Section 501(r): IRS Regulations and Your Revenue Cycle

Section 501(r): IRS Regulations and Your Revenue Cycle

Assistentcy, LLC Keeps Your Nonprofit Health System Up to Date

All nonprofit hospitals and health systems are required to comply with section 501(r) of the Internal Revenue Code. This section was first enacted as part of the Affordable Care Act (ACA) in 2010, and it sets forth four requirements for your hospital to maintain its tax-exempt, nonprofit status.

Three of these requirements relate to the revenue cycle, and failing to comply could result in financial penalties or losing your nonprofit status.

The three 501(r) requirements that relate to revenue cycle are:

  • Establish a written Financial Assistance Policy (FAP)
  • Set charge limits for FAP-eligible patients
  • Make reasonable effort to determine FAP eligibility

Establishing a Financial Assistance Policy

Section 501(r)(4) requires hospitals to write and adopt a financial assistance policy, along with an easy-to-understand summary of it, written in “plain language.” Then, you must make these documents available, such as throughout your medical buildings, online, or upon request at the admissions desk.

Your FAP must:

  1. State that it applies to all emergency and medically necessary care only
  2. List all financial assistance options the hospital offers, as well as eligibility criteria for participating in each
  3. Explain how patients can apply for financial assistance
  4. Describe how the hospital calculates charges for patients who are eligible for financial assistance
  5. Explain assistance-eligible patients cannot be charged more than the AGB
  6. Describe potential collections steps the hospital will take to collect an overdue bill, including the timeline and processes you’ll follow
  7. List any third-party sources the hospital uses to determine whether a patient is eligible for financial assistance
  8. Include a list of providers the FAP covers and does not cover
  9. Provide contact information for patients if they need more help understanding or applying for financial assistance
  10. Include a complete list of information and documentation patients must provide when they apply for financial assistance

The “plain language” version is mandatory, and must:

  1. Use clear, concise, easy to understand language for the “lay reader”
  2. List the core elements of the FAP, including levels of financial help offered, eligibility criteria, how to apply, and charge limitations statement
  3. Include a direct URL to the website or indicate another location where the full FAP and financial assistance application can be found
  4. Include a physical location and phone number for the hospital office where patients can get more information about the FAP
  5. Direct patients to translated versions of the FAP, application form, and summary

Before using these guidelines to verify your FAP meets these requirements, be sure to read the official regulation from the Internal Revenue Code.

Setting Charge Limits for Eligible Patients

FAP-eligible patients must not be charged more than the amounts generally billed (AGB) to patients who have insurance for the same care received in the emergency department, or for other medically necessary care.

Other care, such as elective medical care, for FAP-eligible patients must cost less than the gross charges (chargemaster rate) for that care.

This regulation also explains how and how often hospitals are required to calculate their AGB and chargemaster rates.

Determining FAP Eligibility

Section 501(r)(6) requires hospitals to make “reasonable efforts” to determine whether a self-pay patient could be eligible for financial assistance before taking “extraordinary collection actions, which can include:

The regulation says reasonable efforts can include sharing the FAP policy at least 120 days before taking extraordinary collection actions, plus an additional reminder no less than 30 days before taking action.

The hospital also is required to provide the self-pay patient with the easy-to-understand FAP summary, as well as orally notify the self-pay patient about the policy and how they could get help applying for financial assistance.

This requirement doesn’t apply to private or public insurers or third parties who aren’t considered “individuals.”

Working with a Revenue Cycle Management Vendor

Assistentcy, your hospital EBO of choice, is well-versed in the 501(r) regulations and will help you refine your FAP and application process to protect your nonprofit status and strengthen your revenue cycle by maximizing payments collected from self-pay patient accounts.

Our team helps your patients navigate the confusing world of medical billing, and you get increased medical bill payments, fewer AR days, and revenue cycle integrity you’ve always wanted. Flexible early-out programs customized to your practice implement debt recovery for patient bills.

Let us handle your revenue cycle, so you can focus on handling health care. Contact Assistentcy, based in Lenexa, KS, today to get started, by phone at 913-401-4752 or 888-455-7498, or by sending us an email.