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Slide1
501(r) compliance challenges and IRS 501(r) audit activity
April 19, 2018
Slide2Disclaimer
EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young LLP is a client‑serving member firm of Ernst & Young Global Limited operating in the US.
This presentation is © 2018 Ernst & Young LLP. All rights reserved. No part of this document may be reproduced, transmitted or otherwise distributed in any form or by any means, electronic or mechanical, including by photocopying, facsimile transmission, recording, rekeying or using any information storage and retrieval system, without written permission from Ernst & Young LLP. Any reproduction, transmission or distribution of this form or any of the material herein is prohibited and is in violation of US and international law. Ernst & Young LLP expressly disclaims any liability in connection with use of this presentation or its contents by any third party.
Views expressed in this presentation are those of the speakers and do not necessarily represent the views of Ernst & Young LLP.
This presentation is provided solely for the purpose of enhancing knowledge on tax matters. It does not provide tax advice to any taxpayer because it does not take into account any specific taxpayer’s facts and circumstances.
These slides are for educational purposes only and are not intended, and should not be relied upon, as accounting advice.
Slide3Presenters
Stephen ClarkeExecutive Director, Ernst & Young LLPWashington, DCDiane BeanSenior Manager, Ernst & Young LLPColumbus, OHJulie SparksSenior Manager, Ernst & Young LLPCincinnati, OHErica YikeManager, Ernst & Young LLPCleveland, OH
Slide4Agenda
501(r) overview
Community health needs assessment
Financial assistance policy
Limitations on charges
Billing and collection requirements
Schedule H implications
501(r) implementation issues and challenges
501(r) exam activity and audit techniques
Avoiding and preparing for a 501(r) exam
Slide5501(r) overview
Slide6501(r) background
Section 9007 of the Affordable Care Act created new rules for charitable hospitals:
Added Internal Revenue Code Section 501(r)
Community health needs assessment (CHNA)
Financial assistance policy (FAP) and emergency medical care policy
Limitations on charges
Billing and collections
Final 501(r) regulations were released December 29, 2014:
Effective/applicability date for most provisions of final regulations: tax years beginning after December 29, 2015
It requires the Internal Revenue Service (IRS) to review at least once every three years the community benefit activities of each charitable hospital organization.
It requires the IRS, with the US Department of Health and Human Services, to submit reports to Congress comparing attributes of taxable, tax-exempt and government hospitals.
Slide7Hospital facilities
A hospital organization that operates a hospital facility must ensure that the facility meets each Section 501(r) requirement.
According to Treas. Regs. 1.501(r)-1(b)(17), a
hospital facility is “a facility that is required by a state to be licensed, registered or similarly recognized as a hospital” and includes:
Hospital facilities operated through a disregarded entity
Multiple buildings under one state license (i.e., a single
hospital facility)
The preamble to the final regulations (the Preamble) clarifies that operations in a single building under more than one state license constitute
multiple
hospital
facilities.
Slide8Partnerships
General rule – A hospital organization “operates” a hospital facility if it owns a capital or profits interest in an entity treated as a partnership for federal tax purposes (e.g., joint venture, LLC) that operates the facility, directly or indirectly.
Indirect ownership: general rule applies to interests owned indirectly through one or more lower-tier entities treated as partnerships.
The governing body of a partnership or disregarded entity is an “authorized body” of its hospital facility.
A committee of such a governing body is also an authorized body to the extent permitted under state law.
Slide9Instances in which a hospital organization does not have to meet Section 501(r)
Unrelated trade or business:
The final regulations clarify that a hospital organization does not have to meet the requirements of Section 501(r) with respect to any activities that constitute an unrelated trade or business described in Section 513 with respect to the hospital organization.
Including operation of a hospital facility through a partnership
Corporations (physicians’ practices):
The Preamble clarifies that a hospital facility does not have to meet the requirements of Section 501(r) with respect to taxable corporations (e.g., physicians’ practices) that provide care in the facility, even if the corporation is wholly or partially owned by the hospital organization, because Section 501(r) does not apply to the entity.
Same rationale would apply to tax-exempt corporations that provide care in the facility but do not operate their own hospital facility.
Slide10Community Health Needs Assessment (CHNA)
Slide11CHNA: defining community served and assessing community health needs
To conduct a CHNA, a hospital facility must:
Define the community served, taking into account all the relevant facts and circumstances
Regulations provide flexibility in how facility defines its community.
The facility must describe in CHNA report how community was defined.
