SECTION 2. BACKGROUND

Section 9007 of the Patient Protection and Affordable Care Act, Public Law 111–148 (124 Stat. 119 (2010)), enacted § 501(r), which imposes additional requirements on charitable hospital organizations. Section 501(r)(1) provides that a hospital organization described in § 501(r)(2) will not be treated as described in § 501(c)(3) unless the organization meets the requirements of § 501(r)(3) through (r)(6).

Section 501(r)(2)(A) defines a hospital organization as including any organization that operates a facility required by a state to be licensed, registered, or similarly recognized as a hospital.

Section 501(r)(2)(B) requires a hospital organization that operates more than one hospital facility to meet the requirements of § 501(r) separately with respect to each hospital facility and provides that

January 13, 2014 408 Bulletin No. 2014–3

such a hospital organization will not be treated as described in § 501(c)(3) with respect to any hospital facility for which the requirements of § 501(r) are not separately met.

Section 501(r)(3) requires a hospital organization to conduct a community health needs assessment (CHNA) every three years and adopt an implementation strategy to meet the community health needs identified through such assessment. Section 4959 imposes a $50,000 excise tax on a hospital organization that fails to meet the CHNA requirements of § 501(r)(3).

Section 501(r)(4) requires a hospital organization to establish a financial assistance policy (FAP) and a policy relating to emergency medical care.

Section 501(r)(5) requires a hospital organization to limit amounts charged for emergency or other medically necessary care that is 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. Section 501(r)(5) also prohibits the use of gross charges.

Section 501(r)(6) requires a hospital organization to make reasonable efforts to determine whether an individual is FAPeligible before engaging in extraordinary collection actions (ECAs) against the individual.

The statutory requirements of § 501(r) (except for § 501(r)(3)) are effective for a hospital organization’s first taxable year beginning after March 23, 2010. Section 501(r)(3) is effective for a hospital organization’s first taxable year beginning after March 23, 2012.

On June 26, 2012, the Department of the Treasury (“Treasury Department”) and the Internal Revenue Service (“IRS”) published a notice of proposed rulemaking in the Federal Register (REG– 130266–11, 2012–32 I.R.B. 126 [77 FR 38148]) (“2012 proposed regulations”) that contains proposed regulations regarding the requirements of § 501(r)(4), (r)(5), and (r)(6). On April 5, 2013, the Treasury Department and the IRS pub

lished a notice of proposed rulemaking in the Federal Register (REG–106499– 12, 2013–21 I.R.B. 1111 [78 FR 20523]) (“2013 proposed regulations”) that contains proposed regulations regarding the CHNA requirements of § 501(r)(3) and the consequences for failing to meet any of the § 501(r) requirements.

Under § 1.501(r)–2(c) of the 2013 proposed regulations, a hospital facility’s failure to meet the requirements of § 501(r) and § 1.501(r)–3 through § 1.501(r)–6 of the regulations that is neither willful nor egregious shall be excused for purposes of § 501(r)(1) and 501(r)(2)(B) if the hospital facility corrects and makes disclosure of the failure in accordance with a revenue procedure, notice, or other guidance to be published in the Internal Revenue Bulletin.

Under § 1.501(r)–2(b) of the 2013 proposed regulations, a hospital facility’s omission of required information from a report or policy described in § 1.501(r)–3 or § 1.501(r)–4, or error with respect to the implementation or operational requirements described in § 1.501(r)–3 through § 1.501(r)–6, will not be considered a failure to meet a requirement of § 501(r) if (1) such omission or error was minor, inadvertent, and due to reasonable cause; and (2) the hospital facility corrects such omission or error as promptly after discovery as is reasonable given the nature of the omission or error. Because minor and inadvertent omissions and errors due to reasonable cause that are corrected in accordance with the requirements of § 1.501(r)–2(b) of the 2013 proposed regulations are not considered failures to meet a requirement of § 501(r), hospitals do not need to use the correction and disclosure procedures described in this revenue procedure for such omissions and errors. However, an organization that wants to correct a minor and inadvertent omission or error may rely on the principles regarding correction described in section 5 of this revenue procedure in meeting the correction requirements of § 1.501(r)–2(b)(2). ¹