78954 Federal Register / Vol. 79, No. 250 / Wednesday, December 31, 2014 / Rules and Regulations 

DEPARTMENT OF THE TREASURY 

Internal Revenue Service 

26 CFR Parts 1, 53, and 602 

[TD 9708] 

RIN 1545–BK57; RIN 1545–BL30; RIN 1545– 

BL58 

Additional Requirements for Charitable 

Hospitals; Community Health Needs 

Assessments for Charitable Hospitals; 

Requirement of a Section 4959 Excise 

Tax Return and Time for Filing the 

Return 

AGENCY: Internal Revenue Service (IRS), 

Treasury. 

ACTION: Final regulations and removal of 

temporary regulations. 

SUMMARY: This document contains final 

regulations that provide guidance 

regarding the requirements for 

charitable hospital organizations added 

by the Patient Protection and Affordable 

Care Act of 2010. The regulations will 

affect charitable hospital organizations. 

DATES: Effective Date: The final 

regulations are effective on December 

29, 2014. 

Applicability Date: For dates of 

applicability, see §§ 1.501(r)–7(a); 

1.6033–2(k)(4); 53.4959–1(b); and 

53.6071–1(i)(2). 

FOR FURTHER INFORMATION CONTACT: 

Amy F. Giuliano, Amber L. MacKenzie, 

or Stephanie N. Robbins at (202) 317– 

5800 (not a toll-free number). 

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act 

The collection of information 

contained in these final regulations has 

been reviewed and approved by the 

Office of Management and Budget in 

accordance with the Paperwork 

Reduction Act of 1995 (44 U.S.C. 

3507(d)) under control number 1545– 

0047. The collection of information in 

the final regulations is in §§ 1.501(r)–3, 

1.501(r)–4, and 1.501(r)–6(c). The 

collection of information is required for 

hospital organizations to receive the 

benefits of being described in section 

501(c)(3) of the Internal Revenue Code 

(Code) and flows from section 501(r)(3), 

which requires a hospital organization 

to conduct a community health needs 

assessment (CHNA) and adopt an 

implementation strategy to meet the 

community health needs identified 

through the CHNA at least once every 

three years; section 501(r)(4), which 

requires a hospital organization to 

establish a written financial assistance 

policy (FAP) and a written policy 

related to care for emergency medical 

conditions; and section 501(r)(6), which 

requires a hospital organization to make 

reasonable efforts to determine whether 

an individual is eligible for assistance 

under a FAP before engaging in 

extraordinary collection actions. The 

expected recordkeepers are hospital 

organizations described in sections 

501(c)(3) and 501(r)(2). 

1. 2012 Proposed Regulations 

On June 26, 2012, the Department of 

the Treasury (Treasury Department) and 

the IRS published a notice of proposed 

rulemaking (NPRM) (REG–130266–11; 

77 FR 38148) that contained proposed 

regulations regarding the requirements 

of sections 501(r)(4) through 501(r)(6) 

relating to FAPs, limitations on charges, 

and billing and collections (the 2012 

proposed regulations). The 2012 

proposed regulations estimated that the 

collection of information in the 

proposed regulations relating to sections 

501(r)(4) and 501(r)(6) would result in 

an average annual paperwork burden 

per recordkeeper of 11.5 hours. (The 

requirements of section 501(r)(3) were 

addressed in different proposed 

regulations, released in 2013, and the 

collection of information associated 

with those proposed regulations is 

addressed in section 2 of this portion of 

the preamble relating to the Paperwork 

Reduction Act.) 

In response to this burden estimate, 

the Treasury Department and the IRS 

received 15 comments generally stating 

that the estimates set forth in the 2012 

proposed regulations were too low and 

that the burden was significantly higher, 

with some commenters offering 

estimates ranging between 15 and 

38,500 hours annually. However, these 

commenters provided insufficient 

information regarding the hours 

necessary to comply with the 

information collection requirements of 

§§ 1.501(r)–4 and 1.501(r)–6(c) of the 

2012 proposed regulations for the IRS to 

determine why, or by how much, the 

proposed burden estimate should be 

increased. A few commenters noted that 

they would have to devote significant 

resources up-front to amending policies 

and procedures and altering information 

systems. 

The Treasury Department and the IRS 

anticipated an up-front commitment of 

resources when they derived the 11.5- 

hour annual burden estimate proposed 

in the 2012 proposed regulations by 

dividing an estimated 34.5-hour burden 

over three years (the maximum OMB 

approval period for a collection of 

information burden estimate) by three. It 

was anticipated that a large share of 

those 34.5 hours would be devoted to 

updating policies, procedures, and 

information systems in the first year. 

The Treasury Department and the IRS 

also expected that hospitals would be 

building upon existing policies and 

processes rather than establishing 

entirely new policies. For example, 

§ 1.501(r)–6(c)(2) of the 2012 proposed 

regulations was intended to enable 

hospitals to notify patients about the 

FAP primarily by adding information to 

billing statements, necessitating some 

time to change the template of the 

billing statement but presumably 

relatively little time thereafter. 

However, in light of the comments 

received, the Treasury Department and 

the IRS have increased their estimate of 

the average amount of time a hospital 

organization will devote to amending 

policies and procedures and altering 

information systems in the first year to 

come into compliance with §§ 1.501(r)– 

4 and 1.501(r)–6(c) to 60 hours (with 

additional time needed each year to 

implement the requirements). 

One commenter stated that hospitals’ 

experience in administering charity care 

programs under existing state law 

required more than 100 annual staff 

hours per hospital, and that the 2012 

proposed regulations would increase 

that burden. However, the total amount 

of time spent administering charity care 

programs in general under the 

commenter’s state law is not equivalent 

to the amount of time necessary to 

comply with the collection of 

information requirements, in particular, 

in the 2012 proposed regulations. 

Most of the 38,500 burden hours that 

one commenter estimated for the 

paperwork burden resulting from the 

2012 proposed regulations was based on 

the time the commenter estimated 

would be spent by 16 financial 

counseling staff members to provide 

direct patient counseling. While 

providing direct patient financial 

counseling is a commendable activity 

that would help ensure that patients 

obtain the financial assistance for which 

they are eligible, the burden estimates 

under the Paperwork Reduction Act are 

limited to collections of information 

authorized or imposed by the statute 

and regulations, and, therefore, such 

counseling activity would not be 

captured in the estimates. 

The Treasury Department and the IRS 

also note that, in response to comments, 

these final regulations contain several 

changes intended to reduce the 

paperwork burden of the 2012 proposed 

regulations. Most significantly, 

numerous commenters noted that the 

requirement in § 1.501(r)–6(c)(2) to 

include a plain language summary of 

the FAP with all (and at least three) 

billing statements during a 120-day 


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Federal Register / Vol. 79, No. 250 / Wednesday, December 31, 2014 / Rules and Regulations 78955 

notification period would add 

significantly to the cost of mailing the 

billing statements and be a waste of 

paper. In response to these comments, 

rather than requiring a plain language 

summary with every bill issued during 

the notification period, the final 

regulations instead require a hospital 

facility to include on each billing 

statement a conspicuous written notice 

that notifies and informs patients about 

the availability of financial assistance, 

including both a telephone number of 

the office or department that can 

provide information about the FAP and 

FAP application process and the direct 

Web site address (or URL) where copies 

of the FAP, FAP application form, and 

plain language summary of the FAP may 

be obtained. Additionally, the final 

regulations require a plain language 

summary to be included with only one 

post-discharge communication and give 

a hospital facility the flexibility to send 

this one plain language summary only 

to the subset of patients against whom 

the hospital facility actually intends to 

engage in extraordinary collection 

actions. These changes are intended to 

maintain the frequent reminders to 

patients of the availability of financial 

aid while reducing the burden and cost 

of mailing multiple copies of a plain 

language summary of the FAP. 

The one change in the final 

regulations that may materially increase 

the paperwork burden relates to 

translations of the FAP and related 

documents. The 2012 proposed 

regulations required a hospital facility 

to translate its FAP (as well as the FAP 

application form and plain language 

summary of the FAP) into the primary 

language of any populations with 

limited English proficiency (LEP) that 

constitute more than 10 percent of the 

residents of the community served by 

the hospital facility. In response to 

comments discussed in section 4.a.iv.F 

of this preamble, the final regulations 

change that threshold to 5 percent or 

1,000, whichever is less, of the 

population of individuals likely to be 

affected or encountered by the hospital 

facility. This may increase the overall 

number of translations that hospital 

organizations affected by the final 

regulations will be required to make. 

