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Senate Finance Committee Chairman Chuck Grassley (R-Iowa) wrote Methodist Le Bonheur Healthcare on December 3, 2019, to follow up on an article published by MLK50 asserting that Methodist Le Bonheur is not complying with requirements that the Internal Revenue Code imposes on tax-exempt hospitals.

Chief among Sen. Grassley's concerns are "what appear to be relentless debt-collection efforts by various tax-exempt hospitals, including Methodist Le Bonheur." The MLK50 article contends that Methodist Le Bonheur's financial assistance policy does not adequately address the needs of patients without health insurance and that those who are unable to pay their bills "face what experts say is rare: A licensed collection agency owned by the hospital." Further, the article states, when the hospital wins a judgement "it repeatedly tries to garnish patients' wages, which it does in a far higher share of cases than other nonprofit hospitals in Memphis."

Background

In June 2016, Sen. Grassley announced that he had asked the IRS for detailed information on the agency's oversight of tax-exempt hospitals' compliance with IRC Section 501(r), citing two instances of tax-exempt hospitals that had recently changed their collection practices and financial assistance policies following media scrutiny (see Tax Alert 2016-1049).

IRC Section 501(r), added to the Code under the Affordable Care Act, requires each tax-exempt hospital to (1) complete a community health needs assessment (CHNA) and implementation strategy every three years; (2) establish a written financial assistance policy (FAP) and emergency medical care policy that meets certain requirements; (3) limit amounts charged for emergency or other medically necessary care provided to individuals eligible for assistance under the organization's FAP to no more than the amounts generally billed to insured individuals; and (4) make reasonable efforts to determine whether an individual is FAP-eligible before engaging in extraordinary collection actions against that individual. The IRS published final regulations (TD 9708) in January 2015, providing tax-exempt hospitals with guidance on conforming to the IRC Section 501(r) requirements (see Tax Alert 2015-0029).

December 3 letter

Sen. Grassley's December 3 letter poses a series of detailed questions to Methodist Le Bonheur centering around the hospital's billing and collection practices for uninsured patients. The letter asks Methodist Le Bonheur to provide details on its various policies, as well as copies of the policies. These policies include:

• A financial assistance policy, as well as:
• The percentage of patients without insurance who, since 2014, received medically necessary care and were eligible for financial assistance
• The hospital's new financial assistance policy (post-MLK50 article) purportedly broadening coverage to those who are at or below 250% of federal poverty guidelines (from those at or below 125% of federal poverty guidelines)
• Any policy for notifying patients about their outstanding balances
• Any policy for transferring outstanding balances to a third-party for debt-collection
• Any policy on seeking judicial remedies to enforce the payment of outstanding balances
• Any policy for determining whether patients were eligible for financial assistance before the hospital takes extraordinary collection against them
• Any policy for informing patients that financial assistance is available before taking extraordinary collection actions
• Any policy on how long the hospital pursues medical debts
• Any policy on thresholds for pursuing collection of medical debts
• Any policy on garnishing wages

In addition, Sen. Grassley asks Methodist Le Bonheur to explain why its medical costs for uninsured patients are so high. In particular, he asks the hospital to confirm whether or not it charges uninsured patients more than it charges insurance companies.

Sen. Grassley has asked Methodist Le Bonheur to respond to each question by January 7, 2020.

Implications

This most recent request for information by Senator Grassley continues to highlight the focus that the Senate Finance Committee Chair is placing on tax-exempt hospitals' financial assistance policies and debt collection practices. This is the second letter issued by Senator Grassley in the past three months that focuses on the implementation of IRC Section 501(r) by tax-exempt hospitals (see Tax Alert 2019-1887). Both letters request specific information from the hospital about its debt collection policies, financial assistance programs, and overall billing practices. Therefore, organizations should assess their level of compliance with IRC Section 501(r) by reviewing their policies, programs and practices in light of the questions asked and information requested in the letters.

Please contact your EY professional for further information.

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