Additional Requirements for Charitable Hospitals; Community Health Needs Assessments for Charitable Hospitals; Requirement of a Section 4959 Excise Tax Return and Time for Filing the Return, 78953-79016 [2014-30525]

Agencies

• Internal Revenue Service
• DEPARTMENT OF THE TREASURY

[Federal Register Volume 79, Number 250 (Wednesday, December 31, 2014)]
[Rules and Regulations]
[Pages 78953-79016]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-30525]



[[Page 78953]]

Vol. 79

Wednesday,

No. 250

December 31, 2014

Part II





Department of the Treasury





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Internal Revenue Service





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26 CFR Parts 1, 53, and 602





Additional Requirements for Charitable Hospitals; Community Health 
Needs Assessments for Charitable Hospitals; Requirement of a Section 
4959 Excise Tax Return and Time for Filing the Return; Final Rule

Federal Register / Vol. 79 , No. 250 / Wednesday, December 31, 2014 / 
Rules and Regulations

[[Page 78954]]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1, 53, and 602

[TD 9708]
RIN 1545-BK57; RIN 1545-BL30; RIN 1545-BL58


Additional Requirements for Charitable Hospitals; Community 
Health Needs Assessments for Charitable Hospitals; Requirement of a 
Section 4959 Excise Tax Return and Time for Filing the Return

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations and removal of temporary regulations.

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SUMMARY: This document contains final regulations that provide guidance 
regarding the requirements for charitable hospital organizations added 
by the Patient Protection and Affordable Care Act of 2010. The 
regulations will affect charitable hospital organizations.

DATES: Effective Date: The final regulations are effective on December 
29, 2014.
    Applicability Date: For dates of applicability, see Sec. Sec.  
1.501(r)-7(a); 1.6033-2(k)(4); 53.4959-1(b); and 53.6071-1(i)(2).

FOR FURTHER INFORMATION CONTACT: Amy F. Giuliano, Amber L. MacKenzie, 
or Stephanie N. Robbins at (202) 317-5800 (not a toll-free number).

SUPPLEMENTARY INFORMATION: 

Paperwork Reduction Act

    The collection of information contained in these final regulations 
has been reviewed and approved by the Office of Management and Budget 
in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
3507(d)) under control number 1545-0047. The collection of information 
in the final regulations is in Sec. Sec.  1.501(r)-3, 1.501(r)-4, and 
1.501(r)-6(c). The collection of information is required for hospital 
organizations to receive the benefits of being described in section 
501(c)(3) of the Internal Revenue Code (Code) and flows from section 
501(r)(3), which requires a hospital organization to conduct a 
community health needs assessment (CHNA) and adopt an implementation 
strategy to meet the community health needs identified through the CHNA 
at least once every three years; section 501(r)(4), which requires a 
hospital organization to establish a written financial assistance 
policy (FAP) and a written policy related to care for emergency medical 
conditions; and section 501(r)(6), which requires a hospital 
organization to make reasonable efforts to determine whether an 
individual is eligible for assistance under a FAP before engaging in 
extraordinary collection actions. The expected recordkeepers are 
hospital organizations described in sections 501(c)(3) and 501(r)(2).

1. 2012 Proposed Regulations

    On June 26, 2012, the Department of the Treasury (Treasury 
Department) and the IRS published a notice of proposed rulemaking 
(NPRM) (REG-130266-11; 77 FR 38148) that contained proposed regulations 
regarding the requirements of sections 501(r)(4) through 501(r)(6) 
relating to FAPs, limitations on charges, and billing and collections 
(the 2012 proposed regulations). The 2012 proposed regulations 
estimated that the collection of information in the proposed 
regulations relating to sections 501(r)(4) and 501(r)(6) would result 
in an average annual paperwork burden per recordkeeper of 11.5 hours. 
(The requirements of section 501(r)(3) were addressed in different 
proposed regulations, released in 2013, and the collection of 
information associated with those proposed regulations is addressed in 
section 2 of this portion of the preamble relating to the Paperwork 
Reduction Act.)
    In response to this burden estimate, the Treasury Department and 
the IRS received 15 comments generally stating that the estimates set 
forth in the 2012 proposed regulations were too low and that the burden 
was significantly higher, with some commenters offering estimates 
ranging between 15 and 38,500 hours annually. However, these commenters 
provided insufficient information regarding the hours necessary to 
comply with the information collection requirements of Sec. Sec.  
1.501(r)-4 and 1.501(r)-6(c) of the 2012 proposed regulations for the 
IRS to determine why, or by how much, the proposed burden estimate 
should be increased. A few commenters noted that they would have to 
devote significant resources up-front to amending policies and 
procedures and altering information systems.
    The Treasury Department and the IRS anticipated an up-front 
commitment of resources when they derived the 11.5-hour annual burden 
estimate proposed in the 2012 proposed regulations by dividing an 
estimated 34.5-hour burden over three years (the maximum OMB approval 
period for a collection of information burden estimate) by three. It 
was anticipated that a large share of those 34.5 hours would be devoted 
to updating policies, procedures, and information systems in the first 
year. The Treasury Department and the IRS also expected that hospitals 
would be building upon existing policies and processes rather than 
establishing entirely new policies. For example, Sec.  1.501(r)-6(c)(2) 
of the 2012 proposed regulations was intended to enable hospitals to 
notify patients about the FAP primarily by adding information to 
billing statements, necessitating some time to change the template of 
the billing statement but presumably relatively little time thereafter. 
However, in light of the comments received, the Treasury Department and 
the IRS have increased their estimate of the average amount of time a 
hospital organization will devote to amending policies and procedures 
and altering information systems in the first year to come into 
compliance with Sec. Sec.  1.501(r)-4 and 1.501(r)-6(c) to 60 hours 
(with additional time needed each year to implement the requirements).
    One commenter stated that hospitals' experience in administering 
charity care programs under existing state law required more than 100 
annual staff hours per hospital, and that the 2012 proposed regulations 
would increase that burden. However, the total amount of time spent 
administering charity care programs in general under the commenter's 
state law is not equivalent to the amount of time necessary to comply 
with the collection of information requirements, in particular, in the 
2012 proposed regulations.
    Most of the 38,500 burden hours that one commenter estimated for 
the paperwork burden resulting from the 2012 proposed regulations was 
based on the time the commenter estimated would be spent by 16 
financial counseling staff members to provide direct patient 
counseling. While providing direct patient financial counseling is a 
commendable activity that would help ensure that patients obtain the 
financial assistance for which they are eligible, the burden estimates 
under the Paperwork Reduction Act are limited to collections of 
information authorized or imposed by the statute and regulations, and, 
therefore, such counseling activity would not be captured in the 
estimates.
    The Treasury Department and the IRS also note that, in response to 
comments, these final regulations contain several changes intended to 
reduce the paperwork burden of the 2012 proposed regulations. Most 
significantly, numerous commenters noted that the requirement in Sec.  
1.501(r)-6(c)(2) to include a plain language summary of the FAP with 
all (and at least three) billing statements during a 120-day

[[Page 78955]]

notification period would add significantly to the cost of mailing the 
billing statements and be a waste of paper. In response to these 
comments, rather than requiring a plain language summary with every 
bill issued during the notification period, the final regulations 
instead require a hospital facility to include on each billing 
statement a conspicuous written notice that notifies and informs 
patients about the availability of financial assistance, including both 
a telephone number of the office or department that can provide 
information about the FAP and FAP application process and the direct 
Web site address (or URL) where copies of the FAP, FAP application 
form, and plain language summary of the FAP may be obtained. 
Additionally, the final regulations require a plain language summary to 
be included with only one post-discharge communication and give a 
hospital facility the flexibility to send this one plain language 
summary only to the subset of patients against whom the hospital 
facility actually intends to engage in extraordinary collection 
actions. These changes are intended to maintain the frequent reminders 
to patients of the availability of financial aid while reducing the 
burden and cost of mailing multiple copies of a plain language summary 
of the FAP.
    The one change in the final regulations that may materially 
increase the paperwork burden relates to translations of the FAP and 
related documents. The 2012 proposed regulations required a hospital 
facility to translate its FAP (as well as the FAP application form and 
plain language summary of the FAP) into the primary language of any 
populations with limited English proficiency (LEP) that constitute more 
than 10 percent of the residents of the community served by the 
hospital facility. In response to comments discussed in section 
4.a.iv.F of this preamble, the final regulations change that threshold 
to 5 percent or 1,000, whichever is less, of the population of 
individuals likely to be affected or encountered by the hospital 
facility. This may increase the overall number of translations that 
hospital organizations affected by the final regulations will be 
required to make.
    Taking into account all of the comments received, as well as the 
changes made in these final regulations that will affect the paperwork 
burden, the Treasury Department and the IRS have adjusted their burden 
estimate for Sec. Sec.  1.501(r)-4 and 1.501(r)-6(c) to 60 hours per 
recordkeeper of up-front time to update information systems and draft 
and amend policies, procedures, and template billing statements and 
notifications, plus 15 hours per recordkeeper per year for each of 
three years to implement the collection of information requirements. 
This results in a total of 105 hours over a three-year period, or an 
average of 35 hours per year per recordkeeper, up from the estimate of 
11.5 hours per year per recordkeeper proposed in the 2012 proposed 
regulations. The Treasury Department and the IRS note that the burden 
estimates must be updated every three years and that future estimates 
can be amended to reflect hospitals' actual experience in implementing 
the collection of information requirements in Sec. Sec.  1.501(r)-4 and 
1.501(r)-6(c).

2. 2013 Proposed Regulations

    On April 5, 2013, the Treasury Department and the IRS published a 
NPRM (REG-106499-12; 78 FR 20523) that contained proposed regulations 
regarding the CHNA requirements under section 501(r)(3) (the 2013 
proposed regulations). The 2013 proposed regulations estimated that the 
collection of information in the proposed regulations would result in 
an average annual paperwork burden per recordkeeper of 80 hours. In 
response to this burden estimate, the Treasury Department and the IRS 
received 10 comments stating generally that the estimates set forth in 
the 2013 proposed regulations were too low and that the burden was 
significantly higher, with most commenters stating that satisfying the 
requirements described in the 2013 proposed regulations would 
necessitate ``thousands of hours.'' However, because commenters 
provided little specific information regarding the hourly burden of 
activities that are required to comply with the collection of 
information required by section 501(r)(3), it is difficult for the 
Treasury Department and the IRS to determine how to appropriately 
revise the burden estimate.
    The Treasury Department and the IRS note that a hospital 
organization only has to satisfy the CHNA requirements once every three 
years, and the burden estimate reflected in the 2013 proposed 
regulations was 240 hours per CHNA, averaged over three years. In 
addition, the Treasury Department and the IRS recognize that the amount 
of time hospitals devote to their CHNAs will vary greatly depending on 
their size and resources and whether they choose to collaborate with 
other organizations and facilities in conducting their CHNAs.
    One commenter asked that the IRS clarify its definition of 
``recordkeeper'' to indicate that the estimate is for a hospital 
organization with a single hospital facility and that a hospital 
organization with multiple hospital facilities would have an estimated 
burden that would be multiplied by the number of hospital facilities. 
However, both the 2013 proposed regulations and these final regulations 
allow hospital organizations with multiple hospital facilities to 
collaborate and produce one joint CHNA report and implementation 
strategy for all of its hospital facilities, provided the hospital 
facilities define their communities to be the same. As a result, the 
Treasury Department and the IRS do not believe the burden estimate will 
necessarily increase in direct relation to the number of hospital 
facilities operated. On the other hand, the Treasury Department and the 
IRS do recognize that some hospital facilities operated by the same 
organization will define their communities to be different and will 
therefore conduct separate CHNAs and produce separate CHNA reports. For 
purposes of estimating the total paperwork burden, and in the absence 
of data on which hospital facilities will conduct joint CHNAs and which 
will not, the Treasury Department and the IRS have assumed that 
hospital facilities operated by hospital organizations with three or 
fewer hospital facilities will produce joint CHNA reports and hospital 
facilities operated by hospital organizations with more than three 
hospital facilities will conduct separate CHNA reports. Based on the 
latest available IRS data on the number of hospital organizations and 
facilities, the assumption that hospital organizations operating more 
than three hospital facilities will conduct separate CHNAs for each 
hospital facility increases the average annual burden associated with 
the CHNA requirements per hospital organization from 80 to 101 hours. 
The Treasury Department and the IRS note that the burden estimates must 
be updated every three years and that future estimates can be amended 
to reflect hospitals' actual experience in implementing the collection 
of information requirements in Sec.  1.501(r)-3.

3. Adjusted Burden Estimates for Final Regulations

    After taking into account all the comments and information 
available and based on the latest IRS data on the number of hospital 
organizations and facilities, the Treasury Department and the IRS have 
reached the following reporting burden estimates:
    Estimated total annual reporting burden: 401,905.
    Estimated average annual burden hours per recordkeeper: 136 hours.

[[Page 78956]]

    Estimated number of recordkeepers: 2,955.
    Estimated frequency of collections of such information: Annual.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless it displays a valid 
control number assigned by the Office of Management and Budget.
    Books or records relating to a collection of information must be 
retained as long as their contents may become material in the 
administration of any internal revenue law. Generally, tax returns and 
tax return information are confidential, as required by section 6103.

Background

    Section 501(r) was added to the Code by the Patient Protection and 
Affordable Care Act, Public Law 111-148 (124 Stat. 119 (2010)) (the 
Affordable Care Act), enacted March 23, 2010, and imposes additional 
requirements on charitable hospital organizations. Section 501(r)(1) 
provides that a hospital organization described in section 501(r)(2) 
will not be treated as a tax-exempt organization described in section 
501(c)(3) unless the organization meets the requirements of sections 
501(r)(3) through 501(r)(6). Section 501(r)(3) requires a hospital 
organization to conduct a community health needs assessment (CHNA) at 
least once every three years and to adopt an implementation strategy to 
meet the community health needs identified through the CHNA. Section 
501(r)(4) requires a hospital organization to establish a written 
financial assistance policy (FAP) and a written policy relating to 
emergency medical care. Section 501(r)(5) requires a hospital 
organization to not use gross charges and to limit amounts charged for 
emergency or other medically necessary care provided to individuals 
eligible for assistance under the organization's FAP (FAP-eligible 
individuals) to not more than the amounts generally billed to 
individuals who have insurance covering such care (AGB). Section 
501(r)(6) requires a hospital organization to make reasonable efforts 
to determine whether an individual is FAP-eligible before engaging in 
extraordinary collection actions. Section 501(r)(2)(B) requires a 
hospital organization to meet each of these requirements separately 
with respect to each hospital facility it operates.
    The statutory requirements of section 501(r) (except for section 
501(r)(3)) apply to taxable years beginning after March 23, 2010. 
Section 501(r)(3) applies to taxable years beginning after March 23, 
2012. A hospital organization has had to comply with the statutory 
requirements of section 501(r) since these applicability dates.
    The Affordable Care Act also added section 4959, which imposes a 
$50,000 excise tax on a hospital organization that fails to meet the 
CHNA requirements for any taxable year, and amended section 6033 to add 
certain reporting requirements related to section 4959 and the CHNA 
requirements and to require hospital organizations to file a copy of 
their audited financial statements with their annual information 
returns.
    In May 2010, the Department of the Treasury (Treasury Department) 
and the IRS issued Notice 2010-39 (2010-24 IRB 756 (June 14, 2010)), 
which solicited comments regarding the additional requirements imposed 
by section 501(r). Approximately 125 comments were received in response 
to Notice 2010-39.
    In July 2011, the Treasury Department and the IRS issued Notice 
2011-52 (2011-30 IRB 60 (July 25, 2011)), which described (and 
solicited comments regarding) provisions related to the CHNA 
requirements that the Treasury Department and the IRS anticipated would 
be included in proposed regulations. More than 80 comments were 
received in response to Notice 2011-52.
    On June 26, 2012, the Treasury Department and the IRS published a 
notice of proposed rulemaking in the Federal Register (REG-130266-11, 
77 FR 38148) (2012 proposed regulations) that contained proposed 
regulations regarding the requirements of sections 501(r)(4) through 
501(r)(6) relating to FAPs, limitations on charges, and billing and 
collections. The 2012 proposed regulations also defined key terms used 
throughout the regulations, such as ``hospital organization'' and 
``hospital facility.'' More than 200 written comments were received in 
response to the 2012 proposed regulations, and a public hearing was 
held on December 5, 2012.
    On April 5, 2013, the Treasury Department and the IRS published a 
notice of proposed rulemaking in the Federal Register (REG-106499-12, 
78 FR 20523) (2013 proposed regulations) that contained proposed 
regulations regarding the CHNA requirements of section 501(r)(3), the 
related reporting obligations under section 6033, the excise tax under 
section 4959, and the consequences for failing to meet any of the 
section 501(r) requirements. The 2013 proposed regulations also added a 
few additional defined terms and made minor amendments to the 
definitions of ``hospital organization'' and ``hospital facility'' 
contained in the 2012 proposed regulations. More than 90 written 
comments were received in response to the 2013 proposed regulations. No 
public hearing was requested or held.
    On August 15, 2013, the Treasury Department and the IRS published 
final and temporary regulations and a cross-reference notice of 
proposed rulemaking in the Federal Register (TD 9629, 78 FR 49681; REG-
115300-13, 78 FR 49700) under sections 6011 and 6071, which provided 
guidance regarding the requirement that a return accompany payment of 
the section 4959 excise tax for failure to meet the CHNA requirements 
for any taxable year. Specifically, the temporary regulations direct 
hospital organizations liable for the tax imposed by section 4959 to 
file Form 4720, ``Return of Certain Excise Taxes Under Chapters 41 and 
42 of the Internal Revenue Code,'' by the 15th day of the fifth month 
after the end of the organization's taxable year in which the liability 
was incurred. The cross-reference notice of proposed rulemaking 
solicited public comments. No public comments were received, and no 
public hearing was requested or held.
    In January 2014, the Treasury Department and the IRS published 
Notice 2014-2 (2014-3 IRB 407 (January 13, 2014)) to confirm that 
hospital organizations could rely on both the 2012 proposed regulations 
and the 2013 proposed regulations, pending the publication of final 
regulations or other applicable guidance. This Treasury decision 
obsoletes Notice 2014-2, but the final regulations contained in this 
Treasury decision continue to allow reliance on both the 2012 proposed 
regulations and the 2013 proposed regulations until a hospital 
organization's first taxable year beginning after December 29, 2015.
    Also in January 2014, the Treasury Department and the IRS published 
Notice 2014-3 (2014-3 IRB 408 (January 13, 2014)), which contained, and 
solicited public comments on, a proposed revenue procedure that 
provides correction and reporting procedures under which certain 
failures to meet the requirements of section 501(r) will be excused for 
purposes of sections 501(r)(1) and 501(r)(2)(B). The Treasury 
Department and the IRS received six comments in response to Notice 
2014-3.
    After consideration of the comments received on the 2012 and 2013 
proposed regulations, both sets of proposed regulations under section 
501(r) are adopted as amended by this Treasury decision. In addition, 
this Treasury decision removes the temporary regulations under sections 
6011 and

[[Page 78957]]

6071 and adopts as amended the proposed regulations that cross-
referenced the text of those temporary regulations. The major areas of 
comment and the revisions are discussed in this preamble. The comments 
are available for public inspection at www.regulations.gov or on 
request.

Summary of Comments and Explanation of Revisions

    These final regulations provide guidance on the requirements 
described in section 501(r), the entities that must meet these 
requirements, and the reporting obligations relating to these 
requirements under section 6033. In addition, the final regulations 
provide guidance on the consequences described in sections 501(r)(1), 
501(r)(2)(B), and 4959 for failing to satisfy the section 501(r) 
requirements.

1. Hospital Facilities and Organizations

a. In General
    In accordance with section 501(r)(2)(A)(i) and consistent with the 
proposed regulations, the final regulations define ``hospital 
organization'' as an organization recognized (or seeking to be 
recognized) as described in section 501(c)(3) that operates one or more 
hospital facilities and define ``hospital facility'' as a facility that 
is required by a state to be licensed, registered, or similarly 
recognized as a hospital. The final regulations refer to hospital 
facilities taking certain actions, and such references are intended to 
include instances in which the hospital organization operating the 
hospital facility takes action through or on behalf of the hospital 
facility.
    Section 501(r)(2)(A)(ii) provides that a hospital organization also 
includes ``any other organization that the Secretary determines has the 
provision of hospital care as its principal function or purpose 
constituting the basis for its exemption'' under section 501(c)(3). One 
commenter requested that this language be incorporated into the 
definition of ``hospital organization'' contained in the final 
regulations.
    At this time, the Treasury Department and the IRS have not 
identified any additional categories of organizations or facilities 
(other than hospital facilities and organizations operating them) with 
the principal function or purpose of providing hospital care. If any 
such categories of organizations or facilities are later identified, 
the Treasury Department and the IRS will issue proposed regulations 
identifying them, with the expanded definition applying prospectively 
only if, and when, the proposed regulations are finalized, after an 
opportunity for notice and comment.
b. Multiple Buildings Under a Single Hospital License
    The definition of ``hospital facility'' in the 2012 proposed 
regulations provided that a hospital organization ``may treat'' 
multiple buildings operated under a single state license as a single 
hospital facility. To increase the certainty and consistency in the 
designation of hospital facilities, the 2013 proposed regulations 
revised this definition to indicate that multiple buildings operated by 
a hospital organization under a single state license ``are'' considered 
a single hospital facility for purposes of section 501(r).
    In response to the 2013 proposed regulations, several commenters 
stated that buildings in different geographic locations that share a 
license (for example, a hospital facility with satellite sites in 
various locations) may serve distinct communities and stakeholders, 
whose needs could be missed or unaddressed if they are aggregated into 
one large community served for purposes of the CHNA requirements. 
Multiple commenters asked that such a hospital facility be given the 
flexibility to conduct separate CHNAs for its separate buildings, 
noting that state law may require the facility to file separate 
implementation strategies for each building describing how each 
building plans to meet the health needs in its community.
    The Treasury Department and the IRS believe that a fixed rule 
regarding the treatment of multiple buildings under a single state 
license will provide for consistency and certainty in tax 
administration and increase the ability of both the IRS and the public 
to understand and to evaluate information reported on hospital 
organizations' Forms 990 from year to year. Accordingly, the final 
regulations continue to provide that multiple buildings operated by a 
hospital organization under a single state license are considered to be 
a single hospital facility. The final regulations also clarify that, in 
the case of a hospital facility consisting of multiple buildings that 
operate under a single state license and serve different geographic 
areas or populations, the community served by the hospital facility is 
the aggregate of such areas or populations. However, in such a case, 
the hospital facility consisting of multiple buildings could, if 
desired, assess the health needs of the different geographic areas or 
populations served by the different buildings separately and document 
the assessments in separate chapters or sections of the hospital 
facility's CHNA report and implementation strategy.
c. One Building Under Multiple State Licenses
    A few commenters asked that the final regulations allow a hospital 
organization to treat operations in a single building under more than 
one state license as a single ``hospital facility,'' a situation the 
proposed regulations did not address. These commenters stated that 
entities operating within the same building have a high degree of 
integration and similar patient populations and that requiring each 
licensed facility to comply separately with section 501(r) would impose 
burdens without benefitting the community served.
    The final regulations do not adopt this suggestion because the 
Treasury Department and the IRS believe that having one definition of 
``hospital facility'' based on state licensure alone is simpler and 
more administrable. However, the Treasury Department and the IRS note 
that, as discussed in section 4.c of this preamble, separate hospital 
facilities within the same building may have identical FAPs and other 
policies established for them or share one policy document as long as 
the information in the policy or policies is accurate for all such 
facilities and any joint policy clearly states that it is applicable to 
each facility. Furthermore, as discussed in sections 3.a.v and 3.b.iii 
of this preamble, separate hospital facilities within the same building 
that define their communities to be the same may conduct a joint CHNA 
and adopt a joint implementation strategy addressing the significant 
health needs identified in the joint CHNA. Thus, the final regulations 
allow for hospital facilities within the same building to jointly 
comply with many of the section 501(r) requirements.
d. Government Hospital Organizations
    The statutory language of section 501(r) applies to all hospital 
organizations that are (or seek to be) recognized as described in 
section 501(c)(3) and does not provide an exception for government 
hospital organizations. Accordingly, the preamble to the 2012 proposed 
regulations stated that the Treasury Department and the IRS intend to 
apply section 501(r) to every hospital organization that has been 
recognized (or seeks recognition) as an organization described in 
section 501(c)(3), regardless of whether a hospital organization is a 
government hospital organization. However, in recognition of the unique 
position of government

[[Page 78958]]

hospital organizations, the Treasury Department and the IRS also 
requested comments regarding alternative methods a government hospital 
organization could use to satisfy the requirements of section 501(r).
    A number of commenters noted that government hospital organizations 
have long-standing relationships with their communities, are already 
known as ``safety net'' health care providers, and are already 
obligated to provide care regardless of ability to pay (although care 
is sometimes limited to or prioritized for citizens of the locality 
that is supporting the hospital). Commenters also stated that 
government hospital organizations disproportionately serve patients who 
are uninsured, Medicaid beneficiaries, or hard to reach (such as 
homeless individuals, migrant workers, and undocumented individuals), 
and have governance structures that reflect a level of public 
accountability. Commenters added that, as stewards of public funds, 
government hospital organizations have an obligation to local taxpayers 
to ensure that scarce financial resources go toward patient care and 
not toward unnecessary administrative costs. However, rather than 
offering alternative methods a government hospital organization could 
use to satisfy the requirements of section 501(r), these commenters 
instead effectively requested that the Treasury Department and the IRS 
provide exemptions from the requirements imposed by section 501(r) for 
government hospital organizations. For example, commenters recommended 
that government hospital organizations be exempted from all of the 
documentation requirements related to CHNAs, be deemed to have met the 
FAP requirements by virtue of their public status, or be permitted to 
charge some FAP-eligible individuals more than AGB as long as the 
average annual discounted charge provided to FAP-eligible individuals 
did not exceed AGB.
    Other commenters expressed support for applying the requirements of 
section 501(r) to government hospital organizations, stating that no 
exceptions for particular categories of section 501(c)(3) organizations 
are permitted by the statute. Commenters also stated that, from the 
point of view of individuals seeking or receiving care, most government 
hospital organizations are indistinguishable from any other section 
501(c)(3) hospital organization and that their practices with regard to 
charges, billing, and collections are substantially the same.
    Because section 501(r) has no express or implicit exceptions for 
government hospital organizations, the final regulations require the 
section 501(r) requirements to be met by all hospital organizations 
that are (or seek to be) recognized as described in section 501(c)(3), 
including those that are government hospital organizations. The 
Treasury Department and the IRS note, however, that government hospital 
organizations that have previously been recognized as described in 
section 501(c)(3) but do not wish to comply with the requirements of 
section 501(r) may submit a request to voluntarily terminate their 
section 501(c)(3) recognition as described in section 7.04(14) of Rev. 
Proc. 2014-4 (2014-1 IRB 125) (or a successor revenue procedure).
    A number of commenters asked whether and how government hospital 
organizations can satisfy the reporting requirements related to CHNAs, 
given that they are excused from filing a Form 990, ``Return of 
Organization Exempt From Income Tax,'' under Rev. Proc. 95-48 (1995-2 
CB 418). The Affordable Care Act did not change the requirements 
regarding which organizations are required to file a Form 990. Rev. 
Proc. 95-48 provides that certain government entities are relieved from 
any requirement to file a Form 990 (and therefore are relieved from 
having to disclose information or documents on or with a Form 990). 
Accordingly, a government hospital organization (other than one that is 
described in section 509(a)(3)) described in Rev. Proc. 95-48 or a 
successor revenue procedure is not required to file a Form 990 or 
include any CHNA-related information with a Form 990. However, to be 
treated as described in section 501(c)(3), government hospital 
organizations still must meet all section 501(r) requirements that do 
not involve disclosure on or with the Form 990, including making their 
CHNA reports and FAPs widely available on a Web site.
e. Accountable Care Organizations
    Several commenters asked that separate entities cooperating in 
accountable care organizations (ACOs) or similar integrated care models 
be treated as a single ``hospital organization'' for purposes of 
section 501(r), arguing that this would create administrative 
efficiencies as the participating organizations develop one standard 
set of policies and procedures and result in less confusion for 
patients as they move through a ``continuum of care.'' The final 
regulations do not adopt this suggestion, but the Treasury Department 
and the IRS note that, as discussed in section 4.c of this preamble, 
multiple hospital facilities may have identical FAPs and other policies 
established for them or share one joint policy document as long as the 
information in the policy or policies is accurate for all such 
facilities and any joint policy clearly states that it is applicable to 
each facility. Furthermore, as discussed in sections 3.a.v and 3.b.iii 
of this preamble, separate hospital facilities that define their 
community to be the same may conduct a joint CHNA and adopt a joint 
implementation strategy addressing the significant health needs 
identified in the joint CHNA. Thus, the final regulations provide 
opportunities for separate hospital facilities participating in an ACO 
to jointly comply with many of the section 501(r) requirements.
f. ``Operating'' a Hospital Facility
    The 2013 proposed regulations generally provided that an 
organization operates a hospital facility if it owns a capital or 
profits interest in an entity treated as a partnership for federal tax 
purposes that operates the hospital facility. The final regulations 
maintain this general rule with two additions.\1\ First, the final 
regulations clarify that an organization is considered to own a capital 
or profits interest in an entity treated as a partnership for federal 
tax purposes if it owns such an interest directly or indirectly through 
one or more lower-tier entities that are treated as partnerships for 
federal tax purposes.\2\
---------------------------------------------------------------------------

    \1\ The final regulations delete the specific reference to joint 
ventures and limited liability companies contained in the 2013 
proposed regulations because those entities are sufficiently covered 
by the general phrase ``entity treated as a partnership for federal 
tax purposes.'' The final regulations also delete the reference to 
``members of'' an entity treated as a partnership for federal tax 
purposes because the intended organizations should be captured by 
the references to owners of a capital or profits interest in the 
partnership. These changes are not intended to be substantive 
changes.
    \2\ The final regulations also provide that an organization 
operates a hospital facility if it is the sole member or owner of a 
disregarded entity that operates the hospital facility. Section 
301.7701-2(a) provides that a disregarded entity's activities are 
treated in the same manner as a branch or division of the owner. 
Accordingly, if a hospital organization is the sole owner of one 
disregarded entity that is, in turn, the sole owner of another 
disregarded entity that operates a hospital facility, the hospital 
organization would be considered to operate the hospital facility.
---------------------------------------------------------------------------

    Second, the final regulations clarify how the question of whether 
an organization ``operates'' a hospital facility relates to the 
question of whether the organization needs to meet the requirements of 
section 501(r) (and, therefore, would be subject to any

[[Page 78959]]

consequences for failing to meet such requirements). Specifically, 
Sec.  1.501(r)-2(e) of the final regulations clarifies that a hospital 
organization is not required to meet the requirements of section 501(r) 
with respect to any hospital facility it is not ``operating'' within 
the meaning of that defined term. In addition, as stated in the 
preamble to the 2013 proposed regulations, the final regulations 
provide that a hospital organization is not required to meet the 
requirements of section 501(r) with respect to the operation of a 
facility that is not a ``hospital facility'' because it is not required 
by a state to be licensed, registered, or similarly recognized as a 
hospital. The final regulations also provide that a hospital 
organization is not required 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.
g. Providing Care in a Hospital Facility Through Hospital-Owned 
Entities
    A number of commenters asked that the final regulations clarify the 
extent to which certain section 501(r) requirements apply to hospital-
owned physician practices providing care in the hospital, with a few 
commenters requesting that the section 501(r) requirements apply to all 
care provided in a hospital facility by such practices.\3\
---------------------------------------------------------------------------

    \3\ As discussed in section 4.a of this preamble, in response to 
comments, the final regulations require a hospital facility's FAP to 
identify the providers, other than the hospital facility itself, 
that may deliver emergency or other medically necessary care in the 
hospital facility and specify which providers are covered by the 
hospital facility's FAP and which are not.
---------------------------------------------------------------------------

    Whether or not the section 501(r) requirements apply to hospital-
owned physician practices or other entities providing care in a 
hospital facility depends upon how the entities are classified for 
federal tax purposes. For example, a hospital facility would not be 
required to meet the section 501(r) requirements with respect to a 
taxable corporation providing care in the hospital facility, even if 
the corporation is wholly or partially owned by the hospital 
organization that operates the hospital facility, because the 
corporation is a separate taxable entity to which section 501(r) does 
not apply.
    By contrast, if a hospital organization is the sole member or owner 
of an entity providing care in one of its hospital facilities and that 
entity is disregarded as separate from the hospital organization for 
federal tax purposes, the care provided by the entity would be 
considered to be care provided by the hospital organization through its 
hospital facility. Accordingly, the hospital organization would be 
required to meet the section 501(r) requirements with respect to care 
provided by the disregarded entity in any hospital facility that the 
hospital organization operates.
    If a hospital organization owns a capital or profits interest in an 
entity providing care in a hospital facility that is treated as a 
partnership for federal tax purposes, the activities of the partnership 
are treated as the activities of the hospital organization for purposes 
of determining whether the hospital organization is operated 
exclusively for exempt purposes or engaged in an unrelated trade or 
business under generally applicable tax principles. See Rev. Rul. 2004-
51 (2004-1 CB 974); Rev. Rul. 98-15 (1998-1 CB 718). Accordingly, 
emergency or other medically necessary care provided in a hospital 
facility by a partnership in which the hospital organization operating 
the facility has a capital or profits interest is treated as care 
provided by the hospital organization in its hospital facility for 
purposes of section 501(r). If the provision of such care by the 
partnership is an unrelated trade or business with respect to the 
hospital organization, the hospital organization does not have to meet 
the section 501(r) requirements with respect to the care because, as 
noted in section 1.f of this preamble, the final regulations provide 
that a hospital organization is not required to meet the requirements 
of section 501(r) with respect to any activity that constitutes an 
unrelated trade or business with respect to the hospital organization. 
On the other hand, if the provision of emergency or other medically 
necessary care by the partnership is not an unrelated trade or business 
with respect to the hospital organization, the final regulations 
clarify that the hospital organization must meet the requirements of 
sections 501(r)(4) through 501(r)(6) with respect to such care. The 
final regulations use a new defined term, ``substantially-related 
entity,'' to refer to an entity that is treated as a partnership for 
federal tax purposes in which a hospital organization owns a capital or 
profits interest (or a disregarded entity of which the hospital 
organization is the sole owner or member) and that provides, in a 
hospital facility operated by the hospital organization, emergency or 
other medically necessary care that is not an unrelated trade or 
business with respect to the hospital organization.\4\
---------------------------------------------------------------------------

    \4\ The final regulations also clarify that the term 
``substantially-related entity'' does not include any partnership 
that qualifies for a grandfather rule included in the 2013 proposed 
regulations and adopted in the final regulations. Under that rule, 
an organization will not be considered to ``operate'' a hospital 
facility despite owning a capital or profits interest in an entity 
treated as a partnership for federal tax purposes that operates the 
hospital facility if it has met certain conditions since March 23, 
2010.
---------------------------------------------------------------------------

h. Authorized Body
    The 2013 proposed regulations defined the term ``authorized body of 
a hospital facility'' to include: (1) The governing body (that is, the 
board of directors, board of trustees, or equivalent controlling body) 
of the hospital organization; (2) a committee of, or other party 
authorized by, the governing body of the hospital organization, to the 
extent permitted under state law; or (3) in the case of a hospital 
facility that has its own governing body and is recognized as an entity 
under state law but is a disregarded entity for federal tax purposes, 
the governing body of that hospital facility, or a committee of, or 
other party authorized by, that governing body to the extent permitted 
under state law.
    In cases in which a hospital organization owns a capital or profits 
interest in a partnership that operates a hospital facility, the 
Treasury Department and the IRS believe the governing body of the 
partnership should also be considered an authorized body of the 
hospital facility, and the final regulations are amended to reflect 
this change. In particular, the final regulations provide that an 
authorized body of a hospital facility may include the governing body 
of an entity that operates the hospital facility and is disregarded or 
treated as a partnership for federal tax purposes (or a committee of, 
or other party authorized by, that governing body to the extent such 
committee or other party is permitted under state law to act on behalf 
of the governing body), and thus either the governing body (or 
committee or other authorized party) of the hospital organization or of 
the disregarded entity or partnership may be considered the authorized 
body of the hospital facility.
    Some questions have arisen regarding whether adoption of a CHNA 
report, implementation strategy, FAP, or other policy by one authorized 
official of a hospital facility would constitute adoption by an 
authorized body of the hospital facility for purposes of the regulatory 
requirements. Under the regulatory definition of ``authorized body of a 
hospital facility'' in both the 2013 proposed regulations and these 
final regulations, a single individual may constitute either a 
committee of the

[[Page 78960]]

governing body or a party authorized by the governing body to act on 
its behalf, provided that state law allows a single individual to act 
in either of these capacities.\5\
---------------------------------------------------------------------------

    \5\ This interpretation of ``authorized body of a hospital 
facility'' is consistent with the interpretation of the term 
``authorized body'' under Treas. Reg. Sec.  53.4958-6(c)(1)(i). See 
TD 8978 (67 FR 3076, 3082).
---------------------------------------------------------------------------

2. Failures To Satisfy the Requirements of Section 501(r)

    The Treasury Department and the IRS recognize that errors may occur 
even in circumstances in which a hospital facility has practices and 
procedures in place that are reasonably designed to facilitate overall 
compliance with section 501(r) and has implemented safeguards 
reasonably calculated to prevent errors. Thus, the 2013 proposed 
regulations provided that a hospital facility's omission of required 
information from a policy or report described in Sec.  1.501(r)-3 or 
Sec.  1.501(r)-4, or an error with respect to the implementation or 
operational requirements described in Sec. Sec.  1.501(r)-3 through 
1.501(r)-6, would not be considered a failure to meet a requirement of 
section 501(r) if: (1) The omission or error was minor, inadvertent, 
and due to reasonable cause, and (2) the hospital facility corrected 
such omission or error as promptly after discovery as is reasonable 
given the nature of the omission or error.
    In addition, to provide an incentive for hospital facilities to 
take steps not only to avoid errors but also to correct and provide 
disclosure when they occur, the 2013 proposed regulations provided that 
a hospital facility's failure to meet one or more of the requirements 
described in Sec. Sec.  1.501(r)-3 through 1.501(r)-6 that is neither 
willful nor egregious would be excused if the hospital facility 
corrects and makes disclosure in accordance with guidance set forth by 
revenue procedure, notice, or other guidance published in the Internal 
Revenue Bulletin. On January 13, 2014, the Treasury Department and the 
IRS published Notice 2014-3, which contained a proposed revenue 
procedure setting forth procedures for correction and disclosure of 
such failures and solicited public comments regarding the proposed 
revenue procedure. The Treasury Department and the IRS intend to 
release a revenue procedure finalizing the guidance proposed in Notice 
2014-3 in the near future.
a. Minor Omissions and Errors
    Several commenters supported the proposed approach to minor and 
inadvertent omissions and errors that are due to reasonable cause, 
agreeing that if they are promptly corrected upon discovery they should 
not result in sanctions. Accordingly, the final regulations retain this 
general approach, with some modifications.
    One commenter suggested modifying the proposed rule so that it will 
apply to omissions or errors that are minor, inadvertent, ``or'' due to 
reasonable cause (rather than ``and''), stating that an omission or 
error was unlikely to satisfy all three conditions. The same commenter 
noted that ``reasonable cause'' may be interpreted differently in a 
variety of circumstances, potentially making this safe harbor too 
narrow. The Treasury Department and the IRS believe that the 
insignificance of an omission or error should always be a necessary 
condition for receiving the benefit of correcting under Sec.  1.501(r)-
2(b) without any obligation to disclose to the IRS or the public. Thus, 
the final regulations require an omission or error to be minor in order 
to be corrected and not considered a failure under Sec.  1.501(r)-2(b). 
However, in response to this comment, the final regulations provide 
that the option for correction without disclosure provided in Sec.  
1.501(r)-2(b) will be available if the omission or error is minor and 
either inadvertent or due to reasonable cause. As noted later in this 
section of the preamble, the final regulations also clarify the meaning 
of ``reasonable cause'' for purposes Sec.  1.501(r)-2(b).
    Numerous commenters asked for further guidance and specific 
examples with respect to the types of omissions and errors that would 
be considered minor, inadvertent, and/or due to reasonable cause, as 
opposed to those that are excused only if they are corrected and 
disclosed, as discussed in section 2.b of this preamble. As more 
experience is gained regarding the types of omissions or errors that 
typically occur in implementing the section 501(r) requirements, the 
Treasury Department and the IRS will consider issuing further guidance 
in this area. In the meantime, the final regulations provide additional 
guidance regarding the factors that will be considered in determining 
whether an omission or error is minor and either inadvertent or due to 
reasonable cause. With respect to minor, the final regulations clarify 
that, in the case of multiple omissions or errors, the omissions or 
errors are considered minor only if they are minor in the aggregate. 
The final regulations further provide that the fact that the same 
omission or error has occurred and been corrected previously is a 
factor tending to show that an omission or error is not inadvertent. 
Finally, with respect to reasonable cause, the final regulations 
provide that a hospital facility's establishment of practices or 
procedures (formal or informal) reasonably designed to promote and 
facilitate overall compliance with the section 501(r) requirements 
prior to the occurrence of an omission or error is a factor tending to 
show that the omission or error was due to reasonable cause.
    Commenters also asked for guidance and examples demonstrating how 
minor omissions or errors should be remedied to avoid sanctions. The 
final regulations specify that correction of minor omissions or errors 
must include establishment (or review and, if necessary, revision) of 
practices or procedures (formal or informal) that are reasonably 
designed to achieve overall compliance with the requirements of section 
501(r). As more experience is gained regarding the types of omissions 
or errors that typically occur in implementing the section 501(r) 
requirements, the Treasury Department and the IRS will consider issuing 
further guidance on the correction of minor omissions or errors.
    A few commenters asked that hospital facilities be required to 
disclose the minor omissions or errors that they correct, either on a 
Web site or on the Form 990, to increase transparency and encourage 
continuous improvement. The Treasury Department and the IRS expect that 
minor omissions or errors will not have a significant impact on 
individuals in a hospital facility's community and, therefore, will be 
sufficiently inconsequential that they do not justify the additional 
burden of disclosure. Instead, as discussed in section 2.b of this 
preamble, disclosure is a requirement reserved for those omissions and 
errors that rise above the level of ``minor'' and have a broader scope 
and greater impact on individuals within the hospital facility's 
community, as well as those that are neither inadvertent nor due to 
reasonable cause and thus involve a degree of culpability on the part 
of the hospital facility.
b. Excusing Certain Failures If a Hospital Facility Corrects and Makes 
Disclosure
    The 2013 proposed regulations provided that a hospital facility's 
failure to meet one or more of the requirements described in Sec. Sec.  
1.501(r)-3 through 1.501(r)-6 that is neither willful nor egregious 
would be excused if the

[[Page 78961]]

hospital facility corrects and provides disclosure in accordance with 
guidance set forth by revenue procedure, notice, or other guidance 
published in the Internal Revenue Bulletin. The 2013 proposed 
regulations indicated that, for purposes of this provision, a 
``willful'' failure would be interpreted consistent with the meaning of 
that term in the context of civil penalties, which would include a 
failure due to gross negligence, reckless disregard, or willful 
neglect. Several commenters indicated that the reference to ``civil 
penalties'' was unclear. In response, the final regulations delete the 
reference to civil penalties, but continue to provide that a 
``willful'' failure includes a failure due to gross negligence, 
reckless disregard, and willful neglect--all terms with well-
established meanings in case law--to assist hospital facilities in 
distinguishing between a failure that is willful and a failure that may 
be excused if it is corrected and disclosed.
    Similarly, several commenters asked for guidance on what would 
qualify as ``egregious'' noncompliance, recommending that the term 
should be reserved for actions that are of the utmost seriousness and 
that would undermine the intent of section 501(r) as a whole. The 
Treasury Department and the IRS agree with commenters that the term 
``egregious'' should encompass only very serious failures, taking into 
account the severity of the impact and the number of affected persons, 
and the final regulations are amended to reflect this. As the Treasury 
Department and the IRS gain additional experience with the types of 
failures to meet section 501(r) that occur, examples of failures that 
are or are not willful or egregious may be provided in future guidance.
    A number of commenters suggested that the final regulations should 
create a rebuttable presumption that a failure that is corrected and 
disclosed is neither willful nor egregious. Commenters reasoned that 
such a presumption would ensure that hospital facilities that correct 
and disclose failures would get some benefit in return for their 
efforts and reduce uncertainty regarding their section 501(c)(3) 
status. The final regulations do not provide for such a presumption 
because correction and disclosure of a failure are not determinative of 
a hospital facility's willfulness or the egregiousness of the failure. 
However, the Treasury Department and the IRS do believe that a hospital 
facility that corrects and discloses a failure to meet a section 501(r) 
requirement is less likely to have acted willfully in failing to meet 
that requirement, and thus the final regulations provide that 
correction and disclosure of a failure is a factor tending to show that 
an error or omission was not willful.
    A few commenters questioned whether a system of correction and 
disclosure should be sufficient to prevent revocation of section 
501(c)(3) status, with one commenter asking that proposed Sec.  
1.501(r)-2(c) be struck in its entirety. The Treasury Department and 
the IRS believe that the statute's objectives of promoting transparency 
of hospital facilities' CHNAs and FAPs and of providing protections to 
FAP-eligible patients with respect to charges and collections are well 
served by a system that encourages hospitals to adopt practices that 
prevent failures and promptly discover and correct any failures that 
happen to occur. In addition, disclosure of failures and what has been 
done to correct them provides significant transparency. Accordingly, 
the final regulations retain Sec.  1.501(r)-2(c).
    The 2013 proposed regulations stated that a hospital facility may, 
in the discretion of the IRS, be subject to an excise tax under section 
4959 for a failure to meet the CHNA requirements, notwithstanding the 
hospital facility's correction and disclosure of the failure in 
accordance with the relevant procedures. Several commenters expressed 
confusion as to whether and how the tax under section 4959 would apply 
in the event of a failure that was corrected and disclosed. Although 
some commenters did not think the excise tax should apply upon 
correction and disclosure, at least one commenter suggested that the 
statute does not permit the excise tax to be excused.
    To eliminate the uncertainty, the final regulations under section 
4959 provide that a hospital facility failing to meet the CHNA 
requirements ``will'' (rather than ``may, in the discretion of the 
IRS'') be subject to an excise tax under section 4959, notwithstanding 
its correction and disclosure of the failure. However, as discussed in 
section 2.a of this preamble, a hospital facility's omission or error 
with respect to the CHNA requirements will not be considered a failure 
to meet the CHNA requirements if the omission or error is minor and 
either inadvertent or due to reasonable cause and if the hospital 
facility corrects the omission or error in accordance with Sec.  
1.501(r)-2(b)(1)(ii) of the final regulations. Accordingly, the final 
regulations under section 4959 also make clear that such a minor 
omission or error related to the CHNA requirements that is corrected 
will not give rise to an excise tax under section 4959.
c. Facts and Circumstances Considered in Determining Whether To Revoke 
Section 501(c)(3) Status
    Consistent with the 2013 proposed regulations, the final 
regulations provide that the IRS will consider all relevant facts and 
circumstances when determining whether revocation of section 501(c)(3) 
status is warranted as a result of a failure to meet one or more 
requirements of section 501(r).
    Several commenters asked that the regulatory text of the final 
regulations include the statement found in the preamble to the 2013 
proposed regulations that application of these facts and circumstances 
will ordinarily result in revocation of section 501(c)(3) status only 
if the organization's failures to meet the requirements of section 
501(r) are willful or egregious. On the other hand, one commenter 
expressed concern that this statement signals that revocation could 
result due to failures that are willful, but not serious or material.
    The final regulations provide that all of the relevant facts and 
circumstances will be considered in determining whether to revoke a 
hospital organization's section 501(c)(3) status, including the size, 
scope, nature, and significance of the organization's failure, as well 
as the reason for the failure and whether the same type of failure has 
previously occurred. The IRS will also consider whether the hospital 
organization had, prior to the failure, established practices or 
procedures (formal or informal) reasonably designed to promote and 
facilitate overall compliance with the section 501(r) requirements; 
whether such practices or procedures were being routinely followed; and 
whether the failure was corrected promptly.
d. Taxation of Noncompliant Hospital Facilities
    Like the 2013 proposed regulations, the final regulations provide 
for a facility-level tax for a hospital organization operating more 
than one hospital facility that fails to meet one or more of the 
requirements of section 501(r) separately with respect to a hospital 
facility during a taxable year. Specifically, this facility-level tax 
applies to a hospital organization that continues to be recognized as 
described in section 501(c)(3) but would not continue to be so 
recognized based on the facts and circumstances described in section 
2.c of this preamble if the noncompliant facility were the only 
hospital facility operated by the organization. The facility-level tax 
is applied to income derived from the

[[Page 78962]]

noncompliant hospital facility during the taxable year of non-
compliance and is computed as provided in section 11 (or as provided in 
section 1(e) if the hospital organization is a trust described in 
section 511(b)(2)).
    The 2013 proposed regulations also stated that the application of 
the facility-level tax to income derived from a noncompliant hospital 
facility would not, by itself, affect the tax-exempt status of bonds 
issued to finance the noncompliant hospital facility. Numerous 
commenters requested that the final regulations further specify that a 
noncompliant hospital facility subject to the facility-level tax will 
not be treated as an unrelated trade or business for purposes of tax-
exempt bonds issued to finance the noncompliant facility. In response 
to these comments, the final regulations clarify that application of 
the facility-level tax will not, by itself, result in the operation of 
the noncompliant hospital facility being considered an unrelated trade 
or business described in section 513.

