including these sources) in the form of written comments on the most recently conducted CHNA or most recently adopted implementation strategy.

E. Input on Financial and Other Barriers

The 2012 proposed regulations requested comments on the potential link between the needs of a hospital facility's community, as determined through the hospital facility's most recently conducted CHNA, and a hospital facility's FAP. The preamble to the 2013 proposed regulations recognized that the need to improve access to care by removing financial barriers can be among the significant health needs assessed in a CHNA, and the 2013 proposed regulations themselves provided that input from persons representing the broad interests of the community includes, but is not limited to, input on any financial and other barriers to access to care in the community.

Several commenters stated that the CHNA process offers an opportunity to inquire about financial and other barriers to care, which could provide useful information to a hospital facility in updating and evaluating its FAP. However, other commenters noted that section 501(r) does not require a link between a hospital facility's CHNA and its FAP. These commenters further stated that because CHNAs are already required to take into account input from persons who represent the broad interests of the community and the decision of how to meet those needs is the responsibility of the hospital's governing board, a linkage should be allowed at the discretion of the hospital facility but not required.

In acknowledgement of the importance of assessing financial barriers to care in the CHNA process, the final regulations expressly provide that the health needs of a community may include the need to address financial and other barriers to access to care in the community. However, consistent with the approach taken in Notice 2011-52 and the 2013 proposed regulations, the final regulations focus on ensuring transparency regarding the health needs identified through a CHNA rather than requiring hospital facilities to identify any particular categories of health needs. As with all significant health needs identified through a CHNA, a hospital facility's decision as to whether and how to address a significant health need involving financial barriers to care (including through an amendment to a hospital facility's FAP) will be disclosed publicly in the hospital facility's implementation strategy and subject to public comments in preparing the next CHNA. Thus, the final regulations do not require any additional link between a hospital facility's CHNA and its FAP.

iv. Documentation of a CHNA

Similar to the 2013 proposed regulations, the final regulations provide that a hospital facility must document its CHNA in a CHNA report that is adopted by an authorized body of the hospital facility and includes: (1) A definition of the community served by the hospital facility and a description of how the community was determined; (2) a description of the process and methods used to conduct the CHNA; (3) a description of how the hospital facility solicited and took into account input received from persons who represent the broad interests of the community it serves; (4) a prioritized description of the significant health needs of the community identified through the CHNA, along with a description of the process and criteria used in identifying certain health needs as significant and prioritizing those significant health needs; and (5) a description of resources potentially available to address the significant health needs identified through the CHNA.

Both the 2013 proposed regulations and these final regulations provide that a CHNA report will be considered to describe the process and methods used to conduct the CHNA if the CHNA report describes the data and other information used in the assessment, as well as the methods of collecting and analyzing this data and information, and identifies any parties with whom the hospital facility collaborated, or with whom it contracted for assistance, in conducting the CHNA. Some commenters requested that this provision be modified to permit the referencing of publicly available source Start Printed Page 78967materials (for example, public health agency data) on which the hospital facility relied in conducting its CHNA. The final regulations clarify that a hospital facility may rely on (and the CHNA report may describe) data collected or created by others in conducting its CHNA and, in such cases, may simply cite the data sources rather than describe the “methods of collecting” the data.

A few commenters requested clarification on how a hospital facility's CHNA report should describe input received in the form of written comments, with one such commenter asking if a general summary of the input provided, the number of comments received, and the time period during which the comments were received will be sufficient. The final regulations retain the provisions of the 2013 proposed regulations, which stated that a CHNA report will be considered to describe how the hospital facility took into account community input if it summarizes, in general terms, the input provided and how and over what time period it was provided. This language applies to written comments, as well as to any other type of input provided. In addition, like the 2013 proposed regulations, the final regulations provide that a CHNA report does not need to name or otherwise identify any specific individual providing input on the CHNA, which would include input provided by individuals in the form of written comments.

v. Collaboration on CHNA Reports

The 2013 proposed regulations provided that a hospital organization may choose to conduct its CHNA in collaboration with other organizations and facilities, including related and unrelated hospital organizations and facilities, for-profit and government hospitals, governmental departments, and nonprofit organizations. In general, every hospital facility must document its CHNA in a separate CHNA report. However, the 2013 proposed regulations made clear that portions of a hospital facility's CHNA report may be substantively identical to portions of the CHNA reports of other facilities or organizations, if appropriate under the facts and circumstances. The 2013 proposed regulations further provided that collaborating hospital facilities that define their community to be the same and that conduct a joint CHNA process may produce a joint CHNA report. The final regulations amend the proposed regulations to clarify that joint CHNA reports must contain all of the same basic information that separate CHNA reports must contain (discussed in section 3.a.iv of this preamble).

Numerous commenters expressed support for allowing joint CHNA reports, noting that the purpose of collaboration is to make the most efficient use of resources in assessing community needs and devising strategies to address those needs and that communities would benefit from strengthened collaborative partnerships that help build broad-based support for community-wide solutions to the underlying causes of health problems. In addition, several of these commenters stated that joint CHNA reports would more effectively leverage the health data expertise of governmental public health departments without placing an unreasonable burden on departments that serve jurisdictions with more than one tax-exempt hospital facility. Another commenter stated that joint CHNA reports both enhance overall community health and lessen confusion in the community by providing a more comprehensive view of the identified needs and associated strategies for addressing those needs. For these reasons, the final regulations continue to permit collaborating hospital facilities to produce joint CHNA reports.

Several commenters recommended that the final regulations go beyond simply permitting collaboration to expressly encouraging, or even requiring, hospital facilities located in the same jurisdiction to collaborate in conducting a CHNA and developing an implementation strategy. One of these commenters stated that this would help ensure that the community is not overburdened by multiple CHNA efforts, noting that a “go it alone” approach in a jurisdiction with multiple hospitals is likely to be neither the most efficient nor the most effective way to improve the overall health of the community. Another commenter, however, stated that the discretion to work collaboratively with others should be left to each particular hospital facility, given the many health care providers operating in a typical community.

Like the 2013 proposed regulations, the final regulations encourage and facilitate collaboration among hospital facilities by allowing for joint CHNA reports. However, section 501(r) applies separately to each hospital organization (and, in the case of hospital organizations operating more than one hospital facility, each hospital facility) and, therefore, it is not appropriate to require hospital organizations to meet the section 501(r)(3) requirements collaboratively with other organizations. Accordingly, the final regulations facilitate, but do not require, collaboration.

Two commenters asked whether the requirement that collaborating hospital facilities must “conduct a joint CHNA process” to adopt a joint CHNA report means that the collaborating hospital facilities must make the joint CHNA report widely available to the public (including posting the CHNA report on a Web site) on the same day. The Treasury Department and the IRS do not intend for collaborating hospital facilities to have to make a joint CHNA report widely available to the public on the same day. Thus, in response to these comments and to avoid potential confusion, the final regulations remove the reference to a joint CHNA process.

A. Defining a Common Community

Several commenters expressed concern regarding the requirement that hospital facilities that collaborate on a CHNA and intend to produce a joint CHNA report must define their communities to be the same. Two of these commenters requested that a hospital facility collaborating on a CHNA being conducted for a larger shared community also be able to identify and address needs that are highly localized in nature or occurring within only a small portion of that community. The 2013 proposed regulations and these final regulations define “health needs” to include requisites for the improvement or maintenance of health status in particular parts of the community, such as particular neighborhoods or populations experiencing health disparities. Accordingly, a joint CHNA conducted for a larger area could identify as a significant health need a need that is highly localized in nature or occurs within only a small portion of that larger area. In addition, nothing in the final regulations prevents a hospital facility collaborating on a CHNA from supplementing a joint CHNA report with its own assessment of more highly localized needs. Because the 2013 proposed regulations already allowed collaborating hospital facilities to address highly localized needs experienced in a particular part of their shared community, the final regulations do not amend the proposed regulations in response to these comments.

One commenter requested that collaborating hospital facilities that serve different communities be allowed to adopt a joint CHNA report, stating that requiring all hospital facilities participating in a joint CHNA report to define their community to be the same would appear to prohibit collaboration between general and specialized Start Printed Page 78968hospital facilities in the same geographic area if the specialized hospital facilities define their communities in terms of service area or principal function and the general hospital facilities define their communities geographically.

The 2013 proposed regulations and these final regulations permit hospital facilities with different but overlapping communities to collaborate in conducting a CHNA and to include substantively identical portions in their separate CHNA reports if appropriate under the facts and circumstances. The final regulations elaborate upon this point with an example of two hospital facilities with overlapping, but not identical, communities that are collaborating in conducting a CHNA and state that, in such a case, the portions of each hospital facility's CHNA report relevant to the shared areas of their communities may be identical. Thus, the final regulations not only expressly permit hospital facilities with different communities (including general and specialized hospitals) to collaborate but also allow such hospital facilities to adopt substantively identical CHNA reports to the extent appropriate.

A few commenters recommended that the final regulations make clear that, to the extent that the communities served by collaborating hospital facilities differ, a CHNA report must reflect the unique needs of the community of the particular hospital facility adopting the report. By stating that collaborating hospital facilities with different but overlapping communities may include substantively identical portions in their separate CHNA reports only “if appropriate under the facts and circumstances,” the 2013 proposed regulations and these final regulations convey that the CHNA reports of collaborating hospital facilities should differ to reflect any material differences in the communities served by those hospital facilities.

B. Collaborating With Public Health Departments

Two commenters requested that hospital facilities be permitted to adopt the CHNA of a local public health department in the event that: (1) The hospital facility has the same community as the local public health department (as defined by the hospital facility), and (2) the CHNA adopted by the local public health department meets the requirements set forth in these regulations. The final regulations clarify that if a governmental public health department has conducted a CHNA for all or part of a hospital facility's community, portions of the hospital facility's CHNA report may be substantively identical to those portions of the health department's CHNA report that address the hospital facility's community. The final regulations also clarify that a hospital facility that collaborates with a governmental public health department in conducting its CHNA may adopt a joint CHNA report produced by the hospital facility and public health department, as long as the other requirements applicable to joint CHNA reports are met.

vi. Making the CHNA Report Widely Available to the Public

The 2013 proposed regulations provided that a hospital facility must make its CHNA report widely available to the public both by making the CHNA report widely available on a Web site and by making a paper copy of the CHNA report available for public inspection without charge at the hospital facility. The 2013 proposed regulations further provided that the CHNA report must be made widely available to the public in this manner until the date the hospital facility has made widely available to the public its two subsequent CHNA reports.

