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How Nonprofit Hospitals Must Prepare for IRS Changes

Karen Minich-Pourshadi, for HealthLeaders Media, January 31, 2011

Next they need to write and publish for the public a financial assistance plan. It needs to include the eligibility criteria for financial assistance, as well as how the hospital calculates the patient charges and how the patient can apply for assistance.

Guidance on how nonprofit hospitals should calculate eligibility for financial assistance is still in a comment period. Once all the comments have been gathered, the IRS and Treasury will issue their final guidelines as to what is the acceptable calculation process—this guidance is anticipated to arrive sometime the middle of this year. When applied, if the new formula uncovers that a hospital isn’t providing enough charitable care, then it could affect a hospital’s nonprofit status.

Also, they want to know how the hospital is billing and collecting for the charges issued to patients. “In the past there may have been debt collection procedures at some hospitals where some people were being unnecessarily abused. So the thought process on this is the law should provide for a debt collection process that’s fair and reasonable,” Cerny says.

2. How will the IRS measure whether a nonprofit hospital is meeting the new criteria for their nonprofit status?

“That is the big question, and it’s what the IRS charged with defining for us,” says Cerny. “And where will the IRS take this?”

Cerny believes that most small, county, or public hospitals will likely be able to meet any criteria that the IRS might put forth—given the lower economic nature of the patient base in many of these area. However, that doesn’t negate the fact that these hospitals, like all other nonprofit hospitals, will have to do the needs assessment and publish their financial assistance criteria.

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