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December 7, 2020

Chairman Grassley urges Senate Finance and Judiciary Committees to support making statutory community benefit requirements for tax-exempt hospitals more explicit

Senate Finance Committee Chairman Chuck Grassley (R-Iowa) wrote the members of the Senate Finance and Judiciary Committees on December 2, 2020, urging them to support amending IRC Section 501(r) to "make clearer what nonprofit hospitals must do for low-income patients in order to maintain their tax-exempt statuses" (see the letter and attachments). The letter follows up on inquiries that Sen. Grassley made in late 2019, when he wrote the University of Virginia (UVA) Medical Center (see Tax Alert 2019-1887) and Methodist Le Bonheur Healthcare (see Tax Alert 2019-2215) to ask whether the hospitals were fulfilling their legal obligations to provide charity chare and financial assistance to patients in need. (Press reports alleged the hospitals were using aggressive debt-collection methods, seemingly incongruous with their charitable mission.) Earlier in 2019, Sen. Grassley announced his continued efforts for IRS enforcement of tax-exempt requirements applicable to charitable hospitals (see Tax Alert 2019-0460).


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
  4. Make reasonable efforts to determine whether an individual is FAP-eligible before engaging in extraordinary collection actions against that individual

Sen. Grassley has long questioned whether tax-exempt hospitals comply with their obligations to fulfill community health needs. (For additional background, see Tax Alerts 2020-1805, 2018-0372, and 2016-1049.) Further, a September 2020 report from the Government Accountability Office revealed that, between 2010 and 2020, the IRS had not recommended that a hospital entity lose its tax-exempt status, even if the hospital failed to meet the community-benefit standard (see Tax Alert 2020-2560).

December 2 letter

In his December 2 letter, Sen. Grassley notes that, despite healthcare industry feedback he received characterizing the requirements of IRC Section 501(r) as "overly strenuous," his inquiries "unfortunately ha[ve] shown that, if anything, the requirements of 501(r) need to be strengthened rather than softened."

Sen. Grassley explains that both UVA Medical Center and Le Bonheur have made positive changes to their billing and debt collection practices in response to his 2019 inquiries. He also notes that they are not the only nonprofit hospitals "engaging in billing and debt-collection practices that defy the spirit of Section 501(r)." Although negative publicity tends to lead "to more desirable behavior" on the hospitals' part, depending on press reports to monitor hospitals' compliance with IRC Section 501(r) "is an unsustainable way to ensure a distinction between for-profit and non-profit hospitals," Sen. Grassley writes.

Further, Sen. Grassley stresses that "hospitals must get better at making clear what their prices are and what patients will end up owing when they leave the hospital." He also notes that patients should "have more financial information available to them when going to the hospital and working with their insurance companies."

Ultimately, Sen. Grassley encourages Congress to do the work necessary to "empower Americans to shop for healthcare in a competitive functional market so as to reduce the costs of care and coverage and save individuals and businesses hundreds of billions of dollars."


Sen. Grassley's newest letter should serve as a reminder to tax-exempt hospitals that their debt-collection policies, financial assistance programs and overall billing practices continue to undergo increased scrutiny. The Senator's continued focus on strengthening hospital compliance requirements, along with new interest from the Government Accountability Office, add to the growing list of reasons why tax-exempt hospitals should actively review the benefits that they provide to their community, particularly as these benefits relate to any needs or deficiencies identified in their most recently conducted CHNA. Additionally, tax-exempt hospitals should continue to properly document and report their community benefit expenses on Form 990, Schedule H, and closely monitor their compliance with IRC Section 501(r) and its corresponding regulations.



— For more information about EY's Exempt Organization Tax Services group, visit us here.


Contact Information
For additional information concerning this Alert, please contact:
Tax-Exempt Organizations Group
   • Terence Kennedy (
   • Melanie McPeak (
   • Kristen Farr Capizzi (
   • Jack Miya (