charity care and tax-exemption issues for healthcare providers hospitals bernard smith tucker ellis...

Charity Care and Tax-Exemption Issues

for

Healthcare Providers

Hospitals

Bernard SmithTucker Ellis & West LLP925 Euclid Ave., Suite 1150Cleveland, Ohio [email protected] ▪ 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


If You Remember Nothing Else…

July 1, 2010

January 1, 2011


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.


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



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



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



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


Qualifying as Charitable (pp 4-5)

Pre-19561956

– Relief of illness and distress– Care of the poor– Eleemosynary concept


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.”


Qualifying as Charitable (pp 6-7)

Pre-1956 1956 eleemosynary

1956 1969charity care

1969 2010

community benefit


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


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


Qualifying As Charitable After HCR (pp 11-12)

• PPACA sections 9007 and 10903• IRC sections

– 501(r)– 4959– 6033(b)(10) and (15)


Qualifying As Charitable After HCR (p 12)

Effective date for most provisions is hospital's next taxable year


Qualifying As Charitable After HCR (p 12 - 13)

Definition of hospital organization• Operating multiple hospital facilities• Penalty if facility fails – what does it

mean?


Qualifying As Charitable After HCR (pp 13 - 18)

Community Health Needs Assessment • Statute not helpful• State law examples • Frequency


Qualifying As Charitable After HCR (pp 18)

Financial Assistance Policy • Contents• Absence of quantitative standards


Qualifying As Charitable After HCR (pp 18 -19)

Emergency Medical Care Policy• Contents

• Absence of quantitative standards


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


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


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


IRS Obligations under PPACA (p 21)

• Reports on – Charity Care– Trends


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


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


Action Steps (pp 27 -28)

• Learn• Educate• Use the Form 990 NOW• Don’t forget the old rules



• 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


THANK YOU

charity care and tax-exemption issues for healthcare providers hospitals bernard smith tucker ellis...

Documents

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taxexemption pp

charity slide

tax years

charity everyday rules

distress care

charity operational