Taking into account all of the 

comments received, as well as the 

changes made in these final regulations 

that will affect the paperwork burden, 

the Treasury Department and the IRS 

have adjusted their burden estimate for 

§§ 1.501(r)–4 and 1.501(r)–6(c) to 60 

hours per recordkeeper of up-front time 

to update information systems and draft 

and amend policies, procedures, and 

template billing statements and 

notifications, plus 15 hours per 

recordkeeper per year for each of three 

years to implement the collection of 

information requirements. This results 

in a total of 105 hours over a three-year 

period, or an average of 35 hours per 

year per recordkeeper, up from the 

estimate of 11.5 hours per year per 

recordkeeper proposed in the 2012 

proposed regulations. The Treasury 

Department and the IRS note that the 

burden estimates must be updated every 

three years and that future estimates can 

be amended to reflect hospitals’ actual 

experience in implementing the 

collection of information requirements 

in §§ 1.501(r)–4 and 1.501(r)–6(c). 

2. 2013 Proposed Regulations 

On April 5, 2013, the Treasury 

Department and the IRS published a 

NPRM (REG–106499–12; 78 FR 20523) 

that contained proposed regulations 

regarding the CHNA requirements under 

section 501(r)(3) (the 2013 proposed 

regulations). The 2013 proposed 

regulations estimated that the collection 

of information in the proposed 

regulations would result in an average 

annual paperwork burden per 

recordkeeper of 80 hours. In response to 

this burden estimate, the Treasury 

Department and the IRS received 10 

comments stating generally that the 

estimates set forth in the 2013 proposed 

regulations were too low and that the 

burden was significantly higher, with 

most commenters stating that satisfying 

the requirements described in the 2013 

proposed regulations would necessitate 

‘‘thousands of hours.’’ However, 

because commenters provided little 

specific information regarding the 

hourly burden of activities that are 

required to comply with the collection 

of information required by section 

501(r)(3), it is difficult for the Treasury 

Department and the IRS to determine 

how to appropriately revise the burden 

estimate. 

The Treasury Department and the IRS 

note that a hospital organization only 

has to satisfy the CHNA requirements 

once every three years, and the burden 

estimate reflected in the 2013 proposed 

regulations was 240 hours per CHNA, 

averaged over three years. In addition, 

the Treasury Department and the IRS 

recognize that the amount of time 

hospitals devote to their CHNAs will 

vary greatly depending on their size and 

resources and whether they choose to 

collaborate with other organizations and 

facilities in conducting their CHNAs. 

One commenter asked that the IRS 

clarify its definition of ‘‘recordkeeper’’ 

to indicate that the estimate is for a 

hospital organization with a single 

hospital facility and that a hospital 

organization with multiple hospital 

facilities would have an estimated 

burden that would be multiplied by the 

number of hospital facilities. However, 

both the 2013 proposed regulations and 

these final regulations allow hospital 

organizations with multiple hospital 

facilities to collaborate and produce one 

joint CHNA report and implementation 

strategy for all of its hospital facilities, 

provided the hospital facilities define 

their communities to be the same. As a 

result, the Treasury Department and the 

IRS do not believe the burden estimate 

will necessarily increase in direct 

relation to the number of hospital 

facilities operated. On the other hand, 

the Treasury Department and the IRS do 

recognize that some hospital facilities 

operated by the same organization will 

define their communities to be different 

and will therefore conduct separate 

CHNAs and produce separate CHNA 

reports. For purposes of estimating the 

total paperwork burden, and in the 

absence of data on which hospital 

facilities will conduct joint CHNAs and 

which will not, the Treasury 

Department and the IRS have assumed 

that hospital facilities operated by 

hospital organizations with three or 

fewer hospital facilities will produce 

joint CHNA reports and hospital 

facilities operated by hospital 

organizations with more than three 

hospital facilities will conduct separate 

CHNA reports. Based on the latest 

available IRS data on the number of 

hospital organizations and facilities, the 

assumption that hospital organizations 

operating more than three hospital 

facilities will conduct separate CHNAs 

for each hospital facility increases the 

average annual burden associated with 

the CHNA requirements per hospital 

organization from 80 to 101 hours. The 

Treasury Department and the IRS note 

that the burden estimates must be 

updated every three years and that 

future estimates can be amended to 

reflect hospitals’ actual experience in 

implementing the collection of 

information requirements in § 1.501(r)– 

3. 

3. Adjusted Burden Estimates for Final 

Regulations 

After taking into account all the 

comments and information available 

and based on the latest IRS data on the 

number of hospital organizations and 

facilities, the Treasury Department and 

the IRS have reached the following 

reporting burden estimates: 

Estimated total annual reporting 

burden: 401,905. 

Estimated average annual burden 

hours per recordkeeper: 136 hours. 


tkelley on DSK3SPTVN1PROD with RULES2
78956 Federal Register / Vol. 79, No. 250 / Wednesday, December 31, 2014 / Rules and Regulations 

Estimated number of recordkeepers: 

2,955. 

Estimated frequency of collections of 

such information: Annual. 

An agency may not conduct or 

sponsor, and a person is not required to 

respond to, a collection of information 

unless it displays a valid control 

number assigned by the Office of 

Management and Budget. 

Books or records relating to a 

collection of information must be 

retained as long as their contents may 

become material in the administration 

of any internal revenue law. Generally, 

tax returns and tax return information 

are confidential, as required by section 

6103. 

Background 

Section 501(r) was added to the Code 

by the Patient Protection and Affordable 

Care Act, Public Law 111–148 (124 Stat. 

119 (2010)) (the Affordable Care Act), 

enacted March 23, 2010, and imposes 

additional requirements on charitable 

hospital organizations. Section 501(r)(1) 

provides that a hospital organization 

described in section 501(r)(2) will not be 

treated as a tax-exempt organization 

described in section 501(c)(3) unless the 

organization meets the requirements of 

sections 501(r)(3) through 501(r)(6). 

Section 501(r)(3) requires a hospital 

organization to conduct a community 

health needs assessment (CHNA) at least 

once every three years and to adopt an 

implementation strategy to meet the 

community health needs identified 

through the CHNA. Section 501(r)(4) 

requires a hospital organization to 

establish a written financial assistance 

policy (FAP) and a written policy 

relating to emergency medical care. 

Section 501(r)(5) requires a hospital 

organization to not use gross charges 

and to limit amounts charged for 

emergency or other medically necessary 

care 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 (AGB). Section 

501(r)(6) requires a hospital 

organization to make reasonable efforts 

to determine whether an individual is 

FAP-eligible before engaging in 

extraordinary collection actions. Section 

501(r)(2)(B) requires a hospital 

organization to meet each of these 

requirements separately with respect to 

each hospital facility it operates. 

The statutory requirements of section 

501(r) (except for section 501(r)(3)) 

apply to taxable years beginning after 

March 23, 2010. Section 501(r)(3) 

applies to taxable years beginning after 

March 23, 2012. A hospital organization 

has had to comply with the statutory 

requirements of section 501(r) since 

these applicability dates. 

The Affordable Care Act also added 

section 4959, which imposes a $50,000 

excise tax on a hospital organization 

that fails to meet the CHNA 

requirements for any taxable year, and 

amended section 6033 to add certain 

reporting requirements related to 

section 4959 and the CHNA 

requirements and to require hospital 

organizations to file a copy of their 

audited financial statements with their 

annual information returns. 

In May 2010, the Department of the 

Treasury (Treasury Department) and the 

IRS issued Notice 2010–39 (2010–24 

IRB 756 (June 14, 2010)), which 

solicited comments regarding the 

additional requirements imposed by 

section 501(r). Approximately 125 

comments were received in response to 

Notice 2010–39. 

In July 2011, the Treasury Department 

and the IRS issued Notice 2011–52 

(2011–30 IRB 60 (July 25, 2011)), which 

described (and solicited comments 

regarding) provisions related to the 

CHNA requirements that the Treasury 

Department and the IRS anticipated 

would be included in proposed 

regulations. More than 80 comments 

were received in response to Notice 

2011–52. 

On June 26, 2012, the Treasury 

Department and the IRS published a 

notice of proposed rulemaking in the 

Federal Register (REG–130266–11, 77 

FR 38148) (2012 proposed regulations) 

that contained proposed regulations 

regarding the requirements of sections 

501(r)(4) through 501(r)(6) relating to 

FAPs, limitations on charges, and 

billing and collections. The 2012 

proposed regulations also defined key 

terms used throughout the regulations, 

such as ‘‘hospital organization’’ and 

‘‘hospital facility.’’ More than 200 

written comments were received in 

response to the 2012 proposed 

regulations, and a public hearing was 

held on December 5, 2012. 

