Like Print

New Requirements for 501(c)(3) Hospitals Under the Affordable Care Act

The Affordable Care Act (ACA), enacted March 23, 2010, added new requirements that hospital organizations must satisfy in order to be described in section 501(c)(3), as well as new reporting and excise taxes.

Because many of these provisions are effective for tax years beginning after the date of enactment, revision of the core Form 990, the Form 990 Schedule H and instructions has been a priority for the Internal Revenue Service (IRS).

As the IRS develops the new forms and guidance to implement the ACA, the IRS goals will be to:

allow hospitals to clearly describe their activities and policies;
minimize burden to the extent possible; and
capture compliance information as required for adherence with the statute.

New Requirements for Charitable 501(c)(3) Hospitals

Section 501(r), added to the Code by the ACA, imposes new requirements on 501(c)(3) organizations that operate one or more hospital facilities (hospital organizations). Each 501(c)(3) hospital organization is required to meet four general requirements on a facility-by-facility basis:

establish written financial assistance and emergency medical care policies,
limit amounts charged for emergency or other medically necessary care to individuals eligible for assistance under the hospital's financial assistance policy,
make reasonable efforts to determine whether an individual is eligible for assistance under the hospital’s financial assistance policy before engaging in extraordinary collection actions against the individual, and
conduct a community health needs assessment (CHNA) at least once every three years. (This CHNA requirement is effective for tax years beginning after March 23, 2012).

Notice 2010-39, 2010 IRB 24 (June 14, 2010) described the new requirements and solicited public comments. Notice 2011-52, 2011 IRB 30 (July 25, 2011) addresses the CHNA requirements described in section 501(r)(3) of the Code.

On June 22, 2012, the Service issued a notice of proposed rulemaking that addresses the new requirements enacted by the ACA applicable to 501(c)(3) hospital organizations, except for the CHNA requirement (see "Additional Requirements for Tax-Exempt Hospitals"). Comments are requested by September 24, 2012. The CHNA requirements were addressed in Notice 2011-52 and will be addressed further in future guidance. Hospital organizations may continue to rely on the guidance provided in Notice 2011-52 for CHNAs conducted and implementation strategies adopted up to 6 months after future guidance relating to the CHNA requirements is issued.

The ACA also added new section 4959, which imposes an excise tax for failure to meet the CHNA requirements, and added reporting requirements under section 6033(b) related to sections 501(r) and 4959.

Core Form 990 and Schedule H Revisions for Tax Years 2010 and 2011

Form 990, Return of Organization Exempt From Tax, was redesigned for tax years beginning in 2008 after significant and continued input from the tax-exempt sector, including the tax-exempt healthcare community. Schedule H was developed as part of the redesign of the form.

Form 990, Schedule H, Part V, Section B was added for tax years beginning in 2010. It is intended to provide hospitals with ample opportunities to describe their policies and activities related to compliance with ACA requirements and to explain how they are complying with the new requirements. Further revisions were made in 2011 after public input was considered.

New Questions on 501(r) Requirements on a Facility-by-Facility Basis

Hospital organizations file a single Schedule H with the organization's Form 990 for tax years 2010 and 2011. Schedule H, Part V, Facility Information has been expanded to include several new sections for tax years 2010 and 2011:

Section A: The filer will list the hospital facilities it operated during the tax year.
Section B: The filer will report separately on the activities, policies and practices of each of its hospital facilities listed in Section A. Since non-hospital healthcare facilities are not required to meet the requirements of section 501(r), hospital organizations do not need to complete Section B for any of its non-hospital health care facilities listed in Part V, Section C.
Section C: The filer will list its non-hospital health care facilities that it operated during the tax year.

Note: Only Part V, Section B of the Form 990 Schedule H requires separate reporting for each individual hospital facility. All other portions of Schedule H will be completed on an organization-wide basis.

New Questions on Section 501(r) Requirements in Part V, Section B

Form 990, Schedule H, Part V, Section B was revised for tax years beginning in 2010 and 2011 to include new questions relating to the new section 501(r) requirements of the ACA, and asks for information concerning each hospital facility’s financial assistance, emergency medical care, and billing and collection policies.

New questions relating to CHNAs were also added to Schedule H, Part V, Section B, but these questions are optional for tax years 2010 and 2011 because the CHNA requirements of section 501(r) are only effective for tax years beginning after March 23, 2012.

TY 2010 - Part V, Section B is Optional

The IRS decided to make the entire Part V, Section B optional for the 2010 tax year to give the tax-exempt hospital community more time to familiarize itself with the types of information the IRS will be collecting related to compliance with the ACA (see IRS Announcement 2011-37 2011 IRB 27 (July 5, 2011).

TY 2011–Part V, Section B is Required

The IRS has considered public input on Part V, Section B and has made revisions to Part V, Section B for the 2011 tax year. Notice 2012-4 notifies hospital organizations that are required to file Form 990 for tax year 2011 that they will be required to complete all parts and sections of the Schedule H (except for lines one through seven of Part V, Section B relating to CHNAs, as these are optional for tax year 2011). The IRS anticipates making further revisions in future tax years and welcomes public input as described below.

Audited Financial Statements

If a hospital organization is required to file Form 990 Schedule H, the organization is required to attach a copy of its most recent audited financial statements to its return for tax years beginning after March 23, 2010. Organizations that file electronically are requested to submit their financial statements in Adobe PDF format.

Continuing Implementation Efforts

The IRS continues to seek input from the tax-exempt health care community as we work to refine the Form 990 and Schedule H to reflect the new ACA requirements and fully implement the ACA. As we move forward, the IRS will continue to work closely with the tax-exempt health care sector as we develop reporting requirements and guidance necessary to refine the Form 990 and Schedule H for future years and fully implement the ACA. The IRS welcomes additional input on how to improve Forms 990, 990-EZ and their related Schedules, including Schedule H. Input should be submitted to Form990Revision@irs.gov or the following address by November 15, 2012 to be considered for tax year 2013 form revisions:

Internal Revenue Service
Attn: Stephen Clarke (Notice 2012-4)
SE:T:EO
1111 Constitution Avenue, NW
Washington, DC 20224

For More Information

For more information about the new requirements for tax-exempt hospitals and other provisions of the Affordable Care Act see:

Page Last Reviewed or Updated: 28-Feb-2013