Identify and prioritize
significant health needs of the community
Solicit and take into account input from persons representing the broad interests of its community, including all of the following:
At least one public health department or State Office of Rural Health with knowledge or expertise relevant to the community’s health needs
Medically underserved, low-income and minority populations
Written comments on its most recent CHNA and implementation strategy
CHNA report must include an evaluation of the
impact of any actions the facility
has taken to address the
significant health needs identified in its prior CHNAs.
Documentation is key.
Slide12CHNAImplementation strategy
An authorized body must adopt an implementation strategy by the 15th day of the 5th month after the end of the taxable year during which the hospital facility conducts the CHNA.
The implementation strategy is required to:
Describe actions the hospital facility intends to take to address each significant health need identified in the CHNA and the anticipated impact of those actions or identify the health need as one it does not intend to address and explain why
Identify the resources the hospital facility plans to commit to the health need
Describe any planned collaboration with other facilities or organizations in addressing the health need
The hospital facility generally must document its implementation strategy in a separate written plan tailored to the particular hospital facility, taking into account its specific programs and resources.
The facility may adopt a joint implementation strategy if it adopted a joint
CHNA report.
Slide13Financial Assistance Policy (FAP)
Slide14FAP regulations – Section 1.501(r)(4)
Each hospital facility must establish a written FAP that
applies to all emergency and other medically necessary care
it provides.
Hospitals have flexibility to define “medically necessary care.”
The FAP must describe the method used to determine amounts generally billed (AGB) and how the AGB percentage was calculated or refer to another document that includes this information.
If another document is referred to, that document must be translated into limited English proficiency (LEP) languages and made widely available.
The FAP must describe collections actions that can be taken for nonpayment or refer to a separate billing and collections policy that includes this information.
Slide15FAP – listing of outside providers
The FAP must list
providers other than the hospital facility
that deliver emergency or other medically necessary care in the facility, as well as providers that are and are not covered under the FAP.
Notice 2015-46:
List may include name of practice group rather than each doctor in
practice group.
List may reference department or type of service if all care in that department or type of service is or is not covered by the FAP.
List may be maintained in document outside of FAP if FAP explains how members of public may obtain it free of charge, online and on paper.
Updates may be made to list without governing body approval.
Updates must be made at least quarterly to correct “minor errors
or omissions.”
Slide16FAP – LEP accessibility and translation
The FAP, FAP application form and plain language summary must be available in English and in any other language in which LEP populations comprise the lesser of 1,000 individuals or 5% of:
The community served by the hospital
Or
The population likely to be affected or encountered by the hospital facility
Rationale: Any reasonable method may be used to determine numbers and percentages.
Regulations provide flexibility in how a facility defines its community.
Not required to be identical to community for CHNA purposes
Regulations provide flexibility in how a facility defines what constitutes an LEP population.
Slide17FAP – LEP accessibility and translation
Translations of FAP documents in LEP languages must also be made widely available and regularly updated.
They must be placed on website and made available on paper, upon request.
Provider list also must be regularly updated in LEP languages.
Other documents that must be translated into LEP languages and made widely available include:
Document describing method used to determine AGB and how AGB percentage was calculated, if that information is not included in FAP
Billing and collections policy or other document that describes collections actions that can be taken for nonpayment, if this information is not included in FAP
Slide18Polling question
Into how many languages has your hospital or health system translated its financial assistance policy?
0
1–3
4–6
7–10
More than 10
Not applicable (EY participant)
Slide19Widely publicizing the FAP
A hospital facility must:
Make its FAP, FAP application and plain language summary widely available and conspicuously placed on a website at all times and in all LEP languages requiring translation
Inform and notify visitors of the FAP through “conspicuous” public displays, including in emergency rooms and admissions areas
Make its FAP, FAP application and plain language summary available upon request (by mail and in public locations in facility)
Inform and notify residents of the community served likely to require financial assistance about the FAP
Not just through facility’s website
May contact community groups representing low-income persons
Thoroughly document specific efforts made to do so
Offer (though not necessarily provide) a plain language summary of the FAP to patients as part of the intake or discharge process
Include conspicuous notice on all bills regarding FAP application
Slide20Emergency medical care policy
A hospital facility must provide care, without discrimination, for emergency medical conditions to individuals whether or not they are FAP-eligible.
An emergency medical care policy must prohibit the hospital facility from engaging in actions that discourage individuals from seeking emergency medical care, including:
Demanding payment before providing treatment
Permitting debt collection activities that interfere with provision of emergency medical care
An emergency medical care policy may be included in the same document as the FAP or Emergency Medical Treatment and Labor Act policy.
