The IRS has released a draft version of the instructions for the 2016 Form 990 Schedule H for hospital reporting that includes some changes from last year's instructions to reflect the final Section 501(r) regulations. The release of the draft instructions follows the release earlier this year of a draft version of the 2016 Schedule H form (see Tax Alert 2016-1240).

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 tax-exempt hospital organizations and facilities must meet 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 — e.g., tax years beginning January 1, 2016, for calendar-year filers.

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

Line 3. The 2016 draft Schedule H instructions include specific instructions for lines 3a, 3c, 3d, 3g, 3h and 3i, whereas the 2015 instructions only included specific instructions for line 3i. The 2016 draft also revises the instruction for line 3i, the draft 2016 version of which now asks the hospital facility whether it has considered the impact of any actions taken to address significant health needs identified in its prior CHNA.

Line 5. The 2016 draft revises the instructions for line 5, which asks whether the hospital facility took into account input from persons representing the community in conducting its CHNA. As before, organizations that answer "yes" to the question in line 5 are asked to describe how such input was provided. The 2016 draft also asks over what period the input was provided. It also specifically asks for a description of the medically underserved, low-income or minority populations represented by organizations or individuals that provided input. In addition, the 2016 draft states that, if a hospital facility solicited but could not obtain input from a source from which the facility was required to solicit input, the hospital facility's CHNA report must describe the hospital facility's efforts to solicit input from this source.

Line 16. The 2016 draft instructions for line 16 are revised in accordance with the corresponding changes in the draft form, in which the IRS replaced the language "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." Instructions are also added for the new line 16g checkbox, which lists specific actions taken to notify individuals about the FAP, and line 16i, which reflects the requirement in the final 501(r) regulations that an exempt hospital facility must translate its FAP, FAP application form, and plain-language summary of the FAP into any language spoken by each LEP (limited English proficiency) language group that constitutes the lesser of (a) 1,000 individuals or (b) 5% of its community served or population it is likely to encounter.

Lines 18. New instructions are added to reflect the addition of the new checkbox in line 18c of the draft 2016 Schedule H, which describes one of the "extraordinary collection actions" added by the final 501(r) regulations: deferring, denying, or requiring a payment before providing medically necessary care due to nonpayment of a previous bill for care covered under the facility's FAP.

Line 19. Similar to the 2015 instructions, the 2016 draft instructions for line 19 state that organizations must indicate, by checking all applicable boxes, any actions that the hospital facility took against an individual during the tax year before making reasonable efforts to determine the individual's eligibility under the facility's FAP. The 2016 instructions also add language, however, clarifying that, "[f]or purposes of this question, actions against an individual include actions 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 actions of the hospital facility includes [sic] actions of 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." New instructions are also added to reflect the addition of the new checkbox in line 19c of the draft 2016 Schedule H (deferring, denying, or requiring a payment before providing medically necessary care due to nonpayment of a previous bill for care covered under the facility's FAP).

Line 20. The 2016 draft instructions are updated to reflect the changes to lines 20a-d of the draft 2016 Schedule H, which have been updated to reflect the requirement in the final 501(r) regulations that exempt hospital facilities make reasonable efforts to collect payment from FAP-eligible individuals before engaging in extraordinary collection actions.

Implications

The draft version of the 2016 Form 990 Schedule H instructions includes changes to reflect the final 501(r) regulations, which are effective for tax years beginning after December 29, 2015. Preparation and filing of Schedule H, Part V, Section B and its related narrative disclosures is a hospital's principal method for reporting compliance with the 501(r) regulation requirements. Compliance with the final regulations may require a hospital facility to amend its procedures, policies and practices in regards to areas of its operations affected by 501(r).

Although the changes to the instructions are not extensive, they are significant, as they reflect the final 501(r) regulations and possibly questions the IRS will be asking in the 501(r) exams that it has commenced this year. Hospital organizations need to be proactive in conforming policies and procedures to the stringent requirements of Section 501(r) and its regulations, and vigilant in maintaining compliance for each hospital facility.

The 2016 Schedule H and the accompanying instructions are currently in draft form, and are subject to change before being finalized. Comments regarding the draft form and instructions can be submitted on the Comment on Tax Forms and Publications page on irs.gov.

Please contact your EY tax professional for further information, or for more information about EY's 501(r) Risk Assessment services.

———————————————
RELATED RESOURCES

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

———————————————

———————————————