3. Community Health Needs Assessments

    Consistent with section 501(r)(3)(A), the final regulations provide 
that a hospital organization meets the requirements of section 
501(r)(3) in any taxable year with respect to a hospital facility it 
operates only if the hospital facility has conducted a CHNA in such 
taxable year or in either of the two immediately preceding taxable 
years and an authorized body of the hospital facility has adopted an 
implementation strategy to meet the community health needs identified 
through the CHNA.
a. Conducting a Community Health Needs Assessment
    Consistent with the 2013 proposed regulations, the final 
regulations provide that, in conducting a CHNA, a hospital facility 
must define the community it serves and assess the health needs of that 
community. In assessing the community's health needs, the hospital 
facility must solicit and take into account input received from persons 
who represent the broad interests of its community. The hospital 
facility must also document the CHNA in a written report (CHNA report) 
that is adopted for the hospital facility by an authorized body of the 
hospital facility. Finally, the hospital facility must make the CHNA 
report widely available to the public. A hospital facility is 
considered to have conducted a CHNA on the date it has completed all of 
these steps, including making the CHNA report widely available to the 
public.
    Several commenters suggested that a hospital facility should be 
considered to have conducted a CHNA if it updates a previously 
conducted CHNA, as opposed to being required to create an entirely new 
CHNA every three years. The Treasury Department and the IRS expect 
that, in conducting CHNAs, hospital facilities will build upon 
previously-conducted CHNAs, and nothing in either the 2013 proposed 
regulations or the final regulations is intended to prevent this 
practice. Hospital facilities should note, however, that both the 2013 
proposed regulations and these final regulations require the 
solicitation and consideration of input from persons representing the 
broad interests of the community anew with each CHNA, even if the CHNA 
builds upon a previously conducted CHNA.
i. Community Served by the Hospital Facility
    The 2013 proposed regulations provided that a hospital facility may 
take into account all of the relevant facts and circumstances in 
defining the community it serves, including the geographic area served 
by the hospital facility, target populations served (for example, 
children, women, or the aged), and principal functions (for example, 
focus on a particular specialty area or targeted disease). The 2013 
proposed regulations further provided that a hospital facility may 
define its community to include populations in addition to its patient 
populations and geographic areas outside of those in which its patient 
populations reside. However, the 2013 proposed regulations did not 
permit a hospital facility to define its community in a way that 
excluded medically underserved, low-income, or minority populations who 
are served by the hospital facility, live in the geographic areas in 
which its patient populations reside (unless such populations are not 
part of the hospital facility's target population or affected by its 
principal functions), or otherwise should be included based on the 
method used by the hospital facility to define its community.
    A few commenters expressed concern that the sentence suggesting 
that a hospital facility could define its community to include 
populations in addition to its patient populations and geographic areas 
outside of those in which its patient populations reside could create 
confusion among both hospital organizations and the public, as it 
implies that the community that is defined for CHNA purposes may not 
actually be the community served by the hospital facility. To avoid 
potential confusion, the final regulations delete this language. 
However, the final regulations continue to give hospital facilities 
broad flexibility to define the communities they serve or intend to 
serve (both in addressing needs identified through their CHNAs and 
otherwise) taking into account all relevant facts and circumstances, 
provided that they do not exclude medically underserved, low-income, or 
minority populations.
    With respect to the provision in the 2013 proposed regulations that 
a hospital facility may not define its community in a way that excludes 
medically underserved, low-income, or minority populations, several 
commenters asked that the final regulations prohibit exclusion of 
additional populations, such as populations with limited English 
proficiency (LEP) or potential patients within the community who are 
not currently receiving care. With respect to potential patients not 
currently receiving care, commenters noted that individuals may live 
within a hospital facility's service community but not use the facility 
for reasons that include cost, lack of transportation, lack of adequate 
language access services, stigma, or other barriers.
    The 2013 proposed regulations and these final regulations define 
``medically underserved'' populations as including populations ``at 
risk of not receiving adequate medical care as a result of being 
uninsured or underinsured or due to geographic, language, financial, or 
other barriers.'' The reference to language barriers in the definition 
of medically underserved already encompasses LEP populations. In 
addition, the definition of ``medically underserved'' already prevents 
the exclusion of those living within a hospital facility's service area 
but not receiving adequate medical care from the facility because of 
cost, transportation difficulties, stigma, or other barriers. The final 
regulations also provide that hospital facilities may not exclude low-
income or minority populations living ``in the geographic areas from 
which the hospital facility draws its patients,'' and not only those 
already receiving care from the facility. Accordingly, the Treasury 
Department and the IRS believe the concerns addressed by these 
commenters are addressed by the final regulations.
ii. Assessing Community Health Needs
    The 2013 proposed regulations provided that, to assess the health 
needs of its community, a hospital facility must identify the 
significant health needs of its community, prioritize those health 
needs, and identify potential

[[Page 78963]]

measures and resources (such as programs, organizations, and facilities 
in the community) available to address the health needs. For these 
purposes, the 2013 proposed regulations stated that health needs 
include requisites for the improvement or maintenance of health status 
both in the community at large and in particular parts of the community 
(such as particular neighborhoods or populations experiencing health 
disparities). The preamble added that requisites for the improvement or 
maintenance of health status in a community may include improving 
access to care by removing financial and other barriers to care, such 
as a lack of information regarding sources of insurance designed to 
benefit vulnerable populations. Numerous commenters asked for 
clarification that the term ``health needs'' also encompasses needs in 
addition to access to care, such as access to proper nutrition and 
housing, the mitigation of social, environmental, and behavioral 
factors that influence health, or emergency preparedness. In response 
to these comments, the final regulations expand the examples of health 
needs that a hospital facility may consider in its CHNA to include not 
only the need to address financial and other barriers to care but also 
the need to prevent illness, to ensure adequate nutrition, or to 
address social, behavioral, and environmental factors that influence 
health in the community. The Treasury Department and the IRS note that 
the list of possible health needs in the final regulations is only a 
list of examples, and a hospital facility is not required to identify 
all such types of health needs in its CHNA report if all such types are 
not determined by the hospital facility to be significant health needs 
in its community.
    The 2013 proposed regulations provided that a hospital facility may 
use any criteria to prioritize the significant health needs it 
identifies, including, but not limited to, the burden, scope, severity, 
or urgency of the health need; the estimated feasibility and 
effectiveness of possible interventions; the health disparities 
associated with the need; or the importance the community places on 
addressing the need. One commenter supported the flexibility provided 
to hospital facilities in determining how to prioritize significant 
health needs, while several other commenters expressed concern that the 
language in the proposed rule that a hospital facility may use ``any'' 
criteria when prioritizing significant health needs could be read to 
include criteria that disregard community preferences. Two commenters 
recommended requiring hospital facilities to use the listed criteria, 
with one such commenter noting that these are commonly-used criteria in 
health planning and program evaluation.
    Section 501(r)(3) does not mandate the use of particular 
prioritization criteria. Accordingly, the list of prioritization 
criteria in the final regulations remains a non-exhaustive list of 
examples, and hospital facilities have flexibility to choose how best 
to prioritize the significant health needs of their particular 
communities. However, to ensure transparency with respect to a hospital 
facility's prioritization, the final regulations, like the 2013 
proposed regulations, require a hospital facility's CHNA report to 
describe the process and criteria used in prioritizing the significant 
health needs identified. In addition, the final regulations require a 
hospital facility to take into account community input not only in 
identifying significant health needs but also in prioritizing them.
    A few commenters asked for clarification regarding the requirement 
in the 2013 proposed regulations that hospital facilities identify 
potential measures and resources (such as programs, organizations, and 
facilities in the community) available to address significant health 
needs. For example, one commenter asked whether the term ``measures'' 
referred to how the hospital facility would measure the scope of the 
health need, rather than actions the hospital facility might take to 
address the health need. Another commenter interpreted the proposed 
requirement as referring to the potential measures and resources only 
of parties in the community other than the hospital facility itself. To 
eliminate any confusion associated with the use of the term 
``measures,'' the final regulations eliminate the term and require a 
hospital facility to identify resources potentially available to 
address the significant health needs, with the term ``resources'' 
including programs, organizations, or facilities. In addition, the 
final regulations clarify that resources of the hospital facility 
itself may be identified.
    Numerous commenters recommended removing the requirement that a 
CHNA include potential measures and resources to address the 
significant health needs identified, stating that the implementation 
strategy was a better place to discuss the means to address health 
needs. Other commenters supported this requirement, with one such 
commenter stating that it is important to consider potential measures 
and resources early in the CHNA process to provide a framework for 
determining which health needs to address in the implementation 
strategy. The Treasury Department and the IRS agree that a vital part 
of assessing and prioritizing health needs is to begin considering what 
resources in the community could potentially be harnessed to help 
address those health needs and thus believe that hospital facilities 
should get community input on this important aspect of assessing health 
needs while the CHNA is being conducted. The opportunity for 
contemporaneous community input on potentially available resources 
would not exist if such resources were identified as part of the 
implementation strategy because a hospital facility is not required to 
take into account input on an implementation strategy until it is 
conducting the subsequent CHNA. Accordingly, the final regulations 
retain the requirement that a CHNA identify resources potentially 
available to address significant health needs.
iii. Input From Persons Representing the Broad Interests of the 
Community
    The 2013 proposed regulations provided that, in assessing the 
health needs of its community, a hospital facility must take into 
account input received from, at a minimum, the following three sources: 
(1) At least one state, local, tribal, or regional governmental public 
health department (or equivalent department or agency) with knowledge, 
information, or expertise relevant to the health needs of the 
community; (2) members of medically underserved, low-income, and 
minority populations in the community, or individuals or organizations 
serving or representing the interests of such populations; and (3) 
written comments received on the hospital facility's most recently 
conducted CHNA and most recently adopted implementation strategy.
    Several commenters asked that the final regulations address the 
situation in which a hospital facility, despite its best efforts, is 
unable to secure input on its CHNA from a required category of persons. 
In response, the final regulations retain the three categories of 
persons representing the broad interests of the community specified in 
the 2013 proposed regulations but clarify that a hospital facility must 
``solicit'' input from these categories and take into account the input 
``received.'' The Treasury Department and the IRS expect, however, that 
a hospital facility claiming that it solicited, but could not obtain, 
input from one of the required categories of persons will be able to 
document that it made reasonable

[[Page 78964]]

efforts to obtain such input, and the final regulations require the 
CHNA report to describe any such efforts.
    Numerous commenters requested that the final regulations provide 
for public input on the identification and prioritization of 
significant health needs, with a few of these commenters expressing a 
particular interest in ensuring ample opportunity for community input 
and feedback on which community health needs should be deemed 
``significant.'' By requiring hospital facilities to take into account 
public input ``in assessing the health needs of the community'' and 
defining ``assessing the health needs of the community'' to include 
identifying and prioritizing significant health needs, the 2013 
proposed regulations already required public input on the 
identification and prioritization of significant health needs. The 
final regulations clarify that the requirement to take into account 
input in assessing the health needs of the community includes taking 
into account input in identifying and prioritizing significant health 
needs, as well as identifying resources potentially available to 
address those health needs.
    Finally, the final regulations do not adopt a suggestion from 
several commenters that a hospital facility be required to take into 
account public input in defining its community because such a 
requirement would be circular, as a hospital facility must define its 
community before it can take into account input from persons who 
represent the broad interests of that community.
A. Governmental Public Health Departments
    Numerous commenters supported requiring hospital facilities to take 
into account input from a governmental public health department (or 
equivalent department or agency), noting that governmental health 
departments typically have access to statistical and other data that 
may be helpful in assessing and prioritizing community health needs 
and, in many cases, conduct community health assessments of their own.
    One commenter asked what is meant by ``or equivalent department or 
agency'' and whether the term was intended to be an exception to the 
requirement that hospital facilities collaborate with governmental 
public health departments. The parenthetical reference to an 
``equivalent department or agency'' in the 2013 proposed regulations 
and the final regulations is not intended to be an exception. Rather, 
it is included in recognition of the fact that governments may have 
different names for the particular unit with jurisdiction over and 
expertise in public health. For example, the particular unit of a 
government with jurisdiction over and expertise in public health might 
be called an ``agency,'' ``division,'' ``authority,'' ``bureau,'' 
``office,'' or ``center'' rather than a department and may or may not 
have the term ``public health'' in its name. As long as a hospital 
facility is soliciting and taking into account input received from the 
unit of a local, state, tribal, or regional government with 
jurisdiction over and expertise in public health, it will satisfy the 
requirement to solicit and take into account input received from a 
governmental public health department.
    The 2013 proposed regulations provided flexibility in allowing a 
hospital facility to choose the level of government that it concluded 
was most appropriate for its CHNA, and did not require a hospital 
facility to solicit input from a local public health department, in 
particular, because not all jurisdictions will have local public health 
departments available to participate in the CHNA process. Several 
commenters asked that the final regulations require a hospital facility 
to solicit input from a local public health department if one exists in 
its community. Other commenters, however, expressly supported allowing 
flexibility to choose the particular governmental health department 
from which to seek input.
    The Treasury Department and the IRS believe that public health 
departments represent the broad interests of the jurisdictions they 
serve and have special knowledge of and expertise in public health, 
regardless of whether they are local, state, tribal, or regional 
departments. Several commenters noted that local public health 
departments may vary greatly in their capacity to participate in a CHNA 
process. In addition, the community served by a hospital facility may 
span the jurisdictions of multiple local public health departments. 
Thus, even when a hospital facility's locality has a local public 
health department, the hospital facility still might reasonably decide 
that a public health department at a different jurisdictional level may 
be a more appropriate source of input for its CHNA. Accordingly, the 
final regulations preserve the flexible approach of the 2013 proposed 
regulations and allow a hospital facility to select the jurisdictional 
level (local, state, tribal or regional) of the public health 
department that is most appropriate for its CHNA.
    One commenter asked that the final regulations identify State 
Offices of Rural Health (SORHs) as governmental public health entities 
from which hospital facilities may seek input. This commenter stated 
that SORHs operate on a statewide basis and routinely conduct rural 
health planning efforts, including both health service access 
assessments and population health status assessments. The Treasury 
Department and the IRS note that the substantial majority of SORHs are 
located in state health departments, such that rural hospital 
facilities soliciting input from these state SORHs would presumably be 
soliciting input from a state public health department. However, 
because some SORHs are located in state universities or other 
nonprofits or government departments other than public health 
departments, the final regulations separately identify SORHs as a 
source of input from which hospital facilities may solicit and take 
into account input to satisfy the relevant requirement.
    One commenter stated that hospital facilities are increasingly 
employing or contracting with public health experts. This commenter 
further stated that it would seem illogical for a hospital facility to 
be considered to have failed to meet the CHNA requirements because it 
relied on more specific, in-depth advice and input from a public health 
expert without necessarily working with a public health agency with 
strained available resources that is attempting to serve a larger 
geographic area with a broader set of public health needs than those 
the hospital facility might address. The Treasury Department and the 
IRS note that public health expertise alone does not result in a 
person's representing the broad interests of the community, while a 
governmental public health department both offers public health 
expertise and is responsible for ensuring that the broad interests of 
the community are represented. Thus, while hospital facilities are free 
to contract with public health experts to assist with their CHNAs, the 
final regulations require a hospital facility to solicit and take into 
account input received from a governmental public health department.
B. Medically Underserved, Low-Income, and Minority Populations
    Several commenters asked that hospital facilities be required to 
seek input from certain specified groups, such as the disabled, 
individuals with chronic diseases, women and children, and LEP 
populations, in addition to the requirement in the 2013 proposed 
regulations to seek input from medically

[[Page 78965]]

underserved, low-income, and minority populations. As noted in section 
3.a.i of this preamble, ``medically underserved'' populations are 
defined in the 2013 proposed regulations and these final regulations as 
populations ``at risk of not receiving adequate medical care as a 
result of being uninsured or underinsured or due to geographic, 
language, financial, or other barriers.'' The Treasury Department and 
the IRS believe this definition (along with the inclusion of low-income 
and minority populations) should be sufficiently broad to encompass 
many of the populations cited by commenters to the extent such 
populations are at risk of not receiving adequate medical care. 
Moreover, even if a hospital facility does not solicit input from a 
particular population while conducting its CHNA, any person can 
participate in the CHNA process by submitting written comments on the 
hospital facility's most recently conducted CHNA and most recently 
adopted implementation strategy, as described in section 3.a.iii.C of 
this preamble. Accordingly, the final regulations do not expand the 
populations from whom a hospital facility is required to solicit input 
beyond medically underserved, minority, and low-income populations.
    One commenter asked that the final regulations define the broader 
category of ``minority populations'' to include certain sub-categories 
of persons, such as persons with disabilities and LEP individuals, and 
require hospital facilities to consult a member or representative of 
each such sub-category identified in their community served. Because 
the sub-categories within the broad categories of minority and 
medically underserved populations will likely vary greatly from 
community to community, the final regulations continue to provide 
hospital facilities with the flexibility to identify the significant 
minority and medically underserved populations in their communities 
with whom they should consult and do not mandate any specific approach.
C. Written Comments
    While some comments in response to Notice 2011-52 recommended a 
requirement that a hospital facility take into account public input on 
a draft version of its CHNA report before finalizing the report, this 
recommendation was not adopted in the 2013 proposed regulations due to 
the complexity of the additional timeframes and procedures such a 
process would require. Instead, the 2013 proposed regulations required 
hospital facilities to consider written comments received from the 
public on the hospital facility's most recently conducted CHNA and most 
recently adopted implementation strategy. Because a new CHNA must be 
conducted and an implementation strategy adopted at least once every 
three years, the Treasury Department and the IRS intended for this 
requirement to establish the same sort of continual feedback on CHNA 
reports suggested by commenters, albeit over a different timeframe.
    In response to the 2013 proposed regulations, some commenters 
continued to advocate for requiring comments on a draft CHNA report 
before it is finalized, stating that the burdens of such a rule would 
be reasonable and commensurate with the benefits of giving interested 
individuals additional opportunities to participate in the CHNA. These 
commenters added that without a mandatory opportunity to comment on the 
draft CHNA report, interested individuals and organizations may not be 
aware that a hospital facility is conducting its CHNA until the CHNA is 
complete, and that opening up the CHNA report for comment in ``real 
time'' would yield findings more indicative of community priorities and 
provide a better framework for collaboration. Other commenters, 
however, supported the proposed requirement that hospital facilities 
take into account input in the form of written comments received on the 
hospital facility's most recently conducted CHNA and most recently 
adopted implementation strategy, stating that such comments may provide 
extremely valuable information to guide future assessments and 
implementation strategies and that this is a practical way of taking 
various perspectives into account.
    The Treasury Department and the IRS continue to believe that the 
opportunity for the public to submit written comments on previously 
adopted CHNA reports and implementation strategies will result in a 
meaningful exchange over time and that the longer timeframe will both 
give the public sufficient time to provide comments (including comments 
reflecting changing circumstances) and give hospital facilities 
sufficient time to take the comments into account when conducting their 
next CHNA. The Treasury Department and the IRS also note that hospital 
facilities' CHNA processes will be taking into account input in ``real 
time'' from various community stakeholders, including, at a minimum, 
governmental public health departments and medically underserved, low-
income, and minority populations (or persons serving or representing 
them). Accordingly, the final regulations retain the requirement that a 
hospital facility take into account written comments on the hospital 
facility's most recently conducted CHNA report and most recently 
adopted implementation strategy and do not adopt an additional 
requirement to post a draft CHNA report for public comment before it is 
finalized. In addition, the Treasury Department and the IRS note that 
hospital facilities may choose to post a draft CHNA report for public 
comment, and both the 2013 proposed regulations and these final 
regulations facilitate this option by specifying that the posting of a 
draft CHNA report will not trigger the start of a hospital facility's 
next three-year CHNA cycle.
    A few commenters asked how the public is expected to comment on the 
implementation strategy if the information is not made available 
outside of the Form 990 reporting process. As discussed in section 8.a 
of this preamble, a hospital organization must either attach to its 
Form 990 a copy of the most recently adopted implementation strategy 
for each hospital facility it operates or provide on the Form 990 the 
URL(s) of the Web page(s) on which it has made each implementation 
strategy widely available on a Web site. Section 6104 requires Forms 
990 to be made available to the public by both the filing organization 
and the IRS, and members of the public may obtain a copy of a hospital 
organization's Forms 990 from one of the privately-funded organizations 
that gathers and disseminates Forms 990 online or by completing IRS 
Form 4506-A, ``Request for Public Inspection or Copy of Exempt or 
Political Organization IRS Form.''
    One commenter requested clarification on how hospital facilities 
should be collecting written comments from the public, asking, for 
example, if written comments must be collected via a form on a Web site 
or by email or mailed letter. The final regulations do not require a 
specific method for collection of these written comments, providing 
hospital facilities with the flexibility to set up a collection and 
tracking system that works with their internal systems and makes the 
most sense for their particular community.
    A few commenters asked that the final regulations clarify how 
hospital facilities should respond to written comments received from 
the public. One commenter proposed that a hospital facility designate a 
representative or division responsible for providing substantive 
responses to written comments to demonstrate that the hospital facility 
has received the

[[Page 78966]]

comment and to ensure that the public will be able to provide continual 
feedback during the interim period between formal CHNAs. In contrast, 
another commenter stated that requiring hospitals to individually 
address each community concern through feedback could become 
burdensome. As discussed in section 3.a.iv of this preamble, the final 
regulations require hospital facilities to describe generally any input 
received in the form of written comments (or from any other source) in 
their CHNA reports. The Treasury Department and the IRS expect that 
this description in the CHNA report will provide sufficient 
confirmation that comments have been received and considered and intend 
that hospital facilities will otherwise have flexibility in determining 
whether further responses are necessary. Thus, the final regulations do 
not adopt any specific requirements regarding how hospital facilities 
must respond to written comments received from the public.
    Finally, one commenter sought confirmation that the requirement to 
take into account written comments on the hospital facility's ``most 
recently conducted CHNA'' means that hospital facilities must take into 
account public comments submitted after the CHNA or implementation 
strategy is finalized to inform and influence future CHNAs and 
implementation strategies. This is an accurate description of this 
provision in both the 2013 proposed regulations and these final 
regulations. The Treasury Department and the IRS intend that the phrase 
``most recently conducted CHNA'' refers not to a CHNA that is in 
process but rather to the last CHNA that was ``conducted,'' typically 
determined as of the date the hospital facility makes an adopted and 
complete CHNA report widely available to the public.
D. Additional Sources of Input
    The 2013 proposed regulations provided that, in addition to 
soliciting input from the three required sources, a hospital facility 
may take into account input from a broad range of persons located in or 
serving its community, including, but not limited to, health care 
consumers and consumer advocates, nonprofit and community-based 
organizations, academic experts, local government officials, local 
school districts, health care providers and community health centers, 
health insurance and managed care organizations, private businesses, 
and labor and workforce representatives.
    Numerous commenters requested that the final regulations require, 
rather than simply permit, hospital facilities to solicit input from 
additional sources, including from patient and health care consumer 
organizations located in or serving the hospital facility's community, 
county governing boards, experts in nutrition or the local food system, 
and housing service providers. While these sources may have valuable 
input to contribute to a hospital facility's CHNA, mandating input from 
some or all of these sources could result in a final rule that is 
unsuited for particular communities and further complicate the CHNA 
process and the ability to collaborate. Accordingly, the final 
regulations do not require hospitals to solicit input from additional 
persons, although a hospital facility is free to solicit input from the 
suggested sources (as well as other sources) and must take into account 
input received from any person (including these sources) in the form of 
written comments on the most recently conducted CHNA or most recently 
adopted implementation strategy.
E. Input on Financial and Other Barriers
    The 2012 proposed regulations requested comments on the potential 
link between the needs of a hospital facility's community, as 
determined through the hospital facility's most recently conducted 
CHNA, and a hospital facility's FAP. The preamble to the 2013 proposed 
regulations recognized that the need to improve access to care by 
removing financial barriers can be among the significant health needs 
assessed in a CHNA, and the 2013 proposed regulations themselves 
provided that input from persons representing the broad interests of 
the community includes, but is not limited to, input on any financial 
and other barriers to access to care in the community.
    Several commenters stated that the CHNA process offers an 
opportunity to inquire about financial and other barriers to care, 
which could provide useful information to a hospital facility in 
updating and evaluating its FAP. However, other commenters noted that 
section 501(r) does not require a link between a hospital facility's 
CHNA and its FAP. These commenters further stated that because CHNAs 
are already required to take into account input from persons who 
represent the broad interests of the community and the decision of how 
to meet those needs is the responsibility of the hospital's governing 
board, a linkage should be allowed at the discretion of the hospital 
facility but not required.
    In acknowledgement of the importance of assessing financial 
barriers to care in the CHNA process, the final regulations expressly 
provide that the health needs of a community may include the need to 
address financial and other barriers to access to care in the 
community. However, consistent with the approach taken in Notice 2011-
52 and the 2013 proposed regulations, the final regulations focus on 
ensuring transparency regarding the health needs identified through a 
CHNA rather than requiring hospital facilities to identify any 
particular categories of health needs. As with all significant health 
needs identified through a CHNA, a hospital facility's decision as to 
whether and how to address a significant health need involving 
financial barriers to care (including through an amendment to a 
hospital facility's FAP) will be disclosed publicly in the hospital 
facility's implementation strategy and subject to public comments in 
preparing the next CHNA. Thus, the final regulations do not require any 
additional link between a hospital facility's CHNA and its FAP.
iv. Documentation of a CHNA
    Similar to the 2013 proposed regulations, the final regulations 
provide that a hospital facility must document its CHNA in a CHNA 
report that is adopted by an authorized body of the hospital facility 
and includes: (1) A definition of the community served by the hospital 
facility and a description of how the community was determined; (2) a 
description of the process and methods used to conduct the CHNA; (3) a 
description of how the hospital facility solicited and took into 
account input received from persons who represent the broad interests 
of the community it serves; (4) a prioritized description of the 
significant health needs of the community identified through the CHNA, 
along with a description of the process and criteria used in 
identifying certain health needs as significant and prioritizing those 
significant health needs; and (5) a description of resources 
potentially available to address the significant health needs 
identified through the CHNA.
    Both the 2013 proposed regulations and these final regulations 
provide that a CHNA report will be considered to describe the process 
and methods used to conduct the CHNA if the CHNA report describes the 
data and other information used in the assessment, as well as the 
methods of collecting and analyzing this data and information, and 
identifies any parties with whom the hospital facility collaborated, or 
with whom it contracted for assistance, in conducting the CHNA. Some 
commenters requested that this provision be modified to permit the 
referencing of publicly available source

[[Page 78967]]

materials (for example, public health agency data) on which the 
hospital facility relied in conducting its CHNA. The final regulations 
clarify that a hospital facility may rely on (and the CHNA report may 
describe) data collected or created by others in conducting its CHNA 
and, in such cases, may simply cite the data sources rather than 
describe the ``methods of collecting'' the data.
    A few commenters requested clarification on how a hospital 
facility's CHNA report should describe input received in the form of 
written comments, with one such commenter asking if a general summary 
of the input provided, the number of comments received, and the time 
period during which the comments were received will be sufficient. The 
final regulations retain the provisions of the 2013 proposed 
regulations, which stated that a CHNA report will be considered to 
describe how the hospital facility took into account community input if 
it summarizes, in general terms, the input provided and how and over 
what time period it was provided. This language applies to written 
comments, as well as to any other type of input provided. In addition, 
like the 2013 proposed regulations, the final regulations provide that 
a CHNA report does not need to name or otherwise identify any specific 
individual providing input on the CHNA, which would include input 
provided by individuals in the form of written comments.
v. Collaboration on CHNA Reports
    The 2013 proposed regulations provided that a hospital organization 
may choose to conduct its CHNA in collaboration with other 
organizations and facilities, including related and unrelated hospital 
organizations and facilities, for-profit and government hospitals, 
governmental departments, and nonprofit organizations. In general, 
every hospital facility must document its CHNA in a separate CHNA 
report. However, the 2013 proposed regulations made clear that portions 
of a hospital facility's CHNA report may be substantively identical to 
portions of the CHNA reports of other facilities or organizations, if 
appropriate under the facts and circumstances. The 2013 proposed 
regulations further provided that collaborating hospital facilities 
that define their community to be the same and that conduct a joint 
CHNA process may produce a joint CHNA report. The final regulations 
amend the proposed regulations to clarify that joint CHNA reports must 
contain all of the same basic information that separate CHNA reports 
must contain (discussed in section 3.a.iv of this preamble).
    Numerous commenters expressed support for allowing joint CHNA 
reports, noting that the purpose of collaboration is to make the most 
efficient use of resources in assessing community needs and devising 
strategies to address those needs and that communities would benefit 
from strengthened collaborative partnerships that help build broad-
based support for community-wide solutions to the underlying causes of 
health problems. In addition, several of these commenters stated that 
joint CHNA reports would more effectively leverage the health data 
expertise of governmental public health departments without placing an 
unreasonable burden on departments that serve jurisdictions with more 
than one tax-exempt hospital facility. Another commenter stated that 
joint CHNA reports both enhance overall community health and lessen 
confusion in the community by providing a more comprehensive view of 
the identified needs and associated strategies for addressing those 
needs. For these reasons, the final regulations continue to permit 
collaborating hospital facilities to produce joint CHNA reports.
    Several commenters recommended that the final regulations go beyond 
simply permitting collaboration to expressly encouraging, or even 
requiring, hospital facilities located in the same jurisdiction to 
collaborate in conducting a CHNA and developing an implementation 
strategy. One of these commenters stated that this would help ensure 
that the community is not overburdened by multiple CHNA efforts, noting 
that a ``go it alone'' approach in a jurisdiction with multiple 
hospitals is likely to be neither the most efficient nor the most 
effective way to improve the overall health of the community. Another 
commenter, however, stated that the discretion to work collaboratively 
with others should be left to each particular hospital facility, given 
the many health care providers operating in a typical community.
    Like the 2013 proposed regulations, the final regulations encourage 
and facilitate collaboration among hospital facilities by allowing for 
joint CHNA reports. However, section 501(r) applies separately to each 
hospital organization (and, in the case of hospital organizations 
operating more than one hospital facility, each hospital facility) and, 
therefore, it is not appropriate to require hospital organizations to 
meet the section 501(r)(3) requirements collaboratively with other 
organizations. Accordingly, the final regulations facilitate, but do 
not require, collaboration.
    Two commenters asked whether the requirement that collaborating 
hospital facilities must ``conduct a joint CHNA process'' to adopt a 
joint CHNA report means that the collaborating hospital facilities must 
make the joint CHNA report widely available to the public (including 
posting the CHNA report on a Web site) on the same day. The Treasury 
Department and the IRS do not intend for collaborating hospital 
facilities to have to make a joint CHNA report widely available to the 
public on the same day. Thus, in response to these comments and to 
avoid potential confusion, the final regulations remove the reference 
to a joint CHNA process.
A. Defining a Common Community
    Several commenters expressed concern regarding the requirement that 
hospital facilities that collaborate on a CHNA and intend to produce a 
joint CHNA report must define their communities to be the same. Two of 
these commenters requested that a hospital facility collaborating on a 
CHNA being conducted for a larger shared community also be able to 
identify and address needs that are highly localized in nature or 
occurring within only a small portion of that community. The 2013 
proposed regulations and these final regulations define ``health 
needs'' to include requisites for the improvement or maintenance of 
health status in particular parts of the community, such as particular 
neighborhoods or populations experiencing health disparities. 
Accordingly, a joint CHNA conducted for a larger area could identify as 
a significant health need a need that is highly localized in nature or 
occurs within only a small portion of that larger area. In addition, 
nothing in the final regulations prevents a hospital facility 
collaborating on a CHNA from supplementing a joint CHNA report with its 
own assessment of more highly localized needs. Because the 2013 
proposed regulations already allowed collaborating hospital facilities 
to address highly localized needs experienced in a particular part of 
their shared community, the final regulations do not amend the proposed 
regulations in response to these comments.
    One commenter requested that collaborating hospital facilities that 
serve different communities be allowed to adopt a joint CHNA report, 
stating that requiring all hospital facilities participating in a joint 
CHNA report to define their community to be the same would appear to 
prohibit collaboration between general and specialized

[[Page 78968]]

hospital facilities in the same geographic area if the specialized 
hospital facilities define their communities in terms of service area 
or principal function and the general hospital facilities define their 
communities geographically.
    The 2013 proposed regulations and these final regulations permit 
hospital facilities with different but overlapping communities to 
collaborate in conducting a CHNA and to include substantively identical 
portions in their separate CHNA reports if appropriate under the facts 
and circumstances. The final regulations elaborate upon this point with 
an example of two hospital facilities with overlapping, but not 
identical, communities that are collaborating in conducting a CHNA and 
state that, in such a case, the portions of each hospital facility's 
CHNA report relevant to the shared areas of their communities may be 
identical. Thus, the final regulations not only expressly permit 
hospital facilities with different communities (including general and 
specialized hospitals) to collaborate but also allow such hospital 
facilities to adopt substantively identical CHNA reports to the extent 
appropriate.
    A few commenters recommended that the final regulations make clear 
that, to the extent that the communities served by collaborating 
hospital facilities differ, a CHNA report must reflect the unique needs 
of the community of the particular hospital facility adopting the 
report. By stating that collaborating hospital facilities with 
different but overlapping communities may include substantively 
identical portions in their separate CHNA reports only ``if appropriate 
under the facts and circumstances,'' the 2013 proposed regulations and 
these final regulations convey that the CHNA reports of collaborating 
hospital facilities should differ to reflect any material differences 
in the communities served by those hospital facilities.
B. Collaborating With Public Health Departments
    Two commenters requested that hospital facilities be permitted to 
adopt the CHNA of a local public health department in the event that: 
(1) The hospital facility has the same community as the local public 
health department (as defined by the hospital facility), and (2) the 
CHNA adopted by the local public health department meets the 
requirements set forth in these regulations. The final regulations 
clarify that if a governmental public health department has conducted a 
CHNA for all or part of a hospital facility's community, portions of 
the hospital facility's CHNA report may be substantively identical to 
those portions of the health department's CHNA report that address the 
hospital facility's community. The final regulations also clarify that 
a hospital facility that collaborates with a governmental public health 
department in conducting its CHNA may adopt a joint CHNA report 
produced by the hospital facility and public health department, as long 
as the other requirements applicable to joint CHNA reports are met.
vi. Making the CHNA Report Widely Available to the Public
    The 2013 proposed regulations provided that a hospital facility 
must make its CHNA report widely available to the public both by making 
the CHNA report widely available on a Web site and by making a paper 
copy of the CHNA report available for public inspection without charge 
at the hospital facility. The 2013 proposed regulations further 
provided that the CHNA report must be made widely available to the 
public in this manner until the date the hospital facility has made 
widely available to the public its two subsequent CHNA reports.
    A few commenters recommended that the final regulations require the 
CHNA report to be translated into multiple languages. Commenters also 
recommended that the hospital facility be required to make paper copies 
of the CHNA report available in locations other than the hospital 
facility that may be more accessible to the community at large and 
proactively inform the community when the report is available.
    The Treasury Department and the IRS note that section 501(r)(3) 
requires the CHNA to be made ``widely available'' to the public, in 
contrast to the requirement in section 501(r)(4) regarding measures to 
``widely publicize'' the FAP. The Treasury Department and the IRS have 
interpreted the term ``widely publicize'' to require proactive efforts 
to inform, and make a document available in, the community at large, 
but have not so interpreted the term ``widely available.'' The Treasury 
Department and the IRS interpret ``widely available'' in a manner 
consistent with how that term is defined for purposes of section 6104 
(relating to disclosure of annual information returns). See Sec.  
301.6104(d)-2(b) (interpreting the term ``widely available'' in section 
6104(d)(4) to include the posting of information returns and exemption 
applications on a Web page). Accordingly, the final regulations retain 
the definition of ``widely available'' set forth in the proposed 
regulations and decline to adopt a definition that would include the 
suggested measures to translate and proactively publicize the CHNA 
report within the community served by the hospital facility.
    Additional commenters requested that hospital facilities be 
required to post their CHNA reports (and implementation strategies) on 
a national, searchable Web site. Given that hospital facilities are 
already required to conspicuously post their CHNA reports on a Web 
site, any individual interested in a particular hospital facility's 
CHNA report should be able to locate it. The Treasury Department and 
the IRS do not have, and cannot require a third party to host, a 
comprehensive Web site containing all hospital facilities' CHNA 
reports. Accordingly, the final regulations do not adopt this 
additional suggested requirement.
    One commenter asked that the final regulations clarify how a 
hospital facility is required to make a paper copy of its CHNA report 
available for public inspection and, specifically, whether a paper copy 
of the CHNA report must be publicly displayed or, rather, may be made 
available only upon request. The final regulations clarify that a 
hospital facility need only make a paper copy of the CHNA report 
available for public inspection upon request.
vii. Frequency of the CHNA Cycle
    The 2013 proposed regulations provided that, to satisfy the CHNA 
requirements for a particular taxable year, a hospital facility must 
conduct a CHNA in that taxable year or in either of the two taxable 
years immediately preceding such taxable year. A few commenters 
requested that the final regulations provide flexibility in the 
timeline to limit impediments to collaboration amongst hospital 
facilities with different taxable years. Commenters also requested that 
the CHNA cycle match the five-year cycle that local public health 
departments follow in conducting their community health assessments for 
national accreditation by the Public Health Accreditation Board. One 
such commenter stated that adopting this five-year timeline would avoid 
duplication of effort and incentivize hospital facilities to 
collaborate more fully with local public health departments. Because 
section 501(r)(3)(A)(i) requires a hospital organization to conduct a 
CHNA in the current or one of the two prior taxable years, the final 
regulations do not adopt these suggestions.

[[Page 78969]]

b. Implementation Strategies
    The final regulations provide, consistent with the 2013 proposed 
regulations, that a hospital facility's implementation strategy is a 
written plan that, with respect to each significant health need 
identified through the CHNA, either: (1) Describes how the hospital 
facility plans to address the health need, or (2) identifies the health 
need as one the hospital facility does not intend to address and 
explains why the hospital facility does not intend to address the 
health need.
    The preamble to the 2013 proposed regulations further provided that 
although an implementation strategy must consider the significant 
health needs identified through a hospital facility's CHNA, the 
implementation strategy is not limited to considering only those health 
needs and may describe activities to address health needs that the 
hospital facility identifies in other ways. Several commenters 
supported this proposed flexibility to discuss health needs identified 
in ways other than through conducting a CHNA, with two such commenters 
requesting that this language appear in the regulatory text of the 
final regulations. Another commenter, however, stated that CHNA reports 
and implementation strategies should be tightly integrated and 
expressed concern that allowing or encouraging hospital facilities to 
introduce in the implementation strategy additional needs beyond those 
identified in the CHNA may undermine the role of community input.
    In general, the final regulations under section 501(r) provide 
detail only with respect to the minimum elements that must be included 
in the various documents and policies required under sections 501(r)(3) 
and 501(r)(4), preserving flexibility for hospital facilities to 
otherwise determine the contents of such documents and policies. 
Consistent with this approach, the final regulations do not prohibit 
implementation strategies from discussing health needs identified 
through means other than a CHNA, provided that all of the significant 
health needs identified in the CHNA are also discussed.
    Many commenters recommended that the statutory requirements that a 
CHNA ``take into account input from persons who represent the broad 
interests of the community'' and ``be made widely available to the 
public'' should also apply to implementation strategies to allow 
communities to monitor, assist, and provide input on hospital 
facilities' efforts to address health needs. With respect to making the 
implementation strategy more accessible to the public, commenters also 
asked that the final regulations clarify how the public may access an 
implementation strategy that is attached to the Form 990.
    Section 501(r)(3)(B) applies the requirements regarding community 
input and wide availability to the public only to CHNAs. In addition, 
only section 501(r)(3)(A)(i), which refers to CHNAs, and not section 
501(r)(3)(A)(ii), which refers to implementation strategies, cross-
references the requirements regarding community input and wide 
availability to the public contained in section 501(r)(3)(B). 
Accordingly, the final regulations do not adopt the suggested changes. 
However, the 2013 proposed regulations and these final regulations 
respond to commenters' requests to require public input on the 
implementation strategy by requiring a hospital facility to take into 
account comments received on the previously adopted implementation 
strategy when the hospital facility is conducting the subsequent CHNA. 
Furthermore, as discussed in section 8.a of this preamble, the 2013 
proposed regulations and these final regulations respond to commenters' 
requests to require the implementation strategy to be made widely 
available to the public by requiring a hospital organization to attach 
to its Form 990 a copy of the most recently adopted implementation 
strategy for each hospital facility it operates (or provide on the Form 
990 the URL(s) of the Web page(s) on which it has made each 
implementation strategy widely available on a Web site). As noted in 
section 3.a.iii.C of this preamble, section 6104 requires Forms 990 to 
be made available to the public by both the filing organization and the 
IRS, and members of the public may easily obtain a copy of a hospital 
organization's Forms 990 from one of the privately-funded organizations 
that gathers and disseminates Forms 990 online or by completing IRS 
Form 4506-A.
i. Describing How a Hospital Facility Plans To Address a Significant 
Health Need
    In describing how a hospital facility plans to address a 
significant health need identified through the CHNA, the 2013 proposed 
regulations provided that the implementation strategy must: (1) 
Describe the actions the hospital facility intends to take to address 
the health need, the anticipated impact of these actions, and the plan 
to evaluate such impact; (2) identify the programs and resources the 
hospital facility plans to commit to address the health need; and (3) 
describe any planned collaboration between the hospital facility and 
other facilities or organizations in addressing the health need.
    Many commenters supported the proposed requirement that a hospital 
facility include a plan to evaluate the impact of its efforts in its 
implementation strategy and further recommended that the final 
regulations require hospital facilities to actually perform the planned 
evaluation and publish the results of the evaluation. Some of these 
commenters recommended publication of the results in the subsequent 
CHNA report. Other commenters requested permission for hospital 
facilities to accomplish the ``plan to evaluate the impact'' of the 
implementation strategy through the process of conducting the next 
CHNA. In response to these comments, the final regulations replace the 
proposed requirement that the implementation strategy describe a plan 
to evaluate its impact with a requirement that the CHNA report include 
an evaluation of the impact of any actions that were taken since the 
hospital facility finished conducting its immediately preceding CHNA to 
address the significant health needs identified in the hospital 
facility's prior CHNA(s).
    The preamble to the 2013 proposed regulations provided the example 
that if a hospital facility's CHNA identified high rates of financial 
need or large numbers of uninsured individuals and families in the 
community as a significant health need in its community, its 
implementation strategy could describe a program to address that need 
by expanding its financial assistance program and helping to enroll 
uninsured individuals in sources of insurance such as Medicare, 
Medicaid, Children's Health Insurance Program (CHIP), and the new 
Health Insurance Marketplaces (also known as Exchanges), as 
appropriate. A few commenters stated that, in addition to examples 
involving access to health care, it would be helpful to have examples 
of other interventions designed to prevent illness or to address 
social, behavioral, and environmental factors that influence community 
health. An implementation strategy may describe the actions the 
hospital facility intends to take to address any significant health 
needs identified through the CHNA process, and, as noted in section 
3.a.ii of this preamble, the final regulations specify that the health 
needs identified through a CHNA may, for example, include the need to 
prevent illness, to ensure adequate nutrition, or to address social, 
behavioral, and environmental factors that influence health in the 
community.