Slide21Establishing policies
A FAP, a separate billing and collections policy (if applicable) and an emergency medical care policy must be adopted by an “authorized body” of the hospital facility.
Governing body of the hospital organization
Committee of the governing body
Other parties authorized by governing body to act on its behalf if permitted by state law to do so
Timing issues: The board of directors must have sufficient time to review and approve policies by the first day of the 2016 tax year.
Ensure staff has appropriate time to begin implementing policies
Multiple hospital facilities may share identical policies.
If accurate for each hospital facility and if any joint policy states that it is applicable to each hospital facility
May require multiple governing bodies to approve
Slide22Limitations on charges
Slide23Limitations on charges regulationsSection 1.501(r)(5) – general rules
A hospital facility must limit the amounts charged to any FAP-eligible individual for emergency or other medically necessary care covered under the FAP to not more than the amounts generally billed to individuals who have insurance covering such care.
The amount “charged” includes the amount an FAP-eligible individual is personally responsible for paying, after all deductions and discounts (including those under the FAP) and less any amounts reimbursed by insurers.
Regardless of whether or when full amount allowed is actually paid
There are two methods for determining AGB – look-back and prospective.
Look-back
numerator
should include both amounts insurer will pay or reimburse and amount (if any) individual is personally responsible for paying (e.g., co-payments, co-insurance, deductibles)
Denominator:
the sum of the associated gross charges for those claims
Slide24Limitations on charges Look-back method
Under the look-back method, the AGB percentage may be:
One average percentage of gross charges for all care, or for all emergency and other medically necessary care, provided by the hospital facility
Or
Multiple AGB percentages for separate categories of care or for separate items
or services
Hospital facilities covered under the same Medicare provider agreement may calculate their AGB percentage(s) based on all claims and gross charges for all such facilities and apply such percentage(s) across all such facilities.
Start date: Facility must begin using its AGB percentage by the 120th day after the end of the 12-month period for which it is calculated.
Must calculate AGB percentage at least annually
May recalculate AGB percentage at any time, but also must update FAP
Slide25Polling question
Which method has your organization selected to determine amounts generally billed for emergency or other medically necessary care?
Look-back method (Medicare-fee-for-service and all private insurers)
Look-back method (Other)
Prospective method
Don’t know
Does not apply
Slide26Billing and collection requirements
Slide27Billing and collection requirementsRegulations Section 1.501(r)(6) – general rules
A hospital facility may not engage in extraordinary collection actions (ECAs) against an individual, or another individual responsible for payment of the individual’s bill for hospital care, before making “reasonable efforts” to determine the individual’s eligibility under the FAP. ECAs include actions that:
Involve selling an individual’s debt
Involve reporting adverse information about an individual to consumer credit reporting agencies or credit bureaus
Require a legal or judicial process
Require payment on past unpaid bills for FAP-related care before providing medically necessary care – “defer or denial ECA”
Applies to any ECAs taken by:
Any purchaser of the individual’s debt
Any debt collection agency to which the facility referred the debt
Slide28Billing and collection requirements Reasonable efforts
“Reasonable efforts” to determine whether an individual is FAP-eligible include notifying the individual about FAP and refraining from initiating ECAs during a “notification period.”
Notification period begins on the date the facility provided the first post-discharge billing statement and ends 120 days later
Must provide
at least
one written notice to the individual disclosing:
That financial assistance is available for eligible individuals
ECAs the facility
intends to initiate
against the individual
Deadline after which such ECAs may be initiated (no earlier than 30 days after the date of the notice or 120 days after the first post-discharge billing statement, whichever is later)
Multiple notices may be required
Must provide a plain language summary of the FAP with the above notice
Must make a reasonable effort to orally notify individual about the FAP and about how he or she may obtain assistance with the application process
No need to
actually
notify individual orally
Need to document
efforts
to orally notify
Slide29Timeline of Section 501(r) notification to satisfy “reasonable efforts” before initiating ECAs
Ends: generally 120 days after
first post-discharge billing statement,
unless 30-day notice was not sent timely
First date of care
Start of first
post-discharge billing statement
Ends: generally 240 days after
first post-discharge billing statement,
unless 30-day notice was not sent timely
N
otification
p
eriod
Application period
End of
notification period
Day 0
Day 0
Day 120
Day 120
Day 240
Day 90
Possible extension of notification
period
30-day notice of ECAs
30-day notice of FAP items and intended ECAs required
Possible extension of application period
Day 210
Slide30Schedule H implications
Slide31Schedule H implications
Regs. Sec. 1.6033-2 requires hospitals include in Schedule H:
A copy of or link to facility’s most recent implementation strategy
Description of actions taken during the year to address significant health needs identified through its most recently conducted CHNA
The Preamble to final Section 501(r) regulations states that discounts outside the FAP will not be considered community benefit reportable on Schedule H.