A few commenters recommended that the final regulations require the CHNA report to be translated into multiple languages. Commenters also recommended that the hospital facility be required to make paper copies of the CHNA report available in locations other than the hospital facility that may be more accessible to the community at large and proactively inform the community when the report is available.

The Treasury Department and the IRS note that section 501(r)(3) requires the CHNA to be made “widely available” to the public, in contrast to the requirement in section 501(r)(4) regarding measures to “widely publicize” the FAP. The Treasury Department and the IRS have interpreted the term “widely publicize” to require proactive efforts to inform, and make a document available in, the community at large, but have not so interpreted the term “widely available.” The Treasury Department and the IRS interpret “widely available” in a manner consistent with how that term is defined for purposes of section 6104 (relating to disclosure of annual information returns). See § 301.6104(d)-2(b) (interpreting the term “widely available” in section 6104(d)(4) to include the posting of information returns and exemption applications on a Web page). Accordingly, the final regulations retain the definition of “widely available” set forth in the proposed regulations and decline to adopt a definition that would include the suggested measures to translate and proactively publicize the CHNA report within the community served by the hospital facility.

Additional commenters requested that hospital facilities be required to post their CHNA reports (and implementation strategies) on a national, searchable Web site. Given that hospital facilities are already required to conspicuously post their CHNA reports on a Web site, any individual interested in a particular hospital facility's CHNA report should be able to locate it. The Treasury Department and the IRS do not have, and cannot require a third party to host, a comprehensive Web site containing all hospital facilities' CHNA reports. Accordingly, the final regulations do not adopt this additional suggested requirement.

One commenter asked that the final regulations clarify how a hospital facility is required to make a paper copy of its CHNA report available for public inspection and, specifically, whether a paper copy of the CHNA report must be publicly displayed or, rather, may be made available only upon request. The final regulations clarify that a hospital facility need only make a paper copy of the CHNA report available for public inspection upon request.

vii. Frequency of the CHNA Cycle

The 2013 proposed regulations provided that, to satisfy the CHNA requirements for a particular taxable year, a hospital facility must conduct a CHNA in that taxable year or in either of the two taxable years immediately preceding such taxable year. A few commenters requested that the final regulations provide flexibility in the timeline to limit impediments to collaboration amongst hospital facilities with different taxable years. Commenters also requested that the CHNA cycle match the five-year cycle that local public health departments follow in conducting their community health assessments for national accreditation by the Public Health Accreditation Board. One such commenter stated that adopting this five-year timeline would avoid duplication of effort and incentivize hospital facilities to collaborate more fully with local public health departments. Because section 501(r)(3)(A)(i) requires a hospital organization to conduct a CHNA in the current or one of the two prior taxable years, the final regulations do not adopt these suggestions.Start Printed Page 78969

b. Implementation Strategies

The final regulations provide, consistent with the 2013 proposed regulations, that a hospital facility's implementation strategy is a written plan that, with respect to each significant health need identified through the CHNA, either: (1) Describes how the hospital facility plans to address the health need, or (2) identifies the health need as one the hospital facility does not intend to address and explains why the hospital facility does not intend to address the health need.

The preamble to the 2013 proposed regulations further provided that although an implementation strategy must consider the significant health needs identified through a hospital facility's CHNA, the implementation strategy is not limited to considering only those health needs and may describe activities to address health needs that the hospital facility identifies in other ways. Several commenters supported this proposed flexibility to discuss health needs identified in ways other than through conducting a CHNA, with two such commenters requesting that this language appear in the regulatory text of the final regulations. Another commenter, however, stated that CHNA reports and implementation strategies should be tightly integrated and expressed concern that allowing or encouraging hospital facilities to introduce in the implementation strategy additional needs beyond those identified in the CHNA may undermine the role of community input.

In general, the final regulations under section 501(r) provide detail only with respect to the minimum elements that must be included in the various documents and policies required under sections 501(r)(3) and 501(r)(4), preserving flexibility for hospital facilities to otherwise determine the contents of such documents and policies. Consistent with this approach, the final regulations do not prohibit implementation strategies from discussing health needs identified through means other than a CHNA, provided that all of the significant health needs identified in the CHNA are also discussed.

Many commenters recommended that the statutory requirements that a CHNA “take into account input from persons who represent the broad interests of the community” and “be made widely available to the public” should also apply to implementation strategies to allow communities to monitor, assist, and provide input on hospital facilities' efforts to address health needs. With respect to making the implementation strategy more accessible to the public, commenters also asked that the final regulations clarify how the public may access an implementation strategy that is attached to the Form 990.

Section 501(r)(3)(B) applies the requirements regarding community input and wide availability to the public only to CHNAs. In addition, only section 501(r)(3)(A)(i), which refers to CHNAs, and not section 501(r)(3)(A)(ii), which refers to implementation strategies, cross-references the requirements regarding community input and wide availability to the public contained in section 501(r)(3)(B). Accordingly, the final regulations do not adopt the suggested changes. However, the 2013 proposed regulations and these final regulations respond to commenters' requests to require public input on the implementation strategy by requiring a hospital facility to take into account comments received on the previously adopted implementation strategy when the hospital facility is conducting the subsequent CHNA. Furthermore, as discussed in section 8.a of this preamble, the 2013 proposed regulations and these final regulations respond to commenters' requests to require the implementation strategy to be made widely available to the public by requiring a hospital organization to attach to its Form 990 a copy of the most recently adopted implementation strategy for each hospital facility it operates (or provide on the Form 990 the URL(s) of the Web page(s) on which it has made each implementation strategy widely available on a Web site). As noted in section 3.a.iii.C of this preamble, section 6104 requires Forms 990 to be made available to the public by both the filing organization and the IRS, and members of the public may easily obtain a copy of a hospital organization's Forms 990 from one of the privately-funded organizations that gathers and disseminates Forms 990 online or by completing IRS Form 4506-A.

i. Describing How a Hospital Facility Plans To Address a Significant Health Need

In describing how a hospital facility plans to address a significant health need identified through the CHNA, the 2013 proposed regulations provided that the implementation strategy must: (1) Describe the actions the hospital facility intends to take to address the health need, the anticipated impact of these actions, and the plan to evaluate such impact; (2) identify the programs and resources the hospital facility plans to commit to address the health need; and (3) describe any planned collaboration between the hospital facility and other facilities or organizations in addressing the health need.

Many commenters supported the proposed requirement that a hospital facility include a plan to evaluate the impact of its efforts in its implementation strategy and further recommended that the final regulations require hospital facilities to actually perform the planned evaluation and publish the results of the evaluation. Some of these commenters recommended publication of the results in the subsequent CHNA report. Other commenters requested permission for hospital facilities to accomplish the “plan to evaluate the impact” of the implementation strategy through the process of conducting the next CHNA. In response to these comments, the final regulations replace the proposed requirement that the implementation strategy describe a plan to evaluate its impact with a requirement that the CHNA report include an evaluation of the impact of any actions that were taken since the hospital facility finished conducting its immediately preceding CHNA to address the significant health needs identified in the hospital facility's prior CHNA(s).

The preamble to the 2013 proposed regulations provided the example that if a hospital facility's CHNA identified high rates of financial need or large numbers of uninsured individuals and families in the community as a significant health need in its community, its implementation strategy could describe a program to address that need by expanding its financial assistance program and helping to enroll uninsured individuals in sources of insurance such as Medicare, Medicaid, Children's Health Insurance Program (CHIP), and the new Health Insurance Marketplaces (also known as Exchanges), as appropriate. A few commenters stated that, in addition to examples involving access to health care, it would be helpful to have examples of other interventions designed to prevent illness or to address social, behavioral, and environmental factors that influence community health. An implementation strategy may describe the actions the hospital facility intends to take to address any significant health needs identified through the CHNA process, and, as noted in section 3.a.ii of this preamble, the final regulations specify that the health needs identified through a CHNA may, for example, include the need to prevent illness, to ensure adequate nutrition, or to address social, behavioral, and environmental factors that influence health in the community. Start Printed Page 78970Thus, the final regulations make clear that an implementation strategy may describe interventions designed to prevent illness or to address social, behavioral, and environmental factors that influence community health.

ii. Describing Why a Hospital Facility Is Not Addressing a Significant Health Need

The 2013 proposed regulations provided that a hospital facility may provide a brief explanation of its reason for not addressing a significant health need, including, but not limited to, resource constraints, relative lack of expertise or competencies to effectively address the need, a relatively low priority assigned to the need, a lack of identified effective interventions to address the need, and/or the fact that the need is being addressed by other facilities or organizations in the community. Several commenters thought hospital facilities should not be able to cite “resource constraints” or “lack of expertise” as reasons for not addressing a significant health need. These commenters state that a hospital facility that is unable, for reasons of lack of resources or expertise or other factors, to address a community health need should instead collaborate with community partners to address that need. Other commenters supported allowing hospital facilities to provide any explanation as to why some health needs will not be addressed, consistent with the proposed rule.

As discussed in section 3.a.v of this preamble, the final regulations permit but do not require collaboration. Thus, the final regulations preserve the ability for a hospital facility to explain its reasons for not addressing a significant health need (including resource constraints or a lack of expertise), even if those reasons could be mitigated through collaboration.

iii. Joint Implementation Strategies

The 2013 proposed regulations provided that a hospital facility adopting a joint CHNA report along with other hospital facilities and organizations (as described in section 3.a.v of this preamble) may also adopt a joint implementation strategy as long as it meets certain specified requirements.

Numerous commenters generally supported joint implementation strategies, with some of these commenters stating that such collaboration is an important way to conserve resources, promote cross-system strategies, and yield better outcomes. Commenters also noted that the proposed approach avoids the need to create duplicative separate documents while still ensuring that information for each hospital facility is clearly presented. Accordingly, the final regulations adopt the proposed provision allowing for joint implementation strategies.

iv. When the Implementation Strategy Must Be Adopted

To satisfy the CHNA requirements with respect to any taxable year, section 501(r)(3)(A)(ii) requires a hospital facility to adopt an implementation strategy to meet the health needs identified through the CHNA described in section 501(r)(3)(A)(i). The 2013 proposed regulations provided that, to satisfy this requirement, an authorized body of the hospital facility must adopt an implementation strategy to meet the health needs identified through a hospital facility's CHNA by the end of the same taxable year in which the hospital facility finishes conducting the CHNA. In addition, the Treasury Department and the IRS sought comments on whether this rule would materially inhibit the ability of hospital facilities with different taxable years to collaborate with each other or otherwise burden hospital facilities unnecessarily.