[[Page 78970]]

Thus, the final regulations make clear that an implementation strategy 
may describe interventions designed to prevent illness or to address 
social, behavioral, and environmental factors that influence community 
health.
ii. Describing Why a Hospital Facility Is Not Addressing a Significant 
Health Need
    The 2013 proposed regulations provided that a hospital facility may 
provide a brief explanation of its reason for not addressing a 
significant health need, including, but not limited to, resource 
constraints, relative lack of expertise or competencies to effectively 
address the need, a relatively low priority assigned to the need, a 
lack of identified effective interventions to address the need, and/or 
the fact that the need is being addressed by other facilities or 
organizations in the community. Several commenters thought hospital 
facilities should not be able to cite ``resource constraints'' or 
``lack of expertise'' as reasons for not addressing a significant 
health need. These commenters state that a hospital facility that is 
unable, for reasons of lack of resources or expertise or other factors, 
to address a community health need should instead collaborate with 
community partners to address that need. Other commenters supported 
allowing hospital facilities to provide any explanation as to why some 
health needs will not be addressed, consistent with the proposed rule.
    As discussed in section 3.a.v of this preamble, the final 
regulations permit but do not require collaboration. Thus, the final 
regulations preserve the ability for a hospital facility to explain its 
reasons for not addressing a significant health need (including 
resource constraints or a lack of expertise), even if those reasons 
could be mitigated through collaboration.
iii. Joint Implementation Strategies
    The 2013 proposed regulations provided that a hospital facility 
adopting a joint CHNA report along with other hospital facilities and 
organizations (as described in section 3.a.v of this preamble) may also 
adopt a joint implementation strategy as long as it meets certain 
specified requirements.
    Numerous commenters generally supported joint implementation 
strategies, with some of these commenters stating that such 
collaboration is an important way to conserve resources, promote cross-
system strategies, and yield better outcomes. Commenters also noted 
that the proposed approach avoids the need to create duplicative 
separate documents while still ensuring that information for each 
hospital facility is clearly presented. Accordingly, the final 
regulations adopt the proposed provision allowing for joint 
implementation strategies.
iv. When the Implementation Strategy Must Be Adopted
    To satisfy the CHNA requirements with respect to any taxable year, 
section 501(r)(3)(A)(ii) requires a hospital facility to adopt an 
implementation strategy to meet the health needs identified through the 
CHNA described in section 501(r)(3)(A)(i). The 2013 proposed 
regulations provided that, to satisfy this requirement, an authorized 
body of the hospital facility must adopt an implementation strategy to 
meet the health needs identified through a hospital facility's CHNA by 
the end of the same taxable year in which the hospital facility 
finishes conducting the CHNA. In addition, the Treasury Department and 
the IRS sought comments on whether this rule would materially inhibit 
the ability of hospital facilities with different taxable years to 
collaborate with each other or otherwise burden hospital facilities 
unnecessarily.
    Some commenters requested additional time in which to adopt the 
implementation strategy to accommodate collaboration between hospital 
facilities, public health departments, and community organizations with 
different fiscal years and on different CHNA schedules. Suggestions 
from these commenters ranged from an additional four and a half months 
to 12 months after the end of the taxable year in which the CHNA was 
conducted.
    In response to these comments, the final regulations provide 
hospital facilities with an additional four and a half months to adopt 
the implementation strategy, specifically requiring an authorized body 
of the hospital facility to adopt an implementation strategy to meet 
the health needs identified through a CHNA on or before the 15th day of 
the fifth month after the end of the taxable year in which the hospital 
facility finishes conducting the CHNA. By matching the date by which an 
authorized body of the hospital facility must adopt the implementation 
strategy to the due date (without extensions) of the Form 990 filed for 
the taxable year in which the CHNA is conducted, this approach does not 
materially reduce transparency, because an implementation strategy (or 
the URL of the Web site on which it is posted) is made available to the 
public through the Form 990. The final regulations do not go further 
and permit a hospital facility to delay adoption of an implementation 
strategy until the due date for the Form 990 including extensions. This 
is because hospital facilities need to report on Form 4720 any excise 
tax they owe under section 4959 as a result of failing to meet the CHNA 
requirements in a taxable year by the 15th day of the fifth month 
following the end of that taxable year and thus need to know whether 
they have met the requirement to adopt an implementation strategy by 
that date.
    Because all hospital organizations now have until the 15th day of 
the fifth month following the close of the taxable year in which they 
conduct a CHNA to adopt the associated implementation strategy, the 
final regulations remove the transition rule that allowed for this 
result for CHNAs conducted in a hospital facility's first taxable year 
beginning after March 23, 2012.
c. Exception for Hospital Facilities That Are New, Newly Acquired, or 
Newly Subject to Section 501(r)
    The 2013 proposed regulations provided that a hospital facility 
that was newly acquired or placed into service by a hospital 
organization, or that became newly subject to section 501(r) because 
the hospital organization that operated it was newly recognized as 
described in section 501(c)(3), must meet the CHNA requirements by the 
last day of the second taxable year beginning after the date, 
respectively, the hospital facility was acquired, placed into service, 
or newly subject to section 501(r).
    Several commenters interpreted the 2013 proposed regulations as 
providing new and newly acquired hospital facilities with only two 
taxable years to meet the CHNA requirements. Two such commenters 
requested that these hospital facilities be given three taxable years, 
to correspond to the length of the CHNA cycle provided in the statute.
    The 2013 proposed regulations gave hospital facilities two complete 
taxable years plus the portion of the taxable year of acquisition, 
licensure, or section 501(c)(3) recognition (as applicable) to meet the 
CHNA requirements. As noted in the preamble to the 2013 proposed 
regulations, a short taxable year of less than twelve months is 
considered a taxable year for purposes of section 501(r). Thus, the 
portion of the taxable year in which a hospital facility is acquired or 
placed into service, or becomes newly subject to section 501(r), is a 
taxable year for purposes of the CHNA requirements, regardless of 
whether that taxable year is less than twelve months. As a result, a 
deadline of the last day of the second taxable year

[[Page 78971]]

beginning after the date of acquisition, licensure, or section 
501(c)(3) recognition provides these new hospital facilities with three 
taxable years (even if less than three full calendar years) to meet the 
section 501(r)(3) requirements. By contrast, a deadline of the last day 
of the third taxable year beginning after the date of acquisition, 
licensure, or section 501(c)(3) recognition would provide these new 
hospital facilities with more than three taxable years, and possibly 
close to four taxable years, to meet the CHNA requirements. 
Accordingly, the final regulations continue to require hospital 
facilities that are newly acquired or placed into service (or become 
newly subject to section 501(r)) to meet the CHNA requirements by the 
last day of the second taxable year beginning after the later of the 
date of acquisition, licensure, or recognition of section 501(c)(3) 
status.
i. Acquired Hospital Facilities
    The 2013 proposed regulations provided that a hospital facility 
that was newly acquired must meet the CHNA requirements by the last day 
of the second taxable year beginning after the date the hospital 
facility was acquired. Several commenters asked for guidance on whether 
and how this rule for acquisitions applies in the case of a merger of 
two hospital organizations.
    The final regulations provide that, in the case of a merger that 
results in the liquidation of one organization and survival of another, 
the hospital facilities formerly operated by the liquidated 
organization will be considered ``acquired,'' meaning they will have 
until the last day of the second taxable year beginning after the date 
of the merger to meet the CHNA requirements. Thus, the final 
regulations treat mergers equivalently to acquisitions.
ii. New Hospital Organizations
    One commenter asked whether a new hospital organization must meet 
the CHNA requirements by the last day of the second taxable year 
beginning after the date of licensure or section 501(c)(3) recognition 
if the organization seeks and obtains recognition of section 501(c)(3) 
status based on its planned activities before the hospital facility it 
plans to operate is licensed and placed into service. A facility is not 
considered a ``hospital facility'' until it is licensed, registered, or 
similarly recognized as a hospital by a state, and an organization 
operating a hospital facility is not subject to section 501(r) until it 
is recognized as described in section 501(c)(3). Thus, the Treasury 
Department and the IRS intend that a new hospital organization must 
meet the CHNA requirements by the last day of the second taxable year 
beginning after the later of the effective date of the determination 
letter or ruling recognizing the organization as described in section 
501(c)(3) or the first date a facility operated by the organization was 
licensed, registered, or similarly recognized by its state as a 
hospital. The final regulations are amended to make this clarification.
iii. Transferred or Terminated Hospital Facilities
    One commenter recommended that a hospital organization should not 
be required to meet the CHNA requirements in a particular taxable year 
with respect to a hospital facility if, before the end of that taxable 
year, the hospital organization transfers the hospital facility to an 
unaffiliated organization or otherwise terminates its operation of that 
hospital facility. This commenter reasoned that requiring a hospital 
organization to invest time and energy in conducting a CHNA and 
developing an implementation strategy for a hospital facility will 
create inefficiencies if the organization is transferring or 
terminating its operation of the hospital facility, as the new hospital 
organization may have different perceptions of the community's needs 
and the optimal channels for addressing those needs. In response to 
this comment, the final regulations provide that a hospital 
organization is not required to meet the requirements of section 
501(r)(3) with respect to a hospital facility in a taxable year if the 
hospital organization transfers all ownership of the hospital facility 
to another organization or otherwise ceases its operation of the 
hospital facility before the end of the taxable year. The same rule 
applies if the facility ceases to be licensed, registered, or similarly 
recognized as a hospital by a state during the taxable year.
    Another commenter asked whether a government hospital organization 
that voluntarily terminates its section 501(c)(3) status must meet the 
CHNA requirements in the taxable year of termination to avoid an excise 
tax under section 4959. As noted in section 1.d of this preamble, 
government hospital organizations that have previously been recognized 
as described in section 501(c)(3) but do not wish to comply with the 
requirements of section 501(r) may submit a request to voluntarily 
terminate their section 501(c)(3) recognition as described in section 
7.04(14) of Rev. Proc. 2014-4 (or a successor revenue procedure). A 
government hospital organization that terminates its section 501(c)(3) 
recognition in this manner is no longer considered a ``hospital 
organization'' within the meaning of these regulations and therefore 
will not be subject to excise tax under section 4959 for failing to 
meet the CHNA requirements during the taxable year of its termination.

4. Financial Assistance Policies and Emergency Medical Care Policies

    In accordance with the statute and the 2012 proposed regulations, 
the final regulations require hospital organizations to establish 
written FAPs as well as written emergency medical care policies.
a. Financial Assistance Policies
    Consistent with the 2012 proposed regulations, the final 
regulations provide that a hospital organization meets the requirements 
of section 501(r)(4)(A) with respect to a hospital facility it operates 
only if the hospital organization establishes for that hospital 
facility a written FAP that applies to all emergency and other 
medically necessary care provided by the hospital facility.
    A number of commenters noted that patients, including emergency 
room patients, are commonly seen (and separately billed) by private 
physician groups or other third-party providers while in the hospital 
setting. Commenters asked for clarification on the extent to which a 
hospital facility's FAP must apply to other providers a patient might 
encounter in the course of treatment in a hospital facility, including 
non-employee providers in private physician groups or hospital-owned 
practices. Some of these commenters noted that patients are often 
unaware of the financial arrangements between various providers in the 
hospital facility and may unknowingly be transferred to a provider that 
separately bills the patients for care. A few commenters noted that 
emergency room physicians in some hospital facilities separately bill 
for emergency medical care provided to patients and recommended that 
the section 501(r) requirements apply to such emergency room 
physicians.
    In response to comments and to provide transparency to patients, 
the final regulations require a hospital facility's FAP to list the 
providers, other than the hospital facility itself, delivering 
emergency or other medically necessary care in the hospital facility 
and to specify which providers are covered by the hospital facility's 
FAP (and which are not). As discussed in section 1.g of this preamble, 
the final

[[Page 78972]]

regulations also clarify that a hospital facility's FAP must apply to 
all emergency and other medically necessary care provided in a hospital 
facility by a partnership owned in part by, or a disregarded entity 
wholly owned by, the hospital organization operating the hospital 
facility, to the extent such care is not an unrelated trade or business 
with respect to the hospital organization. In addition, the Treasury 
Department and the IRS note that if a hospital facility outsources the 
operation of its emergency room to a third party and the care provided 
by that third party is not covered under the hospital facility's FAP, 
the hospital facility may not be considered to operate an emergency 
room for purposes of the factors considered in Rev. Rul. 69-545 (1969-2 
CB 117) (providing examples illustrating whether a nonprofit hospital 
claiming exemption under section 501(c)(3) is operated to serve a 
public rather than a private interest, with one activity of the section 
501(c)(3) hospital being the operation of a full time emergency room).
i. Eligibility Criteria and Basis for Calculating Amounts Charged to 
Patients
    Section 501(r)(4)(A)(i) and (ii) require a hospital facility's FAP 
to specify the eligibility criteria for financial assistance, whether 
such assistance includes free or discounted care, and the basis for 
calculating amounts charged to patients. Accordingly, the 2012 proposed 
regulations provided that a hospital facility's FAP must specify all 
financial assistance available under the FAP, including all discounts 
and free care and, if applicable, the amount(s) (for example, gross 
charges) to which any discount percentages will be applied. The 2012 
proposed regulations also provided that a hospital facility's FAP must 
specify all of the eligibility criteria that an individual must satisfy 
to receive each discount, free care, or other level of assistance.
    A number of commenters asked that hospital facilities be allowed to 
offer patients certain discounts--including self-pay discounts, certain 
discounts mandated under state law, and discounts for out-of-state 
patients--outside of their FAPs and that this assistance not be subject 
to the requirements of sections 501(r)(4) through 501(r)(6), including 
the AGB limitation of section 501(r)(5)(A). Several commenters noted 
that subjecting all assistance provided by hospital facilities to the 
AGB limitation could result in hospitals offering fewer discounts or 
less assistance than they might otherwise provide to certain categories 
of patients.
    The Treasury Department and the IRS recognize that not all 
discounts a hospital facility might offer its patients are properly 
viewed as ``financial assistance'' and intend that hospital facilities 
may offer payment discounts or other discounts outside of their FAPs 
and may charge discounted amounts in excess of AGB to individuals that 
are not FAP-eligible. Accordingly, the final regulations only require 
the FAP to describe discounts ``available under the FAP'' rather than 
all discounts offered by the hospital facility.\6\ The Treasury 
Department and the IRS note, however, that only the discounts specified 
in a hospital facility's FAP (and, therefore, subject to the AGB 
limitation) may be reported as ``financial assistance'' on Schedule H, 
``Hospitals,'' of the Form 990. Moreover, discounts provided by a 
hospital facility that are not specified in a hospital facility's FAP 
will not be considered community benefit activities for purposes of 
section 9007(e)(1)(B) of the Affordable Care Act (relating to reports 
on costs incurred for community benefit activities) nor for purposes of 
the totality of circumstances that are considered in determining 
whether a hospital organization is described in section 501(c)(3).
---------------------------------------------------------------------------

    \6\ The 2012 proposed regulations stated that a hospital 
facility's FAP must specify ``all financial assistance available 
under the FAP, including all discount(s).'' Although the term ``all 
discount(s)'' was not qualified with the phrase ``available under 
the FAP,'' this interpretation was intended. The final regulations 
add ``available under the FAP'' after ``all discounts'' to clarify 
that discounts may be offered outside of the FAP.
---------------------------------------------------------------------------

    Some commenters asked for the final regulations to confirm that 
hospital facilities will be given the flexibility to develop FAP-
eligibility criteria that respond to local needs. Like the 2012 
proposed regulations, the final regulations do not mandate any 
particular eligibility criteria and require only that a FAP specify the 
eligibility criteria for receiving financial assistance under the FAP.
    A number of commenters recommended that the final regulations 
require the FAP to contain a statement that explains the patient's 
obligation to cooperate with the hospital facility's requests for 
information needed to make an eligibility determination. The Treasury 
Department and the IRS decline to impose this specific requirement but 
note that hospital facilities have the flexibility to include any 
additional information in the FAP that the hospital facility chooses to 
convey or that may be helpful to the community, including such a 
statement.
ii. Method for Applying for Financial Assistance
    Section 501(r)(4)(A)(iii) requires a hospital facility's FAP to 
include the method for applying for financial assistance under the FAP. 
Accordingly, the 2012 proposed regulations provided that a hospital 
facility's FAP must describe how an individual applies for financial 
assistance under the FAP and that either the hospital facility's FAP or 
FAP application form (including accompanying instructions) must 
describe the information or documentation the hospital facility may 
require an individual to submit as part of his or her FAP application. 
The 2012 proposed regulations also made clear that financial assistance 
may not be denied based on the omission of information or documentation 
if such information or documentation was not specifically required by 
the FAP or FAP application form.
    Numerous commenters asked that the final regulations add language 
to ensure that hospital facilities are not prohibited from granting 
financial assistance despite an applicant's failure to provide any or 
all information or documentation described in the FAP or FAP 
application form and requested that hospital facilities have the 
flexibility to grant financial assistance based on other evidence or an 
attestation by the applicant. While the Treasury Department and the IRS 
intend to require hospital facilities to establish a transparent 
application process under which individuals may not be denied financial 
assistance based on a failure to provide information or documentation 
unless that information or documentation is described in the FAP or FAP 
application form, they do not intend to restrict hospital facilities' 
ability to grant financial assistance to an applicant who has failed to 
provide such information or documentation. Accordingly, the final 
regulations expressly state that a hospital facility may grant 
financial assistance under its FAP notwithstanding an applicant's 
failure to provide such information. Thus, a hospital facility may 
grant financial assistance based on evidence other than that described 
in a FAP or FAP application form or based on an attestation by the 
applicant, even if the FAP or FAP application form does not describe 
such evidence or attestations.
    One commenter stated that the example in the 2012 proposed 
regulations of a hospital facility with a FAP that requires certain 
specified documentation demonstrating household income (including 
federal tax returns or paystubs) or ``other reliable

[[Page 78973]]

evidence of the applicant's earned and unearned household income'' was 
contrary to the idea that a FAP must ``describe the information and 
documentation'' required. The Treasury Department and the IRS intended 
for the reference to ``other reliable evidence'' in the example to 
signal that a hospital facility may be flexible in allowing applicants 
to provide alternative documentation to demonstrate eligibility. The 
example was not intended to suggest that a reference in a FAP or FAP 
application form to ``reliable evidence'' alone (without also 
identifying specific documentation applicants could provide) would be 
sufficient. To clarify this intent, the example of the FAP application 
form in the final regulations is modified so that the instructions 
identify specific documentation (including federal tax returns, 
paystubs, or documentation establishing qualification for certain 
specified state means-tested programs) but also state that if an 
applicant does not have any of the listed documents to prove household 
income, he or she may call the hospital facility's financial assistance 
office and discuss other evidence that may be provided to demonstrate 
eligibility.
    A number of commenters noted that total reliance on paper 
applications does not reflect current practices in which much 
information is gathered from patients orally, with a few commenters 
recommending that the final regulations expressly permit eligibility 
determinations on the basis of information obtained through face-to-
face meetings or over the phone rather than through a paper application 
process. The Treasury Department and the IRS did not intend to mandate 
paper applications or to imply that information needed to determine 
FAP-eligibility could not be obtained from an individual in other ways. 
Accordingly, and in response to comments, the final regulations amend 
the definition of ``FAP application'' to clarify that the term is not 
intended to refer only to written submissions and that a hospital 
facility may obtain information from an individual in writing or orally 
(or a combination of both).
    Numerous commenters stated that hospitals can, and commonly do, 
rely on trustworthy methods and sources of information other than FAP 
applications to determine FAP-eligibility and recommended that hospital 
facilities be allowed to rely on these information sources and methods 
to determine FAP-eligibility, provided that the sources and methods are 
disclosed in the FAP or on the hospital facility's Form 990. Commenters 
also recommended that a hospital should be able to rely on prior FAP-
eligibility determinations, provided that such reliance is disclosed in 
its FAP.
    As discussed in section 6.b.vi of this preamble, the final 
regulations permit a hospital facility to determine that an individual 
is eligible for assistance under its FAP based on information other 
than that provided by the individual or based on a prior FAP-
eligibility determination, provided that certain conditions are met. 
Given this change, and consistent with commenters' recommendations, the 
final regulations require a hospital facility to describe in its FAP 
any information obtained from sources other than individuals seeking 
assistance that the hospital facility uses, and whether and under what 
circumstances it uses prior FAP-eligibility determinations, to 
presumptively determine that individuals are FAP-eligible.
    Some commenters requested that the final regulations specifically 
prohibit hospital facilities from using social security numbers or 
credit card information or from running credit checks that damage 
consumer credit, while another commenter would impose a requirement 
that all requested information or documentation be reasonable and 
adequate to establish eligibility for the hospital facility's FAP. The 
final regulations do not prescribe or restrict the information or 
documentation a hospital facility may request but do require that a 
hospital facility describe such information or documentation in its FAP 
or FAP application form. The Treasury Department and the IRS expect 
that the transparency achieved by requiring the information or 
documentation to be described in the FAP or FAP application form will 
discourage hospital facilities from requesting information or 
documentation that is unreasonable or unnecessary to establish 
eligibility.
    A number of commenters noted that a patient's financial status may 
change over time and requested clarification on the point in time used 
to determine financial eligibility. A few of these commenters requested 
clarification that a hospital facility has the discretion to determine 
that point in time in its FAP, a few recommended that a specific point 
in time be used (for example, the date of service or the date of 
application), and a few suggested that the final regulations should 
require the point in time to be specified in a FAP.
    The Treasury Department and the IRS intend for hospital facilities 
to have the flexibility to choose the time period used to determine FAP 
eligibility and expect that that the relevant point(s) in time will be 
made clear based on the information and/or documentation requested from 
applicants in the FAP or FAP application form. For example, if a 
hospital facility's FAP application form asks for ``last month's'' 
income, the hospital facility presumably will look at the applicant's 
income from the month preceding the submission of the FAP application 
to determine whether the applicant satisfies the income-based 
eligibility criteria. Similarly, the example regarding application 
methods in these final regulations describes a hospital facility that 
requests proof of household income in the form of payroll check stubs 
``from the last month'' (which would reflect wages in the time period 
shortly before the application) or, if last month's wages are not 
representative of the applicant's annual income, a copy of the 
applicant's ``most recent federal tax return'' (which would reflect 
annual income in a year preceding the application). Because the 
Treasury Department and the IRS expect that the time period(s) used to 
assess eligibility should be evident from the information and/or 
documentation requested to demonstrate eligibility, the final 
regulations do not provide further elaboration on this point.
iii. Actions That May Be Taken in the Event of Nonpayment
    In the case of a hospital facility that does not have a separate 
billing and collections policy, section 501(r)(4)(A)(iv) requires a 
hospital facility's FAP to include actions that may be taken in the 
event of nonpayment. Accordingly, the 2012 proposed regulations 
provided that either a hospital facility's FAP or a separate written 
billing and collections policy established for the hospital facility 
must describe the actions that the hospital facility (or other 
authorized party) may take related to obtaining payment of a bill for 
medical care, including, but not limited to, any extraordinary 
collection actions described in section 501(r)(6).
    A few commenters recommended that the final regulations require 
governing board approval of the billing and collections policy of a 
hospital facility. The Treasury Department and the IRS note that these 
final regulations, like the 2012 proposed regulations, provide that a 
FAP ``established'' by a hospital facility must describe the hospital 
facility's actions in the event of nonpayment unless the hospital 
facility has ``established'' a billing and collections policy that 
describes these actions. As described in section 4.c of this preamble, 
a billing and collections policy or a FAP is ``established'' only if

[[Page 78974]]

it is adopted by an authorized body of the hospital facility, which 
includes the governing body of the hospital facility or a committee of, 
or other party authorized by, such governing body. Thus, the final 
regulations provide that an authorized body of the hospital facility 
must adopt the hospital facility's FAP and, if applicable, billing and 
collections policy.
    Two commenters asked that hospital facilities with separate billing 
and collections policies be required both to include some basic 
information about those policies in their FAPs and to translate the 
separate billing and collections policies into foreign languages. The 
2012 proposed regulations provided that a hospital facility that 
described its actions in the event of nonpayment in a separate billing 
and collections policy must state in its FAP that the actions in the 
event of nonpayment are described in a separate billing and collections 
policy and explain how members of the public may readily obtain a free 
copy of this separate policy. In addition, the definition of ``readily 
obtainable information'' in the 2012 proposed regulations provided that 
a separate billing and collections policy would be readily obtainable 
if it were made available free of charge both on a Web site and in 
writing upon request in the same manner that a FAP is made available on 
a Web site and upon request, which included making translated copies 
available on a Web site and upon request. To clarify that translations 
were intended to be part of making a billing and collections policy 
readily obtainable, Sec.  1.501(r)-4(b)(6) of the final regulations 
relating to ``readily obtainable information'' has been amended to 
expressly refer to the provision of translations.
iv. Widely Publicizing the FAP
    Section 501(r)(4)(A)(v) requires a hospital facility's FAP to 
include measures to widely publicize the FAP within the community 
served by a hospital facility. To satisfy this requirement, the 2012 
proposed regulations provided that a FAP must include, or explain how 
members of the public may readily obtain a free written description of, 
the measures taken by the hospital facility to--
     Make the FAP, FAP application form, and a plain language 
summary of the FAP (together, ``FAP documents'') widely available on a 
Web site;
     Make paper copies of the FAP documents available upon 
request and without charge, both in public locations in the hospital 
facility and by mail;
     Notify and inform visitors to the hospital facility about 
the FAP through conspicuous public displays or other measures 
reasonably calculated to attract visitors' attention; and
     Notify and inform residents of the community served by the 
hospital facility about the FAP in a manner reasonably calculated to 
reach those members of the community who are most likely to require 
financial assistance.
    Several commenters asked that hospitals be given the flexibility to 
``widely publicize'' the FAP in any manner they see fit. The Treasury 
Department and the IRS view the provisions in the 2012 proposed 
regulations as already giving hospital facilities broad flexibility to 
determine the methods they think are best to notify and inform their 
patients and broader communities about their FAPs. In addition, the 
Treasury Department and the IRS see the requirements to make the FAP 
widely available on a Web site and to make paper copies available upon 
request as minimal steps that are necessary to ensure patients have the 
information they need to seek financial assistance. Accordingly, the 
final regulations continue to require a hospital facility to make the 
FAP documents available upon request and widely available on a Web site 
and to notify and inform both visitors to the hospital and members of 
the community served by the hospital about its FAP.
    One commenter suggested that a hospital facility's FAP should only 
be required to ``summarize'' the measures to widely publicize the FAP, 
suggesting that requiring detailed information about such measures 
would unnecessarily increase mailing, copying, and compliance costs. In 
response to this comment and to reduce the documentation burden 
associated with the FAP, these final regulations eliminate the 
requirement that the FAP list the measures taken to widely publicize 
the FAP and instead require only that a hospital facility implement the 
measures to widely publicize the FAP in the community it serves. This 
approach is consistent with the definition of ``establishing'' a FAP 
discussed in section 4.c of this preamble, which includes not only 
adopting the FAP but also implementing it, and with the Joint Committee 
on Taxation's (JCT) Technical Explanation of the Affordable Care Act. 
See Staff of the Joint Committee on Taxation, Technical Explanation of 
the Revenue Provisions of the ``Reconciliation Act of 2010,'' as 
Amended, in Combination with the ``Patient Protection and Affordable 
Care Act'' (March 21, 2010), at 82 (Technical Explanation) (stating 
that section 501(r)(4) requires each hospital facility to ``adopt, 
implement, and widely publicize'' a written FAP).
A. Widely Available on a Web Site
    A number of commenters stated that FAPs will be updated more 
frequently than summaries, so that making the full FAP widely available 
on a Web site would be burdensome. One of these commenters stated that 
the full FAP is not especially useful for most patients, as it is 
written for internal compliance and difficult for the general public to 
understand. On the other hand, numerous other commenters strongly 
supported the requirement to make these documents widely available on a 
Web site, with some noting that doing so would allow patients to more 
easily identify the assistance they might be eligible for and to speak 
knowledgeably with financial assistance personnel at the hospital 
facility. The Treasury Department and the IRS believe that making the 
complete FAP widely available to the public on a Web site is important 
in achieving transparency and that the benefits of this transparency 
outweigh the burdens incurred in posting an updated document on a Web 
site. Thus, the final regulations retain this requirement.
B. Making Paper Copies Available Upon Request
    With respect to the requirement to make paper copies of the FAP 
documents available upon request and without charge in public locations 
in the hospital facility, one commenter stated that ``public 
locations'' could be interpreted to mean all public locations in the 
hospital and that essentially every area of the hospital could be 
classified as a public location. Another commenter asked that ``public 
locations'' specifically include the admissions areas and the emergency 
room, noting that patients and their family members generally pass 
through one of those two areas during their stay and that having at 
least one uniform location where these documents are available would 
help ensure that patients know where to go for paper copies. In 
response to these comments, the final regulations specify that ``public 
locations'' in a hospital facility where paper copies must be provided 
upon request include, at a minimum, the emergency room (if any) and the 
admissions areas.
    Other commenters asked that making paper copies ``available upon 
request'' should be required only with respect to patients who indicate 
that they lack access to the Internet. The final

[[Page 78975]]

regulations clarify that hospital facilities may inform individuals 
requesting copies that the various FAP documents are available on a Web 
site or otherwise offer to provide the documents electronically (for 
example, by email or on an electronic screen). However, the Treasury 
Department and the IRS continue to believe that making paper copies of 
the FAP documents available to those persons who request them is 
important to achieve adequate transparency. Accordingly, the final 
regulations also make clear that a hospital facility must provide a 
paper copy unless the individual indicates he or she would prefer to 
receive or access the document electronically.
C. Notifying and Informing Hospital Facility Patients
    With respect to the requirement in the 2012 proposed regulations to 
notify and inform visitors to a hospital facility about the FAP through 
a conspicuous public display (or other measures reasonably calculated 
to attract visitors' attention), a number of commenters asked for 
clarification on what makes a public display ``conspicuous,'' with one 
such commenter noting that placement of a small placard in a corner of 
a financial assistance office that is rarely seen by patients should 
not be sufficient.
    The Treasury Department and the IRS believe that what makes a 
public display ``conspicuous'' is both for the display to be of a 
noticeable size and for the display to be placed in a location in the 
hospital facility where visitors are likely to see it. Thus, similar to 
the requirement regarding making paper copies of the FAP documents 
available upon request in ``public locations'' in the hospital 
facility, the final regulations clarify that hospital facilities must 
notify and inform visitors about the FAP in ``public locations'' in the 
hospital facility, including, at a minimum, the emergency room (if any) 
and admissions areas.
    In addition to notifying patients about the FAP through a 
conspicuous public display (or through other measures reasonably 
calculated to attract visitors' attention), the final regulations also 
require hospital facilities to widely publicize their FAPs by providing 
FAP information to patients before discharge and with billing 
statements. The 2012 proposed regulations included the notification of 
patients about the FAP before discharge and with billing statements as 
part of the notification component of reasonable efforts to determine 
FAP-eligibility under section 501(r)(6). However, these efforts to 
notify and inform patients about the FAP before discharge and with 
billing statements may also be appropriately categorized as measures to 
widely publicize the FAP under section 501(r)(4). Thus, the final 
regulations consolidate all of the requirements that involve notifying 
patients generally about the FAP under the section 501(r)(4) widely 
publicizing requirements. As a result, the notification component of 
reasonable efforts to determine FAP-eligibility under the section 
501(r)(6) final regulations is simplified and is focused primarily on 
those patients against whom a hospital facility actually intends to 
engage in extraordinary collection actions. The Treasury Department and 
the IRS expect that moving the requirement that hospital facilities 
notify and inform patients about the FAP with billing statements and as 
part of their intake or discharge process from the section 501(r)(6) 
regulations to the section 501(r)(4) regulations will increase 
understanding of the requirements and compliance, without a loss of 
notification to patients.
    In addition to requiring hospital facilities to notify individuals 
about their FAPs before discharge and on billing statements as part of 
widely publicizing their FAPs, the final regulations also amend these 
requirements in several important respects in response to comments to 
the 2012 proposed regulations. First, rather than require a full plain 
language summary with billing statements, the final regulations require 
only that a hospital facility's billing statement include a conspicuous 
written notice that notifies and informs the recipient about the 
availability of financial assistance under the hospital facility's FAP 
and includes the telephone number of the hospital facility office or 
department that can provide information about the FAP and FAP 
application process and the direct Web site address (or URL) where the 
copies of the FAP documents may be obtained. This change responds to 
those comments (discussed in greater length in section 6.b.iii of this 
preamble) that noted that a reference on the billing statement to the 
availability of the FAP and a brief description of how to obtain more 
information should provide sufficient notification to patients while 
minimizing costs for hospital facilities.
    Second, some commenters appeared to interpret the phrase ``before 
discharge'' in the 2012 proposed regulations as requiring distribution 
``at discharge'' and suggested that the latter requirement would not 
work because outpatients do not always revisit with a hospital 
registration staff member after care is provided or may never be 
physically present at the hospital facility. In response to these 
comments, the final regulations refer to offering the plain language 
summary as part of either the ``intake or discharge process,'' and the 
Treasury Department and the IRS intend that those terms be interpreted 
broadly to include whatever processes are used to initiate or conclude 
the provision of hospital care to individuals who are patients of the 
hospital facility. In addition, in response to commenters who noted 
that many patients will have no interest in receiving a plain language 
summary of the FAP because they know they are not FAP-eligible, the 
final regulations require only that a hospital facility ``offer'' 
(rather than ``provide'') a plain language summary as part of the 
intake or discharge process. Thus, a hospital facility will not have 
failed to widely publicize its FAP because an individual declines to 
take a plain language summary that the hospital facility offered on 
intake or before discharge or indicates that he or she would prefer to 
receive or access a plain language summary electronically rather than 
receive a paper copy.
D. Notifying and Informing the Broader Community
    Several commenters recommended eliminating altogether the 
requirement to notify and inform members of the hospital facility's 
community about the FAP, stating that the other three measures to 
widely publicize the FAP are sufficient and that this additional 
specification is vague, open to subjective interpretation, and overly 
burdensome for hospitals. Other commenters, however, strongly supported 
the requirement, particularly the special emphasis placed on members of 
the community most likely to need financial help.
    The Treasury Department and the IRS interpret the phrase ``widely 
publicize . . . within the community to be served by the organization'' 
in section 501(r)(4)(v) as going beyond merely making a FAP ``widely 
available'' on a Web site or upon request and requiring hospital 
facilities to affirmatively reach out to the members of the communities 
they serve to notify and inform them about the financial assistance 
they offer. Accordingly, the final regulations retain the requirement 
to notify and inform members \7\ of the hospital's community

[[Page 78976]]

in a manner reasonably calculated to reach those members who are most 
likely to require financial assistance from the hospital facility.
---------------------------------------------------------------------------

    \7\ In recognition of the fact that not all hospital facilities 
will define the communities they serve along strictly geographic 
lines, the final regulations are amended to refer to ``members'' of 
the hospital facility's community rather than ``residents.''
---------------------------------------------------------------------------

E. Plain Language Summary of the FAP
    The 2012 proposed regulations defined the plain language summary of 
the FAP as a written statement that notifies an individual that the 
hospital facility offers financial assistance under a FAP and provides 
certain specified information, including but not limited to: (1) The 
direct Web site address and physical location(s) (including a room 
number, if applicable) where the individual can obtain copies of the 
FAP and FAP application form; and (2) the contact information, 
including telephone numbers and physical location (including a room 
number, if applicable), of hospital facility staff who can provide the 
individual with information about the FAP and the FAP application 
process, as well as of the nonprofit organizations or government 
agencies, if any, that the hospital facility has identified as 
available sources of assistance with FAP applications.
    A number of commenters noted that many hospitals currently assist 
patients with the FAP application process and that such assistance can 
be very important for low-income patients with literacy barriers. A few 
commenters requested that the final regulations require hospitals to 
assist and/or provide contact information for hospital staff who can 
assist with the FAP application process. One commenter suggested that 
the plain language summary should not have to include the contact 
information of nonprofit organizations or government agencies that 
assist with FAP applications, recommending instead that hospital 
facilities be able to include the contact information for the hospital 
facility's own community health clinics as sources of FAP application 
assistance.
    Although assisting patients with the FAP application process can be 
an important step in ensuring that patients obtain the financial 
assistance for which they are eligible, nonprofit organizations or 
government agencies can be as effective sources of this assistance as 
hospital facilities themselves. To ensure both that patients have 
notice of how to obtain assistance with the FAP application process and 
that hospital facilities have the flexibility to refer patients to 
other organizations rather than provide assistance themselves, the 
final regulations require the plain language summary to include the 
contact information of a source of assistance with FAP applications but 
allow for this source to be either the hospital facility itself or a 
different organization. More specifically, the final regulations 
provide that the plain language summary must include the contact 
information of either the hospital facility office or department that 
can provide assistance with (rather than just ``information about'') 
the FAP application process or, if the hospital facility does not 
provide assistance with the FAP application process, at least one 
nonprofit organization or government agency that the hospital facility 
has identified as an available source of such assistance.
    One commenter recommended that the plain language summary of the 
FAP only be required to list a department rather than a physical 
location because hospital facility remodeling and redesign could mean 
that the precise physical location could be subject to change, 
therefore requiring re-drafting of the plain language summary. Another 
commenter asked that the final regulations clarify that the plain 
language summary may identify the location and phone number of the 
appropriate office or department to contact for more information about 
the FAP, without naming a specific staff person.
    The Treasury Department and the IRS continue to think that the 
physical location in the hospital facility where patients can obtain 
copies of the FAP and FAP application form and information about and/or 
assistance with the FAP application process is important, basic 
information to provide to individuals in the plain language summary. 
Therefore, the final regulations continue to require this information 
regarding physical location. However, the final regulations remove a 
specific reference to a room number to give hospital facilities more 
flexibility to describe the physical location in the manner that makes 
the most sense for the hospital facility. The final regulations also 
clarify that the plain language summary may identify the location and 
phone number of the appropriate office or department to contact for 
more information about the FAP and, if applicable, assistance with the 
FAP application process and does not need to name a specific staff 
person.
    One commenter recommended that, in addition to the required items 
of information described in the 2012 proposed regulations, the plain 
language summary should provide a basic outline of the FAP application 
process and the appropriate times to apply. This commenter stated that 
many patients will rely on the plain language summary for information 
about the FAP, in lieu of reading the FAP itself, and that information 
about when and how to apply for financial assistance is basic 
information a patient needs to have. The Treasury Department and the 
IRS agree that information about how to apply for financial assistance 
is important information for individuals to have, and the final 
regulations therefore require this information to be included in the 
plain language summary. Any additional burden created by requiring this 
information should be mitigated by the fact that the final regulations 
do not require the plain language summary to be included with all 
billing statements and other written communications provided during the 
notification period. As for ``when'' to apply, while patients generally 
have at least 240 days from the date of the first bill to apply for 
financial assistance, the deadline for any particular patient's FAP 
application will depend on whether and when the hospital facility sends 
that patient the notice about potential extraordinary collection 
actions described in section 6.b.iii.C of this preamble that states a 
deadline. Given the resulting variability in deadlines, the final 
regulations do not require the plain language summary to include a 
description of the appropriate times to apply.
    A few commenters asked that the plain language summary be required 
to include a statement regarding patient responsibilities. The Treasury 
Department and the IRS do not intend for the list of elements required 
to be included in a plain language summary of the FAP to limit a 
hospital facility's ability to provide additional information. 
Accordingly, a hospital facility is permitted, but not required, to 
include in its plain language summary any additional items of 
information it deems relevant to the FAP and FAP application process.
F. Translating the FAP Documents
    The 2012 proposed regulations provided that hospital facilities 
must translate FAP documents into the primary language of any LEP 
populations that constitute more than 10 percent of the members of the 
community served by the hospital facility. One commenter asked that 
this requirement be eliminated altogether, at least with regard to 
small or rural hospital facilities, while two other commenters 
supported the 10-percent threshold for translation. Many additional 
commenters requested that the translation threshold be lowered from 10 
percent to the lesser of 5 percent or 500 LEP individuals. They noted 
that some federal translation thresholds are set as low as 500 LEP 
individuals and that a 5-percent

[[Page 78977]]

threshold would result in greater consistency with translation guidance 
provided by the Department of Health and Human Services (HHS). See HHS, 
``Guidance to Federal Financial Assistance Recipients Regarding Title 
VI Prohibition Against National Origin Discrimination Affecting Limited 
English Proficient Persons,'' 68 FR 47,311 (August 8, 2003) (``HHS 
Guidance''). The HHS Guidance includes a ``safe harbor'' that considers 
it strong evidence that a hospital receiving federal financial 
assistance is in compliance with written translation obligations under 
Title VI of the Civil Rights Act of 1964 (42 U.S.C. 2000d, et seq.) if 
it provides written translations of vital documents for each eligible 
LEP language group that constitutes 5 percent or 1,000, whichever is 
less, of the population of persons eligible to be served or likely to 
be affected or encountered.\8\
---------------------------------------------------------------------------

    \8\ If there are fewer than 50 persons in a language group that 
reaches the 5-percent trigger, the recipient of federal financial 
assistance does not have to translate vital written materials to 
satisfy the safe harbor but rather may provide written notice in the 
primary language of the LEP language group of the right to receive 
competent oral interpretation of those written materials, free of 
cost.
---------------------------------------------------------------------------

    Both Medicaid and Medicare Part A constitute ``federal financial 
assistance'' for purposes of Title VI of the Civil Rights Act, and the 
Treasury Department and the IRS expect that virtually every hospital 
facility operated by an organization described in section 501(c)(3) 
accepts Medicaid and/or Medicare Part A. The Treasury Department and 
the IRS also expect that documents that describe the financial 
assistance offered by a hospital facility and that are necessary to 
apply for such financial assistance would be considered ``vital'' for 
purposes of the Title VI obligations. Therefore, the Treasury 
Department and the IRS expect that many hospital facilities are already 
translating these documents to meet their Title VI obligations, often 
in accordance with the safe harbor in the HHS Guidance. As a result, 
the Treasury Department and the IRS agree with commenters that it is 
reasonable and appropriate to make the translation threshold applicable 
to the FAP documents generally consistent with the 5-percent/1000 
person threshold under the HHS Guidance safe harbor, and the final 
regulations adopt this change.
    The 2012 proposed regulations provided that a hospital facility 
could determine whether a LEP group exceeded the relevant threshold 
based on the latest data available from the U.S. Census Bureau or other 
similarly reliable data. One commenter requested clarification on 
whether to use the U.S. Census Bureau's decennial survey or more 
updated information provided through the American Community Survey. The 
Treasury Department and the IRS believe that a hospital facility basing 
its determination of LEP populations in whole or in part on data from 
the U.S. Census Bureau should be allowed to use either the latest 
decennial census data or the latest American Community Survey data. In 
addition, other data sources may also be reasonable to use to determine 
LEP populations for purposes of these regulations. For example, the HHS 
Guidance notes that, in determining the LEP persons eligible to be 
served or likely to be affected or encountered, it may be appropriate 
for hospitals to examine not only census data but also their prior 
experiences with LEP patients, data from school systems and community 
organizations, and data from state and local governments. See HHS 
Guidance, 68 FR at 47314. The Treasury Department and the IRS intend 
that a hospital facility be able to use these same data sources in 
determining the LEP persons in the community it serves or likely to be 
affected or encountered for purposes of these final regulations. 
Therefore, rather than list the various data sources a hospital 
facility may use to determine its LEP populations, the final 
regulations provide that a hospital facility may use any reasonable 
method to determine such populations.
    Several commenters recommended that hospital facilities only be 
required to translate the plain language summary of the FAP and the FAP 
application form, not the full FAP, stating that the summary and 
application form are the documents most useful to patients and that 
few, if any, patients request the full FAP. The Treasury Department and 
the IRS believe that the benefits of ensuring that LEP populations have 
access to the details provided in the FAP that are not captured in a 
summary or application form outweigh the additional costs that hospital 
facilities may incur in translating the full FAP document. Accordingly, 
the final regulations do not adopt this comment.
    Several commenters recommended that the final regulations require 
hospitals to provide access to oral interpreters or bilingual staff on 
request, regardless of whether the thresholds for written translations 
are met. The Treasury Department and the IRS believe it would be overly 
burdensome to require hospital facilities to provide access to oral 
interpreters or bilingual staff for every language possibly spoken in a 
community. Accordingly, the final regulations do not adopt this 
comment.
b. Emergency Medical Care Policy
    To satisfy the requirements of section 501(r)(4)(B), the 2012 
proposed regulations provided that a hospital facility must establish a 
written policy that requires the hospital facility to provide, without 
discrimination, care for emergency medical conditions (within the 
meaning of the Emergency Medical Treatment and Labor Act (EMTALA), 
section 1867 of the Social Security Act (42 U.S.C. 1395dd)) to 
individuals, regardless of whether they are FAP-eligible. The 2012 
proposed regulations further provided that an emergency medical care 
policy will generally satisfy this standard if it requires the hospital 
facility to provide the care for any emergency medical condition that 
the hospital facility is required to provide under Subchapter G of 
Chapter IV of Title 42 of the Code of Federal Regulations, which is the 
subchapter regarding the Centers for Medicare and Medicaid Services' 
(CMS) standards and certification that includes the regulations under 
EMTALA. In addition, Sec.  1.501(r)-4(c)(2) of the 2012 proposed 
regulations provided that a hospital facility's emergency medical care 
policy would not meet the requirements of section 501(r)(4)(B) unless 
it prohibited the hospital facility from engaging in actions that 
discouraged individuals from seeking emergency medical care, such as by 
demanding that emergency department patients pay before receiving 
treatment or by permitting debt collection activities in the emergency 
department or in other areas of the hospital facility where such 
activities could interfere with the provision, without discrimination, 
of emergency medical care.
    Some commenters stated that the regulations under EMTALA already 
establish rules for registration processes and discussions regarding a 
patient's ability to pay in the emergency department and that the final 
regulations should not go beyond those requirements. A number of 
commenters noted that the broad language regarding ``debt collection in 
the emergency department'' could be read to proscribe ordinary and 
unobjectionable activities in the emergency room, such as collecting 
co-payments on discharge, checking for qualification for financial or 
public assistance, and asking for insurance information or co-pays 
after patients are stabilized and waiting (sometimes for long periods 
of time) for test results or follow-up visits from their physician.

