Post on 26-Dec-2015
Charity Care and Tax-Exemption Issues
for
Healthcare Providers
Hospitals
Bernard SmithTucker Ellis & West LLP925 Euclid Ave., Suite 1150Cleveland, Ohio 44115bsmith@tuckerellis.com ▪ 216·696·3952
2Charity Care and Tax-Exemption Issues for Healthcare Providers - Hospitals
• Obtaining tax-exempt status• Qualifying as charitable
– Before 1956– 1956 – 1969– 1969 -2010– After health care reform
• What led us here
• What are the rules
• What should you do
Overview
3Charity Care and Tax-Exemption Issues for Healthcare Providers - Hospitals
If You Remember Nothing Else…
July 1, 2010
January 1, 2011
4Charity Care and Tax-Exemption Issues for Healthcare Providers - Hospitals
If You Remember Nothing Else…Most new charitable qualification requirements are effective as of tax years beginning after the date of enactment of the PPACA, i.e., March 23, 2010. In other words, a hospital with a June 30 tax year must begin complying with the new rules on financial and emergency care policies and billing and collection practices as of July 1, 2010.
5Charity Care and Tax-Exemption Issues for Healthcare Providers - Hospitals
General Rules for Tax-Exemption (pp 1- 4)
Distinguish – Tax-exempt
• general description of many entities• multiple categories under 501(c)(3) (e.g.,
religious, scientific, educational, etc)– Charitable
• one type of tax-exempt
6Charity Care and Tax-Exemption Issues for Healthcare Providers - Hospitals
General Rules for Tax-Exemption (pp 1- 4)
Organizational Test
Based on organizing document, typically,articles of incorporation
– Empower for exempt activities only– No more than insubstantial non-exempt activities– Limited lobbying; no political– Dedicate assets to charity
7Charity Care and Tax-Exemption Issues for Healthcare Providers - Hospitals
General Rules for Tax-Exemption (pp 1- 4)
Organizational TestBased on organizing document, typically, articles of incorporation
– Empower for exempt activities only
– No more than insubstantial non-exempt activities
– Limited lobbying; no political– Dedicate assets to charity
Operational TestBased on activities/operations
– Actually conduct exclusively exempt activities
– No private inurement– Not an action organization
8Charity Care and Tax-Exemption Issues for Healthcare Providers - Hospitals
General Rules for Tax-Exemption (pp 1- 4)
Organizational Test
Based on organizing document, typically,articles of incorporation
– Empower for exempt activities only
– No more than insubstantial non-exempt activities
– Limited lobbying; no political
– Dedicate assets to charity
Everyday Rules• Operate for exempt
purposes• No inurement• Limited private benefit• No political activity• Limited lobbying• Insubstantial
unrelated trade or business activities
Operational TestBased on activities/operations
– Actually conduct exclusively exempt activities
– No private inurement
– Not an action organization
9Charity Care and Tax-Exemption Issues for Healthcare Providers - Hospitals
Qualifying as Charitable (pp 4-5)
Pre-19561956
– Relief of illness and distress– Care of the poor– Eleemosynary concept
10Charity Care and Tax-Exemption Issues for Healthcare Providers - Hospitals
Qualifying as Charitable (p 5)
Pre-1956 1956 eleemosynary
19561969
Hospital is charitable if it is “operated to the extent of its financial ability for those not able to pay for the services rendered and not exclusively for those who are able and expected to pay.”