Some commenters requested additional time in which to adopt the implementation strategy to accommodate collaboration between hospital facilities, public health departments, and community organizations with different fiscal years and on different CHNA schedules. Suggestions from these commenters ranged from an additional four and a half months to 12 months after the end of the taxable year in which the CHNA was conducted.

In response to these comments, the final regulations provide hospital facilities with an additional four and a half months to adopt the implementation strategy, specifically requiring an authorized body of the hospital facility to adopt an implementation strategy to meet the health needs identified through a CHNA on or before the 15th day of the fifth month after the end of the taxable year in which the hospital facility finishes conducting the CHNA. By matching the date by which an authorized body of the hospital facility must adopt the implementation strategy to the due date (without extensions) of the Form 990 filed for the taxable year in which the CHNA is conducted, this approach does not materially reduce transparency, because an implementation strategy (or the URL of the Web site on which it is posted) is made available to the public through the Form 990. The final regulations do not go further and permit a hospital facility to delay adoption of an implementation strategy until the due date for the Form 990 including extensions. This is because hospital facilities need to report on Form 4720 any excise tax they owe under section 4959 as a result of failing to meet the CHNA requirements in a taxable year by the 15th day of the fifth month following the end of that taxable year and thus need to know whether they have met the requirement to adopt an implementation strategy by that date.

Because all hospital organizations now have until the 15th day of the fifth month following the close of the taxable year in which they conduct a CHNA to adopt the associated implementation strategy, the final regulations remove the transition rule that allowed for this result for CHNAs conducted in a hospital facility's first taxable year beginning after March 23, 2012.

c. Exception for Hospital Facilities That Are New, Newly Acquired, or Newly Subject to Section 501(r)

The 2013 proposed regulations provided that a hospital facility that was newly acquired or placed into service by a hospital organization, or that became newly subject to section 501(r) because the hospital organization that operated it was newly recognized as described in section 501(c)(3), must meet the CHNA requirements by the last day of the second taxable year beginning after the date, respectively, the hospital facility was acquired, placed into service, or newly subject to section 501(r).

Several commenters interpreted the 2013 proposed regulations as providing new and newly acquired hospital facilities with only two taxable years to meet the CHNA requirements. Two such commenters requested that these hospital facilities be given three taxable years, to correspond to the length of the CHNA cycle provided in the statute.

The 2013 proposed regulations gave hospital facilities two complete taxable years plus the portion of the taxable year of acquisition, licensure, or section 501(c)(3) recognition (as applicable) to meet the CHNA requirements. As noted in the preamble to the 2013 proposed regulations, a short taxable year of less than twelve months is considered a taxable year for purposes of section 501(r). Thus, the portion of the taxable year in which a hospital facility is acquired or placed into service, or becomes newly subject to section 501(r), is a taxable year for purposes of the CHNA requirements, regardless of whether that taxable year is less than twelve months. As a result, a deadline of the last day of the second taxable year Start Printed Page 78971beginning after the date of acquisition, licensure, or section 501(c)(3) recognition provides these new hospital facilities with three taxable years (even if less than three full calendar years) to meet the section 501(r)(3) requirements. By contrast, a deadline of the last day of the third taxable year beginning after the date of acquisition, licensure, or section 501(c)(3) recognition would provide these new hospital facilities with more than three taxable years, and possibly close to four taxable years, to meet the CHNA requirements. Accordingly, the final regulations continue to require hospital facilities that are newly acquired or placed into service (or become newly subject to section 501(r)) to meet the CHNA requirements by the last day of the second taxable year beginning after the later of the date of acquisition, licensure, or recognition of section 501(c)(3) status.

i. Acquired Hospital Facilities

The 2013 proposed regulations provided that a hospital facility that was newly acquired must meet the CHNA requirements by the last day of the second taxable year beginning after the date the hospital facility was acquired. Several commenters asked for guidance on whether and how this rule for acquisitions applies in the case of a merger of two hospital organizations.

The final regulations provide that, in the case of a merger that results in the liquidation of one organization and survival of another, the hospital facilities formerly operated by the liquidated organization will be considered “acquired,” meaning they will have until the last day of the second taxable year beginning after the date of the merger to meet the CHNA requirements. Thus, the final regulations treat mergers equivalently to acquisitions.

ii. New Hospital Organizations

One commenter asked whether a new hospital organization must meet the CHNA requirements by the last day of the second taxable year beginning after the date of licensure or section 501(c)(3) recognition if the organization seeks and obtains recognition of section 501(c)(3) status based on its planned activities before the hospital facility it plans to operate is licensed and placed into service. A facility is not considered a “hospital facility” until it is licensed, registered, or similarly recognized as a hospital by a state, and an organization operating a hospital facility is not subject to section 501(r) until it is recognized as described in section 501(c)(3). Thus, the Treasury Department and the IRS intend that a new hospital organization must meet the CHNA requirements by the last day of the second taxable year beginning after the later of the effective date of the determination letter or ruling recognizing the organization as described in section 501(c)(3) or the first date a facility operated by the organization was licensed, registered, or similarly recognized by its state as a hospital. The final regulations are amended to make this clarification.

iii. Transferred or Terminated Hospital Facilities

One commenter recommended that a hospital organization should not be required to meet the CHNA requirements in a particular taxable year with respect to a hospital facility if, before the end of that taxable year, the hospital organization transfers the hospital facility to an unaffiliated organization or otherwise terminates its operation of that hospital facility. This commenter reasoned that requiring a hospital organization to invest time and energy in conducting a CHNA and developing an implementation strategy for a hospital facility will create inefficiencies if the organization is transferring or terminating its operation of the hospital facility, as the new hospital organization may have different perceptions of the community's needs and the optimal channels for addressing those needs. In response to this comment, the final regulations provide that a hospital organization is not required to meet the requirements of section 501(r)(3) with respect to a hospital facility in a taxable year if the hospital organization transfers all ownership of the hospital facility to another organization or otherwise ceases its operation of the hospital facility before the end of the taxable year. The same rule applies if the facility ceases to be licensed, registered, or similarly recognized as a hospital by a state during the taxable year.

Another commenter asked whether a government hospital organization that voluntarily terminates its section 501(c)(3) status must meet the CHNA requirements in the taxable year of termination to avoid an excise tax under section 4959. As noted in section 1.d of this preamble, government hospital organizations that have previously been recognized as described in section 501(c)(3) but do not wish to comply with the requirements of section 501(r) may submit a request to voluntarily terminate their section 501(c)(3) recognition as described in section 7.04(14) of Rev. Proc. 2014-4 (or a successor revenue procedure). A government hospital organization that terminates its section 501(c)(3) recognition in this manner is no longer considered a “hospital organization” within the meaning of these regulations and therefore will not be subject to excise tax under section 4959 for failing to meet the CHNA requirements during the taxable year of its termination.

4. Financial Assistance Policies and Emergency Medical Care Policies

In accordance with the statute and the 2012 proposed regulations, the final regulations require hospital organizations to establish written FAPs as well as written emergency medical care policies.

a. Financial Assistance Policies

Consistent with the 2012 proposed regulations, the final regulations provide that a hospital organization meets the requirements of section 501(r)(4)(A) with respect to a hospital facility it operates only if the hospital organization establishes for that hospital facility a written FAP that applies to all emergency and other medically necessary care provided by the hospital facility.

A number of commenters noted that patients, including emergency room patients, are commonly seen (and separately billed) by private physician groups or other third-party providers while in the hospital setting. Commenters asked for clarification on the extent to which a hospital facility's FAP must apply to other providers a patient might encounter in the course of treatment in a hospital facility, including non-employee providers in private physician groups or hospital-owned practices. Some of these commenters noted that patients are often unaware of the financial arrangements between various providers in the hospital facility and may unknowingly be transferred to a provider that separately bills the patients for care. A few commenters noted that emergency room physicians in some hospital facilities separately bill for emergency medical care provided to patients and recommended that the section 501(r) requirements apply to such emergency room physicians.

In response to comments and to provide transparency to patients, the final regulations require a hospital facility's FAP to list the providers, other than the hospital facility itself, delivering emergency or other medically necessary care in the hospital facility and to specify which providers are covered by the hospital facility's FAP (and which are not). As discussed in section 1.g of this preamble, the final Start Printed Page 78972regulations also clarify that a hospital facility's FAP must apply to all emergency and other medically necessary care provided in a hospital facility by a partnership owned in part by, or a disregarded entity wholly owned by, the hospital organization operating the hospital facility, to the extent such care is not an unrelated trade or business with respect to the hospital organization. In addition, the Treasury Department and the IRS note that if a hospital facility outsources the operation of its emergency room to a third party and the care provided by that third party is not covered under the hospital facility's FAP, the hospital facility may not be considered to operate an emergency room for purposes of the factors considered in Rev. Rul. 69-545 (1969-2 CB 117) (providing examples illustrating whether a nonprofit hospital claiming exemption under section 501(c)(3) is operated to serve a public rather than a private interest, with one activity of the section 501(c)(3) hospital being the operation of a full time emergency room).

i. Eligibility Criteria and Basis for Calculating Amounts Charged to Patients

Section 501(r)(4)(A)(i) and (ii) require a hospital facility's FAP to specify the eligibility criteria for financial assistance, whether such assistance includes free or discounted care, and the basis for calculating amounts charged to patients. Accordingly, the 2012 proposed regulations provided that a hospital facility's FAP must specify all financial assistance available under the FAP, including all discounts and free care and, if applicable, the amount(s) (for example, gross charges) to which any discount percentages will be applied. The 2012 proposed regulations also provided that a hospital facility's FAP must specify all of the eligibility criteria that an individual must satisfy to receive each discount, free care, or other level of assistance.

A number of commenters asked that hospital facilities be allowed to offer patients certain discounts—including self-pay discounts, certain discounts mandated under state law, and discounts for out-of-state patients—outside of their FAPs and that this assistance not be subject to the requirements of sections 501(r)(4) through 501(r)(6), including the AGB limitation of section 501(r)(5)(A). Several commenters noted that subjecting all assistance provided by hospital facilities to the AGB limitation could result in hospitals offering fewer discounts or less assistance than they might otherwise provide to certain categories of patients.

