A. Section 501(r) was added to the Affordable Care Act in 2010 and imposes additional requirements on not-for-profit, 501(c) (3), hospitals. The failure of the hospital to adhere to 501(r) may result in the imposition of a monetary penalty and/or loss of 501(c) (3) status. 501(r) has three important components:

 

1) It requires a hospital to conduct a Community Health Needs Assessment (CHNA) and a strategy to meet the community health needs at least once every three years.

2) Requires a hospital to establish a written Financial Assistance Policy (FAP) and a written policy related for emergency medical conditions.

3) Requires a hospital to make reasonable efforts to determine whether an individual is eligible for assistance under a FAP before engaging in extraordinary collection actions.

 

To be sure, these additional requirements imposed by section 501(r) will cost hospitals more to serve the financially disadvantaged, be they, low income or uninsured patients.

 

Specifically, 501(r) (5) provides limitations on the amounts charged to FAP eligible patients. In practice, what that means is hospitals may not gross bill eligible patients as they must be billed the same rate as commercial payors. It would not be uncommon for a not-for-profit hospital to apply a 501(r) 40% uninsured discount if paid within thirty days and an additional 10% of total charges resulting in an overall 50% discount to an eligible patient. This significant reduction in charges can cost hospitals millions of dollars on an annual basis.

 

However, hospitals are not required to apply these steep discounts in Third Party Liability (TPL) cases. What that means is that hospitals may recover a significant amount of their gross charges when an uninsured injured patient obtains a Third Party Liability cash settlement. TPL claims are specifically exempt from 501(r) requirements imposed on charitable hospitals. That is because although hospitals are prohibited from engaging in extraordinary collection actions (ECA) for individuals that are FAP eligible, the pursuit of TPL cases is specifically exempt from the definition of ECA.

 

Third party liability cases represent, on a percentage basis, the highest paying payor source of any commercial or governmental payor source. Typically, hospital charges are reimbursed at 30%-50% of total charges in viable third party liability claims. The early identification, tracking, and ultimate recovery on third party liability cases can substantially offset the costs of 501(r) requirements because hospitals can cover the deficit by implementing a sustainable Third Party Liability program.