Douglas Anning, a not-for-profit and healthcare attorney with Polsinelli Shughart in Kansas City, Mo., said regulators may respond with new guidance, but any wholesale revamp—should tax regulators agree to such changes—would likely not come ahead of the first year's reporting considering the required resources.
Nor are tax regulators required to adopt proposed changes through regulations, said Anning, one of the criticisms levied by the hospital and healthcare finance organizations, who argued such procedures, which allow for public notice and comment, are “standard.” The IRS did solicit comment in May 2010 on its interpretation of new disclosure provisions. Hospitals must already report other newly added questions, the groups contend, creating unnecessary work. The letter included a mock form with proposed changes to address the industry's concerns written in by hand.
Hospitals also have little leverage to insist the IRS stick to questions outlined by the Patient Protection and Affordable Care Act, Anning said. Tax officials have significant legal latitude to gather the information they'd like. “It's hugely broad,” he said.
The IRS included confusing questions that “appear to go beyond the statutory requirements and create new standards for compliance,” the AHA, state associations, HFMA and VHA argued.
Under the reform law, not-for-profit hospitals must conduct community needs assessments every three years and publicize financial-aid policies for low-income patients. In late February, the IRS released new reporting rules and delayed fiscal 2010 filing deadlines for hospitals until July 1.
Not-for-profit hospitals' free and discounted care for low-income patients has been a flashpoint politically and among advocacy groups. The sector, which receives local, state and federal tax breaks, has faced years of scrutiny from Congress, the IRS and state attorneys general over whether hospitals do enough to earn the tax advantage.
The IRS expanded reporting of hospital financial aid and other subsidies with separate reporting for hospitals on yearly tax forms for fiscal 2009. A Modern Healthcare analysis of 20 large health systems with the first filing deadlines found wide variation on hospital and system spending on subsidized care for low-income patients March 21, p. 6.
Of those surveyed, one out of four reported financial aid amounted to 0.9% or less of total expenses. The median hospital reported 2.2% of costs were attributable to free or discounted medical care, and the top 25% said financial assistance made up 3.4% of expenses or more.
Hospitals also reported wide variation in billing and collection for low-income patients. Modern Healthcare's analysis found some hospitals reported a significant percentage of patients who were unable to afford care were billed anyway, in some cases as high as 50% to 80% of unpaid bills. A few reported the system had no written debt collection policy.
The Affordable Care Act limited the amount hospitals can bill low-income patients to the rates generally paid by insured patients and prohibited “extraordinary” collection efforts until hospitals determined patients do not qualify for subsidized care. New reporting rules ask whether hospitals used lawsuits, liens, credit agencies or other extraordinary measures to pursue debt. The AHA, HFMA and VHA said the IRS has failed to define “extraordinary” collection tactics or what hospitals may do to demonstrate “reasonable” efforts were taken to address patients' financial needs.