On April 5, 2013, the Treasury 

Department and the IRS published a 

notice of proposed rulemaking in the 

Federal Register (REG–106499–12, 78 

FR 20523) (2013 proposed regulations) 

that contained proposed regulations 

regarding the CHNA requirements of 

section 501(r)(3), the related reporting 

obligations under section 6033, the 

excise tax under section 4959, and the 

consequences for failing to meet any of 

the section 501(r) requirements. The 

2013 proposed regulations also added a 

few additional defined terms and made 

minor amendments to the definitions of 

‘‘hospital organization’’ and ‘‘hospital 

facility’’ contained in the 2012 proposed 

regulations. More than 90 written 

comments were received in response to 

the 2013 proposed regulations. No 

public hearing was requested or held. 

On August 15, 2013, the Treasury 

Department and the IRS published final 

and temporary regulations and a crossreference notice of proposed rulemaking 

in the Federal Register (TD 9629, 78 FR 

49681; REG–115300–13, 78 FR 49700) 

under sections 6011 and 6071, which 

provided guidance regarding the 

requirement that a return accompany 

payment of the section 4959 excise tax 

for failure to meet the CHNA 

requirements for any taxable year. 

Specifically, the temporary regulations 

direct hospital organizations liable for 

the tax imposed by section 4959 to file 

Form 4720, ‘‘Return of Certain Excise 

Taxes Under Chapters 41 and 42 of the 

Internal Revenue Code,’’ by the 15th day 

of the fifth month after the end of the 

organization’s taxable year in which the 

liability was incurred. The crossreference notice of proposed rulemaking 

solicited public comments. No public 

comments were received, and no public 

hearing was requested or held. 

In January 2014, the Treasury 

Department and the IRS published 

Notice 2014–2 (2014–3 IRB 407 (January 

13, 2014)) to confirm that hospital 

organizations could rely on both the 

2012 proposed regulations and the 2013 

proposed regulations, pending the 

publication of final regulations or other 

applicable guidance. This Treasury 

decision obsoletes Notice 2014–2, but 

the final regulations contained in this 

Treasury decision continue to allow 

reliance on both the 2012 proposed 

regulations and the 2013 proposed 

regulations until a hospital 

organization’s first taxable year 

beginning after December 29, 2015. 

Also in January 2014, the Treasury 

Department and the IRS published 

Notice 2014–3 (2014–3 IRB 408 (January 

13, 2014)), which contained, and 

solicited public comments on, a 

proposed revenue procedure that 

provides correction and reporting 

procedures under which certain failures 

to meet the requirements of section 

501(r) will be excused for purposes of 

sections 501(r)(1) and 501(r)(2)(B). The 

Treasury Department and the IRS 

received six comments in response to 

Notice 2014–3. 

After consideration of the comments 

received on the 2012 and 2013 proposed 

regulations, both sets of proposed 

regulations under section 501(r) are 

adopted as amended by this Treasury 

decision. In addition, this Treasury 

decision removes the temporary 

regulations under sections 6011 and 


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Federal Register / Vol. 79, No. 250 / Wednesday, December 31, 2014 / Rules and Regulations 78957 

6071 and adopts as amended the 

proposed regulations that crossreferenced the text of those temporary 

regulations. The major areas of comment 

and the revisions are discussed in this 

preamble. The comments are available 

for public inspection at 

www.regulations.gov or on request. 

Summary of Comments and 

Explanation of Revisions 

These final regulations provide 

guidance on the requirements described 

in section 501(r), the entities that must 

meet these requirements, and the 

reporting obligations relating to these 

requirements under section 6033. In 

addition, the final regulations provide 

guidance on the consequences described 

in sections 501(r)(1), 501(r)(2)(B), and 

4959 for failing to satisfy the section 

501(r) requirements. 

1. Hospital Facilities and Organizations 

a. In General 

In accordance with section 

501(r)(2)(A)(i) and consistent with the 

proposed regulations, the final 

regulations define ‘‘hospital 

organization’’ as an organization 

recognized (or seeking to be recognized) 

as described in section 501(c)(3) that 

operates one or more hospital facilities 

and define ‘‘hospital facility’’ as a 

facility that is required by a state to be 

licensed, registered, or similarly 

recognized as a hospital. The final 

regulations refer to hospital facilities 

taking certain actions, and such 

references are intended to include 

instances in which the hospital 

organization operating the hospital 

facility takes action through or on behalf 

of the hospital facility. 

Section 501(r)(2)(A)(ii) provides that a 

hospital organization also includes ‘‘any 

other organization that the Secretary 

determines has the provision of hospital 

care as its principal function or purpose 

constituting the basis for its exemption’’ 

under section 501(c)(3). One commenter 

requested that this language be 

incorporated into the definition of 

‘‘hospital organization’’ contained in the 

final regulations. 

At this time, the Treasury Department 

and the IRS have not identified any 

additional categories of organizations or 

facilities (other than hospital facilities 

and organizations operating them) with 

the principal function or purpose of 

providing hospital care. If any such 

categories of organizations or facilities 

are later identified, the Treasury 

Department and the IRS will issue 

proposed regulations identifying them, 

with the expanded definition applying 

prospectively only if, and when, the 

proposed regulations are finalized, after 

an opportunity for notice and comment. 

b. Multiple Buildings Under a Single 

Hospital License 

The definition of ‘‘hospital facility’’ in 

the 2012 proposed regulations provided 

that a hospital organization ‘‘may treat’’ 

multiple buildings operated under a 

single state license as a single hospital 

facility. To increase the certainty and 

consistency in the designation of 

hospital facilities, the 2013 proposed 

regulations revised this definition to 

indicate that multiple buildings 

operated by a hospital organization 

under a single state license ‘‘are’’ 

considered a single hospital facility for 

purposes of section 501(r). 

In response to the 2013 proposed 

regulations, several commenters stated 

that buildings in different geographic 

locations that share a license (for 

example, a hospital facility with 

satellite sites in various locations) may 

serve distinct communities and 

stakeholders, whose needs could be 

missed or unaddressed if they are 

aggregated into one large community 

served for purposes of the CHNA 

requirements. Multiple commenters 

asked that such a hospital facility be 

given the flexibility to conduct separate 

CHNAs for its separate buildings, noting 

that state law may require the facility to 

file separate implementation strategies 

for each building describing how each 

building plans to meet the health needs 

in its community. 

The Treasury Department and the IRS 

believe that a fixed rule regarding the 

treatment of multiple buildings under a 

single state license will provide for 

consistency and certainty in tax 

administration and increase the ability 

of both the IRS and the public to 

understand and to evaluate information 

reported on hospital organizations’ 

Forms 990 from year to year. 

Accordingly, the final regulations 

continue to provide that multiple 

buildings operated by a hospital 

organization under a single state license 

are considered to be a single hospital 

facility. The final regulations also clarify 

that, in the case of a hospital facility 

consisting of multiple buildings that 

operate under a single state license and 

serve different geographic areas or 

populations, the community served by 

the hospital facility is the aggregate of 

such areas or populations. However, in 

such a case, the hospital facility 

consisting of multiple buildings could, 

if desired, assess the health needs of the 

different geographic areas or 

populations served by the different 

buildings separately and document the 

assessments in separate chapters or 

sections of the hospital facility’s CHNA 

report and implementation strategy. 

c. One Building Under Multiple State 

Licenses 

A few commenters asked that the final 

regulations allow a hospital 

organization to treat operations in a 

single building under more than one 

state license as a single ‘‘hospital 

facility,’’ a situation the proposed 

regulations did not address. These 

commenters stated that entities 

operating within the same building have 

a high degree of integration and similar 

patient populations and that requiring 

each licensed facility to comply 

separately with section 501(r) would 

impose burdens without benefitting the 

community served. 

The final regulations do not adopt this 

suggestion because the Treasury 

Department and the IRS believe that 

having one definition of ‘‘hospital 

facility’’ based on state licensure alone 

is simpler and more administrable. 