[[Page 78978]]

    Section 1.501(r)-4(c)(2) of the 2012 proposed regulations was 
intended to apply only to debt collection activities in the emergency 
department (or other areas of the hospital facility) that could 
interfere with the provision of emergency care, not to all payment 
activities in the emergency department regardless of their potential to 
interfere with care. To make this intent clear, the final regulations 
are revised to prohibit ``debt collection activities that interfere 
with the provision, without discrimination, of emergency medical 
care,'' regardless of where such activities occur.
    In addition, the Treasury Department and the IRS note that, since 
the publication of the 2012 proposed regulations, CMS has made clear 
that the regulations under EMTALA prohibit applicable hospital 
facilities from engaging in actions that delay the provision of 
screening and treatment for an emergency medical condition to inquire 
about method of payment or insurance status, or from using registration 
processes that unduly discourage individuals from remaining for further 
evaluation, such as by requesting immediate payment before or while 
providing screening or stabilizing treatment for emergency medical 
conditions. See CMS Memorandum S&C-14-06--Hospitals/CAHs re: EMTALA 
Requirements & Conflicting Payor Requirements or Collection Practices, 
at 6-7 (Dec. 13, 2013). As a result, a hospital facility that provides 
the screening care and stabilizing treatment for emergency medical 
conditions, as applicable, that the hospital facility is required to 
provide under the regulations under EMTALA, should generally not be 
engaging in the activities that Sec.  1.501(r)-4(c)(2) of the final 
regulations requires emergency medical care policies to prohibit.
    Two commenters asked whether the emergency medical care policy may 
be in the same document as the FAP. The final regulations do not 
prevent an emergency medical care policy from being included within the 
same document as the FAP or from being added to an already existing 
document related to emergency medical care (such as a document setting 
forth EMTALA compliance).
c. Establishing the FAP and Other Policies
    Consistent with the 2012 proposed regulations, the final 
regulations provide that a hospital organization will have established 
a FAP, a separate billing and collections policy, or an emergency 
medical care policy for a hospital facility only if an authorized body 
of the hospital facility has adopted the policy and the hospital 
facility has implemented the policy.
    The 2012 proposed regulations provided that a hospital facility has 
``implemented'' a policy if it has ``consistently carried out'' the 
policy. A number of commenters asked for more clarity on when a policy 
will be deemed to be ``consistently carried out.'' Two of these 
commenters would deem a hospital facility to have consistently carried 
out a policy only if the hospital facility attests that a policy that 
meets the requirements of section 501(r)(4) has been followed in all 
cases.
    As discussed in section 2.a of this preamble, the final regulations 
provide that omissions or errors that are minor and either inadvertent 
or due to reasonable cause will not result in a failure to meet the 
requirements of section 501(r)(4) (or any other requirements under 
section 501(r)) as long as they are corrected in accordance with Sec.  
1.501(r)-2(b)(1)(ii) of the final regulations. Therefore, the final 
regulations make clear that the Treasury Department and the IRS do not 
intend that every error in implementing a policy described in section 
501(r)(4) will result in a failure to meet the requirements of section 
501(r)(4). On the other hand, a policy that is simply adopted by an 
authorized body of a hospital facility but not followed in any regular 
fashion has not been ``established'' for purposes of section 501(r)(4). 
Whether a policy is ``consistently carried out'' is to be determined 
based on all of the facts and circumstances. However, if the authorized 
body of a hospital facility adopts a policy and provides reasonable 
resources for and exercises due diligence regarding its implementation, 
then the standard should be met.
    The 2012 proposed regulations provided that, while a hospital 
organization must separately establish a FAP for each hospital facility 
it operates, such policies ``may contain the same operative terms.'' 
Several commenters asked that hospital organizations operating multiple 
facilities be permitted to adopt one FAP for all of their facilities. 
These commenters argued that many hospital systems have centralized 
patient financial services operations, including FAPs, and that 
adopting a single FAP would avoid both significant administrative costs 
as well as patient confusion about differences in financial 
responsibilities based on location.
    The final regulations clarify that multiple hospital facilities may 
have identical FAPs, billing and collections policies, and/or emergency 
medical care policies established for them (or even share one joint 
policy document), provided that the information in the policy or 
policies is accurate for all such facilities and any joint policy 
clearly states that it is applicable to each facility. The final 
regulations also note, however, that different hospital facilities may 
have different AGB percentages or use different methods to determine 
AGB that would need to be reflected in each hospital facility's FAP 
(or, in the case of AGB percentages, in a separate document that can be 
readily obtained).

5. Limitation on Charges

    The final regulations provide that a hospital organization meets 
the requirements of section 501(r)(5) with respect to a hospital 
facility it operates only if the hospital facility limits the amounts 
charged for any emergency or other medically necessary care it provides 
to a FAP-eligible individual to not more than AGB. The final 
regulations also require a hospital facility to limit the amounts 
charged to FAP-eligible individuals for all other medical care covered 
under the FAP to less than the gross charges for that care.
a. Amounts Generally Billed
    The 2012 proposed regulations provided two methods for hospital 
facilities to use to determine AGB. The first was a ``look-back'' 
method based on actual past claims paid to the hospital facility by 
either Medicare fee-for-service alone or Medicare fee-for-service 
together with all private health insurers paying claims to the hospital 
facility (including, in each case, any associated portions of these 
claims paid by Medicare beneficiaries or insured individuals). The 
second method was ``prospective,'' in that it required the hospital 
facility to estimate the amount it would be paid by Medicare and a 
Medicare beneficiary for the emergency or other medically necessary 
care at issue if the FAP-eligible individual were a Medicare fee-for-
service beneficiary. For purposes of the 2012 proposed regulations, the 
term ``Medicare fee-for-service'' included only health insurance 
available under Medicare Parts A and B and not health insurance plans 
administered under Medicare Advantage.
    Many commenters stated that allowing hospital facilities only two 
methods for calculating AGB was insufficiently flexible. Some 
commenters asked that the final regulations only require hospital 
facilities to fully disclose and describe the method they used to 
determine AGB on their Forms 990, without requiring

[[Page 78979]]

hospital facilities to determine AGB in any particular manner. A few 
commenters noted that Medicare and insurer reimbursement models may 
shift over time and that flexibility will be needed to ensure that the 
methods for determining AGB set forth in the final regulations do not 
become antiquated or hamper evolution in reimbursement models. However, 
no additional methods to determine AGB were identified.
    Providing hospital facilities complete discretion to select methods 
in determining AGB would make it very difficult for the IRS to enforce 
the statutory requirement that hospital facilities not charge FAP-
eligible individuals more than AGB and difficult for the public to 
understand and recognize whether hospital facilities are complying with 
this requirement. However, the Treasury Department and the IRS 
recognize that Medicare and insurer reimbursement methodologies may 
evolve over time and that additional ways to determine AGB may be 
identified in the future. Therefore, the final regulations allow the 
Treasury Department and the IRS to provide for additional methods to 
determine AGB in future published guidance as circumstances warrant.
    Many commenters suggested that the options for determining AGB 
should be expanded or amended to permit hospital facilities to base AGB 
on the payments of private, commercial insurers only, without also 
taking into account Medicare payments. Some commenters specifically 
asked for the ability to determine AGB based on ``either the best, or 
an average of the three best, negotiated commercial rates,'' as 
suggested in the JCT's Technical Explanation. See Technical Explanation 
at 82. These commenters reasoned that individuals with commercial 
insurance are more representative of FAP-eligible populations than 
Medicare beneficiaries (as the latter generally include the elderly). A 
few commenters also suggested that Medicare rates are an inappropriate 
proxy for AGB because they are not the result of negotiations between 
parties and, according to these commenters, do not always cover the 
costs of providing care to Medicare beneficiaries. On the other hand, 
other commenters recommended that AGB be based on Medicare alone, 
arguing that this would increase transparency because amounts 
reimbursed by Medicare are publicly verifiable.
    Because Medicare reimbursements constitute a large proportion of 
most hospital facilities' total insurance reimbursements, the Treasury 
Department and the IRS continue to believe a method of determining AGB 
that excludes Medicare and is based only on the claims or rates of 
private health insurers would be inconsistent with the statutory phrase 
``amounts generally billed to individuals who have insurance.'' On the 
other hand, the Treasury Department and the IRS find no support in 
either the statutory language of section 501(r)(5) or the Technical 
Explanation for requiring (rather than just allowing) AGB to be based 
on Medicare alone. Thus, the final regulations continue to allow 
hospital facilities using the look-back method to base AGB on the 
claims of Medicare fee-for-service plus all private health insurers, as 
well as on Medicare alone.
    A few commenters noted that Medicaid is the largest governmental 
payer for children's hospitals and recommended that hospital facilities 
be able to use Medicaid rates in calculating AGB. The final regulations 
adopt this recommendation and allow hospital facilities to base AGB on 
Medicaid rates, either alone or in combination with Medicare (or, under 
the look-back method, together with Medicare and all private health 
insurers), at the hospital facility's option.
    With respect to Medicaid, one commenter noted that, in many states, 
private managed care organizations operate Medicaid managed care plans 
and that the final regulations should expressly state whether Medicaid 
managed care claims and rates are to be included when determining AGB. 
In response to this comment, the final regulations provide that the 
term ``Medicaid,'' as used in the final regulations, includes medical 
assistance provided through a contract between the state and a Medicaid 
managed care organization or a prepaid inpatient health plan and that 
such assistance is not considered reimbursements from or claims allowed 
by a private health insurer. By contrast, the final regulations, like 
the 2012 proposed regulations, provide that a hospital facility must 
treat health insurance plans administered by private health insurers 
under Medicare Advantage as the plans of private health insurers.
    Many commenters asked how the limitation on charges to AGB applies 
to insured individuals who are eligible for financial assistance. Most 
of these commenters recommended that the AGB limitation apply only to 
uninsured individuals, asserting that section 501(r)(5) was enacted to 
provide uninsured individuals in need of assistance with the benefit of 
rates negotiated by insurance companies and that requiring the use of 
AGB for insured patients could inadvertently reduce the availability of 
financial assistance for insured patients. One commenter suggested 
that, for insured patients who receive a partial financial assistance 
discount, AGB should be equal to the amounts generally billed for the 
care minus payments made by the third-party insurer. Another commenter 
suggested that the AGB limitation should only apply to the patient 
liability and not include payments made by third parties, such as 
health insurers.
    The Treasury Department and the IRS note that section 501(r)(5) 
does not distinguish between insured and uninsured FAP-eligible 
individuals. Accordingly, the final regulations continue to apply the 
AGB limitation of section 501(r)(5) to all individuals eligible for 
assistance under the hospital facility's FAP, without specific 
reference to the individual's insurance status. In response to the 
comments, however, the final regulations clarify that, for purposes of 
the section 501(r)(5) limitation on charges, a FAP-eligible individual 
is considered to be ``charged'' only the amount he or she is personally 
responsible for paying, after all deductions and discounts (including 
discounts available under the FAP) have been applied and less any 
amounts reimbursed by insurers. Thus, in the case of a FAP-eligible 
individual who has health insurance coverage, a hospital facility will 
not fail to meet the section 501(r)(5) requirements because the total 
amount required to be paid by the FAP-eligible individual and his or 
her health insurer together exceeds AGB, as long as the FAP-eligible 
individual is not personally responsible for paying (for example, in 
the form of co-payments, co-insurance, or deductibles) more than AGB 
for the care after all reimbursements by the insurer have been made. 
The final regulations also add several examples demonstrating how the 
limitation on charges works when applied to insured FAP-eligible 
individuals.
    A few commenters asked that the final regulations clarify that AGB 
represents the maximum amount hospital facilities can charge to FAP-
eligible individuals and that hospital facilities may charge FAP-
eligible individuals less than AGB (that is, provide a more generous 
discount under a FAP). The Treasury Department and the IRS have added 
an example to the final regulations to confirm this point.
    The 2012 proposed regulations provided that, after choosing a 
particular method to determine AGB, a hospital facility must continue 
using that method indefinitely. The preamble to the 2012 proposed 
regulations

[[Page 78980]]

requested comments on whether a hospital facility should be allowed to 
change its method of determining AGB under certain circumstances or 
following a certain period of time and, if so, under what circumstances 
or how frequently. Commenters uniformly noted that there could be many 
practical reasons that a hospital facility might want to change its 
method for determining AGB, such as changes in technologies or 
processes that make a previously-selected method less administrable.
    In response to these comments, the final regulations provide that a 
hospital facility may change the method it uses to determine AGB at any 
time. However, because the final regulations under section 501(r)(4) 
require a hospital facility's FAP to describe the method used to 
determine AGB, a hospital facility must update its FAP to describe a 
new method before implementing it.
    A number of commenters noted that the 2012 proposed regulations do 
not define the term ``medically necessary care.'' Some commenters asked 
that the final regulations provide that hospital facilities have the 
discretion to determine how non-emergency and elective services are 
considered under their FAPs. Other commenters recommended that the 
final regulations define the term ``medically necessary care.'' 
Suggested definitions included the Medicaid definition used in the 
hospital facility's state or other definitions provided by state law, a 
definition that refers to the generally accepted medical practice in 
the community, or a definition based on the determination made by the 
examining physician or medical team.
    The final regulations allow hospital facilities to define the term 
``medically necessary care'' for purposes of their FAPs and the AGB 
limitation in recognition of the fact that health care providers and 
health insurers may have reasonable differences in opinion on whether 
some health care services are medically necessary in particular 
circumstances. In defining medically necessary care for purposes of 
their FAPs and the AGB limitation, the final regulations clarify that 
hospital facilities may (but are not required to) use the Medicaid 
definition used in the hospital facility's state, other definitions 
provided by state law, or a definition that refers to the generally 
accepted standards of medicine in the community or an examining 
physician's determination.
i. Look-Back Method
    Under the look-back method for determining AGB, a hospital facility 
determines AGB for any emergency or other medically necessary care 
provided to a FAP-eligible individual by multiplying the hospital 
facility's gross charges for that care by one or more percentages of 
gross charges, called ``AGB percentages.'' Hospital facilities must 
calculate their AGB percentages no less frequently than annually by 
dividing the sum of certain claims for emergency and other medically 
necessary care by the sum of the associated gross charges for those 
claims. A hospital facility may use the look-back method to calculate 
one average AGB percentage for all emergency and other medically 
necessary care provided by the hospital facility, or multiple AGB 
percentages for separate categories of care (such as inpatient and 
outpatient care or care provided by different departments) or for 
separate items or services. However, a hospital facility calculating 
multiple AGB percentages must calculate AGB percentages for all 
emergency and other medically necessary care it provides.
    The 2012 proposed regulations provided that the AGB percentages 
must be based on all claims that have been ``paid in full'' to the 
hospital facility for emergency and other medically necessary care by 
Medicare fee-for-service alone, or by Medicare fee-for-service together 
with all private health insurers, during a prior 12-month period. A few 
commenters asked whether the phrase ``claims . . . paid in full'' as 
used in the 2012 proposed regulations was intended to include claims 
that a hospital facility had partially written off as bad debt and/or 
treated as paid in full after taking into account a discount it had 
granted. If so, commenters asked whether the hospital facility should 
only include the reduced amount actually paid when calculating the AGB 
percentage(s). One commenter also asked whether the amount a hospital 
facility has accepted for the claim in a sale to a third-party debt 
collector should be treated as ``paid in full.'' Two commenters 
suggested that, instead of being based on claims ``paid in full,'' the 
AGB percentages should be based on ``contracted rates'' or the amounts 
that are allowed by health insurers.
    To eliminate the uncertainty created by the phrase ``paid in 
full,'' the final regulations provide that, when calculating its AGB 
percentage(s) under the look-back method, a hospital facility should 
include in the numerator the full amount of all of the hospital 
facility's claims for emergency and other medically necessary care that 
have been ``allowed'' (rather than ``paid'') by health insurers during 
the prior 12-month period. For these purposes, the full amount allowed 
by a health insurer should include both the amount to be reimbursed by 
the insurer and the amount (if any) the individual is personally 
responsible for paying (in the form of co-payments, co-insurance, or 
deductibles), regardless of whether and when the individual actually 
pays all or any of his or her portion and disregarding any discounts 
applied to the individual's portion (under the FAP or otherwise).
    Several commenters interpreted the 2012 proposed regulations to 
mean that hospital facilities had to include the claims for all 
emergency and other medically necessary care provided during the prior 
12-month period when calculating AGB percentages. These commenters 
pointed out that many of the claims for care provided toward the end of 
a 12-month period will not be adjudicated by an insurer until some 
amount of time after the end of that 12-month period. Under both the 
2012 proposed regulations and these final regulations, the inclusion of 
a claim in a hospital facility's calculation of its AGB percentage(s) 
is not based on whether the care associated with the claim was provided 
during the prior 12-month period. Rather, it is based on whether the 
claim is ``allowed'' (formerly, ``paid in full'') during the prior 12-
month period. The final regulations clarify this point. The final 
regulations also state that, if the amount a health insurer will allow 
for a claim has not been finally determined as of the last day of the 
12-month period used to calculate the AGB percentage(s), a hospital 
facility should exclude the amount of the claim from that calculation 
and include it in the subsequent 12-month period during which the 
amount allowed is finally determined.
    A few commenters asked that hospital facilities be permitted to 
calculate AGB percentages under the look-back method based on claims 
for all medical care allowed in the prior 12-month period, rather than 
just the claims for emergency and medically necessary care. These 
commenters stated that it would be administratively burdensome to have 
to sift out only the claims for emergency and medically necessary care. 
Accordingly, the final regulations provide that a hospital facility may 
include in the calculation of its AGB percentage(s) claims for all 
medical care allowed during the prior 12-month period rather than just 
the claims allowed for emergency and other medically necessary care. 
The Treasury Department and the IRS note that the calculation of a 
hospital facility's AGB

[[Page 78981]]

percentage(s) includes only claims allowed by insurers and that 
insurers generally allow claims only for care that is medically 
necessary. Thus, the Treasury Department and the IRS do not expect that 
there will be a significant difference between AGB percentages based on 
all claims allowed by insurers and AGB percentages based on all claims 
allowed by insurers for emergency and other medically necessary care.
    A few commenters noted that the health care delivery system is 
migrating from a fee-for-service model to other methods of payment, 
used by both public and private payers, that include ``value-based,'' 
accountable care, and shared savings payments. These commenters stated 
that the 2012 proposed regulations failed to account for these other 
methods of payment because the method of calculating AGB percentages 
appeared to be based on claims for individual episodes of care, while 
value-based, accountable care, shared savings, and similar payments are 
not necessarily tied to individual episodes of care.
    As a general matter, the Treasury Department and the IRS interpret 
the statutory phrase ``amounts generally billed to individuals who have 
insurance covering such care'' as referring to amounts billed or 
reimbursed for care received by those insured individuals. It is not 
clear, and commenters did not address, how lump sum payments from an 
insurer with no direct connection to any specific individual's care 
would appropriately be included in a determination of AGB. As a result, 
the final regulations do not amend the look-back method or the 
prospective method to specifically account for any such separate 
payment streams. However, if a hospital facility can reasonably 
allocate a capitated (or other lump sum) payment made by an insurer to 
care received by particular patients during a twelve-month period and 
has also tracked the gross charges for that care, it may be able to 
reasonably incorporate such payments into its calculation of one or 
more AGB percentages under the look-back method described in the final 
regulations. In addition, the Treasury Department and the IRS will 
continue to consider whether hospital facilities need alternative 
methods of determining AGB that directly accommodate capitated payments 
or value-based, accountable care, shared savings, and similar payments, 
and, if so, such alternative methods may be provided in future 
regulations, revenue rulings, or other published guidance.
    The look-back method described in the 2012 proposed regulations 
only included claims paid by Medicare fee-for-service and/or private 
health insurers as primary payers. One commenter indicated that 
payments made by secondary payers should also be included in a hospital 
facility's calculation of its AGB percentage(s) because considering 
only primary payers and patient co-insurance, co-payments, and 
deductibles artificially depresses the AGB percentages. The Treasury 
Department and the IRS intend for hospital facilities to be able to 
include in the calculation of their AGB percentages the total amount of 
claims for care allowed by primary insurers (including both the amounts 
paid by primary insurers and the amounts insured individuals are 
personally responsible for paying in the form of co-payments, co-
insurance, or deductibles), regardless of whether secondary insurers 
end up paying some or all of the insured individual's portion. In 
addition, if an individual's primary insurer does not cover a certain 
procedure but his or her secondary insurer does, including the amount 
allowed by the secondary insurer in the calculation of the hospital 
facility's AGB percentage(s) will not result in any duplication because 
only one amount was allowed by an insurer. Moreover, if the secondary 
insurer is of the type that is otherwise being included in the hospital 
facility's calculation of the AGB percentage (that is, Medicare, 
Medicaid, and/or a private health insurer), the amounts allowed by the 
secondary insurer should be included in the calculation to ensure that 
the resulting AGB percentage(s) is fully representative of the amounts 
allowed by the applicable type of insurer(s). Thus, to eliminate any 
confusion, the final regulations remove the references to ``primary 
payers'' contained in the 2012 proposed regulations.
    Numerous commenters asked that hospital organizations be permitted 
to calculate AGB percentages on a system-wide basis, stating that many 
hospital systems have centralized patient financial services operations 
and that permitting a system-wide calculation would avoid both 
significant administrative costs and patient confusion about 
differences in financial responsibilities based on location. Because 
different hospital facilities within a system can serve distinct 
geographic areas, offer significantly different services, and have 
different negotiated rates with insurers, allowing hospital systems to 
calculate AGB percentages across the entire system could result in AGB 
percentages that would not accurately reflect the amounts generally 
billed to individuals with insurance by the separate hospital 
facilities within the system. Specifically, a system-wide AGB 
percentage would be an average across hospital facilities, some of 
which may have lower negotiated reimbursement rates with insurers or 
more Medicare patients than others. Use of a system-wide AGB percentage 
could result in higher charges for the FAP-eligible patients of those 
hospital facilities in the system with lower negotiated reimbursement 
rates or more Medicare patients than would be the case if the AGB were 
calculated on a facility-by-facility basis. Accordingly, the final 
regulations do not permit such system-wide calculations. However, 
because hospital facilities that have satisfied CMS criteria to bill 
and be covered under one Medicare provider number may find it 
administratively difficult to separate claims by hospital facility, the 
final regulations allow hospital facilities that are covered under the 
same Medicare provider agreement (as identified by the same CMS 
Certification Number) to calculate one AGB percentage (or multiple AGB 
percentages for separate categories of care or separate items or 
services) based on the claims and gross charges for all such hospital 
facilities and implement the AGB percentage(s) across all such hospital 
facilities.
    One commenter asked that the final regulations clarify that a 
hospital organization operating more than one hospital facility may 
select the look-back method for some of its facilities and the 
prospective method for others. The 2012 proposed regulations were not 
intended to prevent different hospital facilities operated by the same 
hospital organization from using different methods to determine AGB at 
different hospital facilities, and these final regulations expressly 
state that this is permissible.
    The 2012 proposed regulations provided that a hospital facility 
must begin applying its AGB percentage(s) by the 45th day after the end 
of the 12-month period the hospital facility used in calculating the 
AGB percentage(s) and requested comments regarding whether a hospital 
facility needs more than 45 days. Numerous commenters stated that 
hospital facilities need a period longer than 45 days both to complete 
the calculation and to make the updates to their policies, processes, 
systems, and communications necessary to implement the changes and 
recommended periods ranging from 60 to 120 days. In response to these

[[Page 78982]]

comments, the final regulations allow a hospital facility to take up to 
120 days after the end of the 12-month period used in calculating the 
AGB percentage(s) to begin applying its new AGB percentage(s). The 
Treasury Department and the IRS note that, because the final 
regulations under section 501(r)(4) require a hospital facility's FAP 
to state the hospital facility's AGB percentage(s) or explain how 
members of the public may readily obtain such percentages, a hospital 
facility must update its FAP (or other readily obtainable material) to 
reflect new AGB percentage(s).
    The 2012 proposed regulations requested comments regarding whether 
a hospital facility using the look-back method should have the option 
to base its AGB-percentage calculation on a representative sample of 
claims (rather than all claims) that were paid in full over a prior 12-
month period and, if so, how hospital facilities would ensure that such 
samples are representative and reliable. A few commenters suggested 
that the final regulations should permit the use of samples, but they 
did not provide much additional explanation of why samples were 
necessary or how samples could be determined in a representative and 
reliable way. Other commenters argued that samples would be inaccurate 
and that permitting the use of sampling would give hospital facilities 
an excessive ability to manipulate their computations and exacerbate 
problems with transparency or protections for consumers. Because 
legitimate concerns were raised by commenters with respect to sampling 
and no comments explained why the use of samples was necessary or how 
hospital facilities could ensure that such samples would be 
representative and reliable, the final regulations do not allow 
hospital facilities using the look-back method to base their 
calculation of AGB percentage(s) on a sample of claims. The Treasury 
Department and the IRS note, however, that, to the degree using all 
claims in calculating AGB percentages takes longer than using a 
representative sample, hospital facilities have 120, not 45, days after 
the end of the applicable 12-month period to calculate and implement 
AGB percentages under the final regulations.
    The 2012 proposed regulations also requested comments regarding 
whether hospital facilities might significantly increase their gross 
charges after calculating one or more AGB percentages and whether such 
an increase could mean that determining AGB by multiplying current 
gross charges by an AGB percentage would result in charges that exceed 
the amounts that are in fact generally billed to those with insurance 
at the time of the charges. A number of commenters stated that such 
safeguards are unnecessary, since most hospitals do not update their 
gross charges more than once a year, increases are generally based on 
an annual market analysis, and AGB calculations would not drive 
hospitals to change their gross charges. After considering the comments 
received on this issue, the final regulations do not modify the 
proposed rule in this regard.
ii. Prospective Method
    Under the prospective method described in the 2012 proposed 
regulations, a hospital facility could determine AGB for any emergency 
or other medically necessary care that the hospital facility provided 
to a FAP-eligible individual by using the same billing and coding 
process the hospital facility would use if the individual were a 
Medicare fee-for-service beneficiary and setting AGB for that care at 
the amount that Medicare and the Medicare beneficiary together would be 
expected to pay for the care. The Treasury Department and the IRS 
requested comments regarding whether a hospital facility should also 
have the option of determining AGB based on the private health insurer 
with the lowest rate or the three private health insurers with the 
three lowest rates. Some commenters who responded to this request for 
comments said hospital facilities should have this option under both 
the prospective and the look-back methods, while other commenters 
recommended that AGB be based on Medicare alone. For reasons discussed 
previously in this section 5.a of the preamble (including the fact that 
Medicare reimbursements constitute a large proportion of most hospital 
facilities' total insurance reimbursements), the Treasury Department 
and the IRS believe that excluding Medicare and basing AGB only on the 
private health insurer with the lowest rate or the three private health 
insurers with the three lowest rates would not accurately capture the 
amounts generally billed by hospital facilities to individuals with 
insurance in many cases. Thus, the final regulations do not permit 
hospital facilities to determine AGB using the prospective method based 
on the private health insurers with the lowest rate or the three 
private health insurers with three lowest rates.
    Consistent with changes made to the look-back method, the final 
regulations allow hospital facilities to determine AGB under the 
prospective method based on Medicaid, either alone or in combination 
with Medicare fee-for service. More specifically, the final regulations 
provide that a hospital facility using the prospective method may base 
AGB on either Medicare fee-for-service or Medicaid or both, provided 
that, if it uses both, its FAP describes the circumstances under which 
it will use Medicare fee-for-service or Medicaid in determining AGB.
b. Gross Charges
    The 2012 proposed regulations provided that a hospital facility 
must charge a FAP-eligible individual less than the gross charges for 
any medical care provided to that individual. Several commenters argued 
that, unlike the AGB requirement in section 501(r)(5)(A), the language 
regarding the prohibition on the use of gross charges in section 
501(r)(5)(B) does not refer to FAP-eligible individuals, in particular. 
As a result, these commenters recommended that the final regulations 
prohibit the use of gross charges for all individuals, not just FAP-
eligible individuals.
    The Treasury Department and the IRS believe it is reasonable to 
interpret section 501(r)(5)(B)'s prohibition on gross charges in the 
context of section 501(r)(5) as a whole, which is intended to limit the 
amounts charged to FAP-eligible individuals. The JCT clarified this 
intent in the Technical Explanation, remarking that ``[a] hospital 
facility may not use gross charges . . . when billing individuals who 
qualify for financial assistance.'' See Technical Explanation, at 82. 
Thus, the final regulations continue to apply the prohibition on gross 
charges only to FAP-eligible individuals.
    The 2012 proposed regulations applied the AGB limitation only to 
charges to FAP-eligible individuals for emergency or other medically 
necessary care, while the prohibition on charging FAP-eligible 
individuals gross charges would also apply to ``all other medical 
care.'' A few commenters interpreted this language to mean that the 
prohibition on gross charges applies even to elective procedures not 
covered under the FAP. In response, the final regulations clarify that 
this limitation applies only to charges for care covered under a 
hospital facility's FAP, which may, but need not, cover care that is 
neither emergency nor medically necessary care.
c. Safe Harbor for Certain Charges in Excess of AGB
    The 2012 proposed regulations included a safe harbor under which a

[[Page 78983]]

hospital facility would not violate section 501(r)(5) if it charged 
more than AGB for emergency or other medically necessary care, or 
charged gross charges for any medical care, to a FAP-eligible 
individual who had not submitted a complete FAP application as of the 
time of the charge, provided that the hospital facility made and 
continued to make reasonable efforts to determine whether the 
individual was FAP-eligible (within the meaning of and during the 
periods required under section 501(r)(6)).
    Because the steps to notify individuals about the FAP that remain 
in the regulations under section 501(r)(6) (as opposed to those that 
have been moved to the regulations under section 501(r)(4)) are focused 
on the individuals against whom a hospital facility actually intends to 
initiate extraordinary collection actions, the Sec.  1.501(r)-5(d) safe 
harbor in the final regulations does not retain the requirement in the 
2012 proposed regulations that the hospital facility make reasonable 
efforts to determine whether the individual is FAP-eligible within the 
meaning of the section 501(r)(6) regulations. Instead, the safe harbor 
focuses on remedying the overcharging by requiring that, if an 
individual submits a complete FAP application and is determined to be 
FAP-eligible for care, the hospital facility must refund any amounts 
the individual has paid for the care that exceeds the amount he or she 
is determined to be personally responsible for paying as a FAP-eligible 
individual. For reasons discussed in section 6.b.v.B of this preamble, 
the Sec.  1.501(r)-5(d) safe harbor in the final regulations also 
contains an exception to this general requirement to refund under which 
a hospital facility is not required to refund excess payments of less 
than $5.
    One commenter suggested that the Sec.  1.501(r)-5(d) safe harbor 
should only require a hospital facility to refund amounts paid by a 
FAP-eligible individual in excess of AGB. As part of properly 
implementing their FAPs, hospital facilities should charge FAP-eligible 
individuals only the amounts they are determined to owe as FAP-eligible 
individuals. Thus, a hospital facility should not be permitted to 
charge FAP-eligible individuals more than AGB and be able to avail 
itself of the Sec.  1.501(r)-5(d) safe harbor unless it is willing to 
refund any amounts paid by a FAP-eligible individual that exceed the 
amount he or she is determined to owe as a FAP-eligible individual.
    Two commenters recommended that the safe harbor under the section 
501(r)(5) regulations require a hospital facility to charge all 
individuals AGB or less during the application period unless it has 
affirmatively determined that the individual is not FAP-eligible. The 
Treasury Department and the IRS expect that a hospital facility will 
not be able to affirmatively determine whether most of its patients are 
FAP-eligible because most of its patients who are not FAP-eligible will 
not apply for financial assistance. Accordingly, such a rule would 
undercut the purpose of the safe harbor and is not adopted by these 
final regulations.
    As discussed further in section 6.a.iv of this preamble, two 
commenters noted that charging individuals an upfront payment as a 
condition of receiving care may be tantamount to denying that care in 
the case of medically indigent people, and the final regulations 
consider demanding payment of a past bill as a condition of receiving 
future medically necessary care to be an extraordinary collection 
action. In addition, the Treasury Department and the IRS believe that 
the Sec.  1.501(r)-5(d) safe harbor should not protect hospital 
organizations that charge an upfront payment in excess of AGB to FAP-
eligible individuals. Accordingly, the final regulations provide that 
the Sec.  1.501(r)-5(d) safe harbor does not apply to charges made or 
requested as a pre-condition of providing medically necessary care to a 
FAP-eligible individual. Thus, if a hospital facility requires an 
individual to make an upfront payment for medically necessary care that 
exceeds the AGB for the care and the individual turns out to be FAP-
eligible, the hospital facility will have failed to meet the 
requirements of section 501(r)(5).
6. Billing and Collection
    Consistent with the statute, the final regulations provide that a 
hospital organization meets the requirements of section 501(r)(6) with 
respect to a hospital facility it operates only if the hospital 
facility does not engage in extraordinary collection actions (ECAs) 
against an individual to obtain payment for care before making 
reasonable efforts to determine whether the individual is FAP-eligible 
for the care. For these purposes, and consistent with the 2012 proposed 
regulations, a hospital facility will be considered to have engaged in 
ECAs against an individual to obtain payment for care if the hospital 
facility engages in such ECAs against any other individual who has 
accepted or is required to accept responsibility for the first 
individual's hospital bill for the care.
    One commenter interpreted the provision in the 2012 proposed 
regulations regarding ECAs against individuals with responsibility for 
a patient's hospital bill as applying to private and public insurers 
covering all or a portion of the patient's hospital bill. Under the 
Code, the term ``individual'' does not include any trust, estate, 
partnership, association, company, corporation, or governmental entity 
and, thus, would not include any private or public insurer. 
Accordingly, the final regulations retain the provision in the 2012 
proposed regulations regarding ECAs against individuals with 
responsibility for a patient's hospital bill. This provision does not 
require a hospital facility to make reasonable efforts to determine 
FAP-eligibility before engaging in ECAs against private or public 
insurers or any other liable third parties that are not individuals.
    The 2012 proposed regulations also provided that a hospital 
facility will be considered to have engaged in an ECA against an 
individual to obtain payment for care if any purchaser of the 
individual's debt or any debt collection agency or other party to which 
the hospital facility has referred the individual's debt has engaged in 
an ECA against the individual to obtain payment for the care. Many 
commenters asked that the regulations relieve hospital facilities from 
strict liability under section 501(r)(6) for the actions of third 
parties, provided that the hospital facility acts in good faith to 
supervise and enforce the section 501(r)(6) obligations of its 
contractual agreements with collection agents and takes remedial steps 
with respect to any contractual violations it discovers. These 
commenters argued that a hospital's tax-exempt status should not be 
placed in jeopardy by a debt collection agency's actions of which it is 
unaware. Other commenters, however, recommended that the final 
regulations retain the provision holding hospital facilities 
accountable for the billing and collection actions of third-party 
contractors and debt buyers.
    The Treasury Department and the IRS continue to believe that 
hospital facilities must be held accountable for the ECAs of the debt 
collection agencies and debt buyers to which they refer or sell debt. 
Otherwise, hospital facilities could easily avoid their 
responsibilities under section 501(r)(6) by referring or selling their 
debt to third parties. Nonetheless, the Treasury Department and the IRS 
expect that the concerns of these commenters are largely addressed by 
the provision, outlined in section 2.b of this preamble, under which a 
hospital facility's failure to meet the requirements of section 
501(r)(6) will be excused if the failure is not willful or egregious 
and the hospital facility both

[[Page 78984]]

corrects and discloses the failure in accordance with published 
guidance. Under this provision, if a hospital facility acts reasonably 
and in good faith to supervise and enforce the section 501(r)(6) 
obligations of its contractual agreements with debt collectors or 
purchasers and corrects any contractual violations it discovers, then 
an error on the part of the debt collectors or purchasers should not be 
willful and, provided that it is not egregious, could be excused if the 
hospital facility corrects and discloses the failure in accordance with 
the procedures outlined in the revenue procedure described in Sec.  
1.501(r)-2(c). Accordingly, the final regulations retain the provision 
holding a hospital facility accountable for the ECAs of the third 
parties collecting debt on its behalf or to which it sells debt.
    One commenter interpreted the 2012 proposed regulations as 
suggesting that a hospital facility must meet the section 501(r)(6) 
requirements with respect to all care provided by the hospital 
facility, even if that care is elective and not medically necessary. 
Section Sec.  1.501(r)-6(b) of these final regulations and the 2012 
proposed regulations define ECAs as actions related to obtaining 
payment of bills ``for care covered under the hospital facility's 
FAP.'' Both the proposed and final regulations under section 501(r)(4) 
only require a FAP to cover emergency and other medically necessary 
care. Because a hospital facility has discretion over whether its FAP 
covers elective procedures that are not medically necessary, it has 
discretion over whether or not it must meet the section 501(r)(6) 
requirements with respect to such elective care.
a. Extraordinary Collection Actions
    The 2012 proposed regulations defined ECAs as actions taken by a 
hospital facility against an individual related to obtaining payment of 
a bill for care covered under the hospital facility's FAP that require 
a legal or judicial process, involve selling an individual's debt to 
another party, or involve reporting adverse information about an 
individual to consumer credit reporting agencies or credit bureaus 
(collectively, ``credit agencies'').
    Some commenters asked that the final regulations clarify that 
certain additional actions, such as writing off an account to bad debt, 
sending a patient a bill, or calling a patient by telephone to make 
reasonable inquiries, are not ECAs. These actions do not require a 
legal or judicial process or involve reporting adverse information to a 
credit agency or the selling of an individual's debt and would not come 
within the definition of ECAs under either the 2012 proposed 
regulations or the final regulations. However, because there are many 
possible actions that would not be ECAs and such actions cannot be 
exhaustively listed in the regulations, the final regulations do not 
respond to these comments by enumerating actions that are not ECAs 
(although they do provide for some exceptions with respect to the ECAs 
that are enumerated, as described in sections 6.a.ii and 6.a.iii of the 
preamble).
i. Reports to Credit Agencies
    Many commenters argued that reporting adverse information to a 
credit agency should not be considered an ECA because such reporting is 
not a collection action and is a common practice of hospital 
facilities. One commenter argued that Congress could not have intended 
credit agency reporting to be an ECA because section 501(r)(4)(A)(iv) 
provides that a tax-exempt hospital facility's FAP or separate billing 
and collection policy must include, among other items, ``the actions 
the organization may take in the event of non-payment, including 
collections action[s] and reporting to credit agencies.'' Other 
commenters supported defining ECAs to include reporting an individual's 
non-payment of a debt to a credit agency, noting that such an action is 
a tool in collecting debt and can have extraordinarily detrimental 
consequences for individuals by resulting in bad credit records for 
many years.
    The Treasury Department and the IRS view reporting to credit 
agencies as a collection action because it is a tool to collect 
delinquent debts, and bad credit reports can have extraordinarily 
detrimental consequences for the affected individuals. Moreover, the 
requirement under section 501(r)(4)(A)(iv) that a hospital facility 
describe reporting to credit agencies in its FAP or billing and 
collections policy evidences Congress's concern regarding such 
reporting. In addition, the JCT's Technical Explanation states that `` 
`reasonable efforts' includes notification . . . before collection 
action or reporting to credit agencies is initiated.'' Technical 
Explanation, at 82. Because section 501(r)(6) only requires a hospital 
facility to make reasonable efforts before initiating an ECA, this 
statement supports the conclusion that reporting to credit agencies is 
an ECA. Accordingly, the final regulations continue to include the 
reporting of adverse information to credit agencies as an ECA.
ii. Certain Liens
    The 2012 proposed regulations provided a non-exclusive list of 
examples of actions that require a legal or judicial process, which 
included the placement of a lien on an individual's property. Numerous 
commenters noted that, when a patient has sued a third party due to an 
auto accident or other type of accident and, as a part of the 
settlement, is entitled to receive reimbursement for medical bills, 
state laws commonly allow hospitals to place a lien on that portion of 
potential settlement proceeds. Commenters stated that they often need 
to move quickly if they will ever be able to take possession of such 
funds and asked that the final rule confirm that this common practice 
will not be treated as an ECA against the patient.
    The proceeds of settlements, judgments, or compromises arising from 
a patient's suit against a third party who caused the patient's 
injuries come from the third party, not from the injured patient, and 
thus hospital liens to obtain such proceeds should not be treated as 
collection actions against the patient. In addition, the portion of the 
proceeds of a judgment, settlement, or compromise attributable under 
state law to care that a hospital facility has provided may 
appropriately be viewed as compensation for that care. Accordingly, in 
response to comments, the final regulations expressly provide that 
these liens are not ECAs.
iii. Sale of an Individual's Debt to Another Party
    A number of commenters argued that debt sales should not be 
considered ECAs because they are an important way for hospitals to 
avoid having to collect debt themselves. Some commenters noted that 
holding hospital facilities accountable for the actions of debt buyers 
should be sufficient to ensure that debt buyers do not themselves 
engage in ECAs before reasonable efforts are made. In addition, several 
commenters argued that certain debt sales are beneficial to the patient 
as well as to the hospital facility because, for example, the buyer may 
service the debt more efficiently or be able to offer extended payment 
plans at no or low interest that the hospital facility cannot. These 
commenters recommended that debt sales should not be considered ECAs if 
the purchaser of the debt is contractually obligated not to take any 
actions that are ECAs and/or the debt is returnable to or recallable by 
the hospital facility.
    Other commenters stated that hospital facilities lose control of 
the debt once

[[Page 78985]]

they sell it and that debt buyers typically purchase medical debts for 
pennies on the dollar, without full information about the individual 
patients, and are thus more likely to pursue flawed claims and engage 
in abusive practices. These commenters recommended that debt sales be 
prohibited altogether, even after reasonable efforts are made to 
determine an individual's FAP-eligibility.
    The Treasury Department and the IRS note that section 501(r)(6) 
does not prohibit any collection actions outright; therefore, the final 
regulations do not prohibit debt sales altogether. The final 
regulations do, however, retain the general rule that debt sales are 
ECAs because the Treasury Department and the IRS agree with those 
commenters who noted that hospitals have less control over a debt once 
it has been sold and that debt buyers will generally have less 
information regarding the individual and the debt and more incentive to 
engage in ECAs before making reasonable efforts to determine whether an 
individual is FAP-eligible.
    Nonetheless, the Treasury Department and the IRS believe these 
concerns about debt sales are mitigated in certain cases in which 
contractual arrangements with debt buyers both allow hospital 
facilities to retain control over the debt and benefit patients. 
Accordingly, the final regulations provide that the sale of an 
individual's debt is not an ECA if, prior to the sale, the hospital 
facility enters into a legally binding written agreement with the 
purchaser of the debt containing four conditions. First, the purchaser 
must agree not to engage in any ECAs to obtain payment of the debt. 
Second, the purchaser must agree not to charge interest on the debt in 
excess of the rate in effect under section 6621(a)(2) at the time the 
debt is sold (or such other interest rate set by notice or other 
guidance published in the Internal Revenue Bulletin).\9\ Third, the 
debt must be returnable to or recallable by the hospital facility upon 
a determination by the hospital facility or the purchaser that the 
individual is FAP-eligible. And, fourth, if the individual is 
determined to be FAP-eligible and the debt is not returned to or 
recalled by the hospital facility, the purchaser must adhere to 
procedures specified in the agreement that ensure that the individual 
does not pay, and has no obligation to pay, the purchaser and the 
hospital facility together more than he or she is personally 
responsible for paying as a FAP-eligible individual. Because debt sales 
subject to these four conditions are not considered to be ECAs under 
the final regulations, a hospital facility may make these debt sales 
without first having made reasonable efforts to determine FAP-
eligibility. Debt sales that do not satisfy these four conditions are 
ECAs and therefore may not be made until after a hospital facility has 
made reasonable efforts to determine FAP-eligibility, as described in 
section 6.b of this preamble.
---------------------------------------------------------------------------

    \9\ The interest rate in effect under section 6621(a)(2) was 3 
percent at the time these final regulations were published. See Rev. 
Rul. 2014-29, 2014-52 IRB 960 (Dec. 22, 2014).
---------------------------------------------------------------------------

iv. Including Additional Actions as ECAs
    The preamble to the 2012 proposed regulations asked whether 
deferring or denying care based on a pattern of nonpayment, requiring 
deposits before providing care, or charging interest on medical debts 
should constitute ECAs. Some commenters opined that these actions 
should be categorized as ECAs to protect patients, with two commenters 
adding that requiring deposits is tantamount to denying care for 
medically indigent people. Other commenters recommended that these 
activities should not be ECAs, noting that requiring some deposit from 
patients prior to scheduling non-emergency care is a common practice 
among health care providers and that interest is charged by many credit 
providers. One of these commenters also stated that it is not 
inappropriate or extraordinary for a hospital to defer provision of 
care to a patient who has a documented pattern of non-payment unless 
that patient is seeking emergency care covered under EMTALA through the 
emergency department.
    The Treasury Department and the IRS view the charging of interest 
on medical debt as a charge for the extension of credit rather than a 
collection action. In addition, the Treasury Department and the IRS 
interpret the term ``collection action'' as applying to actions to 
collect debts owed for services already rendered, not conditions 
imposed before any services have been provided or any debts have been 
incurred. Thus, the Treasury Department and the IRS do not believe that 
requiring a payment (whether partial or full) before providing care is 
a collection action unless it is related to an attempt to collect a 
prior medical bill. Accordingly, the final regulations do not include 
these activities as ECAs.
    However, if a hospital facility defers or denies, or requires a 
payment before providing, medically necessary care because of an 
individual's nonpayment of one or more bills for previously provided 
care, such actions constitute actions to collect the unpaid bills. 
Moreover, these collection actions can properly be viewed as 
extraordinary, given that such actions can potentially jeopardize the 
health of the debtor. While one commenter asserted that ``it is not 
inappropriate'' for a hospital to defer the provision of care on the 
basis of a documented pattern of non-payment unless it is care sought 
through the emergency department covered under EMTALA, the relevant 
question for purposes of section 501(r)(6) is not whether deferring or 
denying care based on past nonpayment is permitted under EMTALA but 
rather whether it is a collection action that is extraordinary. In 
addition, as two commenters pointed out, requiring deposits can be 
tantamount to denying care for medically indigent people, and thus 
requiring payment before providing medically necessary care because of 
nonpayment of past bills is also an ECA with respect to those past 
bills. Therefore, the final regulations include such collection actions 
within the definition of ECAs. The final regulations also elaborate on 
when a requirement for payment will be considered to be ``because of'' 
an individual's nonpayment of one or more bills for previously provided 
care. In particular, the final regulations provide that, if a hospital 
facility requires payment before providing care to an individual with 
one or more outstanding bills, such a payment requirement will be 
presumed to be because of the individual's nonpayment of the 
outstanding bill(s) unless the hospital facility can demonstrate that 
it required the payment from the individual based on factors other 
than, and without regard to, his or her nonpayment of past bills.
    Several commenters also recommended that patients who are eligible 
for hospital financial assistance, means-tested public programs, or 
subsidies should not be subject to any ECAs or other collection 
actions. Section 501(r)(6) requires hospital facilities to determine 
whether an individual is FAP-eligible before engaging in ECAs but does 
not bar ECAs altogether against individuals that have been determined 
to be FAP-eligible or eligible for assistance under public programs. 
Therefore, the final regulations do not adopt this comment.
b. Reasonable Efforts
    The 2012 proposed regulations provided that, with respect to any 
care provided by a hospital facility to an individual, the hospital 
facility would have made reasonable efforts to determine whether the 
individual is FAP-eligible only if the hospital facility