The Treasury Department and the IRS recognize that not all discounts a hospital facility might offer its patients are properly viewed as “financial assistance” and intend that hospital facilities may offer payment discounts or other discounts outside of their FAPs and may charge discounted amounts in excess of AGB to individuals that are not FAP-eligible. Accordingly, the final regulations only require the FAP to describe discounts “available under the FAP” rather than all discounts offered by the hospital facility.[6] The Treasury Department and the IRS note, however, that only the discounts specified in a hospital facility's FAP (and, therefore, subject to the AGB limitation) may be reported as “financial assistance” on Schedule H, “Hospitals,” of the Form 990. Moreover, discounts provided by a hospital facility that are not specified in a hospital facility's FAP will not be considered community benefit activities for purposes of section 9007(e)(1)(B) of the Affordable Care Act (relating to reports on costs incurred for community benefit activities) nor for purposes of the totality of circumstances that are considered in determining whether a hospital organization is described in section 501(c)(3).

Some commenters asked for the final regulations to confirm that hospital facilities will be given the flexibility to develop FAP-eligibility criteria that respond to local needs. Like the 2012 proposed regulations, the final regulations do not mandate any particular eligibility criteria and require only that a FAP specify the eligibility criteria for receiving financial assistance under the FAP.

A number of commenters recommended that the final regulations require the FAP to contain a statement that explains the patient's obligation to cooperate with the hospital facility's requests for information needed to make an eligibility determination. The Treasury Department and the IRS decline to impose this specific requirement but note that hospital facilities have the flexibility to include any additional information in the FAP that the hospital facility chooses to convey or that may be helpful to the community, including such a statement.

ii. Method for Applying for Financial Assistance

Section 501(r)(4)(A)(iii) requires a hospital facility's FAP to include the method for applying for financial assistance under the FAP. Accordingly, the 2012 proposed regulations provided that a hospital facility's FAP must describe how an individual applies for financial assistance under the FAP and that either the hospital facility's FAP or FAP application form (including accompanying instructions) must describe the information or documentation the hospital facility may require an individual to submit as part of his or her FAP application. The 2012 proposed regulations also made clear that financial assistance may not be denied based on the omission of information or documentation if such information or documentation was not specifically required by the FAP or FAP application form.

Numerous commenters asked that the final regulations add language to ensure that hospital facilities are not prohibited from granting financial assistance despite an applicant's failure to provide any or all information or documentation described in the FAP or FAP application form and requested that hospital facilities have the flexibility to grant financial assistance based on other evidence or an attestation by the applicant. While the Treasury Department and the IRS intend to require hospital facilities to establish a transparent application process under which individuals may not be denied financial assistance based on a failure to provide information or documentation unless that information or documentation is described in the FAP or FAP application form, they do not intend to restrict hospital facilities' ability to grant financial assistance to an applicant who has failed to provide such information or documentation. Accordingly, the final regulations expressly state that a hospital facility may grant financial assistance under its FAP notwithstanding an applicant's failure to provide such information. Thus, a hospital facility may grant financial assistance based on evidence other than that described in a FAP or FAP application form or based on an attestation by the applicant, even if the FAP or FAP application form does not describe such evidence or attestations.

One commenter stated that the example in the 2012 proposed regulations of a hospital facility with a FAP that requires certain specified documentation demonstrating household income (including federal tax returns or paystubs) or “other reliable Start Printed Page 78973evidence of the applicant's earned and unearned household income” was contrary to the idea that a FAP must “describe the information and documentation” required. The Treasury Department and the IRS intended for the reference to “other reliable evidence” in the example to signal that a hospital facility may be flexible in allowing applicants to provide alternative documentation to demonstrate eligibility. The example was not intended to suggest that a reference in a FAP or FAP application form to “reliable evidence” alone (without also identifying specific documentation applicants could provide) would be sufficient. To clarify this intent, the example of the FAP application form in the final regulations is modified so that the instructions identify specific documentation (including federal tax returns, paystubs, or documentation establishing qualification for certain specified state means-tested programs) but also state that if an applicant does not have any of the listed documents to prove household income, he or she may call the hospital facility's financial assistance office and discuss other evidence that may be provided to demonstrate eligibility.

A number of commenters noted that total reliance on paper applications does not reflect current practices in which much information is gathered from patients orally, with a few commenters recommending that the final regulations expressly permit eligibility determinations on the basis of information obtained through face-to-face meetings or over the phone rather than through a paper application process. The Treasury Department and the IRS did not intend to mandate paper applications or to imply that information needed to determine FAP-eligibility could not be obtained from an individual in other ways. Accordingly, and in response to comments, the final regulations amend the definition of “FAP application” to clarify that the term is not intended to refer only to written submissions and that a hospital facility may obtain information from an individual in writing or orally (or a combination of both).

Numerous commenters stated that hospitals can, and commonly do, rely on trustworthy methods and sources of information other than FAP applications to determine FAP-eligibility and recommended that hospital facilities be allowed to rely on these information sources and methods to determine FAP-eligibility, provided that the sources and methods are disclosed in the FAP or on the hospital facility's Form 990. Commenters also recommended that a hospital should be able to rely on prior FAP-eligibility determinations, provided that such reliance is disclosed in its FAP.

As discussed in section 6.b.vi of this preamble, the final regulations permit a hospital facility to determine that an individual is eligible for assistance under its FAP based on information other than that provided by the individual or based on a prior FAP-eligibility determination, provided that certain conditions are met. Given this change, and consistent with commenters' recommendations, the final regulations require a hospital facility to describe in its FAP any information obtained from sources other than individuals seeking assistance that the hospital facility uses, and whether and under what circumstances it uses prior FAP-eligibility determinations, to presumptively determine that individuals are FAP-eligible.

Some commenters requested that the final regulations specifically prohibit hospital facilities from using social security numbers or credit card information or from running credit checks that damage consumer credit, while another commenter would impose a requirement that all requested information or documentation be reasonable and adequate to establish eligibility for the hospital facility's FAP. The final regulations do not prescribe or restrict the information or documentation a hospital facility may request but do require that a hospital facility describe such information or documentation in its FAP or FAP application form. The Treasury Department and the IRS expect that the transparency achieved by requiring the information or documentation to be described in the FAP or FAP application form will discourage hospital facilities from requesting information or documentation that is unreasonable or unnecessary to establish eligibility.

A number of commenters noted that a patient's financial status may change over time and requested clarification on the point in time used to determine financial eligibility. A few of these commenters requested clarification that a hospital facility has the discretion to determine that point in time in its FAP, a few recommended that a specific point in time be used (for example, the date of service or the date of application), and a few suggested that the final regulations should require the point in time to be specified in a FAP.

The Treasury Department and the IRS intend for hospital facilities to have the flexibility to choose the time period used to determine FAP eligibility and expect that that the relevant point(s) in time will be made clear based on the information and/or documentation requested from applicants in the FAP or FAP application form. For example, if a hospital facility's FAP application form asks for “last month's” income, the hospital facility presumably will look at the applicant's income from the month preceding the submission of the FAP application to determine whether the applicant satisfies the income-based eligibility criteria. Similarly, the example regarding application methods in these final regulations describes a hospital facility that requests proof of household income in the form of payroll check stubs “from the last month” (which would reflect wages in the time period shortly before the application) or, if last month's wages are not representative of the applicant's annual income, a copy of the applicant's “most recent federal tax return” (which would reflect annual income in a year preceding the application). Because the Treasury Department and the IRS expect that the time period(s) used to assess eligibility should be evident from the information and/or documentation requested to demonstrate eligibility, the final regulations do not provide further elaboration on this point.

iii. Actions That May Be Taken in the Event of Nonpayment

In the case of a hospital facility that does not have a separate billing and collections policy, section 501(r)(4)(A)(iv) requires a hospital facility's FAP to include actions that may be taken in the event of nonpayment. Accordingly, the 2012 proposed regulations provided that either a hospital facility's FAP or a separate written billing and collections policy established for the hospital facility must describe the actions that the hospital facility (or other authorized party) may take related to obtaining payment of a bill for medical care, including, but not limited to, any extraordinary collection actions described in section 501(r)(6).

A few commenters recommended that the final regulations require governing board approval of the billing and collections policy of a hospital facility. The Treasury Department and the IRS note that these final regulations, like the 2012 proposed regulations, provide that a FAP “established” by a hospital facility must describe the hospital facility's actions in the event of nonpayment unless the hospital facility has “established” a billing and collections policy that describes these actions. As described in section 4.c of this preamble, a billing and collections policy or a FAP is “established” only if Start Printed Page 78974it is adopted by an authorized body of the hospital facility, which includes the governing body of the hospital facility or a committee of, or other party authorized by, such governing body. Thus, the final regulations provide that an authorized body of the hospital facility must adopt the hospital facility's FAP and, if applicable, billing and collections policy.

Two commenters asked that hospital facilities with separate billing and collections policies be required both to include some basic information about those policies in their FAPs and to translate the separate billing and collections policies into foreign languages. The 2012 proposed regulations provided that a hospital facility that described its actions in the event of nonpayment in a separate billing and collections policy must state in its FAP that the actions in the event of nonpayment are described in a separate billing and collections policy and explain how members of the public may readily obtain a free copy of this separate policy. In addition, the definition of “readily obtainable information” in the 2012 proposed regulations provided that a separate billing and collections policy would be readily obtainable if it were made available free of charge both on a Web site and in writing upon request in the same manner that a FAP is made available on a Web site and upon request, which included making translated copies available on a Web site and upon request. To clarify that translations were intended to be part of making a billing and collections policy readily obtainable, § 1.501(r)-4(b)(6) of the final regulations relating to “readily obtainable information” has been amended to expressly refer to the provision of translations.

iv. Widely Publicizing the FAP

Section 501(r)(4)(A)(v) requires a hospital facility's FAP to include measures to widely publicize the FAP within the community served by a hospital facility. To satisfy this requirement, the 2012 proposed regulations provided that a FAP must include, or explain how members of the public may readily obtain a free written description of, the measures taken by the hospital facility to—

  • Make the FAP, FAP application form, and a plain language summary of the FAP (together, “FAP documents”) widely available on a Web site;
  • Make paper copies of the FAP documents available upon request and without charge, both in public locations in the hospital facility and by mail;
  • Notify and inform visitors to the hospital facility about the FAP through conspicuous public displays or other measures reasonably calculated to attract visitors' attention; and
  • Notify and inform residents of the community served by the hospital facility about the FAP in a manner reasonably calculated to reach those members of the community who are most likely to require financial assistance.