A facility may not want to include certain discounts (e.g., prompt pay, self-pay, out-of-state) in its FAP because this would trigger AGB limitations under Section 501(r).
But if a discount is not included in its FAP, hospital may not be able to report that discount as financial assistance in Schedule H, Part I.
Dual status (government entity and Section 501(c)(3)) hospitals are not required to file Forms 990 and, therefore, are exempted from new Sec. 6033 regulations.
Slide32Schedule H implications
The expenses to meet any need described in the CHNA may be reported as community health improvement service expense in Schedule H.
Section 501(r) regulations expand the definition of health needs to include the need to address social, behavioral and environmental factors that influence community health (e.g., community building).
The Preamble notes that hospitals are responsible for maintaining records to substantiate any Section 501(r)-related information they report on Schedule H.
Slide33501(r) implementation issues and challenges
Slide34501(r) compliance challenges
CHNA
–
community input:
Soliciting and taking into account written comments received on the hospital facility’s most recently conducted CHNA and implementation strategy
If the CHNA report does not contain a specific discussion of how this was done, it will not have met this requirement.
Identifying and prioritizing significant health needs
If the CHNA report does not specifically describe how the facility gathered and used the input it received to both identify and prioritize significant health needs, it will not have met this requirement.
Note – the
IRS reviews the community benefit activities of every hospital once every three years and may review the CHNA report
.
Slide35501(r) compliance challenges
Implementation strategy:
Joint implementation strategies that include multiple hospital facilities must clearly identify each facility’s particular role and responsibilities in addressing significant health needs in
the community.
Must also identify the resources each facility plans to commit to addressing health needs
Must also include a summary or other tool that helps the reader to easily locate those portions of the implementation strategy that relate to each facility
Slide36501(r) compliance challenges
FAP:
Specific eligibility criteria for all types of financial assistance in FAP should be included in the FAP.
If assets are taken into account in determining FAP eligibility, the FAP should specify asset eligibility limits for each type of financial assistance.
Medical indigence and hardship eligibility criteria should be specified, rather than being purely discretionary based on facts and circumstances.
If the eligibility criteria for financial assistance are discussed in various sections of the FAP, consider consolidating them.
Slide37501(r) compliance challenges
FAP:
Notifying and informing members of the community who are most likely to require financial assistance about the FAP
Translating FAP, plain language summary and FAP application into languages of limited English proficient populations in the community that exceed 1,000 person threshold
Preparing and making widely available a list of non-employed providers of medically necessary care in the hospital facility, including whether they are covered by the FAP
Must be either listed in the FAP or may be separate from the FAP as long as the FAP references the list and how it may be obtained
Must also be widely
publicized
Slide38501(r) compliance challenges
FAP:
Describing in FAP (or separate document referenced in FAP) actions that may be taken for non-payment, and time frame and reasonable efforts that the hospital facility will take before engaging in extraordinary collection actions (ECAs)
If the information is contained in a separate billing and collections policy, that policy must:
Describe actions that may be taken for non-payment, and the time frame and reasonable efforts the facility will take before engaging in ECAs
Be translated into the same limited English proficient languages as the FAP must be translated into
Be widely publicized
Slide39501(r) compliance challenges
FAP:
Describing amounts generally billed (AGB) method (and, if look-back, calculation of AGB percentage) in FAP or another document referenced by FAP
Even if a hospital facility provides 100% free care to FAP-eligible patients, it is still required to select an AGB method.
If this AGB information is contained in a separate document, that document must be widely publicized and translated into the same limited English proficient languages as the FAP must be translated into.
Slide40501(r) compliance challenges
AGB:
Establishing that deposit/prepayment amounts for services are less than AGB for that particular service, if the patient is FAP-eligible or the patient’s FAP eligibility has not yet been determined
The hospital facility should confirm that any prepayments or deposits it requires are below the AGB for that care, so that if a patient is later determined to be FAP-eligible, the facility can refund the amounts that exceed what the patient is determined to owe as a FAP-eligible individual without violating the 501(r) limitation on charges provisions.