[[Page 78986]]

notified the individual about the FAP, provided a reasonably sufficient 
amount of time for the individual to apply for financial assistance, 
and processed FAP applications received from the individual during a 
specified period. For purposes of meeting these requirements, the 2012 
proposed regulations described both an initial 120-day ``notification 
period'' during which the hospital facility was required to notify an 
individual about the FAP and a 240-day ``application period'' during 
which a hospital facility was required to process any application 
submitted by the individual, with both periods starting on the date of 
the first bill. A hospital facility providing the necessary 
notification during the 120-day notification period could begin to 
engage in ECAs against an individual after the end of the 120-day 
notification period but was required to suspend any such ECAs if the 
individual submitted a FAP application during the remainder of the 
application period (and to reverse such ECAs if the individual was 
determined to be FAP-eligible).
    Many commenters stated that the reasonable efforts regime set forth 
in the 2012 proposed regulations was too detailed and prescriptive and 
asked that the final regulations adopt this regime as a safe harbor 
rather than as a requirement. These commenters asked that hospital 
facilities be allowed to maintain current practices regarding the 
manner and timeframe of notification about the FAP and processing of 
FAP applications, provided that these practices are made transparent, 
such as by requiring that these practices be disclosed in FAPs, billing 
and collection policies, or the hospital facility's Form 990.
    The Treasury Department and the IRS do not believe that disclosure 
alone of a hospital facility's notification and FAP-eligibility 
determination processes constitutes reasonable efforts to determine 
whether individuals are FAP-eligible. While the regulations under 
section 501(r)(4) require such disclosure to be made in the FAP or a 
separate billing and collections policy, such disclosure will not 
meaningfully or adequately accomplish the requirement that Congress 
intended when it enacted section 501(r)(6) and expressly called for the 
Secretary to issue guidance defining reasonable efforts to determine 
FAP-eligibility.\10\ Accordingly, the final regulations do not provide 
hospital facilities with complete discretion over how to make 
reasonable efforts to determine FAP-eligibility. However, the final 
regulations do make a number of modifications, as described further in 
this section of the preamble, that are designed to reduce the 
compliance burden on hospital facilities while at the same time 
ensuring that the reasonable efforts taken to determine whether 
individuals are FAP-eligible adequately protect patients.
---------------------------------------------------------------------------

    \10\ See section 501(r)(7) (providing that the Secretary ``shall 
issue such regulations and guidance as may be necessary to carry out 
the provisions of [section 501(r)], including guidance relating to 
what constitutes reasonable efforts to determine the eligibility of 
a patient under a'' FAP for purposes of section 501(r)(6)).
---------------------------------------------------------------------------

    The final regulations also contain a number of changes to Sec.  
1.501(r)-6(c) of the 2012 proposed regulations that are intended to 
streamline and simplify the presentation of the applicable rules and 
not to have a substantive effect.
i. Notification and Application Periods
    The 2012 proposed regulations requested comments on whether the 
notification and application periods should start later than the date 
of the first billing statement, such as the date of discharge, in the 
case of patients staying at a hospital facility for a prolonged period 
of time and receiving billing statements in the mail before being 
discharged. The majority of commenters responding to this request for 
comments stated that the notification and application periods should 
start no earlier than the time of discharge so that the ``clock'' on 
the periods would not start until the patient was aware of the billing 
statements and able to focus on the notifications about the FAP. On the 
other hand, one commenter noted that inpatients present the best 
opportunity for in-person financial counseling activity and that there 
was therefore no need for the periods to begin after discharge rather 
than the first billing statement. Another commenter opined that the 
requirements relating to FAP notification and applications would be 
confusing to both providers and consumers if the FAP notification and 
application periods did not always start on the date of the first 
billing statement.
    In response to the majority of comments on the issue and to ensure 
that patients who receive care over a prolonged period of time receive 
adequate notification about the FAP and impending ECAs and have an 
adequate opportunity to apply for financial assistance, the final 
regulations provide that the applicable 120- and 240-day periods start 
on the date that the first ``post-discharge'' billing statement is 
provided, rather than just the first billing statement. For these 
purposes, the final regulations clarify that a billing statement for 
care is considered ``post-discharge'' if it is provided to an 
individual after the care (whether inpatient or outpatient) is provided 
and the individual has left the hospital facility.
    Many commenters asked that the lengths of the proposed 120-day 
notification period and/or 240-day application period be modified. Some 
commenters suggested a shorter application period of 90, 120, or 180 
days, with the notification period either being concurrent with, or a 
shorter period within, the application period. Several of the 
commenters who requested one concurrent notification and application 
period noted the complexity associated with tracking two different, 
overlapping periods. In arguing for a shorter application period, many 
commenters stated that a 240-day application period would unduly 
interfere with hospital facilities' ability to recover from patients 
with resources available to pay the amounts due.
    Other commenters, however, suggested longer notification or 
application periods. One commenter suggested one concurrent 
notification and application period of 240 days, stating that it would 
be more effective and less burdensome for all involved to simply 
prohibit all ECAs during the entire 240-day application period. Other 
commenters requested an application period of one or two years, noting 
that many times ECAs are not commenced until long after 240 days and 
that many patients may not realize that money is owed until after 240 
days, particularly if they believe that outstanding charges might be 
covered by an insurer. Commenters also noted that FAP-eligible 
individuals may not promptly respond to notifications regarding a 
hospital facility's FAP if they are sick or have literacy issues. 
Several commenters recommended that patients be allowed to raise FAP-
eligibility as an affirmative defense against ECAs at any time, not 
just during the application period. One commenter requested 
clarification that hospitals may extend the application period beyond 
240 days.
    The Treasury Department and the IRS continue to believe that 120 
days from the first post-discharge billing statement is an appropriate 
amount of time for hospital facilities to wait before initiating ECAs 
against patients whose FAP-eligibility is undetermined so that patients 
have sufficient time to learn about the FAP and apply for financial 
assistance. As noted in the preamble to the 2012 proposed regulations, 
such a 120-day period is consistent with some state requirements or 
recommendations to wait 120 days before taking certain ECAs and, based 
on typical billing cycles reported by commenters, should ensure 
patients receive at least three

[[Page 78987]]

bills before facing an ECA. Moreover, since the release of the 2012 
proposed regulations, a taskforce of healthcare finance professionals, 
healthcare providers, consumer advocates, collections agencies, and 
credit agencies has recommended that hospitals wait 120 days from the 
date of the first billing statement before commencing ECAs ``to protect 
patients from undue haste in use of ECAs.'' See Best Practices for 
Resolution of Medical Accounts: A Report from the Medical Debt 
Collection Task Force, at 9 (Jan. 2014), available at https://www.hfma.org/medicaldebt/. Therefore, the final regulations generally 
provide that a hospital facility may not initiate ECAs against an 
individual whose FAP-eligibility has not been determined before 120 
days after the first post-discharge billing statement. However, due to 
changes made in the final regulations regarding the notification 
requirements described in section 6.b.iii of this preamble, the 120-day 
period during which a hospital facility may not initiate ECAs is no 
longer called a ``notification period.''
    With respect to the application period, the Treasury Department and 
the IRS agree with some commenters that it is generally a good practice 
for hospital facilities to allow individuals to raise FAP-eligibility 
as a defense against ECAs at any time and not just during a limited 
application period. In fact, the Treasury Department and the IRS 
understand that many hospital facilities currently will accept and 
process FAP applications from patients at any time, and the definition 
of ``application period'' in the final regulations expressly states 
that hospital facilities may continue to do this. Moreover, many 
hospital facilities may prefer simply to allow FAP applications to be 
submitted at any time rather than track application periods for each 
patient on an episode-of-care basis. However, in the interest of sound 
tax administration and achieving certainty for hospital facilities, the 
question of whether a hospital facility has met the requirements of 
section 501(r)(6) should not be left open indefinitely. Accordingly, 
although hospital facilities may continue to accept and process FAP 
applications at any time, the final regulations provide an application 
period after which a hospital facility is not required to accept and 
process FAP applications for purposes of meeting section 501(r)(6).
    The Treasury Department and the IRS continue to believe that about 
eight months (240 days) after the first post-discharge bill is a 
reasonable period of time for a hospital facility to give a patient to 
apply for financial assistance to be considered to have made reasonable 
efforts to determine whether the patient is FAP-eligible. As one 
commenter pointed out, individuals may commonly have to wait several 
months before they know how much of a charge for health care services 
an insurer will cover and how much they are personally responsible for 
paying. In addition, the amount of time allowed for FAP applications to 
be submitted should take into account the fact that a large proportion 
of applicants may face obstacles such as continuing illness, literacy 
issues, or language barriers.
    While some commenters asserted that an application period of 240 
days from the first bill would unduly interfere with hospitals' ability 
to collect debts from non-FAP-eligible individuals, they provided 
little support or further explanation for this general claim, and other 
commenters suggested that many ECAs are not commenced until long after 
240 days from the first bill. Moreover, under both the 2012 proposed 
regulations and these final regulations, hospital facilities may 
initiate ECAs against an individual as early as 120 days after the 
first post-discharge bill without failing to meet the requirements of 
section 501(r)(6), provided the required notifications have been given 
prior to the initiation of the ECAs. Some of these ECAs may have to be 
suspended or reversed if the patients against whom the ECAs are taken 
subsequently submit FAP applications, but the Treasury Department and 
the IRS have no reason to believe that the costs associated with such 
possible suspensions or reversals only for the subset of patients who 
submit FAP applications during the application period will be so 
significant as to render it impractical to initiate any ECAs during the 
application period.
    In addition, as discussed in section 6.b.vi of this preamble, many 
commenters indicated that hospital facilities use a variety of methods 
and sources of information other than FAP applications submitted by 
individuals to predict potential FAP-eligibility with a high degree of 
accuracy. Presumably, hospital facilities will be able to use such 
methods and information sources to focus ECAs on those patients 
unlikely to be FAP-eligible, thereby minimizing the risk that they will 
have to reverse a significant number of ECAs. If a hospital facility 
receives a complete FAP application during the application period from 
an individual after initiating an ECA against the individual, it must 
process the application, but, if the individual is determined to be 
ineligible for financial assistance, no reversal of ECAs will be 
necessary (and suspension will be necessary only for the period of time 
the application is being processed).
    For all of these reasons, the Treasury Department and the IRS 
believe that an application period that ends no earlier than 240 days 
from the first post-discharge bill appropriately balances the need to 
protect FAP-eligible patients from ECAs before FAP-eligibility is 
determined with the need to avoid undue interference with hospital 
facilities' ability to collect debts from non-FAP-eligible individuals.
    The final regulations further provide that the application period 
for the care of an individual who has not been presumptively determined 
to be FAP-eligible (as discussed in section 6.b.vi of the preamble) 
will be longer than 240 days if the hospital facility provides the 
individual with a written notice about available financial assistance 
and potential ECAs (described in section 6.b.iii.C of this preamble) 
that states a deadline that is after the 240th day from the first post-
discharge bill. For example, if a hospital facility provides an 
individual with a written notice about potential ECAs to obtain payment 
for care on the 250th day after the first post-discharge bill for the 
care and informs the individual that he or she has 30 days to apply for 
financial assistance before the identified ECAs may be initiated (the 
minimum number of days the deadline may be from the date the written 
notice is provided), the hospital facility would be required to process 
any FAP application that the individual submits by the 280th day after 
the first post-discharge bill. Thus, with the exception of individuals 
who are presumptively determined to be FAP-eligible (as described 
further in section 6.b.vi of this preamble), an individual's 
application period will remain open until at least 30 days after the 
hospital facility provides the individual with a written notice that 
sets a deadline after which ECAs may be initiated.\11\
---------------------------------------------------------------------------

    \11\ If the hospital facility never intends to initiate an ECA 
against an individual, and therefore never sends a written notice 
about potential ECAs (and/or a notice with a deadline for applying) 
to the individual, the application period is irrelevant because 
section 501(r)(6) only requires a hospital facility to make 
reasonable efforts to determine FAP-eligibility before engaging in 
an ECA.
---------------------------------------------------------------------------

ii. Meeting the Section 501(r)(6) Requirements on an ``Episode-of-
Care'' Basis
    A number of commenters recommended that the reasonable efforts 
requirements be applied on an ``individual patient'' basis rather than

[[Page 78988]]

on an ``episode-of-care'' basis to avoid unnecessary duplication of 
notifications to one individual and complexity in tracking multiple 
notification and application periods. In addition, one commenter noted 
that, at such time as a hospital would engage in an ECA, it would seek 
to identify and aggregate all outstanding and delinquent bills for a 
patient and then initiate an ECA to obtain payment of all the bills 
together rather than each bill separately.
    In response to these comments, the final regulations clarify that a 
hospital facility may satisfy the notification requirements 
simultaneously for multiple episodes of care for purposes of notifying 
the individual about its FAP and potential ECAs. Notwithstanding this 
allowance for multiple episodes of care, the Treasury Department and 
the IRS continue to believe that patients should not have less 
opportunity or time to apply for financial assistance simply because 
they received care from a hospital facility in the past, especially 
since illness and accumulating hospital bills themselves could result 
in a deterioration of an individual's financial circumstances. Thus, 
the final regulations also provide that, if a hospital facility 
aggregates an individual's outstanding bills for multiple episodes of 
care before initiating one or more ECAs to obtain payment for those 
bills, it may not initiate the ECA(s) until 120 days after it provided 
the first post-discharge bill for the most recent episode of care 
included in the aggregation. Similarly, although, as a formal matter, a 
separate application period starts with each episode of care, as a 
practical matter, hospital facilities have the option of measuring the 
240-day period from the first post-discharge bill for the most recent 
episode of care.
iii. Notification Requirements
    To satisfy the notification component of ``reasonable efforts'' 
with respect to any care provided to an individual, the 2012 proposed 
regulations required a hospital facility to take the following actions: 
(1) Distribute a plain language summary of the FAP, and offer a FAP 
application form, to the individual before discharge from the hospital 
facility; (2) include a plain language summary of the FAP with all (and 
at least three) billing statements for the care and with all other 
written communications regarding the bill provided during a 120-day 
notification period; (3) during the notification period, inform the 
individual about the FAP in all oral communications regarding the 
amount due for the care; and (4) provide the individual with at least 
one written notice informing the individual about the ECAs the hospital 
facility (or other authorized party) may take if the individual did not 
submit a FAP application or pay the amount due.
    As discussed in section 4.a.iv.C of this preamble, the requirement 
to provide a plain language summary of the FAP as part of the discharge 
or intake process is included under Sec.  1.501(r)-4 of the final 
regulations as part of widely publicizing the FAP, rather than under 
Sec.  1.501(r)-6(c) of the final regulations. Rather than require that 
a plain language summary of the FAP be included with all (and at least 
three) billing statements and with all other written communications 
regarding the bill provided during a 120-day period after the first 
bill, Sec.  1.501(r)-4 of the final regulations requires that all 
billing statements include a notice informing patients about the 
availability of financial assistance and how to get information about 
and a copy of the FAP, and Sec.  1.501(r)-6(c) of the final regulations 
requires that a plain language summary of the FAP be included with one 
post-discharge written communication. The final regulations continue to 
require oral notification about the FAP as part of reasonable efforts 
to determine FAP-eligibility in Sec.  1.501(r)-6(c), but amend this 
requirement to focus the oral notification on those patients against 
whom the hospital facility intends to engage in ECAs rather than 
require it for all patients who communicate with the hospital facility 
about the amount due for the care. Finally, Sec.  1.501(r)-6(c) of the 
final regulations continues to require a notice about potential ECAs 
but requires notice only of the ECAs the hospital facility intends to 
initiate rather than all ECAs that may be initiated. The comments 
received on, and the modifications to the components of, the 
notification actions that remain in Sec.  1.501(r)-6(c) of the final 
regulations are discussed in greater detail in this section 6.b.iii of 
the preamble. In general, the Treasury Department and the IRS expect 
that these modifications will significantly reduce the burden on 
hospital facilities without significantly reducing the notice given to 
patients about the availability of financial assistance.
A. Providing Plain Language Summaries With Written Communications
    Many commenters stated that requiring hospital facilities to 
include plain language summaries with all billing statements (as well 
as with all other written communications) during the notification 
period would result in significant programming, printing, and mailing 
costs. A number of commenters suggested that a reference to the 
availability of the FAP and a brief description of how to obtain more 
information should be sufficient information for patients, with some 
commenters adding that if plain language summaries had to be included 
with bills at all, the requirement should be limited to only one or two 
bills. Other commenters noted that multiple notices over time are 
important, as patients may be in varying states of readiness for 
information on financial assistance, and these commenters singled out 
notices with billing statements as especially effective.
    In response to these comments, the notification component of 
reasonable efforts under the final regulations requires a hospital 
facility to provide a plain language summary of the FAP to an 
individual only if and when it sends that individual the written notice 
about potential ECAs described in section 6.b.iii.C of this preamble. 
Thus, hospital facilities need only incur the additional costs that may 
be associated with the provision of a plain language summary one time 
and only with respect to the smaller pool of patients against whom the 
hospital facility actually intends to engage in ECAs, not with respect 
to all patients against whom it might one day want to engage in ECAs. 
As a result, the final regulations significantly reduce the burden on 
hospital facilities in notifying individuals about their FAPs.
    At the same time, many of the commenters who argued that including 
a plain language summary with every bill would be unnecessarily costly 
also noted that a brief description of how to obtain more information 
about the FAP should provide sufficient notification to patients. Other 
commenters stressed the importance of repeated notices about the FAP 
with bills. In response to these comments, and for reasons discussed in 
section 4.a.iv.C of this preamble, the final regulations require a 
conspicuous written notice about the FAP to be included on a hospital 
facility's billing statement as part of ``widely publicizing'' the FAP 
for purposes of meeting the requirements under section 501(r)(4). 
Because the final regulations require this conspicuous notice about the 
FAP to be included on billing statements, the Treasury Department and 
the IRS do not expect that the final regulations significantly reduce 
the information available to individuals who may be FAP-eligible or 
their opportunity to learn about or apply for financial assistance.

[[Page 78989]]

B. Oral Notification
    Some commenters stated that the requirement that the hospital 
facility inform the individual about the FAP in all oral communications 
regarding the amount due for care was overly burdensome, prohibitively 
difficult to document, prone to human error, and too dependent on the 
cooperation of the individual (who may, for example, hang up before 
receiving information about the FAP). A few commenters asked that the 
oral communication requirement be limited to those patients who 
indicate they may have difficulty paying their bill rather than 
applying to any patient with a question ``regarding the amount due for 
care,'' as the latter could include many routine billing inquiries. 
Other commenters stated that orally-conveyed information can be the 
most effective way to ensure that patients know financial assistance is 
available, especially in the case of LEP populations or individuals 
with literacy issues.
    In response to commenters, the final regulations replace the oral 
notification requirement in the 2012 proposed regulations with a 
requirement that a hospital facility make a reasonable effort to orally 
notify an individual about the hospital facility's FAP and about how 
the individual may obtain assistance with the FAP application process 
at least 30 days before the initiation of ECAs against the individual. 
By allowing hospital facilities to target their oral notifications to 
those individuals against whom they actually intend to engage in ECAs, 
the final regulations respond to the concern that the oral notification 
rule in the 2012 proposed regulations was too burdensome by greatly 
reducing the oral notifications that hospital facilities must make. At 
the same time, the final regulations ensure that individuals who may 
need financial assistance receive oral notification about a hospital 
facility's FAP prior to the hospital facility's initiation of ECAs, 
which addresses concerns raised by commenters who stressed the 
importance of orally-conveyed information for potentially FAP-eligible 
individuals.
C. Notification About Impending ECAs
    A few commenters would eliminate the requirement in the 2012 
proposed regulations of a written notice informing individuals about 
the ECAs the hospital facility may take if the individual does not 
submit a FAP application or pay the amount due by the specified 
deadline, stating that such a written notice could be considered a 
``threatening'' communication that is prohibited by the federal Fair 
Debt Collection Practices Act (FDCPA) (15 U.S.C. 1601 et seq.).
    The FDCPA does not prevent a debt collector from informing an 
individual about an ECA if the ECA is lawful and the debt collector 
``intends'' or has a ``present intention'' to take the action. See 15 
U.S.C. 1692e(4)-(5), 1692f(6). In accordance with this language in the 
FDCPA and in response to comments, the final regulations amend the 
requirement regarding the written notice about ECAs to require that the 
notice state the ECA(s) that the hospital facility (or other authorized 
party) actually ``intends to take,'' rather than requiring a 
description of every ECA a hospital ``may'' take in the future. 
Furthermore, like the 2012 proposed regulations, the final regulations 
do not require a hospital facility (or third party collecting a 
hospital facility's debt) to provide this notice unless and until it 
actually intends to initiate one or more ECA(s) against an individual. 
This ability to wait to send the notice not only should eliminate any 
conflict with the FDCPA but also limits the burden associated with 
providing the notice because a hospital facility need only send it to 
the subset of patients against whom it actually intends to initiate 
ECAs.
    Similar to the 2012 proposed regulations, the final regulations 
also require the written notice to state a deadline after which the 
identified ECA(s) may be initiated that is no earlier than 30 days 
after the date that the written notice is provided. In addition, the 
final regulations require the written notice to generally indicate that 
financial assistance is available for eligible individuals.
D. Documenting Notification
    The 2012 proposed regulations provided that, if an individual had 
not submitted a FAP application and the hospital facility had notified 
the individual as described in the 2012 proposed regulations and 
documented that it had so notified the individual, the hospital 
facility would be deemed to have met the reasonable efforts 
requirements of section 501(r)(6) and could engage in ECAs against that 
individual. With respect to documenting compliance with the 
notification requirements, one commenter asked whether a hard copy or 
electronic image of every relevant piece of paper given to every 
individual would be required.
    The final regulations eliminate any separate requirement under the 
section 501(r)(6) regulations to document notification. The Treasury 
Department and the IRS note, however, that hospital organizations will 
have to report whether and how they made reasonable efforts to 
determine FAP-eligibility before engaging in ECAs on their Forms 990 
and, as a general matter, are responsible for maintaining records to 
substantiate any information required by the Form 990. See section 
6033(a)(1); Sec.  1.6001-1(c).
E. Miscellaneous Issues Involving Written Communications
    Numerous commenters noted that hospital facilities' billing systems 
are transitioning from paper to electronic delivery and stated that the 
2012 proposed regulations seemed to envision that most written 
communications would be provided in paper form. In response to these 
comments, the final regulations clarify that a hospital facility may 
provide any of the written notices or communications described in Sec.  
1.501(r)-6 of the final regulations electronically (for example by 
email) to any individual who indicates he or she prefers to receive the 
written notice or communication electronically.
    A number of provisions in the 2012 proposed regulations referred to 
the date a written notice or communication was ``provided,'' and one 
commenter asked whether ``provides'' means the date the statement is 
placed into the U.S. mail or the date the statement is received by the 
patient. The final regulations clarify that, in the case of any written 
notice or communication that is mailed, the communication will be 
considered ``provided'' on the date of mailing. A communication may 
also be considered provided on the date it is sent electronically or 
delivered by hand.
iv. Incomplete FAP Applications
    In the case of an individual who submits an incomplete FAP 
application during the application period, the 2012 proposed 
regulations provided that a hospital facility must suspend ECAs 
(defined as not initiating any ECAs or taking further action on any 
previously initiated ECAs) taken against the individual until either 
the individual's FAP application was completed and processed or the 
``completion deadline'' had passed without the individual's having 
completed the FAP application. The 2012 proposed regulations further 
provided that the completion deadline could be no earlier than the 
later of 30 days from the date of a written notice about impending ECAs 
or the last day of the application period. Some commenters expressed 
concern that these provisions in the 2012 proposed regulations 
effectively allowed an individual to submit a FAP application

[[Page 78990]]

form with minimal information on it and thereby automatically defer 
ECAs for up to 240 days.
    In response to this concern, and to provide hospital facilities 
with additional flexibility to work with individuals submitting 
incomplete FAP applications in a manner appropriate to the particular 
circumstances, the final regulations provide that a hospital facility 
must suspend ECAs against the individual until either the individual 
completes the FAP application and the hospital facility determines 
whether the individual is FAP-eligible or until the individual has 
failed to respond to requests for additional information and/or 
documentation within a reasonable period of time. The Treasury 
Department and the IRS expect the reasonableness of the period of time 
individuals are given to complete a FAP application before ECAs may 
resume will depend on the particular facts and circumstances, including 
the amount of additional information and/or documentation that is being 
requested. Although the final regulations potentially permit a hospital 
facility to initiate or resume ECAs before the end of the application 
period against an individual who has failed to respond to requests for 
additional information and/or documentation, if the individual 
subsequently completes the FAP application during the application 
period, the final regulations would require the hospital facility to 
again suspend any ECAs taken against the individual until the hospital 
determines whether the individual is FAP-eligible (and, if the 
individual is determined to be FAP-eligible, to reverse such ECAs).
    A few commenters requested clarification that hospital facilities 
are required to suspend only those ECAs relating to the care at issue 
upon the submission of a FAP application, not ECAs relating to past 
care for which the hospital facility has already satisfied the 
reasonable efforts requirements. The final regulations include this 
clarification (in the context of processing both incomplete as well as 
complete FAP applications) by providing that a hospital facility must 
only suspend any ECAs taken against the individual ``to obtain payment 
for the care'' at issue.
    Two commenters suggested that the requirement to suspend ECAs 
ignores specific time frames that must be followed to prevent a 
hospital facility's legal rights from being jeopardized, such as filing 
a claim in a bankruptcy proceeding and filing a responsive pleading or 
responding to a motion by prescribed deadlines in pending legal 
actions. One of these commenters recommended that the final regulations 
allow for ECAs to continue even when an incomplete FAP application is 
submitted if suspending the ECA would result in the hospital facility's 
legal rights being jeopardized.
    In response to these comments, the final regulations add a 
provision stating that filing a claim in a bankruptcy proceeding is not 
an ECA, so the requirement to suspend ECAs will not jeopardize the 
ability to file such claims. The final regulations do not adopt the 
suggestion that ECAs be permitted to continue ``if suspending the ECA 
would result in the hospital facility's legal rights being 
jeopardized,'' as this is a vague standard that would be difficult to 
enforce and could substantially diminish the protection afforded by the 
suspension requirement. The Treasury Department and the IRS also note 
that, under the final regulations, ECAs taken against an individual who 
has submitted an incomplete FAP application only have to be suspended 
for a ``reasonable period of time,'' not a period of at least 240 days 
from the first post-discharge bill.
    The final regulations require hospital facilities to provide a 
notice about potential ECAs (and an accompanying plain language summary 
of the FAP) to an individual who has submitted an incomplete FAP 
application under the provisions relating to notification about the FAP 
rather than separately requiring this notice under the provisions 
relating to incomplete FAP applications (as had been done in the 2012 
proposed regulations). This change is made to simplify the regulations 
and is not intended to have any substantive effect for individuals who 
submit an incomplete FAP application before ECAs have been initiated.
    Finally, to ensure that individuals who submit an incomplete FAP 
application during the application period know who they can contact for 
assistance in completing the application, and in response to commenters 
who stressed the importance of oral communication generally, the final 
regulations require a hospital facility to provide such individuals 
with the contact information of a hospital facility office or 
department (or, alternatively, a nonprofit organization or government 
agency) that can provide assistance with the FAP application process.
v. Complete FAP Applications
A. General Requirements Following Receipt of Complete FAP Applications
    Like the 2012 proposed regulations, the final regulations provide 
that, if a hospital facility receives a complete FAP application from 
an individual during the application period, the hospital facility will 
have made reasonable efforts to determine whether the individual is 
FAP-eligible only if it suspends any ECAs taken against the individual 
to obtain payment for the care, makes and documents an eligibility 
determination in a timely manner, and notifies the individual in 
writing of the determination and the basis for the determination.
    A few commenters recommended that the final regulations require 
FAP-eligibility determinations to be made within a specified period of 
time, with the suggested time ranges being five business days, 30 days, 
and 45 days. However, another commenter agreed with the proposed rule 
that hospital facilities evaluate whether an applicant is eligible in 
``a timely manner'' (while also adding that ``30 days seems 
reasonable''). Yet another commenter noted that many FAPs will require 
individuals to apply for Medicaid before the individual is eligible for 
financial assistance from the hospital facility and requested that the 
regulations suspend the time period in which the hospital facility must 
make the FAP-eligibility determination to allow time for a Medicaid 
application to be filed and a Medicaid eligibility determination to be 
made.
    The Treasury Department and the IRS believe that the reasonableness 
of the time period required to make an eligibility determination will 
vary depending upon particular facts and circumstances. For example, a 
hospital facility's receipt of an unusually large number of FAP 
applications in a particular week might reasonably result in that 
hospital facility taking longer to process the applications than would 
ordinarily be the case. In addition, the Treasury Department and the 
IRS note that the final regulations require hospital facilities to 
suspend ECAs between the time a complete FAP application is submitted 
and the time an eligibility determination is made, providing some 
protection for patients during this time period. Thus, the final 
regulations do not adopt a specific period of time in which a hospital 
facility must make a FAP-eligibility determination, opting instead to 
continue to require the determination to be made ``in a timely manner'' 
to provide hospital facilities with the appropriate flexibility to 
address varied situations. In addition, in cases in which a hospital 
facility believes an individual who has submitted a complete FAP 
application may qualify for Medicaid, the final regulations

[[Page 78991]]

clarify that a hospital facility may postpone making a FAP-eligibility 
determination until after the individual's Medicaid application has 
been completed and submitted and a determination as to Medicaid 
eligibility has been made. However, as is generally the case when an 
individual has submitted a complete FAP application, a hospital 
facility may not initiate or resume any ECAs to obtain payment for the 
care at issue until a FAP-eligibility determination has been made.
    Like the 2012 proposed regulations, the final regulations make 
clear that if a hospital facility determines whether an individual is 
FAP-eligible for care based on a complete FAP application before 
initiating any ECAs against the individual to obtain payment for the 
care, it has made reasonable efforts to determine whether the 
individual is FAP-eligible for the care, regardless of what 
notification about the FAP (or, if applicable, about what the 
individual needs to provide to complete an incomplete FAP application) 
had been or continues to be provided to the individual.
B. Requirements When an Individual Is Determined To Be FAP-Eligible
    The 2012 proposed regulations provided that if a hospital facility 
determines an individual to be FAP-eligible, the hospital facility must 
provide the individual with a billing statement that indicates the 
amount the individual owes as a FAP-eligible individual and shows (or 
describes how the individual can get information regarding) the AGB for 
the care and how the hospital facility determined the amount the 
individual owes as a FAP-eligible individual. The hospital facility 
would also be required to refund any excess payments made by the FAP-
eligible individual and take all reasonably available measures to 
reverse any ECA (with the exception of a sale of debt) taken against 
the individual to obtain payment for the care at issue.
    One commenter recommended that notification about FAP-eligibility 
be optional in cases in which 100 percent of a patient's account has 
been written off under a hospital facility's FAP. The Treasury 
Department and the IRS believe that providing a patient who has been 
determined to be eligible for free care with some written documentation 
of that eligibility determination is necessary both to notify the 
patient and to protect him or her in the event of any future erroneous 
charges for the care. However, the Treasury Department and the IRS do 
agree that a billing statement indicating a $0 balance is not necessary 
in addition to a written notification about eligibility for free care. 
Accordingly, the final regulations require written notification that an 
individual is determined to be eligible for free care but do not 
require a billing statement indicating that nothing is owed for the 
care (or stating or describing how the individual can get information 
regarding AGB for the care).
    A few commenters asked about the time period to which the 
requirement to refund FAP-eligible patients applies and requested 
clarification that hospital facilities are not required to refund 
amounts previously paid to the hospital for care unless the individual 
is determined to be FAP-eligible for that care. The 2012 proposed 
regulations and the final regulations refer only to refunds of payments 
``for the care'' at issue and are intended to require refunds only of 
payments for the episode(s) of care to which an individual's FAP 
application (and therefore his or her FAP-eligibility determination) 
relates. Thus, if an individual receives and pays for a hospital 
facility's care in both year 1 and year 3 but only applies for 
financial assistance in year 3 for the care received in year 3 and is 
determined to be FAP-eligible for the care provided in year 3, the 
hospital facility would only have to refund any excess amounts the 
individual paid for the year 3 care, not any amount the individual paid 
for the year 1 care. Because the 2012 proposed regulation required only 
refunds for ``the care'' at issue, the Treasury Department and the IRS 
do not believe that the final regulations need to be amended to further 
clarify this point.
    Two commenters asked that the final regulations set a reasonable 
threshold, such as $5, for required refunds, noting that some states 
apply such thresholds. The Treasury Department and the IRS agree that 
the administrative costs associated with requiring hospital facilities 
to process refunds in amounts of less than $5 would outweigh the 
benefits to FAP-eligible patients. Accordingly, the final regulations 
do not require a hospital facility to refund any amount a FAP-eligible 
individual has paid for care that exceeds the discounted amount he or 
she owes for the care as a FAP-eligible individual if such excess 
amount is less than $5. In addition, recognizing that inflation and 
other factors may create the need to increase the $5 threshold in the 
future, the final regulations allow the Treasury Department or the IRS 
to increase the threshold in a notice or other guidance published in 
the Internal Revenue Bulletin.
    One commenter sought clarification about whether hospital 
facilities are required to make refunds only to individuals determined 
to be FAP-eligible or also to their insurers. The 2012 proposed 
regulations required refunds only of the amounts the FAP-eligible 
individual had paid ``in excess of the amount he or she is determined 
to owe as a FAP-eligible individual.'' Thus, only refunds to the 
individual were intended to be required. However, to clarify this 
intent, the final regulations require the hospital facility to provide 
refunds ``to the individual'' and refer to the amount the individual is 
``personally responsible for paying'' rather than the amount the 
individual ``owes.''
    One commenter recommended that reversal of ECAs only be required 
upon a determination that an individual is FAP-eligible to the extent 
of the adjustment to the bill made as a result of FAP-eligibility, so 
that, for example, if a patient were still liable for 50 percent of a 
bill after an adjustment for a FAP discount, ECAs could continue to be 
used to collect the discounted amount owed. Other commenters, however, 
supported the requirement to reverse ECAs, stating that it, along with 
the requirement to provide refunds, were reasonable and sufficient 
measures to protect patients.
    As noted previously in this preamble, the Treasury Department and 
the IRS believe that reasonable efforts to determine FAP-eligibility 
necessitate giving patients a reasonable period of time of at least 
eight months (240 days) after the first post-discharge bill to learn 
about a hospital facility's FAP and apply for assistance. Nonetheless, 
the final regulations, like the 2012 proposed regulations, allow 
hospital facilities to initiate ECAs against individuals whose FAP-
eligibility has not been determined as early as 120 days after the 
first post-discharge bill to avoid undue interference with hospital 
facilities' ability to collect debts from non-FAP-eligible individuals. 
However, if a hospital facility does initiate an ECA against an 
individual before the end of the 240-day application period and the 
individual is subsequently determined to be FAP-eligible, the Treasury 
Department and the IRS believe the hospital facility should reverse the 
ECA altogether and begin the collection process anew based on the 
adjusted amount. The Treasury Department and the IRS expect that such a 
rule will encourage hospital facilities not to begin ECAs during the 
application period against individuals they believe are likely to be 
FAP-eligible.

[[Page 78992]]

vi. Presumptive FAP-Eligibility Determinations Based on Third-Party 
Information or Prior FAP-Eligibility Determinations
    The 2012 proposed regulations provided that a hospital facility has 
made reasonable efforts to determine whether an individual is FAP-
eligible if it determines that the individual is eligible for the most 
generous assistance available under the FAP based on information other 
than that provided by the individual, such as the individual's 
eligibility under one or more means-tested public programs. The 2012 
proposed regulations also provided that a hospital facility will not 
have made reasonable efforts to determine whether an individual is FAP-
eligible as a result of obtaining a signed waiver from the individual 
and defined a FAP-eligible individual as an individual eligible for FAP 
assistance without regard to whether the individual has applied for 
such assistance.
    The Treasury Department and the IRS recognized that these 
provisions, together, effectively left a hospital facility with two 
options if it wanted to engage in an ECA against an individual who had 
not submitted a FAP application: either notify the individual about the 
FAP during the notification period or provide the individual with the 
most generous assistance available under the FAP. Accordingly, the 
preamble to the 2012 proposed regulations requested comments on how to 
provide additional flexibility under the regulations to hospital 
facilities seeking to determine whether an individual is FAP-eligible, 
and, in particular, on how a hospital facility might reasonably 
determine whether an individual is FAP-eligible in ways other than 
soliciting and processing FAP applications. The preamble to the 2012 
proposed regulations also requested comments regarding whether a 
hospital facility might be able to rely on prior FAP-eligibility 
determinations for a period of time to avoid having to re-determine 
whether an individual is FAP-eligible every time he or she receives 
care.
    Numerous commenters stated that hospitals can, and commonly do, 
rely on trustworthy methods and sources of information other than FAP 
applications to determine FAP-eligibility. Some noted the use of public 
and private records and data sources that, often in combination with 
predictive models and algorithms, could presumptively determine FAP-
eligibility, including for discounts on a sliding scale that are less 
than the most generous available under the FAP. A number of these 
commenters suggested that allowing hospital facilities to use these 
information sources and methods to presumptively determine eligibility 
only for the most generous discounts under a FAP could inadvertently 
result in fewer individuals receiving financial assistance. Other 
commenters noted that hospital facilities could readily and accurately 
determine the insurance status or residency of particular individuals 
and, therefore, determine that such individuals are not FAP-eligible 
when such eligibility depends on being uninsured or on being a resident 
of the state in which the hospital facility is licensed. Most of these 
commenters generally recommended that hospital facilities be allowed to 
rely on information sources and methods other than FAP applications to 
determine FAP-eligibility as long as the sources and methods are 
disclosed (for example, in the FAP or on the hospital facility's Form 
990) and/or the individual is given a reasonable opportunity to provide 
information indicating FAP-eligibility or eligibility for a greater 
discount than the one provided. A few commenters, however, recommended 
against the use of predictive models that rely on credit scores, noting 
that such methods assess creditworthiness rather than financial need. A 
few commenters also suggested that predictive models should only be 
used to approve someone for financial assistance, not to deem them 
ineligible for it.
    In addition, commenters recommended that hospital facilities should 
be able to rely on prior FAP eligibility determinations, arguing that 
it would be burdensome and costly to require a hospital facility to re-
determine whether an individual is FAP-eligible every time the 
individual receives care. Suggestions ranged from allowing reliance on 
prior FAP applications for a certain time period (90 days, four months, 
six months, or twelve months) to allowing hospital facilities the 
flexibility to determine how long FAP-eligibility status may last. Most 
of these commenters recommended that a hospital facility's reliance on 
prior FAP-eligibility determinations should be disclosed in its FAP 
and/or that patients should be given a reasonable opportunity to 
resubmit an application if and when their financial situation changes.
    In response to these comments and to encourage hospital facilities 
to provide discounts to potentially FAP-eligible individuals who have 
not submitted FAP applications, the final regulations provide that, in 
addition to presumptively determining that an individual is eligible 
for the most generous assistance available under its FAP, a hospital 
facility may also presumptively determine that an individual is 
eligible for less than the most generous assistance available under the 
FAP based on information other than that provided by the individual or 
based on a prior FAP-eligibility determination (hereinafter referred to 
as presumptive determinations). Most commenters recognized, though, 
that presumptive determinations that an individual is eligible for less 
than the most generous assistance available under a FAP should not 
relieve a hospital facility of the obligation to give patients a 
reasonable opportunity to seek more generous assistance by providing 
additional information related to FAP-eligibility. Accordingly, the 
final regulations provide that a presumptive determination that an 
individual is eligible for less than most generous assistance available 
under a FAP only constitutes reasonable efforts to determine FAP-
eligibility if three conditions are met. First, the hospital facility 
must notify the individual regarding the basis for the presumptive FAP-
eligibility determination and the way he or she may apply for more 
generous assistance available under the FAP. Second, the hospital 
facility must give the individual a reasonable period of time to apply 
for more generous assistance before initiating ECAs to obtain the 
discounted amounted owed for the care. And, third, the hospital 
facility must process any complete FAP application that the individual 
submits by the end of the application period or, if later, by the end 
of the reasonable time period given to apply for more generous 
assistance.
    The final regulations do not treat as reasonable efforts a 
presumptive determination that an individual is not FAP-eligible. The 
Treasury Department and the IRS believe that before being subjected to 
ECAs, individuals who have received no financial assistance under a FAP 
and who have not submitted a complete FAP application should, at a 
minimum, receive a notice about the FAP (through a plain language 
summary) and about the deadline for submitting a FAP application before 
ECAs may be initiated, as described in section 6.b.iii of this 
preamble. The Treasury Department and the IRS note, however, that even 
though presumptive determinations of FAP-ineligibility do not 
constitute reasonable efforts to determine FAP-eligibility for purposes 
of section 501(r)(6), a hospital facility is not prohibited from using 
third-party information sources and prior FAP-

[[Page 78993]]

eligibility determinations to try to predict which of its patients are 
unlikely to be FAP-eligible.
    A number of commenters asked that the definition of ``FAP-eligible 
individual'' be revised such that it applies only to individuals 
``known to be eligible for financial assistance.'' Allowing hospital 
facilities to assume individuals are not FAP-eligible unless and until 
they obtain knowledge to the contrary would relieve hospital facilities 
of any obligation to make reasonable efforts to determine whether 
individuals are FAP-eligible and thereby undercut the purpose of 
section 501(r)(6). Accordingly, the definition of FAP-eligible 
individual is not amended to apply only to individuals known to be FAP-
eligible.
    Many commenters also asked that hospital facilities be allowed to 
use targeted and limited waivers in determining FAP-eligibility, such 
as waivers for individuals who the hospital facility has no reason to 
believe may be FAP-eligible or individuals with adequate insurance and 
the ability to meet any co-pays and deductibles. In addition, one 
commenter asked that the final regulations provide that making 
reasonable efforts to determine an individual is FAP-eligible includes 
obtaining an attestation from the individual that his or her income 
and/or assets exceed certain thresholds in the FAP and that the 
attestation was not made under coercion.
    The Treasury Department and the IRS continue to believe that 
obtaining signatures from individuals on a waiver form is not a 
meaningful way to determine that they are not FAP-eligible. The 
Treasury Department and the IRS note, however, that the final 
regulations define a complete FAP application as information and 
documentation provided by an individual that is sufficient to determine 
the individual's FAP-eligibility, and an individual's attestation 
regarding his or her income or other criteria relevant to FAP-
eligibility could be sufficient to determine FAP-eligibility and 
therefore could be considered a complete FAP application. Thus, if a 
hospital facility makes a determination as to whether an individual is 
FAP-eligible based an individual's attestation regarding his or her 
income or other relevant eligibility criteria--and the hospital 
facility has no reason to believe that the information on the statement 
is incorrect and did not obtain the information from the individual 
under duress or through the use of coercive practices--the hospital 
facility will have made a determination based on a complete FAP 
application and, thus, have made reasonable efforts to determine 
whether the individual is FAP-eligible for purposes of section 
501(r)(6).
vii. Reasonable Efforts in the Case of Denying or Deferring Care Based 
on Past Nonpayment
    As discussed in section 6.a.iv of this preamble and in response to 
comments, the final regulations include as an ECA the deferral or 
denial of (or the requirement of a payment before providing) medically 
necessary care because of the individual's nonpayment of one or more 
bills for previously provided care. Unlike other ECAs, the timing of 
this ECA involving the deferral or denial of care will depend on when 
an individual seeks medically necessary care from the hospital 
facility, a contingency over which the hospital facility has no 
control. In addition, if the provision of medically necessary care is 
at stake, the individual's application for financial assistance should 
be completed and his or her FAP-eligibility should be determined as 
quickly as possible to avoid jeopardizing the individual's health.
    Based on these considerations, the final regulations provide that, 
in the case of an ECA involving deferral and denial of (or requiring 
payment before providing) care only, a hospital facility is not 
required to provide the oral and written notification about the FAP and 
potential ECAs discussed in section 6.b.iii of this preamble at least 
30 days in advance of initiating this ECA to have made reasonable 
efforts to determine whether the individual is FAP-eligible. However, 
to avail itself of this exception, a hospital facility (or other 
authorized party) must satisfy several conditions. First, the hospital 
facility must provide the individual with a FAP application form (to 
ensure the individual may apply immediately, if necessary) and notify 
the individual in writing about the availability of financial 
assistance for eligible individuals and the deadline, if any, after 
which the hospital facility will no longer accept and process a FAP 
application submitted by the individual for the previously provided 
care at issue. This deadline must be no earlier than the later of 30 
days after the date that the written notice is provided or 240 days 
after the date that the first post-discharge billing statement for the 
previously provided care was provided. Thus, although the ECA involving 
deferral or denial of care may occur immediately after the requisite 
written (and oral) notice is provided, the individual must be afforded 
at least 30 days after the notice to submit a FAP application for the 
previously provided care. In addition, the hospital facility must 
notify the individual about the FAP in the two other ways discussed in 
section 6.b.iii of the preamble (though without regard to the 
requirement to do so at least 30 days before the initiation of an ECA): 
namely, by providing a plain language summary of the FAP and by orally 
notifying the individual about the hospital facility's FAP and about 
how the individual may obtain assistance with the FAP application 
process. Finally, if an individual submits a FAP application for 
previously provided care during the application period, the hospital 
facility must process the application on an expedited basis, to ensure 
that medically necessary care is not unnecessarily delayed.
    In the case of the ECA involving the deferral or denial of care, 
the final regulations also provide an exception to the general rule 
that reasonable efforts to determine FAP-eligibility ordinarily will 
require a hospital to wait at least 120 days after the first post-
discharge bill before initiating ECAs. Under the exception, a hospital 
facility may defer or deny (or require payment before providing) 
medically necessary care \12\ because of an individual's nonpayment of 
one or more bills for previously provided care even though such 
deferral or denial (or payment requirement) is within 120 days of the 
first post-discharge bill for the previously provided care. Without 
such an exception in the final regulations, hospital facilities would 
effectively be required to provide medically necessary care to 
individuals with past due bills when these individuals are seeking care 
within 120 days of the first post-discharge bill.
---------------------------------------------------------------------------

    \12\ With respect to deferring or denying (or requiring payment 
before providing) emergency medical care, in particular, hospital 
organizations are separately subject to the requirements under 
Subchapter G of Chapter IV of Title 42 of the Code of Federal 
Regulations, which includes the regulations under EMTALA, and the 
emergency medical care policy they adopt to meet the requirements of 
section 501(r)(4)(B) (as discussed in section 4.b of this preamble).
---------------------------------------------------------------------------

    The Treasury Department and the IRS note that the modified 
reasonable efforts to determine FAP-eligibility discussed in this 
section 6.b.vii of the preamble would not be necessary if a hospital 
facility had already determined whether the individual was FAP-eligible 
for the previously provided care at issue based on a complete FAP 
application or had presumptively determined the individual was FAP-
eligible for the previously provided care as described in section 
6.b.vi of this preamble. The modified reasonable efforts would also not 
be needed in cases in which 120

[[Page 78994]]

days had passed since the first post-discharge bill for the previously 
provided care, and the hospital facility had already notified the 
individual about intended ECAs as described in section 6.b.iii of this 
preamble.
viii. Agreements With Other Parties
    The 2012 proposed regulations provided that if a hospital facility 
refers or sells an individual's debt to another party during the 
application period, the hospital facility will have made reasonable 
efforts to determine whether the individual is FAP-eligible only if it 
first obtains a legally binding written agreement from the other party 
to abide by certain specified requirements. The 2012 proposed 
regulations requested comments regarding the feasibility of this rule. 
Commenters who responded to this request for comments generally 
indicated that imposing such contractual obligations on debt collection 
agencies or debt buyers was not especially unusual or unworkable, and, 
thus, the Treasury Department and the IRS adopt the provisions of the 
2012 proposed regulations with only minor clarifying revisions that are 
not intended to be substantive changes. In the event a hospital 
facility does sell or refer an individual's debt and the debt buyer or 
collection agent takes one or more of the steps required to have made 
reasonable efforts to determine whether the individual is FAP-eligible, 
the final regulations also clarify the hospital facility will be 
treated as having taken those steps for purposes of making reasonable 
efforts under section 501(r)(6).