Several commenters asked that hospitals be given the flexibility to “widely publicize” the FAP in any manner they see fit. The Treasury Department and the IRS view the provisions in the 2012 proposed regulations as already giving hospital facilities broad flexibility to determine the methods they think are best to notify and inform their patients and broader communities about their FAPs. In addition, the Treasury Department and the IRS see the requirements to make the FAP widely available on a Web site and to make paper copies available upon request as minimal steps that are necessary to ensure patients have the information they need to seek financial assistance. Accordingly, the final regulations continue to require a hospital facility to make the FAP documents available upon request and widely available on a Web site and to notify and inform both visitors to the hospital and members of the community served by the hospital about its FAP.

One commenter suggested that a hospital facility's FAP should only be required to “summarize” the measures to widely publicize the FAP, suggesting that requiring detailed information about such measures would unnecessarily increase mailing, copying, and compliance costs. In response to this comment and to reduce the documentation burden associated with the FAP, these final regulations eliminate the requirement that the FAP list the measures taken to widely publicize the FAP and instead require only that a hospital facility implement the measures to widely publicize the FAP in the community it serves. This approach is consistent with the definition of “establishing” a FAP discussed in section 4.c of this preamble, which includes not only adopting the FAP but also implementing it, and with the Joint Committee on Taxation's (JCT) Technical Explanation of the Affordable Care Act. See Staff of the Joint Committee on Taxation, Technical Explanation of the Revenue Provisions of the “Reconciliation Act of 2010,” as Amended, in Combination with the “Patient Protection and Affordable Care Act” (March 21, 2010), at 82 (Technical Explanation) (stating that section 501(r)(4) requires each hospital facility to “adopt, implement, and widely publicize” a written FAP).

A. Widely Available on a Web Site

A number of commenters stated that FAPs will be updated more frequently than summaries, so that making the full FAP widely available on a Web site would be burdensome. One of these commenters stated that the full FAP is not especially useful for most patients, as it is written for internal compliance and difficult for the general public to understand. On the other hand, numerous other commenters strongly supported the requirement to make these documents widely available on a Web site, with some noting that doing so would allow patients to more easily identify the assistance they might be eligible for and to speak knowledgeably with financial assistance personnel at the hospital facility. The Treasury Department and the IRS believe that making the complete FAP widely available to the public on a Web site is important in achieving transparency and that the benefits of this transparency outweigh the burdens incurred in posting an updated document on a Web site. Thus, the final regulations retain this requirement.

B. Making Paper Copies Available Upon Request

With respect to the requirement to make paper copies of the FAP documents available upon request and without charge in public locations in the hospital facility, one commenter stated that “public locations” could be interpreted to mean all public locations in the hospital and that essentially every area of the hospital could be classified as a public location. Another commenter asked that “public locations” specifically include the admissions areas and the emergency room, noting that patients and their family members generally pass through one of those two areas during their stay and that having at least one uniform location where these documents are available would help ensure that patients know where to go for paper copies. In response to these comments, the final regulations specify that “public locations” in a hospital facility where paper copies must be provided upon request include, at a minimum, the emergency room (if any) and the admissions areas.

Other commenters asked that making paper copies “available upon request” should be required only with respect to patients who indicate that they lack access to the Internet. The final Start Printed Page 78975regulations clarify that hospital facilities may inform individuals requesting copies that the various FAP documents are available on a Web site or otherwise offer to provide the documents electronically (for example, by email or on an electronic screen). However, the Treasury Department and the IRS continue to believe that making paper copies of the FAP documents available to those persons who request them is important to achieve adequate transparency. Accordingly, the final regulations also make clear that a hospital facility must provide a paper copy unless the individual indicates he or she would prefer to receive or access the document electronically.

C. Notifying and Informing Hospital Facility Patients

With respect to the requirement in the 2012 proposed regulations to notify and inform visitors to a hospital facility about the FAP through a conspicuous public display (or other measures reasonably calculated to attract visitors' attention), a number of commenters asked for clarification on what makes a public display “conspicuous,” with one such commenter noting that placement of a small placard in a corner of a financial assistance office that is rarely seen by patients should not be sufficient.

The Treasury Department and the IRS believe that what makes a public display “conspicuous” is both for the display to be of a noticeable size and for the display to be placed in a location in the hospital facility where visitors are likely to see it. Thus, similar to the requirement regarding making paper copies of the FAP documents available upon request in “public locations” in the hospital facility, the final regulations clarify that hospital facilities must notify and inform visitors about the FAP in “public locations” in the hospital facility, including, at a minimum, the emergency room (if any) and admissions areas.

In addition to notifying patients about the FAP through a conspicuous public display (or through other measures reasonably calculated to attract visitors' attention), the final regulations also require hospital facilities to widely publicize their FAPs by providing FAP information to patients before discharge and with billing statements. The 2012 proposed regulations included the notification of patients about the FAP before discharge and with billing statements as part of the notification component of reasonable efforts to determine FAP-eligibility under section 501(r)(6). However, these efforts to notify and inform patients about the FAP before discharge and with billing statements may also be appropriately categorized as measures to widely publicize the FAP under section 501(r)(4). Thus, the final regulations consolidate all of the requirements that involve notifying patients generally about the FAP under the section 501(r)(4) widely publicizing requirements. As a result, the notification component of reasonable efforts to determine FAP-eligibility under the section 501(r)(6) final regulations is simplified and is focused primarily on those patients against whom a hospital facility actually intends to engage in extraordinary collection actions. The Treasury Department and the IRS expect that moving the requirement that hospital facilities notify and inform patients about the FAP with billing statements and as part of their intake or discharge process from the section 501(r)(6) regulations to the section 501(r)(4) regulations will increase understanding of the requirements and compliance, without a loss of notification to patients.

In addition to requiring hospital facilities to notify individuals about their FAPs before discharge and on billing statements as part of widely publicizing their FAPs, the final regulations also amend these requirements in several important respects in response to comments to the 2012 proposed regulations. First, rather than require a full plain language summary with billing statements, the final regulations require only that a hospital facility's billing statement include a conspicuous written notice that notifies and informs the recipient about the availability of financial assistance under the hospital facility's FAP and includes the telephone number of the hospital facility office or department that can provide information about the FAP and FAP application process and the direct Web site address (or URL) where the copies of the FAP documents may be obtained. This change responds to those comments (discussed in greater length in section 6.b.iii of this preamble) that noted that a reference on the billing statement to the availability of the FAP and a brief description of how to obtain more information should provide sufficient notification to patients while minimizing costs for hospital facilities.

Second, some commenters appeared to interpret the phrase “before discharge” in the 2012 proposed regulations as requiring distribution “at discharge” and suggested that the latter requirement would not work because outpatients do not always revisit with a hospital registration staff member after care is provided or may never be physically present at the hospital facility. In response to these comments, the final regulations refer to offering the plain language summary as part of either the “intake or discharge process,” and the Treasury Department and the IRS intend that those terms be interpreted broadly to include whatever processes are used to initiate or conclude the provision of hospital care to individuals who are patients of the hospital facility. In addition, in response to commenters who noted that many patients will have no interest in receiving a plain language summary of the FAP because they know they are not FAP-eligible, the final regulations require only that a hospital facility “offer” (rather than “provide”) a plain language summary as part of the intake or discharge process. Thus, a hospital facility will not have failed to widely publicize its FAP because an individual declines to take a plain language summary that the hospital facility offered on intake or before discharge or indicates that he or she would prefer to receive or access a plain language summary electronically rather than receive a paper copy.

D. Notifying and Informing the Broader Community

Several commenters recommended eliminating altogether the requirement to notify and inform members of the hospital facility's community about the FAP, stating that the other three measures to widely publicize the FAP are sufficient and that this additional specification is vague, open to subjective interpretation, and overly burdensome for hospitals. Other commenters, however, strongly supported the requirement, particularly the special emphasis placed on members of the community most likely to need financial help.

The Treasury Department and the IRS interpret the phrase “widely publicize . . . within the community to be served by the organization” in section 501(r)(4)(v) as going beyond merely making a FAP “widely available” on a Web site or upon request and requiring hospital facilities to affirmatively reach out to the members of the communities they serve to notify and inform them about the financial assistance they offer. Accordingly, the final regulations retain the requirement to notify and inform members [7] of the hospital's community Start Printed Page 78976in a manner reasonably calculated to reach those members who are most likely to require financial assistance from the hospital facility.

E. Plain Language Summary of the FAP

The 2012 proposed regulations defined the plain language summary of the FAP as a written statement that notifies an individual that the hospital facility offers financial assistance under a FAP and provides certain specified information, including but not limited to: (1) The direct Web site address and physical location(s) (including a room number, if applicable) where the individual can obtain copies of the FAP and FAP application form; and (2) the contact information, including telephone numbers and physical location (including a room number, if applicable), of hospital facility staff who can provide the individual with information about the FAP and the FAP application process, as well as of the nonprofit organizations or government agencies, if any, that the hospital facility has identified as available sources of assistance with FAP applications.

A number of commenters noted that many hospitals currently assist patients with the FAP application process and that such assistance can be very important for low-income patients with literacy barriers. A few commenters requested that the final regulations require hospitals to assist and/or provide contact information for hospital staff who can assist with the FAP application process. One commenter suggested that the plain language summary should not have to include the contact information of nonprofit organizations or government agencies that assist with FAP applications, recommending instead that hospital facilities be able to include the contact information for the hospital facility's own community health clinics as sources of FAP application assistance.

Although assisting patients with the FAP application process can be an important step in ensuring that patients obtain the financial assistance for which they are eligible, nonprofit organizations or government agencies can be as effective sources of this assistance as hospital facilities themselves. To ensure both that patients have notice of how to obtain assistance with the FAP application process and that hospital facilities have the flexibility to refer patients to other organizations rather than provide assistance themselves, the final regulations require the plain language summary to include the contact information of a source of assistance with FAP applications but allow for this source to be either the hospital facility itself or a different organization. More specifically, the final regulations provide that the plain language summary must include the contact information of either the hospital facility office or department that can provide assistance with (rather than just “information about”) the FAP application process or, if the hospital facility does not provide assistance with the FAP application process, at least one nonprofit organization or government agency that the hospital facility has identified as an available source of such assistance.

One commenter recommended that the plain language summary of the FAP only be required to list a department rather than a physical location because hospital facility remodeling and redesign could mean that the precise physical location could be subject to change, therefore requiring re-drafting of the plain language summary. Another commenter asked that the final regulations clarify that the plain language summary may identify the location and phone number of the appropriate office or department to contact for more information about the FAP, without naming a specific staff person.

