The IRS has released a draft version of the 2016 Form 990 Schedule H for hospital reporting that includes some significant changes from last year's form to reflect the final Section 501(r) regulations.

The IRS issued final regulations under Section 501(r) for tax-exempt hospital organizations and hospital facilities in December 2014 (see Tax Alert 2015-29). The final regulations address the requirements for community health needs assessments (CHNAs), financial assistance policies (FAPs), billing and collections policies and practices, emergency medical care policies, and limitations on charges that must be met by tax-exempt hospital organizations and facilities to preserve their tax exemption and avoid excise tax. The final regulations generally are effective for tax years beginning on or after December 29, 2015 — i.e., tax years beginning January 1, 2016, for calendar-year filers.

Substantive changes resulting from the final 501(r) regulations are reflected in the draft 2016 Form 990 Schedule H in Part V (Facility Information), Section B (Facility Policies and Practices), as described below.

Line 3i. Line 3i is one of the checkboxes for reporting what is described in the hospital facility's most recent CHNA report. In the 2016 draft version of Schedule H, the language "Information gaps that limit the hospital facility's ability to assess the community's health needs" in line 3i is replaced with "The impact of any actions taken to address the significant health needs identified in the hospital facility's prior CHNAs."

Line 16. To reflect the shift in the final 501(r) regulations from requiring the FAP to describe the measures taken to widely publicize the FAP to actually requiring the hospital facility to widely publicize the FAP, FAP application, and plain language summary of the FAP, the 2016 draft of line 16 replaces "Included measures to publicize the policy within the community served by the hospital facility" with "Was widely publicized within the community served by the hospital facility."

Lines 16g and 16i. Two new checkboxes describing how the hospital facility widely publicized its FAP and FAP application are included in lines 16g and 16i:

— Line 16g: "Individuals were notified about the FAP by being offered a paper copy of the plain language summary of the FAP, by receiving a conspicuous written notice about the FAP on their billing statements, and via conspicuous public displays or other measures reasonably calculated to attract patients' attention"

— Line 16i: "The FAP, FAP application form, and plain language summary of the FAP were translated into the primary language(s) spoken by LEP [limited English proficiency] populations"

Lines 18c and 19c. The draft 2016 Schedule H, Part V, lines 18c and 19c include two new checkboxes describing an "extraordinary collection action" (ECA). Both lines state: "Deferring, denying, or requiring a payment before providing medically necessary care due to nonpayment of a previous bill for care covered under the hospital facility's FAP."

Lines 20a through 20d. Lines 20a-d ask which reasonable efforts the hospital facility made to determine an individual's FAP eligibility before initiating any of the ECAs described in line 19 against that individual. The 2016 draft lines 20a-d replace the 2015 lines 20a-d to more closely reflect the reasonable efforts requirements described in the final regulations:

— Line 20a, "Provided a written notice about upcoming ECAs (Extraordinary Collection Action) and a plain language summary of the FAP at least 30 days before initiating those ECAs"

— Line 20b, "Made a reasonable effort to orally notify individuals about the FAP and FAP application process"

— Line 20c, "Processed incomplete and complete FAP applications"

— Line 20d, "Made presumptive eligibility determinations"

Lines 22a through 22d. Lines 22a-d ask how the hospital facility calculated amounts generally billed (AGB) to determine the maximum amounts that can be charged to FAP-eligible individuals for emergency or other medically necessary care. The draft 2016 version of the lines replaces the 2015 lines 22a-d, none of which reflect the permissible AGB calculation methods described in the final 501(r) regulations, with the only permissible AGB calculation methods under the regulations:

— Line 22a, "The hospital facility used a look-back method based on claims allowed by Medicare fee-for-service during a prior 12-month period"

— Line 22b, "The hospital facility used a look-back method based on claims allowed by Medicare fee-for-service and all private health insurers that pay claims to the hospital facility during a prior 12-month period"

— Line 22c, "The hospital facility used a look-back method based on claims allowed by Medicaid, either alone or in combination with Medicare fee-for-service and all private health insurers that pay claims to the hospital facility during a prior 12-month period"

— Line 22d, "The hospital facility used a prospective Medicare or Medicaid method"

Implications

The draft version of the 2016 Form 990 Schedule H, Section B, includes significant changes to reflect the final 501(r) regulations.

Tax-exempt hospitals should review their community health needs assessments, implementation strategies, financial assistance policies, emergency medical care policies, and billing and collection practices to confirm that they comply with Section 501(r)'s requirements. Although failure to comply with any of the Section 501(r) requirements will not automatically result in the loss of a hospital's tax-exempt status, any omissions or errors must be corrected, and may need to be reported on a hospital's Form 990, to avoid the noncompliant hospital facility tax.

The 2016 Schedule H is currently in draft form and the accompanying instructions have not been released, so the IRS may make additional changes before they are finalized. Comments regarding the draft 2016 Schedule H can be submitted on the Comment on Tax Forms and Publications page on IRS.gov.

Please contact your EY tax professional for further information.

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RELATED RESOURCES

— For more information about EY's Exempt Organization Tax Services group, visit us at www.ey.com/ExemptOrg

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