However, the Treasury Department and 

the IRS note that, as discussed in 

section 4.c of this preamble, separate 

hospital facilities within the same 

building may have identical FAPs and 

other policies established for them or 

share one policy document as long as 

the information in the policy or policies 

is accurate for all such facilities and any 

joint policy clearly states that it is 

applicable to each facility. Furthermore, 

as discussed in sections 3.a.v and 3.b.iii 

of this preamble, separate hospital 

facilities within the same building that 

define their communities to be the same 

may conduct a joint CHNA and adopt a 

joint implementation strategy 

addressing the significant health needs 

identified in the joint CHNA. Thus, the 

final regulations allow for hospital 

facilities within the same building to 

jointly comply with many of the section 

501(r) requirements. 

d. Government Hospital Organizations 

The statutory language of section 

501(r) applies to all hospital 

organizations that are (or seek to be) 

recognized as described in section 

501(c)(3) and does not provide an 

exception for government hospital 

organizations. Accordingly, the 

preamble to the 2012 proposed 

regulations stated that the Treasury 

Department and the IRS intend to apply 

section 501(r) to every hospital 

organization that has been recognized 

(or seeks recognition) as an organization 

described in section 501(c)(3), 

regardless of whether a hospital 

organization is a government hospital 

organization. However, in recognition of 

the unique position of government 


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78958 Federal Register / Vol. 79, No. 250 / Wednesday, December 31, 2014 / Rules and Regulations 

1The final regulations delete the specific 

reference to joint ventures and limited liability 

companies contained in the 2013 proposed 

regulations because those entities are sufficiently 

covered by the general phrase ‘‘entity treated as a 

partnership for federal tax purposes.’’ The final 

regulations also delete the reference to ‘‘members 

of’’ an entity treated as a partnership for federal tax 

purposes because the intended organizations 

should be captured by the references to owners of 

a capital or profits interest in the partnership. These 

changes are not intended to be substantive changes. 

2The final regulations also provide that an 

organization operates a hospital facility if it is the 

sole member or owner of a disregarded entity that 

operates the hospital facility. Section 301.7701–2(a) 

provides that a disregarded entity’s activities are 

treated in the same manner as a branch or division 

of the owner. Accordingly, if a hospital organization 

is the sole owner of one disregarded entity that is, 

in turn, the sole owner of another disregarded entity 

that operates a hospital facility, the hospital 

organization would be considered to operate the 

hospital facility. 

hospital organizations, the Treasury 

Department and the IRS also requested 

comments regarding alternative 

methods a government hospital 

organization could use to satisfy the 

requirements of section 501(r). 

A number of commenters noted that 

government hospital organizations have 

long-standing relationships with their 

communities, are already known as 

‘‘safety net’’ health care providers, and 

are already obligated to provide care 

regardless of ability to pay (although 

care is sometimes limited to or 

prioritized for citizens of the locality 

that is supporting the hospital). 

Commenters also stated that government 

hospital organizations 

disproportionately serve patients who 

are uninsured, Medicaid beneficiaries, 

or hard to reach (such as homeless 

individuals, migrant workers, and 

undocumented individuals), and have 

governance structures that reflect a level 

of public accountability. Commenters 

added that, as stewards of public funds, 

government hospital organizations have 

an obligation to local taxpayers to 

ensure that scarce financial resources go 

toward patient care and not toward 

unnecessary administrative costs. 

However, rather than offering 

alternative methods a government 

hospital organization could use to 

satisfy the requirements of section 

501(r), these commenters instead 

effectively requested that the Treasury 

Department and the IRS provide 

exemptions from the requirements 

imposed by section 501(r) for 

government hospital organizations. For 

example, commenters recommended 

that government hospital organizations 

be exempted from all of the 

documentation requirements related to 

CHNAs, be deemed to have met the FAP 

requirements by virtue of their public 

status, or be permitted to charge some 

FAP-eligible individuals more than AGB 

as long as the average annual 

discounted charge provided to FAPeligible individuals did not exceed 

AGB. 

Other commenters expressed support 

for applying the requirements of section 

501(r) to government hospital 

organizations, stating that no exceptions 

for particular categories of section 

501(c)(3) organizations are permitted by 

the statute. Commenters also stated that, 

from the point of view of individuals 

seeking or receiving care, most 

government hospital organizations are 

indistinguishable from any other section 

501(c)(3) hospital organization and that 

their practices with regard to charges, 

billing, and collections are substantially 

the same. 

Because section 501(r) has no express 

or implicit exceptions for government 

hospital organizations, the final 

regulations require the section 501(r) 

requirements to be met by all hospital 

organizations that are (or seek to be) 

recognized as described in section 

501(c)(3), including those that are 

government hospital organizations. The 

Treasury Department and the IRS note, 

however, that government hospital 

organizations that have previously been 

recognized as described in section 

501(c)(3) but do not wish to comply 

with the requirements of section 501(r) 

may submit a request to voluntarily 

terminate their section 501(c)(3) 

recognition as described in section 

7.04(14) of Rev. Proc. 2014–4 (2014–1 

IRB 125) (or a successor revenue 

procedure). 

A number of commenters asked 

whether and how government hospital 

organizations can satisfy the reporting 

requirements related to CHNAs, given 

that they are excused from filing a Form 

990, ‘‘Return of Organization Exempt 

From Income Tax,’’ under Rev. Proc. 

95–48 (1995–2 CB 418). The Affordable 

Care Act did not change the 

requirements regarding which 

organizations are required to file a Form 

990. Rev. Proc. 95–48 provides that 

certain government entities are relieved 

from any requirement to file a Form 990 

(and therefore are relieved from having 

to disclose information or documents on 

or with a Form 990). Accordingly, a 

government hospital organization (other 

than one that is described in section 

509(a)(3)) described in Rev. Proc. 95–48 

or a successor revenue procedure is not 

required to file a Form 990 or include 

any CHNA-related information with a 

Form 990. However, to be treated as 

described in section 501(c)(3), 

government hospital organizations still 

must meet all section 501(r) 

requirements that do not involve 

disclosure on or with the Form 990, 

including making their CHNA reports 

and FAPs widely available on a Web 

site. 

e. Accountable Care Organizations 

Several commenters asked that 

separate entities cooperating in 

accountable care organizations (ACOs) 

or similar integrated care models be 

treated as a single ‘‘hospital 

organization’’ for purposes of section 

501(r), arguing that this would create 

administrative efficiencies as the 

participating organizations develop one 

standard set of policies and procedures 

and result in less confusion for patients 

as they move through a ‘‘continuum of 

care.’’ The final regulations do not adopt 

this suggestion, but the Treasury 

Department and the IRS note that, as 

discussed in section 4.c of this 

preamble, multiple hospital facilities 

may have identical FAPs and other 

policies established for them or share 

one joint policy document as long as the 

information in the policy or policies is 

accurate for all such facilities and any 

joint policy clearly states that it is 

applicable to each facility. Furthermore, 

as discussed in sections 3.a.v and 3.b.iii 

of this preamble, separate hospital 

facilities that define their community to 

be the same may conduct a joint CHNA 

and adopt a joint implementation 

strategy addressing the significant 

health needs identified in the joint 

CHNA. Thus, the final regulations 

provide opportunities for separate 

hospital facilities participating in an 

ACO to jointly comply with many of the 

section 501(r) requirements. 

f. ‘‘Operating’’ a Hospital Facility 

The 2013 proposed regulations 

generally provided that an organization 

operates a hospital facility if it owns a 

capital or profits interest in an entity 

treated as a partnership for federal tax 

purposes that operates the hospital 

facility. The final regulations maintain 

this general rule with two additions.1

First, the final regulations clarify that an 

organization is considered to own a 

capital or profits interest in an entity 

treated as a partnership for federal tax 

purposes if it owns such an interest 

directly or indirectly through one or 

more lower-tier entities that are treated 

as partnerships for federal tax 

purposes.2

Second, the final regulations clarify 

how the question of whether an 

organization ‘‘operates’’ a hospital 

facility relates to the question of 

whether the organization needs to meet 

the requirements of section 501(r) (and, 

therefore, would be subject to any 


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3As discussed in section 4.a of this preamble, in 

response to comments, the final regulations require 

a hospital facility’s FAP to identify the providers, 

other than the hospital facility itself, that may 

deliver emergency or other medically necessary 

care in the hospital facility and specify which 

providers are covered by the hospital facility’s FAP 

and which are not. 