Slide41501(r) compliance challenges
AGB:
Refunding amounts paid by FAP-eligible patients that exceed amounts that the hospital determines such patients are responsible for paying
Hospital facilities should check both open and closed accounts of persons determined eligible for financial assistance and refund any excess amounts paid for the periods during which they were FAP-eligible.
Slide42501(r) compliance challenges
Billing and collections:
Confirming that agreements with third-party collection agencies require compliance with 501(r) reasonable effort requirements before the third party engages in ECAs
Agreements must be reasonably designed to prevent ECAs from being taken to obtain payment until the third party has made reasonable efforts to determine individuals’ FAP eligibility.
Agreements must include specific provisions regarding suspension and reversal of ECAs.
Merely stating the third party must comply with 501(r), without specifying the requirements, may not be sufficient.
Ensuring no ECAs are taken until after expiration of notification period
Slide43501(r) compliance challenges
General:
Authorized body adoption of FAP, CHNA report, implementation strategy, emergency medical policy and, if applicable, billing and collections policy
Developing and implementing procedures for overseeing 501(r) compliance and detecting/correcting/disclosing 501(r) violations
Ensuring that each policy clearly names each facility to which the policy applies
Slide44501(r) implementation issues and challenges website posting and translation
The following documents need to be available on a website and translated:
FAP
Plain language summary (PLS)
FAP application
AGB methodology, calculation and percentages (if separate from the FAP)
Collection actions that may be taken to obtain payment of a bill for medical care (if separate from the FAP)
List of providers (if separate from the FAP) (see Notice 2015-46)
The above also needs to be available upon request as paper copies by mail and in public locations in the hospital:
Train patient-facing staff to provide copies of these documents and to inform the public where a copy of the CHNA report may be found.
Slide45501(r) implementation issues and challenges FAP eligibility timing, refunds
How far back does eligibility determination go?
How far back does refunding of amounts paid have to go?
Can the FAP provide for discounts that are reduced by amounts already paid?
Can a FAP provide that only open balances are eligible for financial assistance?
Has Revenue Cycle established an automated process to ensure that if FAP-eligible patients were charged more than AGB or their FAP-eligible discounted amount for care, the excess payment is refunded?
Slide46Polling question
What area of 501(r) requirements has been most challenging for your organization to comply with?
A. Community health needs assessments
B. Financial assistance policy
C. Billing and collections
D. Amounts generally billed
E. Not applicable
Slide47501(r) exam activity and audit techniques
Slide48501(r) exam activity
Reviews:
IRS TE/GE EO Exam reviews approximately 1,000 tax-exempt hospitals each year for community benefit and 501(r) compliance
Reviews each hospital’s Schedule H, website, and other publicly available information on the internet
Currently reviewing 2015 and 2016 tax years
Exam referrals:
In FY17, the IRS conducted 1,193 501(r) exams.
In FY17, the IRS referred close to 400 hospitals for field examination.
Common exam triggers
No CHNA report or implementation strategy on website
No FAP — or incomplete FAP — on website
No provider list — or incomplete list — in FAP or on website
33 $50,000 excise taxes on CHNA violations assessed to date
Slide49501(r) exam activity
LTR 201731014 — Recent revocation of “dual status” hospital
First instance of 501(c)(3) revocation for failure to comply with Section 501(r)
Dual status entity — governmental and exempt under 501(c)(3)
Basis for revocation was the willful failure to:
Conduct a CHNA that complied with 501(r)
Make a CHNA widely available to the public
Adopt an implementation strategy
Hospital indicated it was a small, rural facility without resources to comply, and that it “really did not need, actually have any use for, or want their tax-exempt status under 501(c)(3).”
Key takeaways: the lack of an implementation strategy and failure to post the CHNA on a website were considered egregious and not subject to forgiveness under Rev. Proc. 2015-21.
Slide50IRS 501(r) audit techniques
IRS 501(r) audit techniques training module: a guide and basic road map, not a comprehensive audit manual for agents
Request assistance, if needed, from IRS Tax Exempt and Government Entities Division Counsel and IRS intranet sites (e.g., Knowledge Network)
If 501(r) violation is detected, determine whether error is minor:
If not minor, was it corrected and disclosed properly so as to avoid revocation and noncompliant facility income tax?
If not disclosed and corrected, the IRS can impose tax and/or revoke exemption.
Slide51IRS 501(r) audit techniques
Scope may be expanded beyond 501(r) issues by either ACA Review Group or exam agent
The cases referred to exam may have issues other than 501(r) identified, such as UBI.