The Treasury Department and the IRS continue to think that the physical location in the hospital facility where patients can obtain copies of the FAP and FAP application form and information about and/or assistance with the FAP application process is important, basic information to provide to individuals in the plain language summary. Therefore, the final regulations continue to require this information regarding physical location. However, the final regulations remove a specific reference to a room number to give hospital facilities more flexibility to describe the physical location in the manner that makes the most sense for the hospital facility. The final regulations also clarify that the plain language summary may identify the location and phone number of the appropriate office or department to contact for more information about the FAP and, if applicable, assistance with the FAP application process and does not need to name a specific staff person.

One commenter recommended that, in addition to the required items of information described in the 2012 proposed regulations, the plain language summary should provide a basic outline of the FAP application process and the appropriate times to apply. This commenter stated that many patients will rely on the plain language summary for information about the FAP, in lieu of reading the FAP itself, and that information about when and how to apply for financial assistance is basic information a patient needs to have. The Treasury Department and the IRS agree that information about how to apply for financial assistance is important information for individuals to have, and the final regulations therefore require this information to be included in the plain language summary. Any additional burden created by requiring this information should be mitigated by the fact that the final regulations do not require the plain language summary to be included with all billing statements and other written communications provided during the notification period. As for “when” to apply, while patients generally have at least 240 days from the date of the first bill to apply for financial assistance, the deadline for any particular patient's FAP application will depend on whether and when the hospital facility sends that patient the notice about potential extraordinary collection actions described in section 6.b.iii.C of this preamble that states a deadline. Given the resulting variability in deadlines, the final regulations do not require the plain language summary to include a description of the appropriate times to apply.

A few commenters asked that the plain language summary be required to include a statement regarding patient responsibilities. The Treasury Department and the IRS do not intend for the list of elements required to be included in a plain language summary of the FAP to limit a hospital facility's ability to provide additional information. Accordingly, a hospital facility is permitted, but not required, to include in its plain language summary any additional items of information it deems relevant to the FAP and FAP application process.

F. Translating the FAP Documents

The 2012 proposed regulations provided that hospital facilities must translate FAP documents into the primary language of any LEP populations that constitute more than 10 percent of the members of the community served by the hospital facility. One commenter asked that this requirement be eliminated altogether, at least with regard to small or rural hospital facilities, while two other commenters supported the 10-percent threshold for translation. Many additional commenters requested that the translation threshold be lowered from 10 percent to the lesser of 5 percent or 500 LEP individuals. They noted that some federal translation thresholds are set as low as 500 LEP individuals and that a 5-percent Start Printed Page 78977threshold would result in greater consistency with translation guidance provided by the Department of Health and Human Services (HHS). See HHS, “Guidance to Federal Financial Assistance Recipients Regarding Title VI Prohibition Against National Origin Discrimination Affecting Limited English Proficient Persons,” 68 FR 47,311 (August 8, 2003) (“HHS Guidance”). The HHS Guidance includes a “safe harbor” that considers it strong evidence that a hospital receiving federal financial assistance is in compliance with written translation obligations under Title VI of the Civil Rights Act of 1964 (42 U.S.C. 2000d, et seq.) if it provides written translations of vital documents for each eligible LEP language group that constitutes 5 percent or 1,000, whichever is less, of the population of persons eligible to be served or likely to be affected or encountered.[8]

Both Medicaid and Medicare Part A constitute “federal financial assistance” for purposes of Title VI of the Civil Rights Act, and the Treasury Department and the IRS expect that virtually every hospital facility operated by an organization described in section 501(c)(3) accepts Medicaid and/or Medicare Part A. The Treasury Department and the IRS also expect that documents that describe the financial assistance offered by a hospital facility and that are necessary to apply for such financial assistance would be considered “vital” for purposes of the Title VI obligations. Therefore, the Treasury Department and the IRS expect that many hospital facilities are already translating these documents to meet their Title VI obligations, often in accordance with the safe harbor in the HHS Guidance. As a result, the Treasury Department and the IRS agree with commenters that it is reasonable and appropriate to make the translation threshold applicable to the FAP documents generally consistent with the 5-percent/1000 person threshold under the HHS Guidance safe harbor, and the final regulations adopt this change.

The 2012 proposed regulations provided that a hospital facility could determine whether a LEP group exceeded the relevant threshold based on the latest data available from the U.S. Census Bureau or other similarly reliable data. One commenter requested clarification on whether to use the U.S. Census Bureau's decennial survey or more updated information provided through the American Community Survey. The Treasury Department and the IRS believe that a hospital facility basing its determination of LEP populations in whole or in part on data from the U.S. Census Bureau should be allowed to use either the latest decennial census data or the latest American Community Survey data. In addition, other data sources may also be reasonable to use to determine LEP populations for purposes of these regulations. For example, the HHS Guidance notes that, in determining the LEP persons eligible to be served or likely to be affected or encountered, it may be appropriate for hospitals to examine not only census data but also their prior experiences with LEP patients, data from school systems and community organizations, and data from state and local governments. See HHS Guidance, 68 FR at 47314. The Treasury Department and the IRS intend that a hospital facility be able to use these same data sources in determining the LEP persons in the community it serves or likely to be affected or encountered for purposes of these final regulations. Therefore, rather than list the various data sources a hospital facility may use to determine its LEP populations, the final regulations provide that a hospital facility may use any reasonable method to determine such populations.

Several commenters recommended that hospital facilities only be required to translate the plain language summary of the FAP and the FAP application form, not the full FAP, stating that the summary and application form are the documents most useful to patients and that few, if any, patients request the full FAP. The Treasury Department and the IRS believe that the benefits of ensuring that LEP populations have access to the details provided in the FAP that are not captured in a summary or application form outweigh the additional costs that hospital facilities may incur in translating the full FAP document. Accordingly, the final regulations do not adopt this comment.

Several commenters recommended that the final regulations require hospitals to provide access to oral interpreters or bilingual staff on request, regardless of whether the thresholds for written translations are met. The Treasury Department and the IRS believe it would be overly burdensome to require hospital facilities to provide access to oral interpreters or bilingual staff for every language possibly spoken in a community. Accordingly, the final regulations do not adopt this comment.

b. Emergency Medical Care Policy

To satisfy the requirements of section 501(r)(4)(B), the 2012 proposed regulations provided that a hospital facility must establish a written policy that requires the hospital facility to provide, without discrimination, care for emergency medical conditions (within the meaning of the Emergency Medical Treatment and Labor Act (EMTALA), section 1867 of the Social Security Act (42 U.S.C. 1395dd)) to individuals, regardless of whether they are FAP-eligible. The 2012 proposed regulations further provided that an emergency medical care policy will generally satisfy this standard if it requires the hospital facility to provide the care for any emergency medical condition that the hospital facility is required to provide under Subchapter G of Chapter IV of Title 42 of the Code of Federal Regulations, which is the subchapter regarding the Centers for Medicare and Medicaid Services' (CMS) standards and certification that includes the regulations under EMTALA. In addition, § 1.501(r)-4(c)(2) of the 2012 proposed regulations provided that a hospital facility's emergency medical care policy would not meet the requirements of section 501(r)(4)(B) unless it prohibited the hospital facility from engaging in actions that discouraged individuals from seeking emergency medical care, such as by demanding that emergency department patients pay before receiving treatment or by permitting debt collection activities in the emergency department or in other areas of the hospital facility where such activities could interfere with the provision, without discrimination, of emergency medical care.

Some commenters stated that the regulations under EMTALA already establish rules for registration processes and discussions regarding a patient's ability to pay in the emergency department and that the final regulations should not go beyond those requirements. A number of commenters noted that the broad language regarding “debt collection in the emergency department” could be read to proscribe ordinary and unobjectionable activities in the emergency room, such as collecting co-payments on discharge, checking for qualification for financial or public assistance, and asking for insurance information or co-pays after patients are stabilized and waiting (sometimes for long periods of time) for test results or follow-up visits from their physician.Start Printed Page 78978

Section 1.501(r)-4(c)(2) of the 2012 proposed regulations was intended to apply only to debt collection activities in the emergency department (or other areas of the hospital facility) that could interfere with the provision of emergency care, not to all payment activities in the emergency department regardless of their potential to interfere with care. To make this intent clear, the final regulations are revised to prohibit “debt collection activities that interfere with the provision, without discrimination, of emergency medical care,” regardless of where such activities occur.

In addition, the Treasury Department and the IRS note that, since the publication of the 2012 proposed regulations, CMS has made clear that the regulations under EMTALA prohibit applicable hospital facilities from engaging in actions that delay the provision of screening and treatment for an emergency medical condition to inquire about method of payment or insurance status, or from using registration processes that unduly discourage individuals from remaining for further evaluation, such as by requesting immediate payment before or while providing screening or stabilizing treatment for emergency medical conditions. See CMS Memorandum S&C-14-06—Hospitals/CAHs re: EMTALA Requirements & Conflicting Payor Requirements or Collection Practices, at 6-7 (Dec. 13, 2013). As a result, a hospital facility that provides the screening care and stabilizing treatment for emergency medical conditions, as applicable, that the hospital facility is required to provide under the regulations under EMTALA, should generally not be engaging in the activities that § 1.501(r)-4(c)(2) of the final regulations requires emergency medical care policies to prohibit.

Two commenters asked whether the emergency medical care policy may be in the same document as the FAP. The final regulations do not prevent an emergency medical care policy from being included within the same document as the FAP or from being added to an already existing document related to emergency medical care (such as a document setting forth EMTALA compliance).

c. Establishing the FAP and Other Policies

Consistent with the 2012 proposed regulations, the final regulations provide that a hospital organization will have established a FAP, a separate billing and collections policy, or an emergency medical care policy for a hospital facility only if an authorized body of the hospital facility has adopted the policy and the hospital facility has implemented the policy.

The 2012 proposed regulations provided that a hospital facility has “implemented” a policy if it has “consistently carried out” the policy. A number of commenters asked for more clarity on when a policy will be deemed to be “consistently carried out.” Two of these commenters would deem a hospital facility to have consistently carried out a policy only if the hospital facility attests that a policy that meets the requirements of section 501(r)(4) has been followed in all cases.

As discussed in section 2.a of this preamble, the final regulations provide that omissions or errors that are minor and either inadvertent or due to reasonable cause will not result in a failure to meet the requirements of section 501(r)(4) (or any other requirements under section 501(r)) as long as they are corrected in accordance with § 1.501(r)-2(b)(1)(ii) of the final regulations. Therefore, the final regulations make clear that the Treasury Department and the IRS do not intend that every error in implementing a policy described in section 501(r)(4) will result in a failure to meet the requirements of section 501(r)(4). On the other hand, a policy that is simply adopted by an authorized body of a hospital facility but not followed in any regular fashion has not been “established” for purposes of section 501(r)(4). Whether a policy is “consistently carried out” is to be determined based on all of the facts and circumstances. However, if the authorized body of a hospital facility adopts a policy and provides reasonable resources for and exercises due diligence regarding its implementation, then the standard should be met.