4The final regulations also clarify that the term 

‘‘substantially-related entity’’ does not include any 

partnership that qualifies for a grandfather rule 

included in the 2013 proposed regulations and 

adopted in the final regulations. Under that rule, an 

organization will not be considered to ‘‘operate’’ a 

hospital facility despite owning a capital or profits 

interest in an entity treated as a partnership for 

federal tax purposes that operates the hospital 

facility if it has met certain conditions since March 

23, 2010. 

consequences for failing to meet such 

requirements). Specifically, § 1.501(r)– 

2(e) of the final regulations clarifies that 

a hospital organization is not required to 

meet the requirements of section 501(r) 

with respect to any hospital facility it is 

not ‘‘operating’’ within the meaning of 

that defined term. In addition, as stated 

in the preamble to the 2013 proposed 

regulations, the final regulations 

provide that a hospital organization is 

not required to meet the requirements of 

section 501(r) with respect to the 

operation of a facility that is not a 

‘‘hospital facility’’ because it is not 

required by a state to be licensed, 

registered, or similarly recognized as a 

hospital. The final regulations also 

provide that a hospital organization is 

not required to meet the requirements of 

section 501(r) with respect to any 

activities that constitute an unrelated 

trade or business described in section 

513 with respect to the hospital 

organization. 

g. Providing Care in a Hospital Facility 

Through Hospital-Owned Entities 

A number of commenters asked that 

the final regulations clarify the extent to 

which certain section 501(r) 

requirements apply to hospital-owned 

physician practices providing care in 

the hospital, with a few commenters 

requesting that the section 501(r) 

requirements apply to all care provided 

in a hospital facility by such practices.3

Whether or not the section 501(r) 

requirements apply to hospital-owned 

physician practices or other entities 

providing care in a hospital facility 

depends upon how the entities are 

classified for federal tax purposes. For 

example, a hospital facility would not 

be required to meet the section 501(r) 

requirements with respect to a taxable 

corporation providing care in the 

hospital facility, even if the corporation 

is wholly or partially owned by the 

hospital organization that operates the 

hospital facility, because the 

corporation is a separate taxable entity 

to which section 501(r) does not apply. 

By contrast, if a hospital organization 

is the sole member or owner of an entity 

providing care in one of its hospital 

facilities and that entity is disregarded 

as separate from the hospital 

organization for federal tax purposes, 

the care provided by the entity would be 

considered to be care provided by the 

hospital organization through its 

hospital facility. Accordingly, the 

hospital organization would be required 

to meet the section 501(r) requirements 

with respect to care provided by the 

disregarded entity in any hospital 

facility that the hospital organization 

operates. 

If a hospital organization owns a 

capital or profits interest in an entity 

providing care in a hospital facility that 

is treated as a partnership for federal tax 

purposes, the activities of the 

partnership are treated as the activities 

of the hospital organization for purposes 

of determining whether the hospital 

organization is operated exclusively for 

exempt purposes or engaged in an 

unrelated trade or business under 

generally applicable tax principles. See 

Rev. Rul. 2004–51 (2004–1 CB 974); 

Rev. Rul. 98–15 (1998–1 CB 718). 

Accordingly, emergency or other 

medically necessary care provided in a 

hospital facility by a partnership in 

which the hospital organization 

operating the facility has a capital or 

profits interest is treated as care 

provided by the hospital organization in 

its hospital facility for purposes of 

section 501(r). If the provision of such 

care by the partnership is an unrelated 

trade or business with respect to the 

hospital organization, the hospital 

organization does not have to meet the 

section 501(r) requirements with respect 

to the care because, as noted in section 

1.f of this preamble, the final regulations 

provide that a hospital organization is 

not required to meet the requirements of 

section 501(r) with respect to any 

activity that constitutes an unrelated 

trade or business with respect to the 

hospital organization. On the other 

hand, if the provision of emergency or 

other medically necessary care by the 

partnership is not an unrelated trade or 

business with respect to the hospital 

organization, the final regulations 

clarify that the hospital organization 

must meet the requirements of sections 

501(r)(4) through 501(r)(6) with respect 

to such care. The final regulations use 

a new defined term, ‘‘substantiallyrelated entity,’’ to refer to an entity that 

is treated as a partnership for federal tax 

purposes in which a hospital 

organization owns a capital or profits 

interest (or a disregarded entity of 

which the hospital organization is the 

sole owner or member) and that 

provides, in a hospital facility operated 

by the hospital organization, emergency 

or other medically necessary care that is 

not an unrelated trade or business with 

respect to the hospital organization.4

h. Authorized Body 

The 2013 proposed regulations 

defined the term ‘‘authorized body of a 

hospital facility’’ to include: (1) The 

governing body (that is, the board of 

directors, board of trustees, or 

equivalent controlling body) of the 

hospital organization; (2) a committee 

of, or other party authorized by, the 

governing body of the hospital 

organization, to the extent permitted 

under state law; or (3) in the case of a 

hospital facility that has its own 

governing body and is recognized as an 

entity under state law but is a 

disregarded entity for federal tax 

purposes, the governing body of that 

hospital facility, or a committee of, or 

other party authorized by, that 

governing body to the extent permitted 

under state law. 

In cases in which a hospital 

organization owns a capital or profits 

interest in a partnership that operates a 

hospital facility, the Treasury 

Department and the IRS believe the 

governing body of the partnership 

should also be considered an authorized 

body of the hospital facility, and the 

final regulations are amended to reflect 

this change. In particular, the final 

regulations provide that an authorized 

body of a hospital facility may include 

the governing body of an entity that 

operates the hospital facility and is 

disregarded or treated as a partnership 

for federal tax purposes (or a committee 

of, or other party authorized by, that 

governing body to the extent such 

committee or other party is permitted 

under state law to act on behalf of the 

governing body), and thus either the 

governing body (or committee or other 

authorized party) of the hospital 

organization or of the disregarded entity 

or partnership may be considered the 

authorized body of the hospital facility. 

Some questions have arisen regarding 

whether adoption of a CHNA report, 

implementation strategy, FAP, or other 

policy by one authorized official of a 

hospital facility would constitute 

adoption by an authorized body of the 

hospital facility for purposes of the 

regulatory requirements. Under the 

regulatory definition of ‘‘authorized 

body of a hospital facility’’ in both the 

2013 proposed regulations and these 

final regulations, a single individual 

may constitute either a committee of the 


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5This interpretation of ‘‘authorized body of a 

hospital facility’’ is consistent with the 

interpretation of the term ‘‘authorized body’’ under 

Treas. Reg. § 53.4958–6(c)(1)(i). See TD 8978 (67 FR 

3076, 3082). 

governing body or a party authorized by 

the governing body to act on its behalf, 

provided that state law allows a single 

individual to act in either of these 

capacities.5

2. Failures To Satisfy the Requirements 

of Section 501(r) 

The Treasury Department and the IRS 

recognize that errors may occur even in 

circumstances in which a hospital 

facility has practices and procedures in 

place that are reasonably designed to 

facilitate overall compliance with 

section 501(r) and has implemented 

safeguards reasonably calculated to 

prevent errors. Thus, the 2013 proposed 

regulations provided that a hospital 

facility’s omission of required 

information from a policy or report 

described in § 1.501(r)–3 or § 1.501(r)–4, 

or an error with respect to the 

implementation or operational 

requirements described in §§ 1.501(r)–3 

through 1.501(r)–6, would not be 

considered a failure to meet a 

requirement of section 501(r) if: (1) The 

omission or error was minor, 

inadvertent, and due to reasonable 

cause, and (2) the hospital facility 

corrected such omission or error as 

promptly after discovery as is 

reasonable given the nature of the 

omission or error. 

In addition, to provide an incentive 

for hospital facilities to take steps not 

only to avoid errors but also to correct 

and provide disclosure when they 

occur, the 2013 proposed regulations 

provided that a hospital facility’s failure 

to meet one or more of the requirements 

described in §§ 1.501(r)–3 through 

1.501(r)–6 that is neither willful nor 

egregious would be excused if the 

hospital facility corrects and makes 

disclosure in accordance with guidance 

set forth by revenue procedure, notice, 

or other guidance published in the 

Internal Revenue Bulletin. On January 

13, 2014, the Treasury Department and 

the IRS published Notice 2014–3, which 

contained a proposed revenue 

procedure setting forth procedures for 

correction and disclosure of such 

failures and solicited public comments 

regarding the proposed revenue 

procedure. The Treasury Department 

and the IRS intend to release a revenue 

procedure finalizing the guidance 

proposed in Notice 2014–3 in the near 

future. 

a. Minor Omissions and Errors 

Several commenters supported the 

proposed approach to minor and 

inadvertent omissions and errors that 

are due to reasonable cause, agreeing 

that if they are promptly corrected upon 

discovery they should not result in 

sanctions. Accordingly, the final 

regulations retain this general approach, 

with some modifications. 