7. Section 501(r) and State Law Requirements

    Numerous commenters noted that their states already had laws in 
effect covering some or most of the same subject matter as the 
requirements described in Sec. Sec.  1.501(r)-3 through 1.501(r)-6 of 
the proposed regulations and argued that requiring compliance with the 
section 501(r) regulations in addition to what hospitals are already 
required to do under state law would create unnecessary duplication of 
effort and administrative burden. Others went further and argued that 
the requirements described in Sec. Sec.  1.501(r)-3 through 1.501(r)-6 
of the proposed regulations conflicted or were inconsistent with 
certain state law requirements. Areas of inconsistency noted by 
commenters included the timing and content of notices that must be 
provided to patients, rules regarding the limitations on charges, and 
the periods of time during which the hospital facilities must wait to 
commence certain collection actions. Most of these commenters 
recommended that a hospital facility should be deemed to have complied 
with the section 501(r) requirements if it complies with the relevant 
state law(s) applicable to it. On the other hand, some commenters asked 
the Treasury Department and the IRS to clarify that nothing in the 
proposed regulations will preempt state laws that contain additional or 
more stringent requirements.
    Given the wide variation among state laws covering some of the same 
subject matter as section 501(r), providing that compliance with 
section 501(r) requires only compliance with the applicable state law 
would result in widely divergent rules for charitable hospitals in 
different states. A rule equating compliance with state law to 
compliance with section 501(r) would also mean that IRS revenue agents 
assessing section 501(r) compliance would need to learn each state's 
laws or that the state office responsible for enforcing the particular 
state law would have to confirm a hospital facility's compliance with 
the relevant state law in each taxable year under audit.
    More importantly, the language in many of the state laws cited by 
commenters as analogous does not match the statutory language in 
section 501(r)--for example, by not including concepts such as AGB, 
ECAs, or ``reasonable efforts'' to determine FAP-eligibility or by 
requiring CHNAs every five years as opposed to every three years. In 
these cases, simply deeming compliance with state law to result in 
compliance with section 501(r) would be inconsistent with the statutory 
language under section 501(r).
    While many of the requirements in the state laws cited by 
commenters do not match the provisions in the 2012 or 2013 proposed 
regulations and while some state laws might require more or less of 
hospital facilities than the comparable provision in the proposed 
regulations, commenters failed to cite any state laws that conflict 
with the proposed regulations in a way that would make it impossible 
for a hospital facility to comply with both the state and the federal 
requirement. For example, although some state laws set forth a 
limitation on charges that is different from the limit that would 
result from the AGB methods described in the 2012 proposed regulations, 
none of the state laws identified by commenters prohibit hospital 
facilities from charging FAP-eligible individuals less than the state 
law limit. Similarly, AGB under section 501(r)(5) is only a maximum 
amount that hospital facilities can charge FAP-eligible individuals, 
and hospital facilities are free to provide more generous discounts in 
their FAPs (including free care). As a result, hospital facilities are 
always free to charge the lesser of AGB or a limitation on charges 
imposed by state law or to establish a uniform discount that will 
always fall below both the state and federal maximum charges. 
Similarly, the periods of time during which hospital facilities must 
wait to commence certain collection activities in both the 2012 
proposed regulations and certain state laws cited by commenters are 
minimum periods, and a hospital facility is always free to wait for the 
longer of the two applicable periods without violating either section 
501(r)(6) or state law requirements.
    Accordingly, the final regulations do not contain any provisions 
equating compliance with one or more requirements in applicable state 
law to compliance with one or more of the requirements in the final 
regulations. In addition, the final regulations are not intended to 
preempt any state laws or regulations, and the Treasury Department and 
the IRS expect that any additional or stricter requirements under a 
state's laws or regulations will continue to apply to hospital 
facilities licensed in that state.

8. Reporting Requirements Related to CHNAs

    The final regulations state, consistent with the statute and the 
2013 proposed regulations, that a hospital organization must provide 
with its Form 990 a description of how it is addressing the community 
health needs identified for each facility it operates, its audited 
financial statements, and the amount of the excise tax imposed on the 
organization under section 4959 during the taxable year.
a. Description of How Community Health Needs Are Being Addressed
    In accordance with section 6033(b)(15)(A), the 2013 proposed 
regulations required a hospital organization to furnish annually on its 
Form 990 a description of the actions taken during the taxable year to 
address the significant health needs identified through its most 
recently conducted CHNA, or, if no actions were taken with respect to 
one or more of those health needs, the reasons no actions were taken. 
Numerous commenters expressed support for this requirement to annually 
furnish a description of how a hospital facility is addressing health 
needs identified through a CHNA, with some commenters stating that it 
increases transparency and accountability and would provide written 
documentation

[[Page 78995]]

of progress over time. Other commenters stated that the annual updates 
would be burdensome and duplicative, given that the 2013 proposed 
regulations also required hospital facilities to attach to their Forms 
990 their most recently adopted implementation strategies (or provide 
the URL where the implementation strategies are made widely available 
on a Web site).
    As discussed in section 3.b of this preamble, it is true that a 
hospital facility's implementation strategy must describe, with respect 
to each significant health need identified through the CHNA, how the 
hospital facility plans to address the health need or why the hospital 
facility does not intend to address the health need. However, as noted 
in the preamble to the 2013 proposed regulations, section 
6033(b)(15)(A) contemplates an annual furnishing of information 
regarding how a hospital facility is actually addressing needs 
identified through a CHNA each year, while an implementation strategy 
is a plan for addressing these needs that only has to be updated every 
three years. Accordingly, the final regulations retain the requirement 
that hospital facilities annually furnish information on their Form 
990s about how they are addressing the significant health needs 
identified through their CHNAs.
b. Audited Financial Statements
    The 2013 proposed regulations reiterated the requirement of section 
6033(b)(15)(B) that a hospital organization attach to its Form 990 a 
copy of its audited financial statements for the taxable year--or, in 
the case of an organization the financial statements of which are 
included in consolidated financial statements with other organizations, 
such consolidated financial statements. In the preamble to the 2013 
proposed regulations, the Treasury Department and the IRS requested 
comments regarding whether hospital organizations whose financial 
statements are included in consolidated financial statements should be 
able to redact financial information about any taxable organizations 
that are members of the consolidated group.
    Two commenters stated that information about taxable organizations 
should be redacted from publicly available financial statements without 
further elaboration while another commenter stated that the information 
provided on the Form 990 should be as detailed as possible to keep tax-
exempt hospitals accountable. Consolidated financial statements are 
fully integrated, making redaction of one particular organization's 
financial information difficult. The few comments received did not 
provide any explanation as to how such redactions could be accomplished 
without compromising the clarity of the statement. Accordingly, the 
final regulations adopt the proposed requirement without change.
c. Reporting Requirements for Government Hospital Organizations
    A number of commenters have asked whether and how government 
hospital organizations can satisfy the reporting requirements related 
to CHNAs, since they are excused from filing a Form 990 under Rev. 
Proc. 95-48. As noted in the preamble to the 2013 proposed regulations, 
the Affordable Care Act did not change the requirements regarding which 
organizations are required to file a Form 990. Accordingly, a 
government hospital organization (other than one that is described in 
section 509(a)(3)) that has been excused from filing a Form 990 under 
Rev. Proc. 95-48 or a successor revenue procedure is not required to 
file a Form 990. Because government hospital organizations described in 
Rev. Proc. 95-48 are relieved from the annual filing requirements under 
section 6033, they are also relieved from any new reporting 
requirements imposed on hospital organizations under section 6033, 
including under section 6033(b)(10)(D) and (b)(15) and the requirement 
to attach one or more implementation strategies to a Form 990. However, 
to be treated as described in section 501(c)(3), government hospital 
organizations still must meet all section 501(r) requirements that do 
not involve disclosure on or with the Form 990, including making their 
CHNA reports and FAPs widely available on a Web site.

9. Excise Tax on Failure To Meet CHNA Requirements

    Section 4959 imposes a $50,000 excise tax on a hospital 
organization that fails to meet the CHNA requirements with respect to 
any taxable year. The 2013 proposed regulations provided that the 
excise tax applies on a facility-by-facility basis and may be imposed 
on a hospital organization for each taxable year that a hospital 
facility fails to meet the section 501(r)(3) requirements.
    One commenter suggested that the full $50,000 excise tax should 
apply only in instances where a hospital facility fails to conduct a 
CHNA altogether, with a sliding scale of tax applied to organizations 
that conduct a CHNA but fail to substantially comply with all of the 
CHNA requirements. Another commenter suggested applying the $50,000 
excise tax separately for each failure of a hospital facility to meet 
each component of the section 501(r)(3) requirements.
    Section 4959 applies the $50,000 excise tax to a hospital 
organization that fails to meet the requirements of section 501(r)(3) 
for any taxable year. Section 501(r)(3) requires that, in conducting a 
CHNA, a hospital must take into account input from persons who 
represent the broad interests of the community, make the CHNA widely 
available to the public, and adopt an implementation strategy to meet 
the needs identified through the CHNA. Section 4959 appears to provide 
for one $50,000 excise tax if a hospital facility fails one or any 
combination of those components of satisfying section 501(r)(3). It 
does not appear to provide for either a separate $50,000 excise tax for 
each component or a tax of less than $50,000 if a hospital facility 
fails some, but not all, of those components. Thus, the final 
regulations do not adopt these commenters' suggestions.
    However, as discussed in section 2.b of this preamble, a hospital 
facility's omission or error with respect to the CHNA requirements will 
not be considered a failure to meet the CHNA requirements if the 
omission or error was minor and either inadvertent or due to reasonable 
cause and the hospital facility corrects the omission or error in 
accordance with Sec.  1.501(r)-2(b)(1)(ii). If, as a result of this 
rule, an omission or error with respect to the CHNA requirements is not 
considered a failure to meet the CHNA requirements, the omission or 
error will not give rise to a $50,000 excise tax under section 
4959.\13\
---------------------------------------------------------------------------

    \13\ On the other hand, a hospital facility's failure to meet 
the CHNA requirements will give rise to the excise tax under section 
4959 notwithstanding its correction and disclosure pursuant to the 
guidance described in section 2.c of this preamble.
---------------------------------------------------------------------------

10. Requirement of a Section 4959 Excise Tax Return and Time for Filing 
the Return

    Final and temporary regulations and a cross-reference notice of 
proposed rulemaking published on August 15, 2013, amended the existing 
regulations under sections 6011 and 6071 to require hospital 
organizations liable for the excise tax imposed by section 4959 in any 
taxable year to file Form 4720 by the 15th day of the fifth month after 
the end of the taxable year. No public comments were received on these 
amendments to sections 6011 and 6071. Therefore, these final 
regulations adopt the text of the temporary and proposed regulations 
without substantive change and remove the temporary regulations. The 
final regulations make one non-

[[Page 78996]]

substantive change by moving the content of Sec.  53.6011-1T(c) into 
existing paragraph Sec.  53.6011-1(b).

Effective/Applicability Dates

    Numerous commenters requested a transition period for hospital 
facilities to come into compliance with the final regulations to 
provide adequate time for hospital facilities to make needed changes in 
personnel, policies, procedures, and information systems. Specific 
transition periods of six months and one year were recommended. Several 
commenters also requested that the final regulations clarify how 
hospital facilities' compliance with section 501(r) will be assessed 
for the period between the date section 501(r) was enacted (March 23, 
2010) and the date the final regulations are applicable.
    In response to these comments, the final regulations under section 
501(r) apply to a hospital facility's taxable years beginning after 
December 29, 2015, which will give all hospital facilities at least a 
year to come into compliance with the final regulations. For taxable 
years beginning on or before December 29, 2015, the final regulations 
provide that a hospital facility may rely on a reasonable, good faith 
interpretation of section 501(r). A hospital facility will be deemed to 
have operated in accordance with a reasonable, good faith 
interpretation of section 501(r) if it has complied with the provisions 
of the 2012 and/or 2013 proposed regulations or these final 
regulations.
    The final regulations under sections 4959 and 6033 either clarify 
or confirm compliance with statutory requirements that are already in 
effect and therefore do not require a transition period. Thus, the 
final regulations under section 4959 apply on and after December 29, 
2014, and the final regulations under section 6033 apply to returns 
filed on or after December 29, 2014.
    The temporary regulations under section 6071 have applied since 
August 15, 2013, and this Treasury decision adopts the proposed 
regulations that cross-referenced the text of those temporary 
regulations without substantive change. Thus, the final regulations 
under section 6071 apply on and after August 15, 2013.

Availability of IRS Documents

    IRS notices, revenue rulings, and revenue procedures cited in this 
preamble are made available by the Superintendent of Documents, U.S. 
Government Printing Office, Washington, DC 20402.

Effect on Other Documents

    The following publication is obsolete as of December 29, 2014: 
Notice 2014-2 (2014-3 IRB 1).

Special Analyses

    It has been determined that this rule is not a significant 
regulatory action as defined in Executive Order 12866, as supplemented 
by Executive Order 13563. Therefore, a regulatory assessment is not 
required. It also has been determined that section 553(b) of the 
Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to the 
final regulations. It is hereby certified the collection of information 
in these regulations will not have a significant economic impact on a 
substantial number of small entities. The collection of information is 
in Sec.  1.501(r)-3, Sec.  1.501(r)-4, Sec.  1.501(r)-6(c), Sec.  
1.6033-2(a)(2)(ii)(l), Sec.  53.6011-1, and Sec.  53.6071-1 of the 
regulations. The certification is based on the following:
    Consistent with the requirements imposed by section 501(r)(3), 
Sec.  1.501(r)-3 of the regulations requires hospital facilities to 
conduct a CHNA and adopt an implementation strategy. However, these 
requirements need only be satisfied once over a period of three taxable 
years. Moreover, some hospital facilities already conduct similar 
community needs assessments under state law, and the Treasury 
Department and the IRS expect that these facilities will be able to 
draw upon pre-existing processes and resources to some extent. In 
addition, section 501(r)(3) itself already requires a hospital facility 
to conduct and widely publicize a CHNA that takes into account input of 
persons representing the broad interests of the community and to adopt 
an implementation strategy, so much of the collection of information 
burden associated with CHNAs is imposed by statute, not by these 
regulations.
    Consistent with the requirements imposed by section 501(r)(4), 
Sec.  1.501(r)-4 of the regulations requires hospital facilities to 
establish two written policies--a financial assistance policy (FAP) and 
an emergency medical care policy--but much of the work involved in 
putting such policies into writing will be performed once, with updates 
made periodically thereafter. Moreover, while hospital facilities may 
need to periodically modify these policies to reflect changed 
circumstances, the proposed regulations attempt to minimize that 
ongoing burden by giving hospital facilities the option of providing 
certain information separately from the policy, as long as the policy 
explains how members of the public can readily obtain this information 
free of charge. In addition, section 501(r)(4) itself already requires 
a hospital facility to establish a FAP that includes eligibility 
criteria and other specified elements and an emergency medical care 
policy, so much of the collection of information burden associated with 
these policies is imposed by statute, not by regulations.
    In addition, as a general matter, Sec. Sec.  1.501(r)-4(b)(5) and 
1.501(r)-6(c) of the regulations, which, respectively, describe how a 
hospital facility widely publicizes its FAP and makes reasonable 
efforts to determine eligibility for assistance under its FAP, are 
designed to ensure that a hospital facility can meet these requirements 
by providing basic information about its FAP using pre-existing 
processes (such as the issuance of billing statements) and resources 
(such as its Web site and physician networks) in providing this 
information.
    The applicability date under the final regulations also gives all 
hospital facilities at least one year to come into compliance with all 
of the final regulations under section 501(r).
    Consistent with the requirements imposed by section 6033(b)(15), 
Sec.  1.6033-2(a)(2)(ii)(l) of the regulations requires affected 
organizations to report annually on a Form 990 actions taken during the 
year to address community health needs and to attach audited financial 
statements to the Form 990. To assist the IRS and the public, the 
regulations also require affected organizations to attach to the Form 
990 a copy of the most recently adopted implementation strategy or 
provide the URL of a Web page where it is available to the public. For 
affected organizations, the burden of providing either a copy of the 
implementation strategy or the address of a Web site where it can be 
found will be minimal. Consequently, the regulations under section 6033 
do not add significantly to the impact on small entities imposed by the 
statutory scheme.
    Sections 53.6011-1 and 53.6071-1 of the regulations merely provide 
guidance as to the timing and filing of Form 4720 for charitable 
hospital organizations liable for the section 4959 excise tax, and 
completing the applicable portion (Schedule M) of the Form 4720 for 
this purpose imposes little incremental burden in time or expense. The 
liability for the section 4959 excise tax is imposed by statute, and 
not these regulations. In addition, a charitable hospital organization 
may already be required to file the Form 4720 under the existing final 
regulations in Sec. Sec.  53.6011-

[[Page 78997]]

1 and 53.6071-1 if it is liable for another Chapter 41 or 42 excise 
tax.
    For these reasons, a Regulatory Flexibility Analysis under the 
Regulatory Flexibility Act (5 U.S.C. chapter 6) is not required. 
Pursuant to section 7805(f) of the Code, the 2012 and 2013 proposed 
regulations (as well the cross-reference notice of proposed rulemaking 
under sections 6011 and 6071) preceding these final regulations were 
submitted to the Chief Counsel for Advocacy of the Small Business 
Administration for comment on its impact on small entities and no 
comments were received.

Drafting Information

    The principal authors of these final regulations are Preston J. 
Quesenberry, Amy F. Giuliano, Amber L. MacKenzie, and Stephanie N. 
Robbins, Office of the Chief Counsel (Tax-Exempt and Government 
Entities). However, other personnel from the Treasury Department and 
the IRS participated in their development.

List of Subjects

26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

26 CFR Part 53

    Excise taxes, Foundations, Investments, Lobbying, Reporting and 
recordkeeping requirements.

26 CFR Part 602

    Reporting and recordkeeping requirements.

Adoption of Amendment to the Regulations

    Accordingly, 26 CFR parts 1, 53, and 602 are amended as follows:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 continues to read in 
part as follows:

    Authority: 26 U.S.C. 7805 * * *


0
Par. 2. Section 1.501(r)-0 is added to read as follows:


Sec.  1.501(r)-0  Outline of regulations.

    This section lists the table of contents for Sec. Sec.  1.501(r)-1 
through 1.501(r)-7.


Sec.  1.501(r)-1  Definitions.

    (a) Application.
    (b) Definitions.
    (1) Amounts generally billed (AGB).
    (2) AGB percentage.
    (3) Application period.
    (4) Authorized body of a hospital facility.
    (5) Billing and collections policy.
    (6) Date provided.
    (7) Discharge.
    (8) Disregarded entity.
    (9) Emergency medical care.
    (10) Emergency medical conditions.
    (11) Extraordinary collection action (ECA).
    (12) Financial assistance policy (FAP).
    (13) FAP application.
    (14) FAP application form.
    (15) FAP-eligible.
    (16) Gross charges.
    (17) Hospital facility.
    (18) Hospital organization.
    (19) Medicaid.
    (20) Medicare fee-for-service.
    (21) Noncompliant facility income.
    (22) Operating a hospital facility.
    (23) Partnership agreement.
    (24) Plain language summary of the FAP.
    (25) Presumptive FAP-eligibility determination.
    (26) Private health insurer.
    (27) Referring.
    (28) Substantially-related entity.
    (29) Widely available on a Web site.


Sec.  1.501(r)-2  Failures to satisfy section 501(r).

    (a) Revocation of section 501(c)(3) status.
    (b) Minor omissions and errors.
    (1) In general.
    (2) Minor.
    (3) Inadvertent.
    (4) Reasonable cause.
    (c) Excusing certain failures if hospital facility corrects and 
discloses.
    (d) Taxation of noncompliant hospital facilities.
    (1) In general.
    (2) Noncompliant facility income.
    (3) No aggregation.
    (4) Interaction with other Code provisions.
    (e) Instances in which a hospital organization is not required to 
meet section 501(r).


Sec.  1.501(r)-3  Community health needs assessments.

    (a) In general.
    (b) Conducting a CHNA.
    (1) In general.
    (2) Date a CHNA is conducted.
    (3) Community served by a hospital facility.
    (4) Assessing community health needs.
    (5) Persons representing the broad interests of the community.
    (6) Documentation of a CHNA.
    (7) Making the CHNA report widely available to the public.
    (c) Implementation strategy.
    (1) In general.
    (2) Description of how the hospital facility plans to address a 
significant health need.
    (3) Description of why a hospital facility is not addressing a 
significant health need.
    (4) Joint implementation strategies.
    (5) When the implementation strategy must be adopted.
    (d) Exception for acquired, new, and terminated hospital 
facilities.
    (1) Acquired hospital facilities.
    (2) New hospital organizations.
    (3) New hospital facilities.
    (4) Transferred or terminated hospital facilities.
    (e) Transition rule for CHNAs conducted in taxable years beginning 
before March 23, 2012.


Sec.  1.501(r)-4  Financial assistance policy and emergency medical 
care policy.

    (a) In general.
    (b) Financial assistance policy.
    (1) In general.
    (2) Eligibility criteria and basis for calculating amounts charged 
to patients.
    (3) Method for applying for financial assistance.
    (4) Actions that may be taken in the event of nonpayment.
    (5) Widely publicizing the FAP.
    (6) Readily obtainable information.
    (7) Providing documents electronically.
    (8) Medically necessary care.
    (c) Emergency medical care policy.
    (1) In general.
    (2) Interference with provision of emergency medical care.
    (3) Relation to federal law governing emergency medical care.
    (4) Examples.
    (d) Establishing the FAP and other policies.
    (1) In general.
    (2) Implementing a policy.
    (3) Establishing a policy for more than one hospital facility.


Sec.  1.501(r)-5  Limitation on charges.

    (a) In general.
    (b) Amounts generally billed.
    (1) In general.
    (2) Meaning of charged.
    (3) Look-back method.
    (4) Prospective Medicare or Medicaid method.
    (5) Examples.
    (c) Gross charges.
    (d) Safe harbor for certain charges in excess of AGB.
    (e) Medically necessary care.


Sec.  1.501(r)-6  Billing and collection.

    (a) In general.
    (b) Extraordinary collection actions.
    (1) In general.
    (2) Certain debt sales that are not ECAs.
    (3) Liens on certain judgments, settlements, or compromises.

[[Page 78998]]

    (4) Bankruptcy claims.
    (c) Reasonable efforts.
    (1) In general.
    (2) Presumptive FAP-eligibility determinations based on third-party 
information or prior FAP-eligibility determinations.
    (3) Reasonable efforts based on notification and processing of 
applications.
    (4) Notification.
    (5) Incomplete FAP applications.
    (6) Complete FAP applications.
    (7) When no FAP application is submitted.
    (8) Suspending ECAs while a FAP application is pending.
    (9) Waiver does not constitute reasonable efforts.
    (10) Agreements with other parties.
    (11) Clear and conspicuous placement.
    (12) Providing documents electronically.


Sec.  1.501(r)-7  Effective/applicability dates.

    (a) Effective/applicability date.
    (b) Reasonable interpretation for taxable years beginning on or 
before December 29, 2015.


0
Par. 3. Sections 1.501(r)-1 through 1.501(r)-7 are added to read as 
follows:


Sec.  1.501(r)-1  Definitions.

    (a) Application. The definitions set forth in this section apply to 
Sec. Sec.  1.501(r)-2 through 1.501(r)-7.
    (b) Definitions--(1) Amounts generally billed (AGB) means the 
amounts generally billed for emergency or other medically necessary 
care to individuals who have insurance covering such care, determined 
in accordance with Sec.  1.501(r)-5(b).
    (2) AGB percentage means a percentage of gross charges that a 
hospital facility uses under Sec.  1.501(r)-5(b)(3) to determine the 
AGB for any emergency or other medically necessary care it provides to 
an individual who is eligible for assistance under its financial 
assistance policy (FAP).
    (3) Application period means the period during which a hospital 
facility must accept and process an application for financial 
assistance under its FAP submitted by an individual in order to have 
made reasonable efforts to determine whether the individual is FAP-
eligible under Sec.  1.501(r)-6(c). A hospital facility may accept and 
process an individual's FAP application submitted outside of the 
application period. With respect to any care provided by a hospital 
facility to an individual, the application period begins on the date 
the care is provided and ends on the later of the 240th day after the 
date that the first post-discharge billing statement for the care is 
provided or either--
    (i) In the case of an individual who the hospital facility is 
notifying as described in Sec.  1.501(r)-6(c)(4), the deadline 
specified by a written notice described in Sec.  1.501(r)-6(c)(4); or
    (ii) In the case of an individual who the hospital facility has 
presumptively determined to be eligible for less than the most generous 
assistance available under the FAP as described in Sec.  1.501(r)-
6(c)(2), the end of the reasonable period of time described in Sec.  
1.501(r)-6(c)(2)(i)(B).
    (4) Authorized body of a hospital facility means--
    (i) The governing body (that is, the board of directors, board of 
trustees, or equivalent controlling body) of the hospital organization 
that operates the hospital facility or a committee of, or other party 
authorized by, that governing body to the extent such committee or 
other party is permitted under state law to act on behalf of the 
governing body; or
    (ii) The governing body of an entity that is disregarded or treated 
as a partnership for federal tax purposes that operates the hospital 
facility or a committee of, or other party authorized by, that 
governing body to the extent such committee or other party is permitted 
under state law to act on behalf of the governing body.
    (5) Billing and collections policy means a written policy that 
includes all of the elements described in Sec.  1.501(r)-4(b)(4)(i).
    (6) Date provided means, in the case of any billing statement, 
written notice, or other written communication that is mailed, the date 
of mailing. The date that a billing statement, written notice, or other 
written communication is provided can also be the date such 
communication is sent electronically or delivered by hand.
    (7) Discharge means to release from a hospital facility after the 
care at issue has been provided, regardless of whether that care has 
been provided on an inpatient or outpatient basis. Thus, a billing 
statement for care is considered ``post-discharge'' if it is provided 
to an individual after the care has been provided and the individual 
has left the hospital facility.
    (8) Disregarded entity means an entity that is generally 
disregarded as separate from its owner for federal tax purposes under 
Sec.  301.7701-3 of this chapter. One example of a disregarded entity 
is a domestic single member limited liability company that does not 
elect to be classified as an association taxable as a corporation for 
federal tax purposes.
    (9) Emergency medical care means care provided by a hospital 
facility for emergency medical conditions.
    (10) Emergency medical conditions means emergency medical 
conditions as defined in section 1867 of the Social Security Act (42 
U.S.C. 1395dd).
    (11) Extraordinary collection action (ECA) means an action 
described in Sec.  1.501(r)-6(b)(1).
    (12) Financial assistance policy (FAP) means a written policy that 
meets the requirements described in Sec.  1.501(r)-4(b).
    (13) FAP application means the information and accompanying 
documentation that an individual submits to apply for financial 
assistance under a hospital facility's FAP. An individual is considered 
to have submitted a complete FAP application if he or she provides 
information and documentation sufficient for the hospital facility to 
determine whether the individual is FAP-eligible and an incomplete FAP 
application if he or she provides some, but not sufficient, information 
and documentation to determine FAP-eligibility. The term ``FAP 
application'' does not refer only to written submissions, and a 
hospital facility may obtain information from an individual in writing 
or orally (or a combination of both).
    (14) FAP application form means the application form (and any 
accompanying instructions) that a hospital facility makes available for 
individuals to submit as part of a FAP application.
    (15) FAP-eligible means eligible for financial assistance under a 
hospital facility's FAP for care covered by the FAP, without regard to 
whether an individual has applied for assistance under the FAP.
    (16) Gross charges, or the chargemaster rate, means a hospital 
facility's full, established price for medical care that the hospital 
facility consistently and uniformly charges patients before applying 
any contractual allowances, discounts, or deductions.
    (17) Hospital facility means a facility that is required by a state 
to be licensed, registered, or similarly recognized as a hospital. 
Multiple buildings operated under a single state license are considered 
to be a single hospital facility. For purposes of this paragraph 
(b)(17), the term ``state'' includes only the 50 states and the 
District of Columbia and not any U.S. territory or foreign country. 
References to a hospital facility taking actions include instances in 
which the hospital organization operating the hospital facility takes 
actions through or on behalf of the hospital facility.

[[Page 78999]]

    (18) Hospital organization means an organization recognized (or 
seeking to be recognized) as described in section 501(c)(3) that 
operates one or more hospital facilities. If the section 501(c)(3) 
status of such an organization is revoked, the organization will, for 
purposes of section 4959, continue to be treated as a hospital 
organization during the taxable year in which such revocation becomes 
effective.
    (19) Medicaid means any medical assistance program administered by 
the state in which a hospital facility is licensed in accordance with 
Title XIX of the Social Security Act (42 U.S.C. 1396 through 1396w-5), 
including programs in which such medical assistance is provided through 
a contract between the state and a Medicaid managed care organization 
or a prepaid inpatient health plan.
    (20) Medicare fee-for-service means health insurance available 
under Medicare Part A and Part B of Title XVIII of the Social Security 
Act (42 U.S.C. 1395c through 1395w-5).
    (21) Noncompliant facility income means income that a hospital 
organization operating more than one hospital facility derives from a 
hospital facility that fails to meet one or more of the requirements of 
section 501(r) during a taxable year as determined in accordance with 
Sec.  1.501(r)-2(d).
    (22) Operating a hospital facility--(i) In general. Operating a 
hospital facility includes operating the facility through the 
organization's own employees or contracting out to another organization 
to operate the facility. For example, if an organization hires a 
management company to operate the facility, the hiring organization is 
considered to operate the facility. An organization also operates a 
hospital facility if it is the sole member or owner of a disregarded 
entity that operates the hospital facility. In addition, an 
organization operates a hospital facility if it owns a capital or 
profits interest in an entity treated as a partnership for federal tax 
purposes that operates the hospital facility, unless paragraph 
(b)(22)(ii) of this section applies. For purposes of this paragraph 
(b)(22), an organization is considered to own a capital or profits 
interest in an entity treated as a partnership for federal tax purposes 
if it owns such an interest directly or indirectly through one or more 
lower-tier entities treated as partnerships for federal tax purposes.
    (ii) Exception for certain partnerships. An organization does not 
operate a hospital facility despite owning a capital or profits 
interest in an entity treated as a partnership for federal tax purposes 
that operates the hospital facility if--
    (A) The organization does not have control over the operation of 
the hospital facility operated by the partnership sufficient to ensure 
that the operation of the hospital facility furthers an exempt purpose 
described in section 501(c)(3) and thus treats the operation of the 
hospital facility, including the facility's provision of medical care, 
as an unrelated trade or business described in section 513 with respect 
to the hospital organization; or
    (B) At all times since March 23, 2010, the organization has been 
organized and operated primarily for educational or scientific purposes 
and has not engaged primarily in the operation of one or more hospital 
facilities and, pursuant to a partnership agreement entered into before 
March 23, 2010--
    (1) Does not own more than 35 percent of the capital or profits 
interest in the partnership (determined in accordance with section 
707(b)(3));
    (2) Does not own a general partner interest, managing-member 
interest, or similar interest in the partnership; and
    (3) Does not have control over the operation of the hospital 
facility sufficient to ensure that the hospital facility complies with 
the requirements of section 501(r).
    (23) Partnership agreement means, for purposes of paragraph 
(b)(22)(ii)(B) of this section, all written agreements among the 
partners, or between one or more partners and the partnership and 
concerning affairs of the partnership and responsibilities of the 
partners, whether or not embodied in a document referred to by the 
partners as the partnership agreement. A partnership agreement also 
includes any modifications to the agreement agreed to by all partners, 
or adopted in any other manner provided by the partnership agreement, 
except for modifications adopted on or after March 23, 2010, that 
affect whether or not the agreement is described in paragraph 
(b)(22)(ii)(B) of this section. In addition, a partnership agreement 
includes provisions of federal, state, or local law that were in effect 
before March 23, 2010, and continue to be in effect that govern the 
affairs of the partnership or are considered under such law to be part 
of the partnership agreement.
    (24) Plain language summary of the FAP means a written statement 
that notifies an individual that the hospital facility offers financial 
assistance under a FAP and provides the following additional 
information in language that is clear, concise, and easy to understand:
    (i) A brief description of the eligibility requirements and 
assistance offered under the FAP.
    (ii) A brief summary of how to apply for assistance under the FAP.
    (iii) The direct Web site address (or URL) and physical locations 
where the individual can obtain copies of the FAP and FAP application 
form.
    (iv) Instructions on how the individual can obtain a free copy of 
the FAP and FAP application form by mail.
    (v) The contact information, including telephone number and 
physical location, of the hospital facility office or department that 
can provide information about the FAP and of either--
    (A) The hospital facility office or department that can provide 
assistance with the FAP application process; or
    (B) If the hospital facility does not provide assistance with the 
FAP application process, at least one nonprofit organization or 
government agency that the hospital facility has identified as an 
available source of assistance with FAP applications.
    (vi) A statement of the availability of translations of the FAP, 
FAP application form, and plain language summary of the FAP in other 
languages, if applicable.
    (vii) A statement that a FAP-eligible individual may not be charged 
more than AGB for emergency or other medically necessary care.
    (25) Presumptive FAP-eligibility determination means a 
determination that an individual is FAP-eligible based on information 
other than that provided by the individual or based on a prior FAP-
eligibility determination, as described in Sec.  1.501(r)-6(c)(2).
    (26) Private health insurer means any organization that is not a 
governmental unit that offers health insurance, including 
nongovernmental organizations administering a health insurance plan 
under Medicare Advantage (Part C of Title XVIII of the Social Security 
Act, 42 U.S.C. 1395w-21 through 1395w-29). For purposes of Sec.  
1.501(r)-5(b), medical assistance provided through a contract between 
the state and a Medicaid managed care organization or a prepaid 
inpatient health plan is not considered to be a reimbursement from or a 
claim allowed by a private health insurer.
    (27) Referring an individual's debt to a debt collection agency or 
other party means contracting with, delegating to, or otherwise using 
the debt collection agency or other party to collect amounts owed by 
the individual to the hospital facility while still maintaining 
ownership of the debt.
    (28) Substantially-related entity means, with respect to a hospital 
facility operated by a hospital organization, an entity treated as a 
partnership for

[[Page 79000]]

federal tax purposes in which the hospital organization owns a capital 
or profits interest, or a disregarded entity of which the hospital 
organization is the sole member or owner, that provides emergency or 
other medically necessary care in the hospital facility, unless the 
provision of such care is an unrelated trade or business described in 
section 513 with respect to the hospital organization. Notwithstanding 
the preceding sentence, a partnership that qualifies for the exception 
described in paragraph (b)(22)(ii)(B) of this section is not considered 
a substantially-related entity within the meaning of this paragraph 
(b)(28).
    (29) Widely available on a Web site means--
    (i) The hospital facility conspicuously posts a complete and 
current version of the document on--
    (A) The hospital facility's Web site;
    (B) If the hospital facility does not have its own Web site 
separate from the hospital organization that operates it, the hospital 
organization's Web site; or
    (C) A Web site established and maintained by another entity, but 
only if the Web site of the hospital facility or hospital organization 
(if the facility or organization has a Web site) provides a 
conspicuously-displayed link to the Web page where the document is 
posted, along with clear instructions for accessing the document on 
that Web site;
    (ii) Individuals with access to the Internet can access, download, 
view, and print a hard copy of the document from the Web site--
    (A) Without requiring special computer hardware or software (other 
than software that is readily available to members of the public 
without payment of any fee);
    (B) Without paying of a fee to the hospital facility, hospital 
organization, or other entity maintaining the Web site; and
    (C) Without creating an account or being otherwise required to 
provide personally identifiable information; and
    (iii) The hospital facility provides individuals who ask how to 
access a copy of the document online with the direct Web site address, 
or URL, of the Web page where the document is posted.


Sec.  1.501(r)-2  Failures to satisfy section 501(r).

    (a) Revocation of section 501(c)(3) status. Except as otherwise 
provided in paragraphs (b) and (c) of this section, a hospital 
organization failing to meet one or more of the requirements of section 
501(r) separately with respect to one or more hospital facilities it 
operates may have its section 501(c)(3) status revoked as of the first 
day of the taxable year in which the failure occurs. In determining 
whether to continue to recognize the section 501(c)(3) status of a 
hospital organization that fails to meet one or more of the 
requirements of section 501(r) with respect to one or more hospital 
facilities, the Commissioner will consider all relevant facts and 
circumstances including, but not limited to, the following:
    (1) Whether the organization has previously failed to meet the 
requirements of section 501(r), and, if so, whether the same type of 
failure previously occurred.
    (2) The size, scope, nature, and significance of the organization's 
failure(s).
    (3) In the case of an organization that operates more than one 
hospital facility, the number, size, and significance of the facilities 
that have failed to meet the section 501(r) requirements relative to 
those that have complied with these requirements.
    (4) The reason for the failure(s).
    (5) Whether the organization had, prior to the failure(s), 
established practices or procedures (formal or informal) reasonably 
designed to promote and facilitate overall compliance with the section 
501(r) requirements.
    (6) Whether the practices or procedures had been routinely followed 
and the failure(s) occurred through an oversight or mistake in applying 
them.
    (7) Whether the organization has implemented safeguards that are 
reasonably calculated to prevent similar failures from occurring in the 
future.
    (8) Whether the organization corrected the failure(s) as promptly 
after discovery as is reasonable given the nature of the failure(s).
    (9) Whether the organization took the measures described in 
paragraphs (a)(7) and (a)(8) of this section before the Commissioner 
discovered the failure(s).
    (b) Minor omissions and errors--(1) In general. A hospital 
facility's omission of required information from a policy or report 
described in Sec.  1.501(r)-3 or Sec.  1.501(r)-4, or error with 
respect to the implementation or operational requirements described in 
Sec. Sec.  1.501(r)-3 through 1.501(r)-6, will not be considered a 
failure to meet a requirement of section 501(r) if the following 
conditions are satisfied:
    (i) Such omission or error was minor and either inadvertent or due 
to reasonable cause.
    (ii) The hospital facility corrects such omission or error as 
promptly after discovery as is reasonable given the nature of the 
omission or error. Such correction must include establishment (or 
review and, if necessary, revision) of practices or procedures (formal 
or informal) that are reasonably designed to promote and facilitate 
overall compliance with the requirements of section 501(r).
    (2) Minor. In the case of multiple omissions or errors, the 
omissions or errors are considered minor for purposes of this paragraph 
(b) only if they are minor in the aggregate.
    (3) Inadvertent. For purposes of this paragraph (b), the fact that 
the same omission or error has been made and corrected previously is a 
factor tending to show that an omission or error is not inadvertent.
    (4) Reasonable cause. For purposes of this paragraph (b), the fact 
that a hospital facility has established practices or procedures 
(formal or informal) reasonably designed to promote and facilitate 
overall compliance with the section 501(r) requirements prior to the 
occurrence of an omission or error is a factor tending to show that the 
omission or error is due to reasonable cause.
    (c) Excusing certain failures if hospital facility corrects and 
discloses. A hospital facility's failure to meet one or more of the 
requirements described in Sec. Sec.  1.501(r)-3 through 1.501(r)-6 that 
is neither willful nor egregious shall be excused for purposes of this 
section if the hospital facility corrects and makes disclosure in 
accordance with rules set forth by revenue procedure, notice, or other 
guidance published in the Internal Revenue Bulletin. For purposes of 
this paragraph (c), a ``willful'' failure includes a failure due to 
gross negligence, reckless disregard, or willful neglect, and an 
``egregious'' failure includes only very serious failures, taking into 
account the severity of the impact and the number of affected persons. 
Whether a failure is willful or egregious will be determined based on 
all of the facts and circumstances. A hospital facility's correction 
and disclosure of a failure in accordance with the relevant guidance is 
a factor tending to show that the failure was not willful.
    (d) Taxation of noncompliant hospital facilities--(1) In general. 
Except as otherwise provided in paragraphs (b) and (c) of this section, 
if a hospital organization that operates more than one hospital 
facility fails to meet one or more of the requirements of section 
501(r) separately with respect to a hospital facility during a taxable 
year, the income derived from the noncompliant hospital facility 
(``noncompliant facility income'') during that taxable year will be 
subject

[[Page 79001]]

to tax computed as provided in section 11 (or as provided in section 
1(e) if the hospital organization is a trust described in section 
511(b)(2)), but substituting the term ``noncompliant facility income'' 
for ``taxable income,'' if--
    (i) The hospital organization continues to be recognized as 
described in section 501(c)(3) during the taxable year; but
    (ii) The hospital organization would not continue to be recognized 
as described in section 501(c)(3) during the taxable year based on the 
facts and circumstances described in paragraph (a) of this section (but 
disregarding paragraph (a)(3) of this section) if the noncompliant 
hospital facility were the only hospital facility operated by the 
organization.
    (2) Noncompliant facility income--(i) In general. For purposes of 
this paragraph (d), the noncompliant facility income derived from a 
hospital facility during a taxable year will be the gross income 
derived from that hospital facility during the taxable year, less the 
deductions allowed by chapter 1 that are directly connected to the 
operation of that hospital facility during the taxable year, excluding 
any gross income and deductions taken into account in computing any 
unrelated business taxable income described in section 512 that is 
derived from the facility during the taxable year.
    (ii) Directly connected deductions. For purposes of this paragraph 
(d), to be directly connected with the operation of a hospital facility 
that has failed to meet the requirements of section 501(r), an item of 
deduction must have proximate and primary relationship to the operation 
of the hospital facility. Expenses, depreciation, and similar items 
attributable solely to the operation of a hospital facility are 
proximately and primarily related to such operation, and therefore 
qualify for deduction to the extent that they meet the requirements of 
section 162, section 167, or other relevant provisions of the Internal 
Revenue Code (Code). Where expenses, depreciation, and similar items 
are attributable to a noncompliant hospital facility and other hospital 
facilities operated by the hospital organization (and/or to other 
activities of the hospital organization unrelated to the operation of 
hospital facilities), such items shall be allocated among the hospital 
facilities (and/or other activities) on a reasonable basis. The portion 
of any such item so allocated to a noncompliant hospital facility is 
proximately and primarily related to the operation of that facility and 
shall be allowable as a deduction in computing the facility's 
noncompliant facility income in the manner and to the extent it would 
meet the requirements of section 162, section 167, or other relevant 
provisions of the Code.
    (3) No aggregation. In computing the noncompliant facility income 
of a hospital facility, the gross income from (and the deductions 
allowed with respect to) the hospital facility may not be aggregated 
with the gross income from (and the deductions allowed with respect to) 
the hospital organization's other noncompliant hospital facilities 
subject to tax under this paragraph (d) or its unrelated trade or 
business activities described in section 513.
    (4) Interaction with other Code provisions--(i) Hospital 
organization operating a noncompliant hospital facility continues to be 
treated as tax-exempt. A hospital organization operating a noncompliant 
hospital facility subject to tax under this paragraph (d) shall 
continue to be treated as an organization that is exempt from tax under 
section 501(a) because it is described in section 501(c)(3) for all 
purposes of the Code. In addition, the application of this paragraph 
(d) shall not, by itself, result in the operation of the noncompliant 
hospital facility being considered an unrelated trade or business 
described in section 513 with respect to the hospital organization. 
Thus, for example, the application of this paragraph (d) shall not, by 
itself, affect the tax-exempt status of bonds issued to finance the 
noncompliant hospital facility.
    (ii) Noncompliant hospital facility operated by a tax-exempt 
hospital organization is subject to tax. A noncompliant hospital 
facility described in paragraph (d)(1) of this section is subject to 
tax under this paragraph (d), notwithstanding the fact that the 
hospital organization operating the hospital facility is otherwise 
exempt from tax under section 501(a) and subject to tax under section 
511(a) and that Sec.  1.11-1(a) of this chapter states such 
organizations are not liable for the tax imposed under section 11.
    (iii) Noncompliant hospital facility not a business entity. A 
noncompliant hospital facility subject to tax under this paragraph (d) 
is not considered a business entity for purposes of Sec.  301.7701-
2(b)(7) of this chapter.
    (e) Instances in which a hospital organization is not required to 
meet section 501(r). A hospital organization is not required to meet 
the requirements of section 501(r) (and, therefore, is not subject to 
any consequence described in this section for failing to meet the 
requirements of section 501(r)) with respect to--
    (1) Any hospital facility it is not ``operating'' within the 
meaning of Sec.  1.501(r)-1(b)(22);
    (2) The operation of a facility that is not required by a state to 
be licensed, registered, or similarly recognized as a hospital; or
    (3) Any activities that constitute an unrelated trade or business 
described in section 513 with respect to the hospital organization.


Sec.  1.501(r)-3  Community health needs assessments.