11Charity Care and Tax-Exemption Issues for Healthcare Providers - Hospitals
Qualifying as Charitable (pp 6-7)
Pre-1956 1956 eleemosynary
1956 1969charity care
1969 2010
community benefit
12Charity Care and Tax-Exemption Issues for Healthcare Providers - Hospitals
Impetus for Reform (pp 8 -10; Appendix I)
• State property tax-exemption challenges• Wide variety of Congressional oversight
– were hospitals “earning” their tax-exemption benefits
– executive compensation• Uninsured patients
13Charity Care and Tax-Exemption Issues for Healthcare Providers - Hospitals
Qualifying As Charitable After HCR (pp 11-12)
• Patient Protection and Affordable Care Act of 2010, P. L. 111-148 (“PPACA”)
• Health Care and Education Reconciliation Act of 2010, P. L. 111-152
14Charity Care and Tax-Exemption Issues for Healthcare Providers - Hospitals
Qualifying As Charitable After HCR (pp 11-12)
• PPACA sections 9007 and 10903• IRC sections
– 501(r)– 4959– 6033(b)(10) and (15)
15Charity Care and Tax-Exemption Issues for Healthcare Providers - Hospitals
Qualifying As Charitable After HCR (p 12)
Effective date for most provisions is hospital's next taxable year
16Charity Care and Tax-Exemption Issues for Healthcare Providers - Hospitals
Qualifying As Charitable After HCR (p 12 - 13)
Definition of hospital organization• Operating multiple hospital facilities• Penalty if facility fails – what does it
mean?
17Charity Care and Tax-Exemption Issues for Healthcare Providers - Hospitals
Qualifying As Charitable After HCR (pp 13 - 18)
Community Health Needs Assessment • Statute not helpful• State law examples • Frequency
18Charity Care and Tax-Exemption Issues for Healthcare Providers - Hospitals
Qualifying As Charitable After HCR (pp 18)
Financial Assistance Policy • Contents• Absence of quantitative standards
19Charity Care and Tax-Exemption Issues for Healthcare Providers - Hospitals
Qualifying As Charitable After HCR (pp 18 -19)
Emergency Medical Care Policy• Contents
• Absence of quantitative standards
20Charity Care and Tax-Exemption Issues for Healthcare Providers - Hospitals
Qualifying As Charitable After HCR (p 19)
Limitation on Charges • Applies to persons eligible
for financial assistance• No standards provided
– either the best, or an average of three best, negotiated commercial rates, or Medicare rates JCT 18-10
21Charity Care and Tax-Exemption Issues for Healthcare Providers - Hospitals
Qualifying As Charitable After HCR (pp 19 -20)
Billing and Collection Practices Not engage in extraordinary collection actions before the organization has made reasonable efforts to determine if person is eligible for assistance under the financial assistance policy – what about after?
No standards providedExtraordinary collection actions include lawsuits, liens on residences, arrests, body attachments or other similar collection processes.” JCX-18-10 at page 82
22Charity Care and Tax-Exemption Issues for Healthcare Providers - Hospitals
Other PPACA Changes (pp 19 -21)
Excise Tax – For failure to perform community health needs assessment – Ambiguity about when effective
Additional Reporting– Contents of community health needs assessment – Audited financials– Payment of excise taxes
23Charity Care and Tax-Exemption Issues for Healthcare Providers - Hospitals
IRS Obligations under PPACA (p 21)
• Reports on – Charity Care– Trends
24Charity Care and Tax-Exemption Issues for Healthcare Providers - Hospitals
Was This Really Necessary (pp 22-27)
• Were hospitals really not caring for the community?
• Effect of health care reform’s individual mandate
• State law
25Charity Care and Tax-Exemption Issues for Healthcare Providers - Hospitals
Was This Really Necessary (pp 22 -27)
So more than 54% of hospitals spent 3% or more of revenue on uncompensated care
$4.5M if $150M in GR
26Charity Care and Tax-Exemption Issues for Healthcare Providers - Hospitals
Action Steps (pp 27 -28)
• Learn• Educate• Use the Form 990 NOW• Don’t forget the old rules
27Charity Care and Tax-Exemption Issues for Healthcare Providers - Hospitals
Action Steps (pp 27 -28)
• BEGIN NOW• By NEXT TAXABLE YEAR (e.g., July 1, 2010
or January 1, 2011) hospitals must have in place – financial assistance plan– emergency medical care plan – limitations on charges– revised billing and collection practices
28Charity Care and Tax-Exemption Issues for Healthcare Providers - Hospitals
Action Steps (pp 27 -28)