One commenter suggested modifying 

the proposed rule so that it will apply 

to omissions or errors that are minor, 

inadvertent, ‘‘or’’ due to reasonable 

cause (rather than ‘‘and’’), stating that 

an omission or error was unlikely to 

satisfy all three conditions. The same 

commenter noted that ‘‘reasonable 

cause’’ may be interpreted differently in 

a variety of circumstances, potentially 

making this safe harbor too narrow. The 

Treasury Department and the IRS 

believe that the insignificance of an 

omission or error should always be a 

necessary condition for receiving the 

benefit of correcting under § 1.501(r)– 

2(b) without any obligation to disclose 

to the IRS or the public. Thus, the final 

regulations require an omission or error 

to be minor in order to be corrected and 

not considered a failure under 

§ 1.501(r)–2(b). However, in response to 

this comment, the final regulations 

provide that the option for correction 

without disclosure provided in 

§ 1.501(r)–2(b) will be available if the 

omission or error is minor and either 

inadvertent or due to reasonable cause. 

As noted later in this section of the 

preamble, the final regulations also 

clarify the meaning of ‘‘reasonable 

cause’’ for purposes § 1.501(r)–2(b). 

Numerous commenters asked for 

further guidance and specific examples 

with respect to the types of omissions 

and errors that would be considered 

minor, inadvertent, and/or due to 

reasonable cause, as opposed to those 

that are excused only if they are 

corrected and disclosed, as discussed in 

section 2.b of this preamble. As more 

experience is gained regarding the types 

of omissions or errors that typically 

occur in implementing the section 

501(r) requirements, the Treasury 

Department and the IRS will consider 

issuing further guidance in this area. In 

the meantime, the final regulations 

provide additional guidance regarding 

the factors that will be considered in 

determining whether an omission or 

error is minor and either inadvertent or 

due to reasonable cause. With respect to 

minor, the final regulations clarify that, 

in the case of multiple omissions or 

errors, the omissions or errors are 

considered minor only if they are minor 

in the aggregate. The final regulations 

further provide that the fact that the 

same omission or error has occurred and 

been corrected previously is a factor 

tending to show that an omission or 

error is not inadvertent. Finally, with 

respect to reasonable cause, the final 

regulations provide that a hospital 

facility’s establishment of practices or 

procedures (formal or informal) 

reasonably designed to promote and 

facilitate overall compliance with the 

section 501(r) requirements prior to the 

occurrence of an omission or error is a 

factor tending to show that the omission 

or error was due to reasonable cause. 

Commenters also asked for guidance 

and examples demonstrating how minor 

omissions or errors should be remedied 

to avoid sanctions. The final regulations 

specify that correction of minor 

omissions or errors must include 

establishment (or review and, if 

necessary, revision) of practices or 

procedures (formal or informal) that are 

reasonably designed to achieve overall 

compliance with the requirements of 

section 501(r). As more experience is 

gained regarding the types of omissions 

or errors that typically occur in 

implementing the section 501(r) 

requirements, the Treasury Department 

and the IRS will consider issuing further 

guidance on the correction of minor 

omissions or errors. 

A few commenters asked that hospital 

facilities be required to disclose the 

minor omissions or errors that they 

correct, either on a Web site or on the 

Form 990, to increase transparency and 

encourage continuous improvement. 

The Treasury Department and the IRS 

expect that minor omissions or errors 

will not have a significant impact on 

individuals in a hospital facility’s 

community and, therefore, will be 

sufficiently inconsequential that they do 

not justify the additional burden of 

disclosure. Instead, as discussed in 

section 2.b of this preamble, disclosure 

is a requirement reserved for those 

omissions and errors that rise above the 

level of ‘‘minor’’ and have a broader 

scope and greater impact on individuals 

within the hospital facility’s 

community, as well as those that are 

neither inadvertent nor due to 

reasonable cause and thus involve a 

degree of culpability on the part of the 

hospital facility. 

b. Excusing Certain Failures If a 

Hospital Facility Corrects and Makes 

Disclosure 

The 2013 proposed regulations 

provided that a hospital facility’s failure 

to meet one or more of the requirements 

described in §§ 1.501(r)–3 through 

1.501(r)–6 that is neither willful nor 

egregious would be excused if the 


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hospital facility corrects and provides 

disclosure in accordance with guidance 

set forth by revenue procedure, notice, 

or other guidance published in the 

Internal Revenue Bulletin. The 2013 

proposed regulations indicated that, for 

purposes of this provision, a ‘‘willful’’ 

failure would be interpreted consistent 

with the meaning of that term in the 

context of civil penalties, which would 

include a failure due to gross 

negligence, reckless disregard, or willful 

neglect. Several commenters indicated 

that the reference to ‘‘civil penalties’’ 

was unclear. In response, the final 

regulations delete the reference to civil 

penalties, but continue to provide that 

a ‘‘willful’’ failure includes a failure due 

to gross negligence, reckless disregard, 

and willful neglect—all terms with wellestablished meanings in case law—to 

assist hospital facilities in 

distinguishing between a failure that is 

willful and a failure that may be 

excused if it is corrected and disclosed. 

Similarly, several commenters asked 

for guidance on what would qualify as 

‘‘egregious’’ noncompliance, 

recommending that the term should be 

reserved for actions that are of the 

utmost seriousness and that would 

undermine the intent of section 501(r) 

as a whole. The Treasury Department 

and the IRS agree with commenters that 

the term ‘‘egregious’’ should encompass 

only very serious failures, taking into 

account the severity of the impact and 

the number of affected persons, and the 

final regulations are amended to reflect 

this. As the Treasury Department and 

the IRS gain additional experience with 

the types of failures to meet section 

501(r) that occur, examples of failures 

that are or are not willful or egregious 

may be provided in future guidance. 

A number of commenters suggested 

that the final regulations should create 

a rebuttable presumption that a failure 

that is corrected and disclosed is neither 

willful nor egregious. Commenters 

reasoned that such a presumption 

would ensure that hospital facilities that 

correct and disclose failures would get 

some benefit in return for their efforts 

and reduce uncertainty regarding their 

section 501(c)(3) status. The final 

regulations do not provide for such a 

presumption because correction and 

disclosure of a failure are not 

determinative of a hospital facility’s 

willfulness or the egregiousness of the 

failure. However, the Treasury 

Department and the IRS do believe that 

a hospital facility that corrects and 

discloses a failure to meet a section 

501(r) requirement is less likely to have 

acted willfully in failing to meet that 

requirement, and thus the final 

regulations provide that correction and 

disclosure of a failure is a factor tending 

to show that an error or omission was 

not willful. 

A few commenters questioned 

whether a system of correction and 

disclosure should be sufficient to 

prevent revocation of section 501(c)(3) 

status, with one commenter asking that 

proposed § 1.501(r)–2(c) be struck in its 

entirety. The Treasury Department and 

the IRS believe that the statute’s 

objectives of promoting transparency of 

hospital facilities’ CHNAs and FAPs and 

of providing protections to FAP-eligible 

patients with respect to charges and 

collections are well served by a system 

that encourages hospitals to adopt 

practices that prevent failures and 

promptly discover and correct any 

failures that happen to occur. In 

addition, disclosure of failures and what 

has been done to correct them provides 

significant transparency. Accordingly, 

the final regulations retain § 1.501(r)– 

2(c). 

The 2013 proposed regulations stated 

that a hospital facility may, in the 

discretion of the IRS, be subject to an 

excise tax under section 4959 for a 

failure to meet the CHNA requirements, 

notwithstanding the hospital facility’s 

correction and disclosure of the failure 

in accordance with the relevant 

procedures. Several commenters 

expressed confusion as to whether and 

how the tax under section 4959 would 

apply in the event of a failure that was 

corrected and disclosed. Although some 

commenters did not think the excise tax 

should apply upon correction and 

disclosure, at least one commenter 

suggested that the statute does not 

permit the excise tax to be excused. 