    (a) In general. With respect to any taxable year, a hospital 
organization meets the requirements of section 501(r)(3) with respect 
to a hospital facility it operates only if--
    (1) The hospital facility has conducted a community health needs 
assessment (CHNA) that meets the requirements of paragraph (b) of this 
section in such taxable year or in either of the two taxable years 
immediately preceding such taxable year (except as provided in 
paragraph (d) of this section); and
    (2) An authorized body of the hospital facility (as defined in 
Sec.  1.501(r)-1(b)(4)) has adopted an implementation strategy to meet 
the community health needs identified through the CHNA, as described in 
paragraph (c) of this section, on or before the 15th day of the fifth 
month after the end of such taxable year.
    (b) Conducting a CHNA--(1) In general. To conduct a CHNA for 
purposes of paragraph (a) of this section, a hospital facility must 
complete all of the following steps:
    (i) Define the community it serves.
    (ii) Assess the health needs of that community.
    (iii) In assessing the health needs of the community, solicit and 
take into account input received from persons who represent the broad 
interests of that community, including those with special knowledge of 
or expertise in public health.
    (iv) Document the CHNA in a written report (CHNA report) that is 
adopted for the hospital facility by an authorized body of the hospital 
facility.
    (v) Make the CHNA report widely available to the public.
    (2) Date a CHNA is conducted. For purposes of this section, a 
hospital facility will be considered to have conducted a CHNA on the 
date it has completed all of the steps described in paragraph (b)(1) of 
this section. Solely for purposes of determining the taxable year in 
which a CHNA has been conducted under this paragraph (b)(2), a hospital 
facility will be considered to have completed the step of making a

[[Page 79002]]

CHNA report widely available to the public on the date it first makes 
the CHNA report widely available to the public as described in 
paragraph (b)(7)(i) of this section.
    (3) Community served by a hospital facility. In defining the 
community it serves for purposes of paragraph (b)(1)(i) of this 
section, a hospital facility may take into account all of the relevant 
facts and circumstances, including the geographic area served by the 
hospital facility, target population(s) served (for example, children, 
women, or the aged), and principal functions (for example, focus on a 
particular specialty area or targeted disease). However, a hospital 
facility may not define its community to exclude medically underserved, 
low-income, or minority populations who live in the geographic areas 
from which the hospital facility draws its patients (unless such 
populations are not part of the hospital facility's target patient 
population(s) or affected by its principal functions) or otherwise 
should be included based on the method the hospital facility uses to 
define its community. In addition, in determining its patient 
populations for purposes of defining its community, a hospital facility 
must take into account all patients without regard to whether (or how 
much) they or their insurers pay for the care received or whether they 
are eligible for assistance under the hospital facility's financial 
assistance policy. In the case of a hospital facility consisting of 
multiple buildings that operate under a single state license and serve 
different geographic areas or populations, the community served by the 
hospital facility is the aggregate of such areas or populations.
    (4) Assessing community health needs. To assess the health needs of 
the community it serves for purposes of paragraph (b)(1)(ii) of this 
section, a hospital facility must identify significant health needs of 
the community, prioritize those health needs, and identify resources 
(such as organizations, facilities, and programs in the community, 
including those of the hospital facility) potentially available to 
address those health needs. For these purposes, the health needs of a 
community include requisites for the improvement or maintenance of 
health status both in the community at large and in particular parts of 
the community (such as particular neighborhoods or populations 
experiencing health disparities). These needs may include, for example, 
the need to address financial and other barriers to accessing care, to 
prevent illness, to ensure adequate nutrition, or to address social, 
behavioral, and environmental factors that influence health in the 
community. A hospital facility may determine whether a health need is 
significant based on all of the facts and circumstances present in the 
community it serves. In addition, a hospital facility may use any 
criteria to prioritize the significant health needs it identifies, 
including, but not limited to, the burden, scope, severity, or urgency 
of the health need; the estimated feasibility and effectiveness of 
possible interventions; the health disparities associated with the 
need; or the importance the community places on addressing the need.
    (5) Persons representing the broad interests of the community--(i) 
In general. For purposes of paragraph (b)(1)(iii) of this section, a 
hospital facility must solicit and take into account input received 
from all of the following sources in identifying and prioritizing 
significant health needs and in identifying resources potentially 
available to address those health needs:
    (A) At least one state, local, tribal, or regional governmental 
public health department (or equivalent department or agency), or a 
State Office of Rural Health described in section 338J of the Public 
Health Service Act (42 U.S.C. 254r), with knowledge, information, or 
expertise relevant to the health needs of that community.
    (B) Members of medically underserved, low-income, and minority 
populations in the community served by the hospital facility, or 
individuals or organizations serving or representing the interests of 
such populations. For purposes of this paragraph (b), medically 
underserved populations include populations experiencing health 
disparities or at risk of not receiving adequate medical care as a 
result of being uninsured or underinsured or due to geographic, 
language, financial, or other barriers.
    (C) Written comments received on the hospital facility's most 
recently conducted CHNA and most recently adopted implementation 
strategy.
    (ii) Additional sources of input. In addition to the sources 
described in paragraph (b)(5)(i) of this section, a hospital facility 
may solicit and take into account input received from a broad range of 
persons located in or serving its community, including, but not limited 
to, health care consumers and consumer advocates, nonprofit and 
community-based organizations, academic experts, local government 
officials, local school districts, health care providers and community 
health centers, health insurance and managed care organizations, 
private businesses, and labor and workforce representatives.
    (6) Documentation of a CHNA--(i) In general. For purposes of 
paragraph (b)(1)(iv) of this section, the CHNA report adopted for the 
hospital facility by an authorized body of the hospital facility must 
include--
    (A) A definition of the community served by the hospital facility 
and a description of how the community was determined;
    (B) A description of the process and methods used to conduct the 
CHNA;
    (C) A description of how the hospital facility solicited and took 
into account input received from persons who represent the broad 
interests of the community it serves;
    (D) A prioritized description of the significant health needs of 
the community identified through the CHNA, along with a description of 
the process and criteria used in identifying certain health needs as 
significant and prioritizing those significant health needs;
    (E) A description of the resources potentially available to address 
the significant health needs identified through the CHNA; and
    (F) An evaluation of the impact of any actions that were taken, 
since the hospital facility finished conducting its immediately 
preceding CHNA, to address the significant health needs identified in 
the hospital facility's prior CHNA(s).
    (ii) Process and methods used to conduct the CHNA. A hospital 
facility's CHNA report will be considered to describe the process and 
methods used to conduct the CHNA for purposes of paragraph (b)(6)(i)(B) 
of this section if the CHNA report describes the data and other 
information used in the assessment, as well as the methods of 
collecting and analyzing this data and information, and identifies any 
parties with whom the hospital facility collaborated, or with whom it 
contracted for assistance, in conducting the CHNA. In the case of data 
obtained from external source material, the CHNA report may cite the 
source material rather than describe the method of collecting the data.
    (iii) Input from persons who represent the broad interests of the 
community served by the hospital facility. A hospital facility's CHNA 
report will be considered to describe how the hospital facility took 
into account input received from persons who represent the broad 
interests of the community it serves for purposes of paragraph 
(b)(6)(i)(C) of this section if the CHNA report summarizes, in general 
terms, any input provided by such persons and how and over what

[[Page 79003]]

time period such input was provided (for example, whether through 
meetings, focus groups, interviews, surveys, or written comments and 
between what approximate dates); provides the names of any 
organizations providing input and summarizes the nature and extent of 
the organization's input; and describes the medically underserved, low-
income, or minority populations being represented by organizations or 
individuals that provided input. A CHNA report does not need to name or 
otherwise identify any specific individual providing input on the CHNA. 
In the event a hospital facility solicits, but cannot obtain, input 
from a source described in paragraph (b)(5)(i) of this section, the 
hospital facility's CHNA report also must describe the hospital 
facility's efforts to solicit input from such source.
    (iv) Separate CHNA reports. While a hospital facility may conduct 
its CHNA in collaboration with other organizations and facilities 
(including, but not limited to, related and unrelated hospital 
organizations and facilities, for-profit and government hospitals, 
governmental departments, and nonprofit organizations), every hospital 
facility must document the information described in this paragraph 
(b)(6) in a separate CHNA report to satisfy paragraph (b)(1)(iv) of 
this section unless it adopts a joint CHNA report as described in 
paragraph (b)(6)(v) of this section. However, if a hospital facility is 
collaborating with other facilities and organizations in conducting its 
CHNA or if another organization (such as a state or local public health 
department) has conducted a CHNA for all or part of the hospital 
facility's community, portions of the hospital facility's CHNA report 
may be substantively identical to portions of a CHNA report of a 
collaborating hospital facility or other organization conducting a 
CHNA, if appropriate under the facts and circumstances. For example, if 
two hospital facilities with overlapping, but not identical, 
communities are collaborating in conducting a CHNA, the portions of 
each hospital facility's CHNA report relevant to the shared areas of 
their communities might be identical. Similarly, if the state or local 
public health department with jurisdiction over the community served by 
a hospital facility conducts a CHNA for an area that includes the 
hospital facility's community, the hospital facility's CHNA report 
might include portions of the state or local public health department's 
CHNA report that are relevant to its community.
    (v) Joint CHNA reports--(A) In general. A hospital facility that 
collaborates with other hospital facilities or other organizations 
(such as state or local public health departments) in conducting its 
CHNA will satisfy paragraph (b)(1)(iv) of this section if an authorized 
body of the hospital facility adopts for the hospital facility a joint 
CHNA report produced for the hospital facility and one or more of the 
collaborating facilities and organizations, provided that the following 
conditions are met:
    (1) The joint CHNA report meets the requirements of paragraph 
(b)(6)(i) of this section.
    (2) The joint CHNA report is clearly identified as applying to the 
hospital facility.
    (3) All of the collaborating hospital facilities and organizations 
included in the joint CHNA report define their community to be the 
same.
    (B) Example. The following example illustrates this paragraph 
(b)(6)(v):

    Example.  P is one of 10 hospital facilities located in and 
serving the populations of a particular Metropolitan Statistical 
Area (MSA). P and seven other facilities in the MSA, some of which 
are unrelated to P, decide to collaborate in conducting a CHNA for 
the MSA and to each define their community as constituting the 
entire MSA. The eight hospital facilities work together with the 
state and local health departments of jurisdictions in the MSA to 
assess the health needs of the MSA and collaborate in conducting 
surveys and holding public forums to solicit and receive input from 
the MSA's residents, including its medically underserved, low-
income, and minority populations. The hospital facilities also 
consider the written comments received on their most recently 
conducted CHNAs and most recently adopted implementation strategies. 
The hospital facilities then work together to prepare a joint CHNA 
report documenting this joint CHNA process that contains all of the 
elements described in paragraph (b)(6)(i) of this section. The joint 
CHNA report identifies all of the collaborating hospital facilities 
included in the report, including P, by name, both within the report 
itself and on the cover page. The board of directors of the hospital 
organization operating P adopts the joint CHNA report for P. P has 
complied with the requirements of this paragraph (b)(6)(v) and, 
accordingly, has satisfied paragraph (b)(1)(iv) of this section.

    (7) Making the CHNA report widely available to the public--(i) In 
general. For purposes of paragraph (b)(1)(v) of this section, a 
hospital facility's CHNA report is made widely available to the public 
only if the hospital facility--
    (A) Makes the CHNA report widely available on a Web site, as 
defined in Sec.  1.501(r)-1(b)(29), at least until the date the 
hospital facility has made widely available on a Web site its two 
subsequent CHNA reports; and
    (B) Makes a paper copy of the CHNA report available for public 
inspection upon request and without charge at the hospital facility at 
least until the date the hospital facility has made available for 
public inspection a paper copy of its two subsequent CHNA reports.
    (ii) Making draft CHNA reports widely available. Notwithstanding 
paragraph (b)(7)(i) of this section, if a hospital facility makes 
widely available on a Web site (and/or for public inspection) a version 
of the CHNA report that is expressly marked as a draft on which the 
public may comment, the hospital facility will not be considered to 
have made the CHNA report widely available to the public for purposes 
of determining the date on which the hospital facility has conducted a 
CHNA under paragraph (b)(2) of this section.
    (c) Implementation strategy--(1) In general. For purposes of 
paragraph (a)(2) of this section, a hospital facility's implementation 
strategy to meet the community health needs identified through the 
hospital facility's CHNA is a written plan that, with respect to each 
significant health need identified through the CHNA, either--
    (i) Describes how the hospital facility plans to address the health 
need; or
    (ii) Identifies the health need as one the hospital facility does 
not intend to address and explains why the hospital facility does not 
intend to address the health need.
    (2) Description of how the hospital facility plans to address a 
significant health need. A hospital facility will have described a plan 
to address a significant health need identified through a CHNA for 
purposes of paragraph (c)(1)(i) of this section if the implementation 
strategy--
    (i) Describes the actions the hospital facility intends to take to 
address the health need and the anticipated impact of these actions;
    (ii) Identifies the resources the hospital facility plans to commit 
to address the health need; and
    (iii) Describes any planned collaboration between the hospital 
facility and other facilities or organizations in addressing the health 
need.
    (3) Description of why a hospital facility is not addressing a 
significant health need. In explaining why it does not intend to 
address a significant health need for purposes of paragraph (c)(1)(ii) 
of this section, a brief explanation of the hospital facility's reason 
for not addressing the health need is sufficient. Such reasons may 
include, for example, resource constraints, other facilities or 
organizations in the community addressing the need, a relative lack of 
expertise or competency to effectively

[[Page 79004]]

address the need, the need being a relatively low priority, and/or a 
lack of identified effective interventions to address the need.
    (4) Joint implementation strategies. A hospital facility may 
develop an implementation strategy in collaboration with other hospital 
facilities or other organizations, including, but not limited to, 
related and unrelated hospital organizations and facilities, for-profit 
and government hospitals, governmental departments, and nonprofit 
organizations. In general, a hospital facility that collaborates with 
other facilities or organizations in developing its implementation 
strategy must still document its implementation strategy in a separate 
written plan that is tailored to the particular hospital facility, 
taking into account its specific resources. However, a hospital 
facility that adopts a joint CHNA report described in paragraph 
(b)(6)(v) of this section may also adopt a joint implementation 
strategy that, with respect to each significant health need identified 
through the joint CHNA, either describes how one or more of the 
collaborating facilities or organizations plan to address the health 
need or identifies the health need as one the collaborating facilities 
or organizations do not intend to address and explains why they do not 
intend to address the health need. For a collaborating hospital 
facility to meet the requirements of paragraph (a)(2) of this section, 
such a joint implementation strategy adopted for the hospital facility 
must--
    (i) Be clearly identified as applying to the hospital facility;
    (ii) Clearly identify the hospital facility's particular role and 
responsibilities in taking the actions described in the implementation 
strategy and the resources the hospital facility plans to commit to 
such actions; and
    (iii) Include a summary or other tool that helps the reader easily 
locate those portions of the joint implementation strategy that relate 
to the hospital facility.
    (5) When the implementation strategy must be adopted--(i) In 
general. For purposes of paragraph (a)(2) of this section, an 
authorized body of the hospital facility must adopt the implementation 
strategy on or before the 15th day of the fifth month after the end of 
the taxable year in which the hospital facility completes the final 
step for the CHNA described in paragraph (b)(1) of this section, 
regardless of whether the hospital facility began working on the CHNA 
in a prior taxable year.
    (ii) Example. The following example illustrates this paragraph 
(c)(5):

    Example.  M is a hospital facility that last conducted a CHNA 
and adopted an implementation strategy in Year 1. In Year 3, M 
defines the community it serves, assesses the significant health 
needs of that community, and solicits and takes into account input 
received from persons who represent the broad interests of that 
community. In Year 4, M documents its CHNA in a CHNA report that is 
adopted by an authorized body of M, makes the CHNA report widely 
available on a Web site, and makes paper copies of the CHNA report 
available for public inspection. To meet the requirements of 
paragraph (a)(2) of this section, an authorized body of M must adopt 
an implementation strategy to meet the health needs identified 
through the CHNA completed in Year 4 by the 15th day of the fifth 
month of Year 5.

    (d) Exception for acquired, new, and terminated hospital 
facilities--(1) Acquired hospital facilities. A hospital organization 
that acquires a hospital facility (whether through merger or 
acquisition) must meet the requirements of section 501(r)(3) with 
respect to the acquired hospital facility by the last day of the 
organization's second taxable year beginning after the date on which 
the hospital facility was acquired. In the case of a merger between two 
organizations that results in the liquidation of one organization and 
the survival of the other organization, the hospital facility or 
facilities formerly operated by the liquidated organization will be 
considered ``acquired'' for purposes of this paragraph (d)(1).
    (2) New hospital organizations. An organization that becomes newly 
subject to the requirements of section 501(r) because it is recognized 
as described in section 501(c)(3) and is operating a hospital facility 
must meet the requirements of section 501(r)(3) with respect to any 
hospital facility by the last day of the second taxable year beginning 
after the later of the effective date of the determination letter or 
ruling recognizing the organization as described in section 501(c)(3) 
or the first date that a facility operated by the organization was 
licensed, registered, or similarly recognized by a state as a hospital.
    (3) New hospital facilities. A hospital organization must meet the 
requirements of section 501(r)(3) with respect to a new hospital 
facility it operates by the last day of the second taxable year 
beginning after the date the facility was licensed, registered, or 
similarly recognized by its state as a hospital.
    (4) Transferred or terminated hospital facilities. A hospital 
organization is not required to meet the requirements of section 
501(r)(3) with respect to a hospital facility in a taxable year if, 
before the end of that taxable year, the hospital organization 
transfers all ownership of the hospital facility to another 
organization or otherwise ceases its operation of the hospital facility 
or the facility ceases to be licensed, registered, or similarly 
recognized as a hospital by a state.
    (e) Transition rule for CHNAs conducted in taxable years beginning 
before March 23, 2012. A hospital facility that conducted a CHNA 
described in section 501(r)(3) in either its first taxable year 
beginning after March 23, 2010, or its first taxable year beginning 
after March 23, 2011, does not need to meet the requirements of section 
501(r)(3) again until the third taxable year following the taxable year 
in which the hospital facility conducted that CHNA, provided that the 
hospital facility adopted an implementation strategy to meet the 
community health needs identified through that CHNA on or before the 
15th day of the fifth calendar month following the close of its first 
taxable year beginning after March 23, 2012.


Sec.  1.501(r)-4  Financial assistance policy and emergency medical 
care policy.

    (a) In general. A hospital organization meets the requirements of 
section 501(r)(4) with respect to a hospital facility it operates only 
if the hospital organization establishes for that hospital facility--
    (1) A written financial assistance policy (FAP) that meets the 
requirements of paragraph (b) of this section; and
    (2) A written emergency medical care policy that meets the 
requirements of paragraph (c) of this section.
    (b) Financial assistance policy--(1) In general. To satisfy 
paragraph (a)(1) of this section, a hospital facility's FAP must--
    (i) Apply to all emergency and other medically necessary care 
provided by the hospital facility, including all such care provided in 
the hospital facility by a substantially-related entity (as defined in 
Sec.  1.501(r)-1(b)(28));
    (ii) Be widely publicized as described in paragraph (b)(5) of this 
section; and
    (iii) Include--
    (A) The eligibility criteria for financial assistance and whether 
such assistance includes free or discounted care;
    (B) The basis for calculating amounts charged to patients;
    (C) The method for applying for financial assistance;
    (D) In the case of a hospital facility that does not have a 
separate billing and collections policy, the actions that may be taken 
in the event of nonpayment;
    (E) If applicable, any information obtained from sources other than 
an

[[Page 79005]]

individual seeking financial assistance that the hospital facility 
uses, and whether and under what circumstances it uses prior FAP-
eligibility determinations, to presumptively determine that the 
individual is FAP-eligible, as described in Sec.  1.501(r)-6(c)(2); and
    (F) A list of any providers, other than the hospital facility 
itself, delivering emergency or other medically necessary care in the 
hospital facility that specifies which providers are covered by the 
hospital facility's FAP and which are not.
    (2) Eligibility criteria and basis for calculating amounts charged 
to patients--(i) In general. To satisfy paragraphs (b)(1)(iii)(A) and 
(b)(1)(iii)(B) of this section, the FAP must specify the following:
    (A) All financial assistance available under the FAP, including all 
discounts and free care available under the FAP and, if applicable, the 
amount(s) (for example, gross charges) to which any discount 
percentages available under the FAP will be applied.
    (B) The eligibility criteria that an individual must satisfy to 
receive each discount, free care, or other level of assistance 
available under the FAP.
    (C) The method under Sec.  1.501(r)-5(b) the hospital facility uses 
to determine the amounts generally billed to individuals who have 
insurance covering emergency or other medically necessary care (AGB). 
If the hospital facility uses the look-back method described in Sec.  
1.501(r)-5(b)(3), the FAP also must state the AGB percentage(s) that 
the hospital facility uses to determine AGB and describe how the 
hospital facility calculated such percentage(s) or, alternatively, 
explain how members of the public may readily obtain such percentage(s) 
and accompanying description of the calculation in writing and free of 
charge. In addition, the FAP must indicate that, following a 
determination of FAP-eligibility, a FAP-eligible individual may not be 
charged more than AGB for emergency or other medically necessary care.
    (ii) Examples. The following examples illustrate this paragraph 
(b)(2):

    Example 1. (i) Q is a hospital facility that establishes a FAP 
that provides assistance to all uninsured and underinsured 
individuals whose family income is less than or equal to x% of the 
Federal Poverty Level (FPL), with the level of discount for which an 
individual is eligible under Q's FAP determined based upon the 
individual's family income as a percentage of FPL. Q's FAP defines 
the meaning of ``uninsured,'' ``underinsured,'' ``family income,'' 
and ``Federal Poverty Level.'' Q's FAP also states that Q determines 
AGB by multiplying the gross charges for any emergency or other 
medically necessary care it provides to a FAP-eligible individual by 
an AGB percentage of 56%. The FAP states, further, that Q calculated 
the AGB percentage of 56% based on all claims allowed by Medicare 
and private health insurers over a specified 12-month period, 
divided by the associated gross charges for those claims. Q's FAP 
contains the following chart, specifying each discount available 
under the FAP, the amounts (gross charges) to which these discounts 
will be applied, and the specific eligibility criteria for each such 
discount:

------------------------------------------------------------------------
                                                Discount off of gross
         Family income as % of FPL                     charges
------------------------------------------------------------------------
>y% - x%..................................  50%.
>z% - y%..................................  75%.
<=z%......................................  Free.
------------------------------------------------------------------------

    (ii) Q's FAP also contains a statement that no FAP-eligible 
individual will be charged more for emergency or other medically 
necessary care than AGB because Q's AGB percentage is 56% of gross 
charges and the most a FAP-eligible individual will be charged is 
50% of gross charges. Q's FAP satisfies the requirements of this 
paragraph (b)(2).
    Example 2. (i) R is a hospital facility that establishes a FAP 
that provides assistance based on household income. R's FAP defines 
the meaning of ``household income.'' R's FAP contains the following 
chart specifying the assistance available under the FAP and the 
specific eligibility criteria for each level of assistance offered, 
which R updates occasionally to account for inflation:

------------------------------------------------------------------------
                                          Maximum amount individual will
            Household income                be responsible for paying
------------------------------------------------------------------------
>$b - $a...............................  40% of gross charges, up to the
                                          lesser of AGB or x% of
                                          household income.
>$c - $b...............................  20% of gross charges, up to the
                                          lesser of AGB or y% of
                                          household income.
<=$c...................................  $0 (free).
------------------------------------------------------------------------

    (ii) R's FAP contains a statement that no FAP-eligible 
individual will be charged more for emergency or other medically 
necessary care than AGB. R's FAP also states that R determines AGB 
by multiplying the gross charges for any emergency or other 
medically necessary care it provides by AGB percentages, which are 
based on claims allowed under Medicare. In addition, the FAP 
provides a Web site address individuals can visit, and a telephone 
number they can call, if they would like to obtain an information 
sheet stating R's AGB percentages and explaining how these AGB 
percentages were calculated. This information sheet, which R makes 
available on its Web site and provides to any individual who 
requests it, states that R's AGB percentages are 35% of gross 
charges for inpatient care and 61% of gross charges for outpatient 
care. It also states that these percentages were based on all claims 
allowed for R's emergency or other medically necessary inpatient and 
outpatient care by Medicare over a specified 12-month period, 
divided by the associated gross charges for those claims. R's FAP 
satisfies the requirements of this paragraph (b)(2).

    (3) Method for applying for financial assistance--(i) In general. 
To satisfy paragraph (b)(1)(iii)(C) of this section, a hospital 
facility's FAP must describe how an individual applies for financial 
assistance under the FAP. In addition, either the hospital facility's 
FAP or FAP application form (including accompanying instructions) must 
describe the information and documentation the hospital facility may 
require an individual to provide as part of his or her FAP application 
and provide the contact information described in Sec.  1.501(r)-
1(b)(24)(v). A hospital facility may not deny financial assistance 
under its FAP based on an applicant's failure to provide information or 
documentation unless that information or documentation is described in 
the FAP or FAP application form. However, a hospital facility may grant 
financial assistance under its FAP notwithstanding an applicant's 
failure to provide information or documentation described in the FAP or 
FAP application form and may, for example, rely on other evidence of 
eligibility or an attestation by the applicant to determine that the 
applicant is FAP-eligible.
    (ii) Example. The following example illustrates this paragraph 
(b)(3):

    Example. S is a hospital facility with a FAP that bases 
eligibility solely on an individual's household income. S's FAP 
provides that an individual may apply for financial assistance by 
completing and submitting S's FAP application form. S's FAP also 
describes how individuals can obtain copies of the FAP application 
form. S's FAP application form contains lines on which the applicant 
lists all items of household income received by the applicant's 
household over the last month and the names of the applicant's 
household members. The instructions to S's FAP application form tell 
applicants where to submit the application and provide that an 
applicant must attach to his or her FAP application form proof of 
household income in the form of payroll check stubs from the last 
month or, if last month's wages are not representative of the 
applicant's annual income, a copy of the applicant's most recent 
federal tax return. Alternatively, the instructions state that an 
applicant may provide documentation of his or her qualification for 
certain specified state means-tested programs. The instructions also 
state that if an applicant does not have any of the listed documents 
proving household income, he or she may call S's financial 
assistance office and discuss other evidence that may be provided to 
demonstrate eligibility. S does not deny financial assistance to FAP 
applicants based on a failure to submit any information or 
documentation not mentioned in the FAP

[[Page 79006]]

application form or instructions. S's FAP application form 
instructions also provide the contact information of the hospital 
facility office that can provide an applicant with information about 
the FAP and assistance with the FAP application process. S's FAP 
satisfies the requirements of this paragraph (b)(3).

    (4) Actions that may be taken in the event of nonpayment--(i) In 
general. To satisfy paragraph (b)(1)(iii)(D) of this section, either a 
hospital facility's FAP or a separate written billing and collections 
policy established for the hospital facility must describe--
    (A) Any actions that the hospital facility (or other authorized 
party) may take related to obtaining payment of a bill for medical 
care, including, but not limited to, any extraordinary collection 
actions (ECAs) described in Sec.  1.501(r)-6(b);
    (B) The process and time frames the hospital facility (or other 
authorized party) uses in taking the actions described in paragraph 
(b)(4)(i)(A) of this section, including, but not limited to, the 
reasonable efforts it will make to determine whether an individual is 
FAP-eligible before engaging in any ECAs, as described in Sec.  
1.501(r)-6(c); and
    (C) The office, department, committee, or other body with the final 
authority or responsibility for determining that the hospital facility 
has made reasonable efforts to determine whether an individual is FAP-
eligible and may therefore engage in ECAs against the individual.
    (ii) Separate billing and collections policy. In the case of a 
hospital facility that satisfies paragraph (b)(1)(iii)(D) of this 
section by establishing a separate written billing and collections 
policy, the hospital facility's FAP must state that the actions the 
hospital facility may take in the event of nonpayment are described in 
a separate billing and collections policy and explain how members of 
the public may readily obtain a free copy of this separate policy.
    (5) Widely publicizing the FAP--(i) In general. To satisfy the 
requirement in paragraph (b)(1)(ii) of this section to widely publicize 
its FAP, a hospital facility must--
    (A) Make the FAP, FAP application form, and plain language summary 
of the FAP (as defined in Sec.  1.501(r)-1(b)(24)) widely available on 
a Web site (as defined in Sec.  1.501(r)-1(b)(29));
    (B) Make paper copies of the FAP, FAP application form, and plain 
language summary of the FAP available upon request and without charge, 
both by mail and in public locations in the hospital facility, 
including, at a minimum, in the emergency room (if any) and admissions 
areas;
    (C) Notify and inform members of the community served by the 
hospital facility about the FAP in a manner reasonably calculated to 
reach those members who are most likely to require financial assistance 
from the hospital facility; and
    (D) Notify and inform individuals who receive care from the 
hospital facility about the FAP by--
    (1) Offering a paper copy of the plain language summary of the FAP 
to patients as part of the intake or discharge process;
    (2) Including a conspicuous written notice on billing statements 
that notifies and informs recipients about the availability of 
financial assistance under the hospital facility's FAP and includes the 
telephone number of the hospital facility office or department that can 
provide information about the FAP and FAP application process and the 
direct Web site address (or URL) where copies of the FAP, FAP 
application form, and plain language summary of the FAP may be 
obtained; and
    (3) Setting up conspicuous public displays (or other measures 
reasonably calculated to attract patients' attention) that notify and 
inform patients about the FAP in public locations in the hospital 
facility, including, at a minimum, the emergency room (if any) and 
admissions areas.
    (ii) Accessibility to limited English proficient individuals. To 
widely publicize its FAP, a hospital facility must accommodate all 
significant populations that have limited English proficiency (LEP) by 
translating its FAP, FAP application form, and plain language summary 
of the FAP into the primary language(s) spoken by such populations. A 
hospital facility will satisfy this translation requirement in a 
taxable year if it makes available translations of its FAP, FAP 
application form, and plain language summary of the FAP in the language 
spoken by each LEP language group that constitutes the lesser of 1,000 
individuals or 5 percent of the community served by the hospital 
facility or the population likely to be affected or encountered by the 
hospital facility. For purposes of this paragraph (b)(5)(ii), a 
hospital facility may determine the percentage or number of LEP 
individuals in the hospital facility's community or likely to be 
affected or encountered by the hospital facility using any reasonable 
method.
    (iii) Meaning of notify and inform. For purposes of paragraphs 
(b)(5)(i)(C) and (b)(5)(i)(D)(3) of this section, a measure will notify 
and inform members of a community or patients about the hospital 
facility's FAP if the measure, at a minimum, notifies the reader or 
listener that the hospital facility offers financial assistance under a 
FAP and informs him or her about how or where to obtain more 
information about the FAP and FAP application process and to obtain 
copies of the FAP, FAP application form, and plain language summary of 
the FAP.
    (iv) Meaning of reasonably calculated. Whether one or more measures 
to widely publicize a hospital facility's FAP are reasonably calculated 
to notify and inform members of a community or patients about the 
hospital facility's FAP in the manner described in paragraphs 
(b)(5)(i)(C) and (b)(5)(i)(D)(3) of this section will depend on all of 
the facts and circumstances, including the primary language(s) spoken 
by the members of the community served by the hospital facility and 
other attributes of the community and the hospital facility.
    (v) Examples. The following examples illustrate this paragraph 
(b)(5):

    Example 1. (i) Z is a hospital facility. The home page and main 
billing page of Z's Web site conspicuously display the following 
message: ``Need help paying your bill? You may be eligible for 
financial assistance. Click here for more information.'' When 
readers click on the link, they are taken to a Web page that 
explains the various discounts available under Z's FAP and the 
specific eligibility criteria for each such discount. This Web page 
also provides all of the other information required to be included 
in a plain language summary of the FAP (as defined in Sec.  
1.501(r)-1(b)(24)), including a telephone number of Z that 
individuals can call and a room number of Z that individuals can 
visit for more information about the FAP and assistance with FAP 
applications. In addition, the Web page contains prominently-
displayed links that allow readers to download PDF files of the FAP 
and the FAP application form, free of charge and without being 
required to create an account or provide personally identifiable 
information. Z provides any individual who asks how to access a copy 
of the FAP, FAP application form, or plain language summary of the 
FAP online with the URL of this Web page. By implementing these 
measures, Z has made its FAP widely available on a Web site within 
the meaning of paragraph (b)(5)(i)(A) of this section.
    (ii) Z distributes copies of the plain language summary of its 
FAP and its FAP application form to all of its referring staff 
physicians and to the community health centers serving its 
community. Z also distributes copies of these documents to the local 
health department and to numerous public agencies and nonprofit 
organizations in its community that address the health issues and 
other needs of low-income populations, in quantities sufficient to 
meet demand. In addition, every issue of the quarterly newsletter 
that Z mails to the individuals in its customer database contains

[[Page 79007]]

a prominently-displayed advertisement informing readers that Z 
offers financial assistance and that people having trouble paying 
their hospital bills may be eligible for financial assistance. The 
advertisement provides readers with the URL of the Web page where 
Z's FAP and FAP application form can be accessed and a telephone 
number of Z that individuals can call and a room number of Z that 
individuals can visit with questions about the FAP or assistance 
with the FAP application process. By implementing these measures, Z 
notifies and informs members of its community about the FAP within 
the meaning of paragraph (b)(5)(i)(C) of this section.
    (iii) Z makes paper copies of the FAP, FAP application form, and 
plain language summary of the FAP available upon request and without 
charge, both by mail and in its admissions areas and emergency room. 
Z also conspicuously displays a sign in large font regarding the FAP 
in its admissions areas and emergency room. The sign says: 
``Uninsured? Having trouble paying your hospital bill? You may be 
eligible for financial assistance.'' The sign also provides the URL 
of the Web page where Z's FAP and FAP application form can be 
accessed. In addition, the sign provides a telephone number of Z 
that individuals can call and a room number of Z that individuals 
can visit with questions about the FAP or assistance with the FAP 
application process. Underneath each sign, Z conspicuously displays 
copies of a brochure that contains all of the information required 
to be included in a plain language summary of the FAP (as defined in 
Sec.  1.501(r)-1(b)(24)). Z makes these brochures available in 
quantities sufficient to meet visitor demand. Z also offers a plain 
language summary of the FAP as part of its intake process. Z's 
billing statements include a conspicuously-placed statement in large 
font containing the same information that Z includes on its signs. 
By implementing these measures, Z makes a paper copy of the FAP, FAP 
application form, and plain language summary of the FAP available 
upon request within the meaning of paragraph (b)(5)(i)(B) of this 
section and notifies and informs individuals who receive care from 
the hospital facility about the FAP within the meaning of paragraph 
(b)(5)(i)(D) of this section.
    (iv) Because Z takes measures to widely publicize the FAP 
described in paragraphs (b)(5)(i)(A), (b)(5)(i)(B), (b)(5)(i)(C), 
and (b)(5)(i)(D) of this section, Z meets the requirement to widely 
publicize its FAP under paragraph (b)(1)(ii) of this section.

    Example 2. Assume the same facts as Example 1, except that Z 
serves a community in which 6% of the members speak Spanish and have 
limited proficiency in English. Z translates its FAP, FAP 
application form, and FAP brochure (which constitutes a plain 
language summary of the FAP) into Spanish, and displays and 
distributes both Spanish and English versions of these documents in 
its hospital facility using all of the measures described in Example 
1. Z also distributes Spanish versions of its FAP application form 
and FAP brochure to organizations serving Spanish-speaking members 
of its community. Moreover, the home page and main billing page of 
Z's Web site conspicuously display an ``[iquest]Habla 
Espa[ntilde]ol?'' link that takes readers to a Web page that 
summarizes the FAP in Spanish and contains links that allow readers 
to download PDF files of the Spanish versions of the FAP and FAP 
application form, free of charge and without being required to 
create an account or provide personally identifiable information. Z 
meets the requirement to widely publicize its FAP under paragraph 
(b)(1)(ii) of this section.

    (6) Readily obtainable information. For purposes of paragraphs 
(b)(2)(i)(C) and (b)(4)(ii) of this section, information is readily 
obtainable by members of the public if a hospital facility--
    (i) Makes the information available free of charge on a Web site 
and via a paper copy upon request in a manner similar to that described 
in paragraphs (b)(5)(i)(A) and (b)(5)(i)(B) of this section; and
    (ii) Provides translations of the information as described in 
paragraph (b)(5)(ii) of this section.
    (7) Providing documents electronically. A hospital facility may 
provide electronically (for example, on an electronic screen, by email, 
or by providing the direct Web site address, or URL, of the Web page 
where the document or information is posted) any document or 
information that is required by this paragraph (b) to be provided in 
the form of a paper copy to any individual who indicates he or she 
prefers to receive or access the document or information 
electronically.
    (8) Medically necessary care. For purposes of meeting the 
requirements of this section, a hospital facility may (but is not 
required to) use a definition of medically necessary care applicable 
under the laws of the state in which it is licensed, including the 
Medicaid definition, or a definition that refers to the generally 
accepted standards of medicine in the community or to an examining 
physician's determination.
    (c) Emergency medical care policy--(1) In general. To satisfy 
paragraph (a)(2) of this section, a hospital organization must 
establish a written policy for a hospital facility that requires the 
hospital facility to provide, without discrimination, care for 
emergency medical conditions to individuals regardless of whether they 
are FAP-eligible.
    (2) Interference with provision of emergency medical care. A 
hospital facility's emergency medical care policy will not be described 
in paragraph (c)(1) of this section unless it prohibits the hospital 
facility from engaging in actions that discourage individuals from 
seeking emergency medical care, such as by demanding that emergency 
department patients pay before receiving treatment for emergency 
medical conditions or by permitting debt collection activities that 
interfere with the provision, without discrimination, of emergency 
medical care.
    (3) Relation to federal law governing emergency medical care. 
Subject to paragraph (c)(2) of this section, a hospital facility's 
emergency medical care policy will be described in paragraph (c)(1) of 
this section if it requires the hospital facility to provide the care 
for emergency medical conditions that the hospital facility is required 
to provide under Subchapter G of Chapter IV of Title 42 of the Code of 
Federal Regulations (or any successor regulations).
    (4) Examples. The following examples illustrate this paragraph (c):

    Example 1. F is a hospital facility with a dedicated emergency 
department that is subject to the Emergency Medical Treatment and 
Labor Act (EMTALA) and is not a critical access hospital. F 
establishes a written emergency medical care policy requiring F to 
comply with EMTALA by providing medical screening examinations and 
stabilizing treatment and referring or transferring an individual to 
another facility, when appropriate, and providing emergency services 
in accordance with 42 CFR 482.55 (or any successor regulation). F's 
emergency medical care policy also states that F prohibits any 
actions that would discourage individuals from seeking emergency 
medical care, such as by demanding that emergency department 
patients pay before receiving treatment for emergency medical 
conditions or permitting debt collection activities that interfere 
with the provision, without discrimination, of emergency medical 
care. F's emergency medical care policy is described in paragraph 
(c)(1) of this section.

    Example 2. G is a rehabilitation hospital facility. G does not 
have a dedicated emergency department, nor does it have specialized 
capabilities that would make it appropriate to accept transfers of 
individuals who need stabilizing treatment for an emergency medical 
condition. G establishes a written emergency medical care policy 
that addresses how it appraises emergencies, provides initial 
treatment, and refers or transfers an individual to another 
facility, when appropriate, in a manner that complies with 42 CFR 
482.12(f)(2) (or any successor regulation). G's emergency medical 
care policy also prohibits G from engaging in actions that 
discourage individuals from seeking emergency medical care, such as 
by demanding that patients pay before receiving initial treatment 
for emergency medical conditions or permitting debt collection 
activities that interfere with the facility's appraisal and 
provision, without discrimination, of such initial treatment. G's 
emergency medical care policy is described in paragraph (c)(1) of 
this section.

    (d) Establishing the FAP and other policies--(1) In general. A 
hospital organization has established a FAP, a billing and collections 
policy, or an

[[Page 79008]]

emergency medical care policy for a hospital facility only if an 
authorized body of the hospital facility (as defined in Sec.  1.501(r)-
1(b)(4)) has adopted the policy for the hospital facility and the 
hospital facility has implemented the policy.
    (2) Implementing a policy. For purposes of this paragraph (d), a 
hospital facility will be considered to have implemented a policy if 
the hospital facility has consistently carried out the policy.
    (3) Establishing a policy for more than one hospital facility. A 
hospital organization may establish a FAP, billing and collections 
policy, and/or emergency medical care policy for a hospital facility 
that is identical to that of other hospital facilities or a joint 
policy that is shared with multiple hospital facilities provided that 
any joint policy clearly identifies each facility to which it applies. 
However, hospital facilities that have different AGB percentages or use 
different methods to determine AGB must include in their FAPs (or, in 
the case of information related to AGB percentages, otherwise make 
readily obtainable) different information regarding AGB to meet the 
requirements of paragraph (b)(2)(i)(C) of this section.


Sec.  1.501(r)-5  Limitation on charges.

    (a) In general. A hospital organization meets the requirements of 
section 501(r)(5) with respect to a hospital facility it operates only 
if the hospital facility (and any substantially-related entity, as 
defined in Sec.  1.501(r)-1(b)(28)) limits the amount charged for care 
it provides to any individual who is eligible for assistance under its 
financial assistance policy (FAP) to--
    (1) In the case of emergency or other medically necessary care, not 
more than the amounts generally billed to individuals who have 
insurance covering such care (AGB), as determined under paragraph (b) 
of this section; and
    (2) In the case of all other medical care covered under the FAP, 
less than the gross charges for such care, as described in paragraph 
(c) of this section.
    (b) Amounts generally billed--(1) In general. For purposes of 
meeting the requirements of paragraph (a)(1) of this section, a 
hospital facility must determine AGB for emergency or other medically 
necessary care using a method described in paragraph (b)(3) or (b)(4) 
of this section or any other method specified in regulations or other 
guidance published in the Internal Revenue Bulletin. A hospital 
facility may use only one of these methods to determine AGB at any one 
time, but different hospital facilities operated by the same hospital 
organization may use different methods. A hospital facility may change 
the method it uses to determine AGB at any time.
    (2) Meaning of charged. For purposes of paragraph (a)(1) of this 
section, a FAP-eligible individual is considered to be ``charged'' only 
the amount he or she is personally responsible for paying, after all 
deductions, discounts (including discounts available under the FAP), 
and insurance reimbursements have been applied. Thus, in the case of a 
FAP-eligible individual who has health insurance coverage, a hospital 
facility will meet the requirements of paragraph (a)(1) of this section 
if the FAP-eligible individual is not personally responsible for paying 
(for example, in the form of co-payments, co-insurance, and 
deductibles) more than AGB for the care after all reimbursements by the 
health insurer have been applied, even if the total amount paid by the 
FAP-eligible individual and his or her health insurer together exceeds 
AGB.
    (3) Look-back method--(i) In general. A hospital facility may 
determine AGB for any emergency or other medically necessary care it 
provides to a FAP-eligible individual by multiplying the hospital 
facility's gross charges for the care by one or more percentages of 
gross charges (AGB percentage(s)). A hospital facility using this 
method must calculate its AGB percentage(s) at least annually by 
dividing the sum of the amounts of all of its claims for emergency and 
other medically necessary care that have been allowed by health 
insurers described in paragraph (b)(3)(ii) of this section during a 
prior 12-month period by the sum of the associated gross charges for 
those claims. Whether a claim is used in calculating a hospital 
facility's AGB percentage(s) depends on whether the claim was allowed 
by a health insurer during the 12-month period used in the calculation, 
not on whether the care resulting in the claim was provided during that 
12-month period. If the amount a health insurer will allow for a claim 
has not been finally determined as of the last day of the 12-month 
period used to calculate the AGB percentage(s), a hospital facility 
should exclude the amount of the claim from that calculation and 
include it in the subsequent 12-month period during which the amount 
allowed is finally determined. When including allowed claims in 
calculating its AGB percentage(s), the hospital facility should include 
the full amount that has been allowed by the health insurer, including 
both the amount the insurer will pay or reimburse and the amount (if 
any) the individual is personally responsible for paying in the form of 
co-payments, co-insurance, and deductibles, regardless of whether or 
when the full amount allowed is actually paid and disregarding any 
discounts applied to the individual's portion.
    (ii) Health insurers used in calculating AGB percentage(s). In 
calculating its AGB percentage(s), a hospital facility must include the 
claims allowed during a prior 12-month period by--
    (A) Medicare fee-for-service;
    (B) Medicare fee-for-service and all private health insurers that 
pay claims to the hospital facility; or
    (C) Medicaid, either alone or in combination with the insurer(s) 
described in paragraph (b)(3)(ii)(A) or (b)(3)(ii)(B) of this section.
    (iii) One or multiple AGB percentages. A hospital facility's AGB 
percentage that is calculated using the method described in this 
paragraph (b)(3) may be one average percentage of gross charges for all 
emergency and other medically necessary care provided by the hospital 
facility. Alternatively, a hospital facility may calculate multiple AGB 
percentages for separate categories of care (such as inpatient and 
outpatient care or care provided by different departments) or for 
separate items or services, as long as the hospital facility calculates 
AGB percentages for all emergency and other medically necessary care 
provided by the hospital facility.
    (iv) Start date for applying AGB percentages. For purposes of 
determining AGB under this paragraph (b)(3), with respect to any AGB 
percentage that a hospital facility has calculated, the hospital 
facility must begin applying the AGB percentage by the 120th day after 
the end of the 12-month period the hospital facility used in 
calculating the AGB percentage.
    (v) Use of all claims for medical care. A hospital facility 
determining AGB under this paragraph (b)(3) may use claims allowed for 
all medical care during a prior 12-month period rather than just those 
allowed for emergency and other medically necessary care.
    (vi) Determining AGB percentages for more than one hospital 
facility. Although generally a hospital organization must calculate AGB 
percentage(s) separately for each hospital facility it operates, 
hospital facilities that are covered under the same Medicare provider 
agreement (as defined in 42 CFR 489.3 or any successor regulations) may 
calculate one

[[Page 79009]]

AGB percentage (or multiple AGB percentages for separate categories of 
care or for separate items or services) using the method described in 
this paragraph (b)(3) based on the claims and gross charges for all 
such hospital facilities and implement the AGB percentage(s) across all 
such hospital facilities.
    (4) Prospective Medicare or Medicaid method. A hospital facility 
may determine AGB for any emergency or other medically necessary care 
provided to a FAP-eligible individual by using the billing and coding 
process the hospital facility would use if the FAP-eligible individual 
were a Medicare fee-for-service or Medicaid beneficiary and setting AGB 
for the care at the amount the hospital facility determines would be 
the total amount Medicare or Medicaid would allow for the care 
(including both the amount that would be reimbursed by Medicare or 
Medicaid and the amount the beneficiary would be personally responsible 
for paying in the form of co-payments, co-insurance, and deductibles). 
A hospital facility using the method described in this paragraph (b)(4) 
may base AGB on Medicare fee-for-service or Medicaid or both, provided 
that, if it uses both, its FAP describes the circumstance under which 
it will use Medicare fee-for-service or Medicaid in determining AGB.
    (5) Examples. The following examples illustrate this paragraph (b):

    Example 1. On March 15 of Year 1, Y, a hospital facility, 
generates data on the amount of all of Y's claims for emergency and 
other medically necessary care that were allowed by all private 
health insurers and Medicare fee-for-service over the immediately 
preceding calendar year. Y determines that the private health 
insurers allowed a total amount of $250 million and Medicare fee-
for-service allowed a total amount of $150 million, with the total 
allowed amounts including both the portion the insurers agreed to 
reimburse and the portion that the insured patients were personally 
responsible for paying. Y's gross charges for these claims totaled 
$800 million. Y calculates that its AGB percentage is 50% of gross 
charges ($400 million/$800 million). Y updates its FAP to reflect 
the new AGB percentage of 50% and makes the updated FAP widely 
available (both on its Web site and via paper copies upon request) 
on April 1 of Year 1. Between April 1 of Year 1 (less than 120 days 
after the end of the preceding calendar year) and March 31 of Year 
2, Y determines AGB for any emergency or other medically necessary 
care it provides to a FAP-eligible individual by multiplying the 
gross charges for the care provided to the individual by 50%. Y has 
determined AGB between April 1 of Year 1 and March 31 of Year 2 in 
accordance with this paragraph (b) by using the look-back method 
described in paragraph (b)(3) of this section.