The 2012 proposed regulations provided that, while a hospital organization must separately establish a FAP for each hospital facility it operates, such policies “may contain the same operative terms.” Several commenters asked that hospital organizations operating multiple facilities be permitted to adopt one FAP for all of their facilities. These commenters argued that many hospital systems have centralized patient financial services operations, including FAPs, and that adopting a single FAP would avoid both significant administrative costs as well as patient confusion about differences in financial responsibilities based on location.

The final regulations clarify that multiple hospital facilities may have identical FAPs, billing and collections policies, and/or emergency medical care policies established for them (or even share one joint policy document), provided that the information in the policy or policies is accurate for all such facilities and any joint policy clearly states that it is applicable to each facility. The final regulations also note, however, that different hospital facilities may have different AGB percentages or use different methods to determine AGB that would need to be reflected in each hospital facility's FAP (or, in the case of AGB percentages, in a separate document that can be readily obtained).

5. Limitation on Charges

The final regulations provide that a hospital organization meets the requirements of section 501(r)(5) with respect to a hospital facility it operates only if the hospital facility limits the amounts charged for any emergency or other medically necessary care it provides to a FAP-eligible individual to not more than AGB. The final regulations also require a hospital facility to limit the amounts charged to FAP-eligible individuals for all other medical care covered under the FAP to less than the gross charges for that care.

a. Amounts Generally Billed

The 2012 proposed regulations provided two methods for hospital facilities to use to determine AGB. The first was a “look-back” method based on actual past claims paid to the hospital facility by either Medicare fee-for-service alone or Medicare fee-for-service together with all private health insurers paying claims to the hospital facility (including, in each case, any associated portions of these claims paid by Medicare beneficiaries or insured individuals). The second method was “prospective,” in that it required the hospital facility to estimate the amount it would be paid by Medicare and a Medicare beneficiary for the emergency or other medically necessary care at issue if the FAP-eligible individual were a Medicare fee-for-service beneficiary. For purposes of the 2012 proposed regulations, the term “Medicare fee-for-service” included only health insurance available under Medicare Parts A and B and not health insurance plans administered under Medicare Advantage.

Many commenters stated that allowing hospital facilities only two methods for calculating AGB was insufficiently flexible. Some commenters asked that the final regulations only require hospital facilities to fully disclose and describe the method they used to determine AGB on their Forms 990, without requiring Start Printed Page 78979hospital facilities to determine AGB in any particular manner. A few commenters noted that Medicare and insurer reimbursement models may shift over time and that flexibility will be needed to ensure that the methods for determining AGB set forth in the final regulations do not become antiquated or hamper evolution in reimbursement models. However, no additional methods to determine AGB were identified.

Providing hospital facilities complete discretion to select methods in determining AGB would make it very difficult for the IRS to enforce the statutory requirement that hospital facilities not charge FAP-eligible individuals more than AGB and difficult for the public to understand and recognize whether hospital facilities are complying with this requirement. However, the Treasury Department and the IRS recognize that Medicare and insurer reimbursement methodologies may evolve over time and that additional ways to determine AGB may be identified in the future. Therefore, the final regulations allow the Treasury Department and the IRS to provide for additional methods to determine AGB in future published guidance as circumstances warrant.

Many commenters suggested that the options for determining AGB should be expanded or amended to permit hospital facilities to base AGB on the payments of private, commercial insurers only, without also taking into account Medicare payments. Some commenters specifically asked for the ability to determine AGB based on “either the best, or an average of the three best, negotiated commercial rates,” as suggested in the JCT's Technical Explanation. See Technical Explanation at 82. These commenters reasoned that individuals with commercial insurance are more representative of FAP-eligible populations than Medicare beneficiaries (as the latter generally include the elderly). A few commenters also suggested that Medicare rates are an inappropriate proxy for AGB because they are not the result of negotiations between parties and, according to these commenters, do not always cover the costs of providing care to Medicare beneficiaries. On the other hand, other commenters recommended that AGB be based on Medicare alone, arguing that this would increase transparency because amounts reimbursed by Medicare are publicly verifiable.

Because Medicare reimbursements constitute a large proportion of most hospital facilities' total insurance reimbursements, the Treasury Department and the IRS continue to believe a method of determining AGB that excludes Medicare and is based only on the claims or rates of private health insurers would be inconsistent with the statutory phrase “amounts generally billed to individuals who have insurance.” On the other hand, the Treasury Department and the IRS find no support in either the statutory language of section 501(r)(5) or the Technical Explanation for requiring (rather than just allowing) AGB to be based on Medicare alone. Thus, the final regulations continue to allow hospital facilities using the look-back method to base AGB on the claims of Medicare fee-for-service plus all private health insurers, as well as on Medicare alone.

A few commenters noted that Medicaid is the largest governmental payer for children's hospitals and recommended that hospital facilities be able to use Medicaid rates in calculating AGB. The final regulations adopt this recommendation and allow hospital facilities to base AGB on Medicaid rates, either alone or in combination with Medicare (or, under the look-back method, together with Medicare and all private health insurers), at the hospital facility's option.

With respect to Medicaid, one commenter noted that, in many states, private managed care organizations operate Medicaid managed care plans and that the final regulations should expressly state whether Medicaid managed care claims and rates are to be included when determining AGB. In response to this comment, the final regulations provide that the term “Medicaid,” as used in the final regulations, includes medical assistance provided through a contract between the state and a Medicaid managed care organization or a prepaid inpatient health plan and that such assistance is not considered reimbursements from or claims allowed by a private health insurer. By contrast, the final regulations, like the 2012 proposed regulations, provide that a hospital facility must treat health insurance plans administered by private health insurers under Medicare Advantage as the plans of private health insurers.

Many commenters asked how the limitation on charges to AGB applies to insured individuals who are eligible for financial assistance. Most of these commenters recommended that the AGB limitation apply only to uninsured individuals, asserting that section 501(r)(5) was enacted to provide uninsured individuals in need of assistance with the benefit of rates negotiated by insurance companies and that requiring the use of AGB for insured patients could inadvertently reduce the availability of financial assistance for insured patients. One commenter suggested that, for insured patients who receive a partial financial assistance discount, AGB should be equal to the amounts generally billed for the care minus payments made by the third-party insurer. Another commenter suggested that the AGB limitation should only apply to the patient liability and not include payments made by third parties, such as health insurers.

The Treasury Department and the IRS note that section 501(r)(5) does not distinguish between insured and uninsured FAP-eligible individuals. Accordingly, the final regulations continue to apply the AGB limitation of section 501(r)(5) to all individuals eligible for assistance under the hospital facility's FAP, without specific reference to the individual's insurance status. In response to the comments, however, the final regulations clarify that, for purposes of the section 501(r)(5) limitation on charges, a FAP-eligible individual is considered to be “charged” only the amount he or she is personally responsible for paying, after all deductions and discounts (including discounts available under the FAP) have been applied and less any amounts reimbursed by insurers. Thus, in the case of a FAP-eligible individual who has health insurance coverage, a hospital facility will not fail to meet the section 501(r)(5) requirements because the total amount required to be paid by the FAP-eligible individual and his or her health insurer together exceeds AGB, as long as the FAP-eligible individual is not personally responsible for paying (for example, in the form of co-payments, co-insurance, or deductibles) more than AGB for the care after all reimbursements by the insurer have been made. The final regulations also add several examples demonstrating how the limitation on charges works when applied to insured FAP-eligible individuals.

A few commenters asked that the final regulations clarify that AGB represents the maximum amount hospital facilities can charge to FAP-eligible individuals and that hospital facilities may charge FAP-eligible individuals less than AGB (that is, provide a more generous discount under a FAP). The Treasury Department and the IRS have added an example to the final regulations to confirm this point.

The 2012 proposed regulations provided that, after choosing a particular method to determine AGB, a hospital facility must continue using that method indefinitely. The preamble to the 2012 proposed regulations Start Printed Page 78980requested comments on whether a hospital facility should be allowed to change its method of determining AGB under certain circumstances or following a certain period of time and, if so, under what circumstances or how frequently. Commenters uniformly noted that there could be many practical reasons that a hospital facility might want to change its method for determining AGB, such as changes in technologies or processes that make a previously-selected method less administrable.

In response to these comments, the final regulations provide that a hospital facility may change the method it uses to determine AGB at any time. However, because the final regulations under section 501(r)(4) require a hospital facility's FAP to describe the method used to determine AGB, a hospital facility must update its FAP to describe a new method before implementing it.

A number of commenters noted that the 2012 proposed regulations do not define the term “medically necessary care.” Some commenters asked that the final regulations provide that hospital facilities have the discretion to determine how non-emergency and elective services are considered under their FAPs. Other commenters recommended that the final regulations define the term “medically necessary care.” Suggested definitions included the Medicaid definition used in the hospital facility's state or other definitions provided by state law, a definition that refers to the generally accepted medical practice in the community, or a definition based on the determination made by the examining physician or medical team.

The final regulations allow hospital facilities to define the term “medically necessary care” for purposes of their FAPs and the AGB limitation in recognition of the fact that health care providers and health insurers may have reasonable differences in opinion on whether some health care services are medically necessary in particular circumstances. In defining medically necessary care for purposes of their FAPs and the AGB limitation, the final regulations clarify that hospital facilities may (but are not required to) use the Medicaid definition used in the hospital facility's state, other definitions provided by state law, or a definition that refers to the generally accepted standards of medicine in the community or an examining physician's determination.

i. Look-Back Method

Under the look-back method for determining AGB, a hospital facility determines AGB for any emergency or other medically necessary care provided to a FAP-eligible individual by multiplying the hospital facility's gross charges for that care by one or more percentages of gross charges, called “AGB percentages.” Hospital facilities must calculate their AGB percentages no less frequently than annually by dividing the sum of certain claims for emergency and other medically necessary care by the sum of the associated gross charges for those claims. A hospital facility may use the look-back method to calculate one average AGB percentage for all emergency and other medically necessary care provided by the hospital facility, or multiple AGB percentages for separate categories of care (such as inpatient and outpatient care or care provided by different departments) or for separate items or services. However, a hospital facility calculating multiple AGB percentages must calculate AGB percentages for all emergency and other medically necessary care it provides.