To eliminate the uncertainty, the final 

regulations under section 4959 provide 

that a hospital facility failing to meet the 

CHNA requirements ‘‘will’’ (rather than 

‘‘may, in the discretion of the IRS’’) be 

subject to an excise tax under section 

4959, notwithstanding its correction and 

disclosure of the failure. However, as 

discussed in section 2.a of this 

preamble, a hospital facility’s omission 

or error with respect to the CHNA 

requirements will not be considered a 

failure to meet the CHNA requirements 

if the omission or error is minor and 

either inadvertent or due to reasonable 

cause and if the hospital facility corrects 

the omission or error in accordance with 

§ 1.501(r)–2(b)(1)(ii) of the final 

regulations. Accordingly, the final 

regulations under section 4959 also 

make clear that such a minor omission 

or error related to the CHNA 

requirements that is corrected will not 

give rise to an excise tax under section 

4959. 

c. Facts and Circumstances Considered 

in Determining Whether To Revoke 

Section 501(c)(3) Status 

Consistent with the 2013 proposed 

regulations, the final regulations 

provide that the IRS will consider all 

relevant facts and circumstances when 

determining whether revocation of 

section 501(c)(3) status is warranted as 

a result of a failure to meet one or more 

requirements of section 501(r). 

Several commenters asked that the 

regulatory text of the final regulations 

include the statement found in the 

preamble to the 2013 proposed 

regulations that application of these 

facts and circumstances will ordinarily 

result in revocation of section 501(c)(3) 

status only if the organization’s failures 

to meet the requirements of section 

501(r) are willful or egregious. On the 

other hand, one commenter expressed 

concern that this statement signals that 

revocation could result due to failures 

that are willful, but not serious or 

material. 

The final regulations provide that all 

of the relevant facts and circumstances 

will be considered in determining 

whether to revoke a hospital 

organization’s section 501(c)(3) status, 

including the size, scope, nature, and 

significance of the organization’s failure, 

as well as the reason for the failure and 

whether the same type of failure has 

previously occurred. The IRS will also 

consider whether the hospital 

organization had, prior to the failure, 

established practices or procedures 

(formal or informal) reasonably 

designed to promote and facilitate 

overall compliance with the section 

501(r) requirements; whether such 

practices or procedures were being 

routinely followed; and whether the 

failure was corrected promptly. 

d. Taxation of Noncompliant Hospital 

Facilities 

Like the 2013 proposed regulations, 

the final regulations provide for a 

facility-level tax for a hospital 

organization operating more than one 

hospital facility that fails to meet one or 

more of the requirements of section 

501(r) separately with respect to a 

hospital facility during a taxable year. 

Specifically, this facility-level tax 

applies to a hospital organization that 

continues to be recognized as described 

in section 501(c)(3) but would not 

continue to be so recognized based on 

the facts and circumstances described in 

section 2.c of this preamble if the 

noncompliant facility were the only 

hospital facility operated by the 

organization. The facility-level tax is 

applied to income derived from the 


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noncompliant hospital facility during 

the taxable year of non-compliance and 

is computed as provided in section 11 

(or as provided in section 1(e) if the 

hospital organization is a trust described 

in section 511(b)(2)). 

The 2013 proposed regulations also 

stated that the application of the 

facility-level tax to income derived from 

a noncompliant hospital facility would 

not, by itself, affect the tax-exempt 

status of bonds issued to finance the 

noncompliant hospital facility. 

Numerous commenters requested that 

the final regulations further specify that 

a noncompliant hospital facility subject 

to the facility-level tax will not be 

treated as an unrelated trade or business 

for purposes of tax-exempt bonds issued 

to finance the noncompliant facility. In 

response to these comments, the final 

regulations clarify that application of 

the facility-level tax will not, by itself, 

result in the operation of the 

noncompliant hospital facility being 

considered an unrelated trade or 

business described in section 513. 

3. Community Health Needs 

Assessments 

Consistent with section 501(r)(3)(A), 

the final regulations provide that a 

hospital organization meets the 

requirements of section 501(r)(3) in any 

taxable year with respect to a hospital 

facility it operates only if the hospital 

facility has conducted a CHNA in such 

taxable year or in either of the two 

immediately preceding taxable years 

and an authorized body of the hospital 

facility has adopted an implementation 

strategy to meet the community health 

needs identified through the CHNA. 

a. Conducting a Community Health 

Needs Assessment 

Consistent with the 2013 proposed 

regulations, the final regulations 

provide that, in conducting a CHNA, a 

hospital facility must define the 

community it serves and assess the 

health needs of that community. In 

assessing the community’s health needs, 

the hospital facility must solicit and 

take into account input received from 

persons who represent the broad 

interests of its community. The hospital 

facility must also document the CHNA 

in a written report (CHNA report) that 

is adopted for the hospital facility by an 

authorized body of the hospital facility. 

Finally, the hospital facility must make 

the CHNA report widely available to the 

public. A hospital facility is considered 

to have conducted a CHNA on the date 

it has completed all of these steps, 

including making the CHNA report 

widely available to the public. 

Several commenters suggested that a 

hospital facility should be considered to 

have conducted a CHNA if it updates a 

previously conducted CHNA, as 

opposed to being required to create an 

entirely new CHNA every three years. 

The Treasury Department and the IRS 

expect that, in conducting CHNAs, 

hospital facilities will build upon 

previously-conducted CHNAs, and 

nothing in either the 2013 proposed 

regulations or the final regulations is 

intended to prevent this practice. 

Hospital facilities should note, however, 

that both the 2013 proposed regulations 

and these final regulations require the 

solicitation and consideration of input 

from persons representing the broad 

interests of the community anew with 

each CHNA, even if the CHNA builds 

upon a previously conducted CHNA. 

i. Community Served by the Hospital 

Facility 

The 2013 proposed regulations 

provided that a hospital facility may 

take into account all of the relevant facts 

and circumstances in defining the 

community it serves, including the 

geographic area served by the hospital 

facility, target populations served (for 

example, children, women, or the aged), 

and principal functions (for example, 

focus on a particular specialty area or 

targeted disease). The 2013 proposed 

regulations further provided that a 

hospital facility may define its 

community to include populations in 

addition to its patient populations and 

geographic areas outside of those in 

which its patient populations reside. 

However, the 2013 proposed regulations 

did not permit a hospital facility to 

define its community in a way that 

excluded medically underserved, lowincome, or minority populations who 

are served by the hospital facility, live 

in the geographic areas in which its 

patient populations reside (unless such 

populations are not part of the hospital 

facility’s target population or affected by 

its principal functions), or otherwise 

should be included based on the 

method used by the hospital facility to 

define its community. 

A few commenters expressed concern 

that the sentence suggesting that a 

hospital facility could define its 

community to include populations in 

addition to its patient populations and 

geographic areas outside of those in 

which its patient populations reside 

could create confusion among both 

hospital organizations and the public, as 

it implies that the community that is 

defined for CHNA purposes may not 

actually be the community served by the 

hospital facility. To avoid potential 

confusion, the final regulations delete 

this language. However, the final 

regulations continue to give hospital 

facilities broad flexibility to define the 

communities they serve or intend to 

serve (both in addressing needs 

identified through their CHNAs and 

otherwise) taking into account all 

relevant facts and circumstances, 

provided that they do not exclude 

medically underserved, low-income, or 

minority populations. 

With respect to the provision in the 

2013 proposed regulations that a 

hospital facility may not define its 

community in a way that excludes 

medically underserved, low-income, or 

minority populations, several 

commenters asked that the final 

regulations prohibit exclusion of 

additional populations, such as 

populations with limited English 

proficiency (LEP) or potential patients 

within the community who are not 

currently receiving care. With respect to 

potential patients not currently 

receiving care, commenters noted that 

individuals may live within a hospital 

facility’s service community but not use 

the facility for reasons that include cost, 

lack of transportation, lack of adequate 

language access services, stigma, or 

other barriers. 

The 2013 proposed regulations and 

these final regulations define 

‘‘medically underserved’’ populations as 

including populations ‘‘at risk of not 

receiving adequate medical care as a 

result of being uninsured or 

underinsured or due to geographic, 

language, financial, or other barriers.’’ 

The reference to language barriers in the 

definition of medically underserved 

already encompasses LEP populations. 

In addition, the definition of ‘‘medically 

underserved’’ already prevents the 

exclusion of those living within a 

hospital facility’s service area but not 

receiving adequate medical care from 

the facility because of cost, 

transportation difficulties, stigma, or 

other barriers. The final regulations also 

provide that hospital facilities may not 

exclude low-income or minority 

populations living ‘‘in the geographic 

areas from which the hospital facility 

draws its patients,’’ and not only those 

already receiving care from the facility. 