    Example 2. On August 20 of Year 1, X, a hospital facility, 
generates data on the amount of all of X's claims for emergency and 
other medically necessary care that were allowed by Medicare fee-
for-service over the 12 months ending on July 31 of Year 1. X 
determines that, of these claims for inpatient services, Medicare 
allowed a total amount of $100 million (including both the portion 
Medicare agreed to reimburse and the portion Medicare beneficiaries 
were personally responsible for paying). X's gross charges for these 
inpatient claims totaled $250 million. Of the claims for outpatient 
services, Medicare allowed a total amount of $125 million. X's gross 
charges for these outpatient claims totaled $200 million. X 
calculates that its AGB percentage for inpatient services is 40% of 
gross charges ($100 million/$250 million) and its AGB percentage for 
outpatient services is 62.5% of gross charges ($125 million/$200 
million). Y discloses its AGB percentages and describes how they 
were calculated on the Web page where its FAP can be accessed, and 
it updates this Web page to reflect the new AGB percentages on 
November 1. Y also starts making an updated information sheet with 
the new AGB percentages available upon request on and after November 
1. Between November 1 of Year 1 (less than 120 days after the end of 
the 12-month claim period) and October 31 of Year 2, X determines 
AGB for any emergency or other medically necessary inpatient care it 
provides to a FAP-eligible individual by multiplying the gross 
charges for the inpatient care it provides to the individual by 40% 
and AGB for any emergency or other medically necessary outpatient 
care it provides to a FAP-eligible individual by multiplying the 
gross charges for the outpatient care it provides to the individual 
by 62.5%. X has determined AGB between November 1 of Year 1 and 
October 31 of Year 2 in accordance with this paragraph (b) by using 
the look-back method described in paragraph (b)(3) of this section.

    Example 3. Whenever Z, a hospital facility, provides emergency 
or other medically necessary care to a FAP-eligible individual, Z 
determines the AGB for the care by using the billing and coding 
process it would use if the individual were a Medicare fee-for-
service beneficiary and setting AGB for the care at the amount it 
determines Medicare and the Medicare beneficiary together would be 
expected to pay for the care. Z has determined AGB in accordance 
with this paragraph (b) by using the prospective Medicare method 
described in paragraph (b)(4) of this section.

    Example 4. Using the look-back method described in paragraph 
(b)(3) of this section, W, a hospital facility, calculates that its 
AGB percentage for Year 1 is 60% of gross charges. Under W's FAP, 
which applies to all emergency and other medically necessary care 
provided by W and which has been updated to reflect the AGB 
percentage for Year 1, the most that W charges a FAP-eligible 
individual is 50% of gross charges. W properly implements its FAP 
and charges no FAP-eligible individual more for emergency or other 
medically necessary care than 50% of gross charges in Year 1. W has 
met the requirements of paragraphs (a)(1) and (b) of this section in 
Year 1.

    Example 5. A, an individual, receives medically necessary care 
from hospital facility V for which the AGB is $3y. A is insured by 
U, a health insurer. Under U's contracts with V and A, the amount 
allowed for the care V provided to A is $5y. Of that amount allowed, 
A is personally responsible for paying $1y (in co-payments and 
deductibles) while U is responsible for paying $4y. Based on the 
eligibility criteria specified in its FAP, V determines that A is 
FAP-eligible. Pursuant to paragraph (b)(2) of this section, V may 
charge U and A collectively $5y while still meeting the requirements 
of paragraph (a)(1) of this section because the amount A is 
personally responsible for paying in co-payments and deductibles 
($1y) is less than the AGB for the care ($3y).

    Example 6. Assume the same facts as Example 5, except that under 
U's contracts with V and A, A is personally responsible for paying 
$4y (in co-payments and deductibles) for the care while U is 
responsible for paying V $1y. Because A is FAP-eligible under V's 
FAP, paragraph (a)(1) of this section requires that A not be 
personally responsible for paying V more than $3y (the AGB for the 
care provided).

    (c) Gross charges. A hospital facility must charge a FAP-eligible 
individual less than the gross charges for any medical care covered 
under the hospital facility's FAP. A billing statement issued by a 
hospital facility to a FAP-eligible individual for medical care covered 
under the FAP may state the gross charges for such care and apply 
contractual allowances, discounts, or deductions to the gross charges, 
provided that the actual amount the individual is personally 
responsible for paying is less than the gross charges for such care.
    (d) Safe harbor for certain charges in excess of AGB. A hospital 
facility will be deemed to meet the requirements of paragraph (a) of 
this section, even if it charges more than AGB for emergency or other 
medically necessary care (or gross charges for any medical care covered 
under the FAP) provided to a FAP-eligible individual, if--
    (1) The charge in excess of AGB was not made or requested as a pre-
condition of providing medically necessary care to the FAP-eligible 
individual (for example, an upfront payment that a hospital facility 
requires before providing medically necessary care);
    (2) As of the time of the charge, the FAP-eligible individual has 
not submitted a complete FAP application to the hospital facility to 
obtain financial assistance for the care or has not otherwise been 
determined by the hospital facility to be FAP-eligible for the care; 
and
    (3) If the individual subsequently submits a complete FAP 
application and

[[Page 79010]]

is determined to be FAP-eligible for the care, the hospital facility 
refunds any amount the individual has paid for the care (whether to the 
hospital facility or any other party to whom the hospital facility has 
referred or sold the individual's debt for the care) that exceeds the 
amount he or she is determined to be personally responsible for paying 
as a FAP-eligible individual, unless such excess amount is less than $5 
(or such other amount set by notice or other guidance published in the 
Internal Revenue Bulletin).
    (e) Medically necessary care. For purposes of meeting the 
requirements of this section, a hospital facility may (but is not 
required to) use a definition of medically necessary care applicable 
under the laws of the state in which it is licensed, including the 
Medicaid definition, or a definition that refers to the generally 
accepted standards of medicine in the community or to an examining 
physician's determination.


Sec.  1.501(r)-6   Billing and collection.

    (a) In general. A hospital organization meets the requirements of 
section 501(r)(6) with respect to a hospital facility it operates only 
if the hospital facility does not engage in extraordinary collection 
actions (ECAs), as defined in paragraph (b) of this section, against an 
individual to obtain payment for care before the hospital facility has 
made reasonable efforts to determine whether the individual is eligible 
for assistance for the care under its financial assistance policy 
(FAP), as described in paragraph (c) of this section. For purposes of 
this section, with respect to any debt owed by an individual for care 
provided by a hospital facility--
    (1) ECAs against the individual include ECAs to obtain payment for 
the care against any other individual who has accepted or is required 
to accept responsibility for the individual's hospital bill for the 
care; and
    (2) The hospital facility will be deemed to have engaged in an ECA 
against the individual to obtain payment for the care, or to have taken 
one or more of the steps necessary to have made reasonable efforts to 
determine whether the individual is FAP-eligible for the care, if any 
purchaser of the individual's debt, any debt collection agency or other 
party to which the hospital facility has referred the individual's 
debt, or any substantially-related entity (as defined in Sec.  
1.501(r)-1(b)(28)) has engaged in such an ECA or taken such steps 
(whichever is applicable).
    (b) Extraordinary collection actions--(1) In general. Except as 
otherwise provided in this paragraph (b), the following actions taken 
by a hospital facility against an individual related to obtaining 
payment of a bill for care covered under the hospital facility's FAP 
are ECAs:
    (i) Selling an individual's debt to another party (other than debt 
sales described in paragraph (b)(2) of this section).
    (ii) Reporting adverse information about the individual to consumer 
credit reporting agencies or credit bureaus.
    (iii) Deferring or denying, or requiring a payment before 
providing, medically necessary care because of an individual's 
nonpayment of one or more bills for previously provided care covered 
under the hospital facility's FAP (which is considered an ECA to obtain 
payment for the previously provided care, not the care being 
potentially deferred or denied). If a hospital facility requires a 
payment before providing medically necessary care to an individual with 
one or more outstanding bills for previously provided care, such a 
requirement for payment will be presumed to be because of the 
individual's nonpayment of such bill(s) unless the hospital facility 
can demonstrate that it required the payment from the individual based 
on factors other than, and without regard to, the individual's 
nonpayment of past bills.
    (iv) Actions that require a legal or judicial process, including 
but not limited to--
    (A) Placing a lien on an individual's property (other than a lien 
described in paragraph (b)(3) of this section);
    (B) Foreclosing on an individual's real property;
    (C) Attaching or seizing an individual's bank account or any other 
personal property;
    (D) Commencing a civil action against an individual;
    (E) Causing an individual's arrest;
    (F) Causing an individual to be subject to a writ of body 
attachment; and
    (G) Garnishing an individual's wages.
    (2) Certain debt sales that are not ECAs. A hospital facility's 
sale of an individual's debt for care provided by the hospital facility 
will not be considered an ECA if, prior to the sale, the hospital 
facility has entered into a legally binding written agreement with the 
purchaser of the debt pursuant to which--
    (i) The purchaser is prohibited from engaging in any ECAs to obtain 
payment for the care;
    (ii) The purchaser is prohibited from charging interest on the debt 
in excess of the rate in effect under section 6621(a)(2) at the time 
the debt is sold (or such other interest rate set by notice or other 
guidance published in the Internal Revenue Bulletin);
    (iii) The debt is returnable to or recallable by the hospital 
facility upon a determination by the hospital facility or the purchaser 
that the individual is FAP-eligible; and
    (iv) If the individual is determined to be FAP-eligible and the 
debt is not returned to or recalled by the hospital facility, the 
purchaser is required to adhere to procedures specified in the 
agreement that ensure that the individual does not pay, and has no 
obligation to pay, the purchaser and the hospital facility together 
more than he or she is personally responsible for paying as a FAP-
eligible individual.
    (3) Liens on certain judgments, settlements, or compromises. Any 
lien that a hospital facility is entitled to assert under state law on 
the proceeds of a judgment, settlement, or compromise owed to an 
individual (or his or her representative) as a result of personal 
injuries for which the hospital facility provided care is not an ECA.
    (4) Bankruptcy claims. The filing of a claim in any bankruptcy 
proceeding is not an ECA.
    (c) Reasonable efforts--(1) In general. A hospital facility will 
have made reasonable efforts to determine whether an individual is FAP-
eligible for care only if the hospital facility meets the requirements 
described in paragraph (c)(2) or (c)(3) of this section.
    (2) Presumptive FAP-eligibility determinations based on third-party 
information or prior FAP-eligibility determinations--(i) In general. 
With respect to any care provided by a hospital facility to an 
individual, the hospital facility will have made reasonable efforts to 
determine whether the individual is FAP-eligible for the care if it 
determines that the individual is FAP-eligible for the care based on 
information other than that provided by the individual or based on a 
prior FAP-eligibility determination and, if the individual is 
presumptively determined to be eligible for less than the most generous 
assistance available under the FAP, the hospital facility--
    (A) Notifies the individual regarding the basis for the presumptive 
FAP-eligibility determination and the way to apply for more generous 
assistance available under the FAP;
    (B) Gives the individual a reasonable period of time to apply for 
more generous assistance before initiating ECAs to obtain the 
discounted amount owed for the care; and
    (C) If the individual submits a complete FAP application seeking 
more generous assistance during the

[[Page 79011]]

application period (as defined in Sec.  1.501(r)-1(b)(3)), determines 
whether the individual is eligible for a more generous discount and 
otherwise meets the requirements described in paragraph (c)(6) of this 
section with respect to that complete FAP application.
    (ii) Examples. The following examples illustrate this paragraph 
(c)(2):

    Example 1.  V is a hospital facility with a FAP under which the 
specific assistance for which an individual is eligible depends 
exclusively upon that individual's household income. The most 
generous assistance offered for care under V's FAP is free care. V's 
FAP states that V uses enrollment in certain specified means-tested 
public programs to presumptively determine that individuals are FAP-
eligible. D, an individual, receives care from V. Although D does 
not submit a FAP application to V, V learns that D is eligible for 
certain benefits under a state program that bases eligibility on 
household income. Based on this knowledge, V presumptively 
determines that D is eligible to receive free care under its FAP. V 
notifies D that it has determined he is eligible for free care based 
on his eligibility for the benefits under the state program and 
therefore does not owe V anything for the care he received. V has 
made reasonable efforts to determine whether D is FAP-eligible under 
this paragraph (c)(2).

    Example 2.  X is a hospital facility with a FAP that describes 
the data, including both hospital and publicly-available data, X 
uses to make presumptive FAP-eligibility determinations. On January 
16, F, an individual, receives care from X. Using the hospital and 
publicly-available data described in its FAP, X presumptively 
determines that F is eligible for a 50% discount under its FAP, a 
discount that is not the most generous discount available under the 
FAP. The first billing statement that X sends to F indicates that F 
has been given a 50% discount under X's FAP, explains the basis for 
this presumptive FAP-eligibility determination, and informs F that 
she may apply for financial assistance if she believes she is 
eligible for a more generous discount. The billing statement 
indicates that F may call 1-800-888-xxxx or visit X's Web site at 
www.hospitalX.org/FAP to learn more about the FAP or the FAP 
application process. X sends F three more billing statements, each 
of which contains the standard written notice about the FAP that X 
includes on all of its billing statements in accordance with Sec.  
1.501(r)-4(b)(5), but F neither pays the amount she is personally 
responsible for paying nor applies for more generous financial 
assistance. The time between the first and fourth billing statement 
constitutes a reasonable period of time for F to apply for more 
generous assistance. V has made reasonable efforts to determine 
whether D is FAP-eligible under this paragraph (c)(2).

    (3) Reasonable efforts based on notification and processing of 
applications. With respect to any care provided by a hospital facility 
to an individual, the hospital facility will have made reasonable 
efforts to determine whether the individual is FAP-eligible for the 
care if it--
    (i) Notifies the individual about the FAP as described in paragraph 
(c)(4) of this section before initiating any ECAs to obtain payment for 
the care and refrains from initiating such ECAs (with the exception of 
an ECA described in paragraph (b)(1)(iii) of this section) for at least 
120 days from the date the hospital facility provides the first post-
discharge billing statement for the care;
    (ii) In the case of an individual who submits an incomplete FAP 
application during the application period, notifies the individual 
about how to complete the FAP application and gives the individual a 
reasonable opportunity to do so as described in paragraph (c)(5) of 
this section; and
    (iii) In the case of an individual who submits a complete FAP 
application during the application period, determines whether the 
individual is FAP-eligible for the care and otherwise meets the 
requirements described in paragraph (c)(6) of this section.
    (4) Notification--(i) In general. With respect to any care provided 
by a hospital facility to an individual and except as provided in 
paragraph (c)(4)(iii) of this section, a hospital facility will have 
notified an individual about its FAP for purposes of paragraph 
(c)(3)(i) of this section only if the hospital facility does the 
following at least 30 days before first initiating one or more ECA(s) 
to obtain payment for the care:
    (A) Provides the individual with a written notice that indicates 
financial assistance is available for eligible individuals, identifies 
the ECA(s) that the hospital facility (or other authorized party) 
intends to initiate to obtain payment for the care, and states a 
deadline after which such ECA(s) may be initiated that is no earlier 
than 30 days after the date that the written notice is provided.
    (B) Provides the individual with a plain language summary of the 
FAP (as defined in Sec.  1.501(r)-1(b)(24)) with the written notice 
described in paragraph (c)(4)(i)(A) of this section (or, if applicable, 
paragraph (c)(4)(iii) of this section).
    (C) Makes a reasonable effort to orally notify the individual about 
the hospital facility's FAP and about how the individual may obtain 
assistance with the FAP application process.
    (ii) Notification in the event of multiple episodes of care. A 
hospital facility may satisfy the notification requirements described 
in paragraph (c)(4)(i) of this section simultaneously for multiple 
episodes of care and notify the individual about the ECA(s) the 
hospital facility intends to initiate to obtain payment for multiple 
outstanding bills for care. However, if a hospital facility aggregates 
an individual's outstanding bills for multiple episodes of care before 
initiating one or more ECAs to obtain payment for those bills, it will 
have not have made reasonable efforts to determine whether the 
individual is FAP-eligible under paragraph (c)(3) of this section 
unless it refrains from initiating the ECA(s) until 120 days after it 
provided the first post-discharge billing statement for the most recent 
episode of care included in the aggregation.
    (iii) Notification before deferring or denying care due to 
nonpayment for prior care. In the case of an ECA described in paragraph 
(b)(1)(iii) of this section, a hospital facility may notify the 
individual about its FAP less than 30 days before initiating the ECA, 
provided that the hospital facility does the following:
    (A) Otherwise meets the requirements of paragraph (c)(4)(i) of this 
section but, instead of the notice described in paragraph (c)(4)(i)(A) 
of this section, provides the individual with a FAP application form 
and a written notice indicating that financial assistance is available 
for eligible individuals and stating the deadline, if any, after which 
the hospital facility will no longer accept and process a FAP 
application submitted (or, if applicable, completed) by the individual 
for the previously-provided care at issue. This deadline must be no 
earlier than the later of 30 days after the date that the written 
notice is provided or 240 days after the date that the first post-
discharge billing statement for the previously provided care was 
provided.
    (B) If the individual submits a FAP application for the previously 
provided care on or before the deadline described in paragraph 
(c)(4)(iii)(A) of this section (or at any time, if the hospital 
facility didn't provide any such deadline to the individual), processes 
the FAP application on an expedited basis.
    (iv) Examples. The following example illustrates this paragraph 
(c)(4):

    Example 1.  A, an individual, receives care from T, a hospital 
facility, in February. T provides A with the first post-discharge 
billing statement for that care on March 3. This and subsequent 
billing statements that T sends to A contain the standard written 
notice about the FAP that X includes on all of its billing 
statements in accordance with Sec.  1.501(r)-4(b)(5). A has not paid 
her bill or submitted a FAP application when T provides her with the 
third billing statement for the care, postmarked June 1. With this 
third billing statement, T includes a plain language summary of the 
FAP and a letter informing A that if she does not pay the

[[Page 79012]]

amount owed or submit a FAP application by July 1, T intends to 
report A's delinquency to credit reporting agencies. T also calls A 
and informs her about the financial assistance available to eligible 
patients under T's FAP and about how to obtain assistance with the 
FAP application process. A does not pay her bill or submit a FAP 
application by July 1. T has made reasonable efforts to determine 
whether A is FAP-eligible, and thus may report A's delinquency to 
credit reporting agencies, as of July 2.
    Example 2.  G, an individual, receives care from Y, a hospital 
facility, on May 25 of Year 1. G does not pay or submit a FAP 
application over the next year, despite Y's sending out numerous 
bills beginning on June 24 that contain the standard written notice 
about the FAP that Y includes on all of its billing statements in 
accordance with the requirements under Sec.  1.501(r)-4(b)(5). Y 
also makes numerous attempts to encourage E to apply for financial 
assistance, including by calling G to inform her about the financial 
assistance available to eligible patients under Y's FAP and to offer 
assistance with the FAP application process. By June 24 of Year 2, 
Y, which had not previously initiated any ECAs against G to obtain 
payment for the care, notifies G in writing that if G does not pay 
or complete a FAP application by July 24 of Year 2, Y intends to 
file a lawsuit seeking a judgment for the amount G owes for the care 
and to seek court permission to enforce the judgment by either 
seizing G's bank account or garnishing G's wages. The written notice 
also includes a plain language summary of the FAP. G fails to pay or 
submit a FAP application by July 24 of Year 2. Y has made reasonable 
efforts to determine whether G is FAP-eligible, and may seek a 
judgment for the amount G owes and court permission to enforce the 
judgment by seizing G's bank account or garnishing G's wages, as of 
July 25 of Year 2.

    (5) Incomplete FAP applications--(i) In general. With respect to 
any care provided by a hospital facility to an individual, if an 
individual submits an incomplete FAP application during the application 
period, the hospital facility will have notified the individual about 
how to complete the FAP application and given the individual a 
reasonable opportunity to do so for purposes of paragraph (c)(3)(ii) of 
this section only if the hospital facility--
    (A) Suspends any ECAs to obtain payment for the care as described 
in paragraph (c)(8) of this section; and
    (B) Provides the individual with a written notice that describes 
the additional information and/or documentation required under the FAP 
or FAP application form that must be submitted to complete the FAP 
application and that includes the contact information described in 
Sec.  1.501(r)-1(b)(24)(v).
    (ii) FAP application completed. If an individual who has submitted 
an incomplete FAP application during the application period 
subsequently completes the FAP application during the application 
period (or, if later, within a reasonable timeframe given to respond to 
requests for additional information and/or documentation), the 
individual will be considered to have submitted a complete FAP 
application during the application period, and the hospital facility 
will have made reasonable efforts to determine whether the individual 
is FAP-eligible only if it meets the requirements for complete FAP 
applications described in paragraph (c)(6) of this section.
    (iii) Examples. The following examples illustrate this paragraph 
(c)(5):

    Example 1.  (i) Assume the same facts as Example 1 in paragraph 
(c)(4)(iv) of this section and the following additional facts: A 
submits an incomplete FAP application to T on July 15, which is 
before the last day of the application period on October 29 but 
after T has already initiated ECAs. Eligibility for assistance under 
T's FAP is based solely on an individual's family income and the 
instructions to T's FAP application form require applicants to 
attach to their application forms certain documentation verifying 
family income. The FAP application form that A submits to T on July 
15 includes all of the required income information, but A fails to 
attach the required documentation verifying her family income. On 
July 22, a member of T's staff calls A to inform her that she failed 
to attach any of the required documentation of her family income and 
explains what kind of documentation A needs to submit and how she 
can submit it. T indicates that the documentation should be provided 
by September 22. T also sends A a letter that describes the missing 
documentation that A must submit by September 22 (and how to submit 
it) and provides a telephone number A can call and room number she 
can visit to get assistance with the FAP application process. T does 
not initiate any new ECAs against A and does not take any further 
action on the ECAs T previously initiated against A between July 15 
and September 22. A does not respond to T's letter and does not 
submit any missing documentation by September 22. T has made 
reasonable efforts to determine whether A is FAP-eligible, and may 
initiate or resume ECAs against A, as of September 23.
    (ii) On October 10, before the last day of the application 
period on October 29, A provides T with the missing documentation. 
Because A has submitted a complete FAP application during the 
application period, to meet the requirements of paragraph (a) of 
this section, T must process the FAP application documentation to 
determine whether A is FAP-eligible and otherwise meet the 
requirements for complete FAP applications described in paragraph 
(c)(6) of this section.
    Example 2.  (i) B, an individual, receives care from U, a 
hospital facility, on January 10. U has established a FAP that 
provides assistance to all individuals whose household income is 
less than $y, and the instructions to U's FAP application form 
specify the documentation that applicants must provide to verify 
their household income. Shortly after receiving care, B submits a 
FAP application form to U indicating that he has household income of 
less than $y. B's FAP application form includes all of the required 
income information, but B fails to attach the required documentation 
verifying household income.
    (ii) On February 9, U sends B the first post-discharge billing 
statement for the care that contains the standard written notice 
about the FAP that U includes on all of its billing statements in 
accordance with Sec.  1.501(r)-4(b)(5). With this first post-
discharge billing statement, U includes a letter informing B that 
the income information he provided on his FAP application form 
indicates that he may be eligible to pay only x% of the amount 
stated on the billing statement if he can provide documentation that 
verifies his household income. In addition, this letter describes 
the type of documentation (which is also described in the 
instructions to U's FAP application form) that B needs to provide to 
complete his FAP application and provides a telephone number that B 
may call and room number he may visit if he has questions or needs 
assistance with the FAP application process. By the time U is 
getting ready to send B a third billing statement for the care, B 
has not provided any response to U's request for the missing 
documentation. Accordingly, with the third billing statement 
postmarked May 10, U includes a plain language summary of the FAP 
plus a written notice informing B that U intends to report B's 
delinquency to credit reporting agencies if B does not submit the 
missing documentation or pay the amount due by June 9. U also calls 
B to inform B about the impending ECA and to see if he has questions 
about the missing documentation that U has requested. B does not 
provide any response to U's request for the missing documentation by 
June 9. U has made reasonable efforts to determine whether B is FAP-
eligible, and thus may report B's delinquency to credit reporting 
agencies, as of June 10.

    (6) Complete FAP applications--(i) In general. With respect to any 
care provided by a hospital facility to an individual, if an individual 
submits a complete FAP application during the application period, the 
hospital facility will have made reasonable efforts to determine 
whether the individual is FAP-eligible for the care only if the 
hospital facility does the following in a timely manner:
    (A) Suspends any ECAs to obtain payment for the care as described 
in paragraph (c)(8) of this section.
    (B) Makes a determination as to whether the individual is FAP-
eligible for the care and notifies the individual in writing of this 
eligibility determination (including, if applicable, the assistance for 
which the individual is eligible) and the basis for this determination.
    (C) If the hospital facility determines the individual is FAP-
eligible for the care, does the following:

[[Page 79013]]

    (1) If the individual is determined to be eligible for assistance 
other than free care, provides the individual with a billing statement 
that indicates the amount the individual owes for the care as a FAP-
eligible individual and how that amount was determined and states, or 
describes how the individual can get information regarding, the AGB for 
the care.
    (2) Refunds to the individual any amount he or she has paid for the 
care (whether to the hospital facility or any other party to whom the 
hospital facility has referred or sold the individual's debt for the 
care) that exceeds the amount he or she is determined to be personally 
responsible for paying as a FAP-eligible individual, unless such excess 
amount is less than $5 (or such other amount set by notice or other 
guidance published in the Internal Revenue Bulletin).
    (3) Takes all reasonably available measures to reverse any ECA 
(with the exception of a sale of debt and an ECA described in paragraph 
(b)(1)(iii) of this section) taken against the individual to obtain 
payment for the care. Such reasonably available measures generally 
include, but are not limited to, measures to vacate any judgment 
against the individual, lift any levy or lien (other than a lien 
described in paragraph (b)(3) of this section) on the individual's 
property, and remove from the individual's credit report any adverse 
information that was reported to a consumer reporting agency or credit 
bureau.
    (ii) Anti-abuse rule for complete FAP applications. A hospital 
facility will not have made reasonable efforts to determine whether an 
individual is FAP-eligible if the hospital facility bases its 
determination that the individual is not FAP-eligible on information 
that the hospital facility has reason to believe is unreliable or 
incorrect or on information obtained from the individual under duress 
or through the use of coercive practices. For purposes of this 
paragraph (c)(6)(ii), a coercive practice includes delaying or denying 
emergency medical care to an individual until the individual has 
provided information requested to determine whether the individual is 
FAP-eligible for the care being delayed or denied.
    (iii) Determination based on complete FAP applications sufficient 
for reasonable efforts. A hospital facility will have made reasonable 
efforts to determine whether an individual is FAP-eligible with respect 
to any ECAs it initiates to obtain payment for care if, before 
initiating any such ECAs, it determines whether the individual is FAP-
eligible for the care based on a complete FAP application and otherwise 
meets the requirements described in this paragraph (c)(6). If these 
conditions are satisfied, the hospital facility will have made 
reasonable efforts to determine whether the individual is FAP-eligible 
for the care regardless of whether it has notified the individual as 
described in paragraph (c)(4) of this section or, if applicable, in 
paragraph (c)(5)(i)(B) of this section.
    (iv) Determining Medicaid eligibility. A hospital facility will not 
fail to have made reasonable efforts to determine whether an individual 
is FAP-eligible for care if, upon receiving a complete FAP application 
from an individual who the hospital facility believes may qualify for 
Medicaid, the hospital facility postpones determining whether the 
individual is FAP-eligible for the care until after the individual's 
Medicaid application has been completed and submitted and a 
determination as to the individual's Medicaid eligibility has been 
made.
    (v) Examples. The following examples illustrate this paragraph 
(c)(6):

    Example 1.  C, an individual, receives care from W, a hospital 
facility, on September 1. W has established a FAP that provides 
assistance only to individuals whose family income is less than or 
equal to x% of the Federal Poverty Level (FPL), which, in the case 
of C's family size, is $y. Upon discharge, W's staff gives C a plain 
language summary of the FAP and informs C that if she needs 
assistance filling out a FAP application form, W has a social worker 
on staff who can assist her. C expresses interest in getting 
assistance with a FAP application while she is still on site and is 
directed to K, one of W's social workers. K explains the eligibility 
criteria in W's FAP to C, and C realizes that to determine her 
family income as a percentage of FPL she needs to look at her prior 
year's tax returns. On September 20, after returning home and 
obtaining the necessary information, C submits a FAP application to 
W that contains all of the information and documentation required in 
the FAP application form instructions. W's staff promptly examines 
C's FAP application and, based on the information and documentation 
therein, determines that C's family income is well in excess of $y. 
On October 1, W sends C her first post-discharge billing statement 
for the care she received on September 1. With the billing 
statement, W includes a letter informing C that she is not eligible 
for financial assistance because her FAP application indicates that 
she has family income in excess of x% of FPL ($y for a family the 
size of C's family) and W only provides financial assistance to 
individuals with family income that is less than x% of FPL. W has 
made reasonable efforts to determine whether C is FAP-eligible as of 
October 1.
    Example 2.  E, an individual, receives care from P, a hospital 
facility, from February 24 to 28. E pays a co-payment of $30 at 
discharge and is determined by her insurer to be personally 
responsible for paying another $550 in deductibles. P sends E 
several billing statements starting on March 20 indicating that E 
owes $550. By July 30, E has not paid the $550 or submitted a FAP 
application. On July 30, P notifies E in writing that if E does not 
pay or complete a FAP application by August 30, P intends to report 
B's delinquency to credit reporting agencies. The written notice 
also includes a plain language summary of the FAP. In addition, P 
calls E and informs her about the financial assistance available to 
eligible patients under P's FAP and about how to obtain assistance 
with the FAP application process. E fails to pay or submit a FAP 
application by August 30. P subsequently reports E's delinquency to 
credit reporting agencies. E then provides a complete FAP 
application to P on November 10, before the last day of the 
application period on November 15. P promptly examines the 
application and determines that E is eligible for free care under 
P's FAP. P contacts the credit reporting agencies to which it had 
reported E's delinquency and asks them to remove the adverse 
information from E's credit report. P also sends E a letter that 
informs her that she is eligible for free care under P's FAP and 
explains the basis for this eligibility determination and includes 
with this letter a check for $30 (the co-payment E had paid). P has 
made reasonable efforts to determine whether E is FAP-eligible.
    Example 3.  R, a hospital facility, has established a FAP that 
provides financial assistance only to individuals whose family 
income is less than or equal to x% of the Federal Poverty Level 
(FPL), based on their prior year's federal tax return. L, an 
individual, receives care from R. While L is being discharged from 
R, she is approached by M, an employee of a debt collection company 
that has a contract with R to handle all of R's patient billing. M 
asks L for her family income information, telling L that this 
information is needed to determine whether L is eligible for 
financial assistance. L tells M that she does not know what her 
family income is and would need to consult her tax returns to 
determine it. M tells L that she can just provide a ``rough 
estimate'' of her family income. L states that her family income may 
be around $y, an amount slightly above the amount that would allow 
her to qualify for financial assistance. M enters $y on the income 
line of a FAP application form with L's name on it and marks L as 
not FAP-eligible. Based on M's information collection, R determines 
that L is not FAP-eligible and notifies L of this determination with 
her first billing statement. Because M had reason to believe that 
the income estimate provided by L was unreliable, R has violated the 
anti-abuse rule described in paragraph (c)(6)(ii) of this section. 
Thus, R has not made reasonable efforts to determine whether L is 
FAP-eligible.

    (7) When no FAP application is submitted. Unless and until an 
individual submits a FAP application during the application period, any 
paragraphs of this section that are conditioned on an individual's 
submitting a FAP application (namely,

[[Page 79014]]

paragraphs (c)(2)(i)(C), (c)(3)(ii), and (c)(3)(iii) of this section) 
do not apply, and the hospital facility will have made reasonable 
efforts to determine whether the individual is FAP-eligible for care, 
and may initiate one or more ECAs to obtain payment for the care, once 
it has met the requirements of this section that are not contingent on 
an individual's submission of a FAP application. For example, unless 
and until a hospital facility receives a FAP application from an 
individual during the application period, the hospital facility has 
made reasonable efforts to determine whether the individual is FAP-
eligible for care (and thus may initiate ECAs to obtain payment for the 
care) once it has notified the individual about the FAP as described in 
paragraph (c)(3)(i) of this section.
    (8) Suspending ECAs while a FAP application is pending. With 
respect to any care provided by a hospital facility to an individual, 
if an individual submits a FAP application during the application 
period, the hospital facility (or other authorized party) will have 
suspended ECAs for purposes of this paragraph (c) only if, after 
receiving the application, the hospital facility (or other authorized 
party) does not initiate, or take further action on any previously-
initiated, ECAs (with the exception of an ECA described in paragraph 
(b)(1)(iii) of this section) to obtain payment for the care until 
either--
    (i) The hospital facility has determined whether the individual is 
FAP-eligible based on a complete FAP application and otherwise met the 
requirements of paragraph (c)(6) of this section; or
    (ii) In the case of an incomplete FAP application, the individual 
has failed to respond to requests for additional information and/or 
documentation within a reasonable period of time given to respond to 
such requests.
    (9) Waiver does not constitute reasonable efforts. For purposes of 
this paragraph (c), obtaining a signed waiver from an individual, such 
as a signed statement that the individual does not wish to apply for 
assistance under the FAP or receive the information described in 
paragraphs (c)(4) or (c)(5) of this section, will not itself constitute 
a determination that the individual is not FAP-eligible and will not 
satisfy the requirement to make reasonable efforts to determine whether 
the individual is FAP-eligible before engaging in ECAs against the 
individual.
    (10) Agreements with other parties. With the exception of sales 
described in paragraph (b)(2) of this section, if a hospital facility 
sells or refers an individual's debt related to care to another party, 
the hospital facility will have made reasonable efforts to determine 
whether the individual is FAP-eligible for the care only if it first 
enters into (and, to the extent applicable, enforces) a legally binding 
written agreement with the party that is reasonably designed to ensure 
that no ECAs are taken to obtain payment for the care until reasonable 
efforts have been made to determine whether the individual is FAP-
eligible for the care. At a minimum, such an agreement must provide the 
following:
    (i) If the individual submits a FAP application after the referral 
or sale of the debt but before the end of the application period, the 
party will suspend ECAs to obtain payment for the care as described in 
paragraph (c)(8) of this section.
    (ii) If the individual submits a FAP application after the referral 
or sale of the debt but before the end of the application period and is 
determined to be FAP-eligible for the care, the party will do the 
following in a timely manner:
    (A) Adhere to procedures specified in the agreement that ensure 
that the individual does not pay, and has no obligation to pay, the 
party and the hospital facility together more than he or she is 
required to pay for the care as a FAP-eligible individual.
    (B) If applicable and if the party (rather than the hospital 
facility) has the authority to do so, take all reasonably available 
measures to reverse any ECA (other than the sale of a debt or an ECA 
described in paragraph (b)(1)(iii) of this section) taken against the 
individual as described in paragraph (c)(6)(i)(C)(3) of this section.
    (iii) If the party refers or sells the debt to yet another party 
during the application period, the party will obtain a written 
agreement from that other party including all of the elements described 
in this paragraph (c)(10).
    (11) Clear and conspicuous placement. A hospital facility may print 
any written notice or communication described in this paragraph (c), 
including any plain language summary of the FAP, on a billing statement 
or along with other descriptive or explanatory matter, provided that 
the required information is conspicuously placed and of sufficient size 
to be clearly readable.
    (12) Providing documents electronically. A hospital facility may 
provide any written notice or communication described in this paragraph 
(c) electronically (for example, by email) to any individual who 
indicates he or she prefers to receive the written notice or 
communication electronically.


Sec.  1.501(r)-7  Effective/applicability dates.

    (a) Effective/applicability date. The rules of Sec. Sec.  1.501(r)-
1 through 1.501(r)-6 apply to taxable years beginning after December 
29, 2015.
    (b) Reasonable interpretation for taxable years beginning on or 
before December 29, 2015. For taxable years beginning on or before 
December 29, 2015, a hospital facility may rely on a reasonable, good 
faith interpretation of section 501(r). A hospital facility will be 
deemed to have operated in accordance with a reasonable, good faith 
interpretation of section 501(r) if it has complied with the provisions 
of the proposed or final regulations under section 501(r) (REG-130266-
11 and/or REG-106499-12). Accordingly, a hospital facility may rely on 
Sec.  1.501(r)-3 of the proposed or final regulations, or another 
reasonable interpretation of section 501(r)(3), for any CHNA conducted 
or implementation strategy adopted before the first day of the hospital 
organization's first taxable year beginning after December 29, 2015.

0
Par. 4. Section 1.6012-2 is amended by redesignating paragraphs (i) 
through (k) as paragraphs (j) through (l) and adding new paragraph (i) 
to read as follows:


Sec.  1.6012-2  Corporations required to make returns of income.

* * * * *
    (i) Hospital organizations with noncompliant hospital facilities. 
Every hospital organization (as defined in Sec.  1.501(r)-1(b)(18)) 
that is subject to the tax imposed by Sec.  1.501(r)-2(d) shall make a 
return on Form 990-T. The filing of a return to pay the tax described 
in Sec.  1.501(r)-2(d) does not relieve the organization of the duty of 
filing other required returns.
* * * * *

0
Par. 5. Section 1.6012-3 is amended by adding new paragraph (a)(10) to 
read as follows:


Sec.  1.6012-3  Returns by fiduciaries.

    (a) * * *
    (10) Hospital organizations organized as trusts with noncompliant 
hospital facilities. Every fiduciary for a hospital organization (as 
defined in Sec.  1.501(r)-1(b)(18)) organized as a trust described in 
section 511(b)(2) that is subject to the tax imposed by Sec.  1.501(r)-
2(d) shall make a return on Form 990-T. The filing of a return to pay 
the tax described in Sec.  1.501(r)-2(d) does not relieve the 
organization of the duty of filing other required returns.
* * * * *

[[Page 79015]]


0
Par. 6. Section 1.6033-2 is amended by adding paragraphs (a)(2)(ii)(l) 
and (k)(4) to read as follows:


Sec.  1.6033-2  Returns by exempt organizations (taxable years 
beginning after December 31, 1969) and returns by certain nonexempt 
organizations (taxable years beginning after December 31, 1980).

    (a) * * *
    (2) * * *
    (ii) * * *
    (I) In the case of a hospital organization (as defined in Sec.  
1.501(r)-1(b)(18)) described in section 501(c)(3) during the taxable 
year--
    (1) A copy of its audited financial statements for the taxable year 
(or, in the case of an organization the financial statements of which 
are included in consolidated financial statements with other 
organizations, such consolidated financial statements);
    (2) Either a copy of the most recently adopted implementation 
strategy, within the meaning of Sec.  1.501(r)-3(c), for each hospital 
facility it operates or the URL of each Web page where it has made each 
such implementation strategy widely available on a Web site within the 
meaning of Sec.  1.501(r)-1(b)(29) along with or as part of the report 
documenting the community health needs assessment (CHNA) to which the 
implementation strategy relates;
    (3) For each hospital facility it operates, a description of the 
actions taken during the taxable year to address the significant health 
needs identified through its most recently conducted CHNA, within the 
meaning of Sec.  1.501(r)-3(b), or, if no actions were taken with 
respect to one or more of these health needs, the reason(s) why no 
actions were taken; and
    (4) The amount of the excise tax imposed on the organization under 
section 4959 during the taxable year.
* * * * *
    (k) * * *
    (4) The applicability of paragraph (a)(2)(ii)(l) of this section 
shall be limited to returns filed on or after December 29, 2014.

PART 53--FOUNDATION AND SIMILAR EXCISE TAXES

0
Par. 7. The authority citation for part 53 continues to read in part as 
follows:

    Authority:  26 U.S.C. 7805 * * *


0
Par. 8. Section 53.4959-1 is added to read as follows:


Sec.  53.4959-1  Taxes on failures by hospital organizations to meet 
section 501(r)(3).

    (a) Excise tax for failure to meet the section 501(r)(3) 
requirements--(1) In general. If a hospital organization (as defined in 
Sec.  1.501(r)-1(b)(18)) fails to meet the requirements of section 
501(r)(3) separately with respect to a hospital facility it operates in 
any taxable year, there is imposed on the hospital organization a tax 
equal to $50,000. If a hospital organization operates multiple hospital 
facilities and fails to meet the requirements of section 501(r)(3) with 
respect to more than one facility it operates, the $50,000 tax is 
imposed on the hospital organization separately for each hospital 
facility's failure. The tax is imposed for each taxable year that a 
hospital facility fails to meet the requirements of section 501(r)(3).
    (2) Examples. The following examples illustrate this paragraph (a):

    Example 1.  (i) U is a hospital organization that operates only 
one hospital facility, V. In Year 1, V conducts a community health 
needs assessment (CHNA) and adopts an implementation strategy to 
meet the health needs identified through the CHNA. In Years 2 and 3, 
V does not conduct a CHNA. V fails to conduct a CHNA by the last day 
of Year 4. Accordingly, U has failed to meet the requirements of 
section 501(r)(3) with respect to V in Year 4 because V has failed 
to conduct a CHNA in Years 2, 3, and 4. U is subject to a tax equal 
to $50,000 for Year 4.
    (ii) V also fails to conduct a CHNA by the last day of Year 5. 
Accordingly, U has failed to meet the requirements of section 
501(r)(3) with respect to V in Year 5 because V has failed to 
conduct a CHNA in Years 3, 4, and 5. U is subject to a tax equal to 
$50,000 for Year 5.
    Example 2.  P is a hospital organization that operates only one 
hospital facility, Q. In Year 1, Q conducts a CHNA and adopts an 
implementation strategy to meet the health needs identified through 
the CHNA. In Years 2 and 3, Q does not conduct a CHNA. In Year 4, Q 
conducts a CHNA but does not adopt an implementation strategy to 
meet the health needs identified through that CHNA by the 15th day 
of the fifth month of Year 5. Accordingly, P has failed to meet the 
requirements of section 501(r)(3) with respect to Q in Year 4 
because Q has failed to adopt an implementation strategy by the 15th 
day of the fifth month after the end of the taxable year in which Q 
conducted its CHNA. P is subject to a tax equal to $50,000 for Year 
4.
    Example 3.  R is a hospital organization that operates two 
hospital facilities, S and T. In Year 1, S and T each conduct a CHNA 
and adopt an implementation strategy to meet the health needs 
identified through the CHNA. In Years 2 and 3, S and T do not 
conduct a CHNA. S and T each fail to conduct a CHNA by the last day 
of Year 4. Accordingly, R has failed to meet the requirements of 
section 501(r)(3) with respect to both S and T in Year 4. R is 
subject to a tax equal to $100,000 ($50,000 for S's failure plus 
$50,000 for T's failure) for Year 4.

    (b) Interaction with other provisions--(1) Correction. Unless a 
hospital organization's failure to meet the requirements of section 
501(r)(3) involves an omission or error that is described in and 
corrected in accordance with Sec.  1.501(r)-2(b) (and is thus not 
considered a failure), a failure to meet the requirements of section 
501(r)(3) will result in a tax being imposed on the organization under 
this section, notwithstanding the organization's correction and 
disclosure of the failure in accordance with the guidance described in 
Sec.  1.501(r)-2(c).
    (2) Interaction with other taxes. The tax imposed by this section 
is in addition to any tax imposed by Sec.  1.501(r)-2(d) or as a result 
of revocation of a hospital organization's section 501(c)(3) status.
    (c) Effective/applicability dates. Paragraph (a) of this section 
applies on and after December 29, 2014.

0
Par. 9. Section 53.6011-1 is amended by:
0
1. Removing from the first sentence of paragraph (b) the language ``or 
4965(a),'' and adding ``4959, or 4965(a),'' in its place.
0
2. Adding a sentence at the end of paragraph (b).
0
3. Removing paragraphs (c) and (g).
0
4. Redesignating paragraphs (d) through (f) as (c) through (e).
    The addition reads as follows:


Sec.  53.6011-1  General requirement of return, statement, or list.

* * * * *
    (b) * * * In the case of a tax imposed by section 4959 on a 
hospital organization (as defined in Sec.  1.501(r)-1(b)(18)), the 
annual return must include the required information for each of the 
organization's hospital facilities that failed to meet the requirements 
of section 501(r)(3) for the taxable year.
* * * * *


Sec.  53.6011-1T  [Removed]

0
Par. 10. Section 53.6011-1T is removed.

0
Par. 11. Section 53.6071-1 is amended by revising paragraphs (h) and 
(i)(2) to read as follows:


Sec.  53.6071-1  Time for filing returns.

* * * * *
    (h) Taxes on failures by charitable hospital organizations to 
satisfy the community health needs assessment requirements of section 
501(r)(3). A hospital organization (as defined in Sec.  1.501(r)-
1(b)(18)) liable for tax imposed by section 4959 must file a Form 4720 
as required by Sec.  53.6011-1(b), on or before the 15th day of the 
fifth month after the end of the hospital organization's taxable year 
for which it

[[Page 79016]]

failed to meet the requirements of section 501(r)(3).
    (i) * * *
    (2) Paragraph (h) of this section applies on and after August 15, 
2013.


Sec.  53.6071-1T  [Removed]

0
Par. 12. Section 53.6071-1T is removed.

PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT

0
Par. 13. The authority citation for part 602 continues to read as 
follows:

    Authority:  26 U.S.C. 7805.


0
Par. 14. In Sec.  602.101, paragraph (b) is amended by adding the 
following entries in numerical order to the table to read as follows:


Sec.  602.101  OMB Control numbers.

* * * * *
    (b) * * *

------------------------------------------------------------------------
     CFR part or section where
      identified and described             Current OMB Control No.
------------------------------------------------------------------------
 
                                * * * * *
              1.501(r)-3                            1545-0047
              1.501(r)-4                            1545-0047
              1.501(r)-6                            1545-0047
 
                                * * * * *
------------------------------------------------------------------------


John M. Dalrymple,
Deputy Commissioner for Services and Enforcement.
    Approved: December 22, 2014.
Mark J. Mazur,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2014-30525 Filed 12-29-14; 4:15 pm]
BILLING CODE 4830-01-P