The 2012 proposed regulations provided that the AGB percentages must be based on all claims that have been “paid in full” to the hospital facility for emergency and other medically necessary care by Medicare fee-for-service alone, or by Medicare fee-for-service together with all private health insurers, during a prior 12-month period. A few commenters asked whether the phrase “claims . . . paid in full” as used in the 2012 proposed regulations was intended to include claims that a hospital facility had partially written off as bad debt and/or treated as paid in full after taking into account a discount it had granted. If so, commenters asked whether the hospital facility should only include the reduced amount actually paid when calculating the AGB percentage(s). One commenter also asked whether the amount a hospital facility has accepted for the claim in a sale to a third-party debt collector should be treated as “paid in full.” Two commenters suggested that, instead of being based on claims “paid in full,” the AGB percentages should be based on “contracted rates” or the amounts that are allowed by health insurers.

To eliminate the uncertainty created by the phrase “paid in full,” the final regulations provide that, when calculating its AGB percentage(s) under the look-back method, a hospital facility should include in the numerator the full amount of all of the hospital facility's claims for emergency and other medically necessary care that have been “allowed” (rather than “paid”) by health insurers during the prior 12-month period. For these purposes, the full amount allowed by a health insurer should include both the amount to be reimbursed by the insurer and the amount (if any) the individual is personally responsible for paying (in the form of co-payments, co-insurance, or deductibles), regardless of whether and when the individual actually pays all or any of his or her portion and disregarding any discounts applied to the individual's portion (under the FAP or otherwise).

Several commenters interpreted the 2012 proposed regulations to mean that hospital facilities had to include the claims for all emergency and other medically necessary care provided during the prior 12-month period when calculating AGB percentages. These commenters pointed out that many of the claims for care provided toward the end of a 12-month period will not be adjudicated by an insurer until some amount of time after the end of that 12-month period. Under both the 2012 proposed regulations and these final regulations, the inclusion of a claim in a hospital facility's calculation of its AGB percentage(s) is not based on whether the care associated with the claim was provided during the prior 12-month period. Rather, it is based on whether the claim is “allowed” (formerly, “paid in full”) during the prior 12-month period. The final regulations clarify this point. The final regulations also state that, if the amount a health insurer will allow for a claim has not been finally determined as of the last day of the 12-month period used to calculate the AGB percentage(s), a hospital facility should exclude the amount of the claim from that calculation and include it in the subsequent 12-month period during which the amount allowed is finally determined.

A few commenters asked that hospital facilities be permitted to calculate AGB percentages under the look-back method based on claims for all medical care allowed in the prior 12-month period, rather than just the claims for emergency and medically necessary care. These commenters stated that it would be administratively burdensome to have to sift out only the claims for emergency and medically necessary care. Accordingly, the final regulations provide that a hospital facility may include in the calculation of its AGB percentage(s) claims for all medical care allowed during the prior 12-month period rather than just the claims allowed for emergency and other medically necessary care. The Treasury Department and the IRS note that the calculation of a hospital facility's AGB Start Printed Page 78981percentage(s) includes only claims allowed by insurers and that insurers generally allow claims only for care that is medically necessary. Thus, the Treasury Department and the IRS do not expect that there will be a significant difference between AGB percentages based on all claims allowed by insurers and AGB percentages based on all claims allowed by insurers for emergency and other medically necessary care.

A few commenters noted that the health care delivery system is migrating from a fee-for-service model to other methods of payment, used by both public and private payers, that include “value-based,” accountable care, and shared savings payments. These commenters stated that the 2012 proposed regulations failed to account for these other methods of payment because the method of calculating AGB percentages appeared to be based on claims for individual episodes of care, while value-based, accountable care, shared savings, and similar payments are not necessarily tied to individual episodes of care.

As a general matter, the Treasury Department and the IRS interpret the statutory phrase “amounts generally billed to individuals who have insurance covering such care” as referring to amounts billed or reimbursed for care received by those insured individuals. It is not clear, and commenters did not address, how lump sum payments from an insurer with no direct connection to any specific individual's care would appropriately be included in a determination of AGB. As a result, the final regulations do not amend the look-back method or the prospective method to specifically account for any such separate payment streams. However, if a hospital facility can reasonably allocate a capitated (or other lump sum) payment made by an insurer to care received by particular patients during a twelve-month period and has also tracked the gross charges for that care, it may be able to reasonably incorporate such payments into its calculation of one or more AGB percentages under the look-back method described in the final regulations. In addition, the Treasury Department and the IRS will continue to consider whether hospital facilities need alternative methods of determining AGB that directly accommodate capitated payments or value-based, accountable care, shared savings, and similar payments, and, if so, such alternative methods may be provided in future regulations, revenue rulings, or other published guidance.

The look-back method described in the 2012 proposed regulations only included claims paid by Medicare fee-for-service and/or private health insurers as primary payers. One commenter indicated that payments made by secondary payers should also be included in a hospital facility's calculation of its AGB percentage(s) because considering only primary payers and patient co-insurance, co-payments, and deductibles artificially depresses the AGB percentages. The Treasury Department and the IRS intend for hospital facilities to be able to include in the calculation of their AGB percentages the total amount of claims for care allowed by primary insurers (including both the amounts paid by primary insurers and the amounts insured individuals are personally responsible for paying in the form of co-payments, co-insurance, or deductibles), regardless of whether secondary insurers end up paying some or all of the insured individual's portion. In addition, if an individual's primary insurer does not cover a certain procedure but his or her secondary insurer does, including the amount allowed by the secondary insurer in the calculation of the hospital facility's AGB percentage(s) will not result in any duplication because only one amount was allowed by an insurer. Moreover, if the secondary insurer is of the type that is otherwise being included in the hospital facility's calculation of the AGB percentage (that is, Medicare, Medicaid, and/or a private health insurer), the amounts allowed by the secondary insurer should be included in the calculation to ensure that the resulting AGB percentage(s) is fully representative of the amounts allowed by the applicable type of insurer(s). Thus, to eliminate any confusion, the final regulations remove the references to “primary payers” contained in the 2012 proposed regulations.

Numerous commenters asked that hospital organizations be permitted to calculate AGB percentages on a system-wide basis, stating that many hospital systems have centralized patient financial services operations and that permitting a system-wide calculation would avoid both significant administrative costs and patient confusion about differences in financial responsibilities based on location. Because different hospital facilities within a system can serve distinct geographic areas, offer significantly different services, and have different negotiated rates with insurers, allowing hospital systems to calculate AGB percentages across the entire system could result in AGB percentages that would not accurately reflect the amounts generally billed to individuals with insurance by the separate hospital facilities within the system. Specifically, a system-wide AGB percentage would be an average across hospital facilities, some of which may have lower negotiated reimbursement rates with insurers or more Medicare patients than others. Use of a system-wide AGB percentage could result in higher charges for the FAP-eligible patients of those hospital facilities in the system with lower negotiated reimbursement rates or more Medicare patients than would be the case if the AGB were calculated on a facility-by-facility basis. Accordingly, the final regulations do not permit such system-wide calculations. However, because hospital facilities that have satisfied CMS criteria to bill and be covered under one Medicare provider number may find it administratively difficult to separate claims by hospital facility, the final regulations allow hospital facilities that are covered under the same Medicare provider agreement (as identified by the same CMS Certification Number) to calculate one AGB percentage (or multiple AGB percentages for separate categories of care or separate items or services) based on the claims and gross charges for all such hospital facilities and implement the AGB percentage(s) across all such hospital facilities.

One commenter asked that the final regulations clarify that a hospital organization operating more than one hospital facility may select the look-back method for some of its facilities and the prospective method for others. The 2012 proposed regulations were not intended to prevent different hospital facilities operated by the same hospital organization from using different methods to determine AGB at different hospital facilities, and these final regulations expressly state that this is permissible.

The 2012 proposed regulations provided that a hospital facility must begin applying its AGB percentage(s) by the 45th day after the end of the 12-month period the hospital facility used in calculating the AGB percentage(s) and requested comments regarding whether a hospital facility needs more than 45 days. Numerous commenters stated that hospital facilities need a period longer than 45 days both to complete the calculation and to make the updates to their policies, processes, systems, and communications necessary to implement the changes and recommended periods ranging from 60 to 120 days. In response to these Start Printed Page 78982comments, the final regulations allow a hospital facility to take up to 120 days after the end of the 12-month period used in calculating the AGB percentage(s) to begin applying its new AGB percentage(s). The Treasury Department and the IRS note that, because the final regulations under section 501(r)(4) require a hospital facility's FAP to state the hospital facility's AGB percentage(s) or explain how members of the public may readily obtain such percentages, a hospital facility must update its FAP (or other readily obtainable material) to reflect new AGB percentage(s).

The 2012 proposed regulations requested comments regarding whether a hospital facility using the look-back method should have the option to base its AGB-percentage calculation on a representative sample of claims (rather than all claims) that were paid in full over a prior 12-month period and, if so, how hospital facilities would ensure that such samples are representative and reliable. A few commenters suggested that the final regulations should permit the use of samples, but they did not provide much additional explanation of why samples were necessary or how samples could be determined in a representative and reliable way. Other commenters argued that samples would be inaccurate and that permitting the use of sampling would give hospital facilities an excessive ability to manipulate their computations and exacerbate problems with transparency or protections for consumers. Because legitimate concerns were raised by commenters with respect to sampling and no comments explained why the use of samples was necessary or how hospital facilities could ensure that such samples would be representative and reliable, the final regulations do not allow hospital facilities using the look-back method to base their calculation of AGB percentage(s) on a sample of claims. The Treasury Department and the IRS note, however, that, to the degree using all claims in calculating AGB percentages takes longer than using a representative sample, hospital facilities have 120, not 45, days after the end of the applicable 12-month period to calculate and implement AGB percentages under the final regulations.

The 2012 proposed regulations also requested comments regarding whether hospital facilities might significantly increase their gross charges after calculating one or more AGB percentages and whether such an increase could mean that determining AGB by multiplying current gross charges by an AGB percentage would result in charges that exceed the amounts that are in fact generally billed to those with insurance at the time of the charges. A number of commenters stated that such safeguards are unnecessary, since most hospitals do not update their gross charges more than once a year, increases are generally based on an annual market analysis, and AGB calculations would not drive hospitals to change their gross charges. After considering the comments received on this issue, the final regulations do not modify the proposed rule in this regard.

ii. Prospective Method

Under the prospective method described in the 2012 proposed regulations, a hospital facility could determine AGB for any emergency or other medically necessary care that the hospital facility provided to a FAP-eligible individual by using the same billing and co