Why Nonprofits Must Prepare Now for Closer IRS Scrutiny

Philip Betbeze, September 30, 2011

We spend a lot of time and effort trying to educate ourselves, and you, about the realities of healthcare reform. In many cases, the bottom line seems to be that your bottom line is poised to get ever tighter in the coming few years.

While our focus on the measurement and process re-engineering on which many hospitals and health systems are embarking is appropriate, let's not forget the prominent role that the Internal Revenue Service is about to play in healthcare reform.

We are at its beginning stages as the forms you must complete to justify your nonprofit status increase in complexity and detail.  But in the future, much of your hospital or health system's story will be told by your IRS filings, says Michael Regier, senior vice president and general counsel for VHA Inc., and a noted expert on tax matters.

Not only that, but you might want to consider that a future in which your nonprofit status will be judged in part by the way you tell that story, is probable, if not inevitable. Regier and other experts will convene Oct. 13 for a HealthLeaders Media webcast about the agency's increasing involvement in healthcare, but, in search of a sense of the seriousness with which healthcare leaders are treating the new regulations, I thought I would try to catch up with him prior to that event.

"People don't realize how much of healthcare reform has been assigned to the IRS," says Regier. "From the individual mandate to tax credits to all these new provisions for nonprofit subsidies, the IRS will be the regulator. The IRS itself is still getting its arms around it."

One of the most recent requirements for nonprofit hospitals and health systems deals with the community health needs assessment, which must be performed at least once every three years. Further, the hospital or health system must make that document widely available to the public, along with a written implementation plan.

In full, new IRS regulations require 501(c)(3) organizations to complete the following:

  • Adopt and implement written financial assistance and emergency medical care policies,
  • Limit charges for emergency or other medically necessary care,
  • Comply with new billing and collection restrictions, and
  • Conduct a community health needs assessment at least once every three years (this fourth requirement is effective for tax years beginning after March 23, 2012)

Though more detailed than they're used to, "this is not unfamiliar to the nonprofit sector. They've been dealing with community benefit planning," says Regier. "The difference is that it's never been a toll gate to get or maintain tax-exempt status."

Philip Betbeze

Philip Betbeze is the senior leadership editor at HealthLeaders Media.

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