Cases referred to exam are intended to be “worked as single-issue or limited-scope” exams, but the agent has discretion to expand the scope beyond issues being referred.
Governmental (“dual status”) hospitals recognized as tax-exempt under Section 501(c)(3)
Subject to 501(r) requirements while recognized as 501(c)(3)
May voluntarily terminate 501(c)(3) status under Rev. Proc. 2017-5 and would no longer be subject to 501(r) going forward (but would have compliance obligations for prior years)
Slide52Polling question
Do you know if any hospitals in your area that have been audited or received a notice from the IRS regarding 501(r) compliance?
A. No
B. Yes
C. Does not apply
Slide53Avoiding and preparing for a 501(r) exam
Slide54Avoiding and preparing for a 501(r) exam
To
avoid
an exam, make sure all publicly available documents (Schedule H, FAP, CHNA report, other documents required to be placed on website) demonstrate compliance with final 501(r) regulations
To
prepare for
an exam, do an internal check for compliance with:
Final regulations
for tax years
beginning in or after 2016
Statute
for tax years
beginning before 2016:
Because the IRS is asking about compliance with
final regulations
in years
beginning before 2016
, a hospital will be in the best position if it also checks compliance with final (or proposed) regulations in these years
.
Slide55Mitigating risks associated with 501(r) noncompliance — IRS 501(r) penalty chart
Issue
501(c)(3)
revocation?
4959
excise tax?
Noncompliant
facility income tax?
Subject to correction?
Subject to disclosure?
Tax-exempt bonds revoked?
Minor errors
and omissions
(
non-failures)
N
N
N
Y
N
N
Failures
that
are neither
willful nor
egregious (excused failures)
N
Y
N (if corrected and disclosed)
Y
Y
N
All other failures (willful
or
egregious)
Maybe
Y
Maybe
N
N
Maybe
Slide56Planning for failure or failure to plan?
Some 501(r) noncompliance is inevitable, but the consequences of noncompliance can be mitigated.
Worst-case scenarios can include:
Revocation of the organization’s tax-exempt status
A facility becoming temporarily taxable
$50,000 excise tax for CHNA-related failures
Two paths to forgiveness:
Some minor omissions and errors may not be considered failures.
Larger failures may be “excused” for some purposes.
To use either path, hospitals should plan ahead.
Slide57Polling Question
Does your hospital/hospital system have a plan in place for monitoring 501(r) compliance, correcting noncompliance, and disclosing noncompliance and correction?
A. Yes
B. No
C. Not applicable
Slide58Minor omissions and errors
Regulations state that an omission or error will not be considered a “failure” if:
The omission or error was minor and either inadvertent or due to reasonable cause
The hospital facility promptly corrects the omission or error
Such correction must include establishing (or reviewing and revising) hospital practices designed to facilitate overall 501(r) compliance.
If a hospital has practices in place that are designed to promote overall 501(r) compliance, this indicates an omission or error is due to reasonable cause.
There are examples in Rev. Proc. 2015-21.
Slide59Excusing failures using Rev. Proc. 2015-21
Where the exception for minor errors does not apply, a failure that is neither willful nor egregious will be excused for certain purposes if the facility:
Promptly corrects the failure
Makes proper disclosure on Schedule H for the year in which the failure was discovered
Part of correction involves establishing practices to promote compliance with 501(r) or, if practices exist, determining if changes to them should be made and implementing such changes.
Failures are excused only for 501(r)(1) sanctions (revocation of exemption or taxation of facility income), not for the 4959 excise tax on CHNA failures.
Slide60Excusing failures using Rev. Proc. 2015-21
Schedule H disclosure must include a detailed description of the failure and correction made, including:
Type, cause, place, date of failure and discovery, number of occurrences
Estimate of number of persons affected and dollar amounts involved
The date and method of correction
How persons affected by the failure were restored to their prior position
Description of any practices and procedures that hospital facility revised
As part of correction, the facility must establish/review practices or procedures reasonably designed to prevent recurrence of error/omission
Slide61Failures and correction takeaways
To avoid or minimize penalties, hospitals should confirm that they have excellent documentation of practices and procedures.
A hospital facility should promptly correct all errors and omissions that may constitute noncompliance with 501(r).
If an error or omission is not clearly both minor and either inadvertent or due to reasonable cause, a hospital facility should promptly correct it and disclose it.
Slide62Questions?
Slide63EY
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