Accordingly, the Treasury Department 

and the IRS believe the concerns 

addressed by these commenters are 

addressed by the final regulations. 

ii. Assessing Community Health Needs 

The 2013 proposed regulations 

provided that, to assess the health needs 

of its community, a hospital facility 

must identify the significant health 

needs of its community, prioritize those 

health needs, and identify potential 


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measures and resources (such as 

programs, organizations, and facilities 

in the community) available to address 

the health needs. For these purposes, 

the 2013 proposed regulations stated 

that health needs include requisites for 

the improvement or maintenance of 

health status both in the community at 

large and in particular parts of the 

community (such as particular 

neighborhoods or populations 

experiencing health disparities). The 

preamble added that requisites for the 

improvement or maintenance of health 

status in a community may include 

improving access to care by removing 

financial and other barriers to care, such 

as a lack of information regarding 

sources of insurance designed to benefit 

vulnerable populations. Numerous 

commenters asked for clarification that 

the term ‘‘health needs’’ also 

encompasses needs in addition to access 

to care, such as access to proper 

nutrition and housing, the mitigation of 

social, environmental, and behavioral 

factors that influence health, or 

emergency preparedness. In response to 

these comments, the final regulations 

expand the examples of health needs 

that a hospital facility may consider in 

its CHNA to include not only the need 

to address financial and other barriers to 

care but also the need to prevent illness, 

to ensure adequate nutrition, or to 

address social, behavioral, and 

environmental factors that influence 

health in the community. The Treasury 

Department and the IRS note that the 

list of possible health needs in the final 

regulations is only a list of examples, 

and a hospital facility is not required to 

identify all such types of health needs 

in its CHNA report if all such types are 

not determined by the hospital facility 

to be significant health needs in its 

community. 

The 2013 proposed regulations 

provided that a hospital facility may use 

any criteria to prioritize the significant 

health needs it identifies, including, but 

not limited to, the burden, scope, 

severity, or urgency of the health need; 

the estimated feasibility and 

effectiveness of possible interventions; 

the health disparities associated with 

the need; or the importance the 

community places on addressing the 

need. One commenter supported the 

flexibility provided to hospital facilities 

in determining how to prioritize 

significant health needs, while several 

other commenters expressed concern 

that the language in the proposed rule 

that a hospital facility may use ‘‘any’’ 

criteria when prioritizing significant 

health needs could be read to include 

criteria that disregard community 

preferences. Two commenters 

recommended requiring hospital 

facilities to use the listed criteria, with 

one such commenter noting that these 

are commonly-used criteria in health 

planning and program evaluation. 

Section 501(r)(3) does not mandate 

the use of particular prioritization 

criteria. Accordingly, the list of 

prioritization criteria in the final 

regulations remains a non-exhaustive 

list of examples, and hospital facilities 

have flexibility to choose how best to 

prioritize the significant health needs of 

their particular communities. However, 

to ensure transparency with respect to a 

hospital facility’s prioritization, the 

final regulations, like the 2013 proposed 

regulations, require a hospital facility’s 

CHNA report to describe the process 

and criteria used in prioritizing the 

significant health needs identified. In 

addition, the final regulations require a 

hospital facility to take into account 

community input not only in 

identifying significant health needs but 

also in prioritizing them. 

A few commenters asked for 

clarification regarding the requirement 

in the 2013 proposed regulations that 

hospital facilities identify potential 

measures and resources (such as 

programs, organizations, and facilities 

in the community) available to address 

significant health needs. For example, 

one commenter asked whether the term 

‘‘measures’’ referred to how the hospital 

facility would measure the scope of the 

health need, rather than actions the 

hospital facility might take to address 

the health need. Another commenter 

interpreted the proposed requirement as 

referring to the potential measures and 

resources only of parties in the 

community other than the hospital 

facility itself. To eliminate any 

confusion associated with the use of the 

term ‘‘measures,’’ the final regulations 

eliminate the term and require a 

hospital facility to identify resources 

potentially available to address the 

significant health needs, with the term 

‘‘resources’’ including programs, 

organizations, or facilities. In addition, 

the final regulations clarify that 

resources of the hospital facility itself 

may be identified. 

Numerous commenters recommended 

removing the requirement that a CHNA 

include potential measures and 

resources to address the significant 

health needs identified, stating that the 

implementation strategy was a better 

place to discuss the means to address 

health needs. Other commenters 

supported this requirement, with one 

such commenter stating that it is 

important to consider potential 

measures and resources early in the 

CHNA process to provide a framework 

for determining which health needs to 

address in the implementation strategy. 

The Treasury Department and the IRS 

agree that a vital part of assessing and 

prioritizing health needs is to begin 

considering what resources in the 

community could potentially be 

harnessed to help address those health 

needs and thus believe that hospital 

facilities should get community input 

on this important aspect of assessing 

health needs while the CHNA is being 

conducted. The opportunity for 

contemporaneous community input on 

potentially available resources would 

not exist if such resources were 

identified as part of the implementation 

strategy because a hospital facility is not 

required to take into account input on 

an implementation strategy until it is 

conducting the subsequent CHNA. 

Accordingly, the final regulations retain 

the requirement that a CHNA identify 

resources potentially available to 

address significant health needs. 

iii. Input From Persons Representing the 

Broad Interests of the Community 

The 2013 proposed regulations 

provided that, in assessing the health 

needs of its community, a hospital 

facility must take into account input 

received from, at a minimum, the 

following three sources: (1) At least one 

state, local, tribal, or regional 

governmental public health department 

(or equivalent department or agency) 

with knowledge, information, or 

expertise relevant to the health needs of 

the community; (2) members of 

medically underserved, low-income, 

and minority populations in the 

community, or individuals or 

organizations serving or representing 

the interests of such populations; and 

(3) written comments received on the 

hospital facility’s most recently 

conducted CHNA and most recently 

adopted implementation strategy. 

Several commenters asked that the 

final regulations address the situation in 

which a hospital facility, despite its best 

efforts, is unable to secure input on its 

CHNA from a required category of 

persons. In response, the final 

regulations retain the three categories of 

persons representing the broad interests 

of the community specified in the 2013 

proposed regulations but clarify that a 

hospital facility must ‘‘solicit’’ input 

from these categories and take into 

account the input ‘‘received.’’ The 

Treasury Department and the IRS 

expect, however, that a hospital facility 

claiming that it solicited, but could not 

obtain, input from one of the required 

categories of persons will be able to 

document that it made reasonable 


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efforts to obtain such input, and the 

final regulations require the CHNA 

report to describe any such efforts. 

Numerous commenters requested that 

the final regulations provide for public 

input on the identification and 

prioritization of significant health 

needs, with a few of these commenters 

expressing a particular interest in 

ensuring ample opportunity for 

community input and feedback on 

which community health needs should 

be deemed ‘‘significant.’’ By requiring 

hospital facilities to take into account 

public input ‘‘in assessing the health 

needs of the community’’ and defining 

‘‘assessing the health needs of the 

community’’ to include identifying and 

prioritizing significant health needs, the 

2013 proposed regulations already 

required public input on the 

identification and prioritization of 

significant health needs. The final 

regulations clarify that the requirement 

to take into account input in assessing 

the health needs of the community 

includes taking into account input in 

identifying and prioritizing significant 

health needs, as well as identifying 

resources potentially available to 

address those health needs. 

Finally, the final regulations do not 

adopt a suggestion from several 

commenters that a hospital facility be 

required to take into account public 

input in defining its community because 

such a requirement would be circular, 

as a hospital facility must define its 

community before it can take into 

account input from persons who 

represent the broad interests of that 

community. 

A. Governmental Public Health 

Departments 

Numerous commenters supported 

requiring hospital facilities to take into 

account input from a governmental 

public health department (or equivalent 

department or agency), noting that 

governmental health departments 

typically have access to statistical and 

other data that may be helpful in 

assessing and prioritizing community 

health needs and, in many cases, 

conduct community health assessments 

of their own. 

One commenter asked what is meant 

by ‘‘or equivalent department or 

agency’’ and whether the term was 

intended to be an exception to the 

requirement that hospital facilities 

collaborate with governmental public 

health departments. The parenthetical 

reference to an ‘‘equivalent department 

or agency’’ in the 2013 proposed 

regulations and the final regulations is 

not intended to be an exception. Rather, 

it is included in recognition of the fact 

that governments may have different 

names for the particular unit with 

jurisdiction over and expertise in public 

health. For example, the particular unit 

of a government with jurisdiction over 

and expertise in public health might be 

called an ‘‘agency,’’ ‘‘division,’’ 

‘‘authority,’’ ‘‘bureau,’’ ‘‘office,’’ or 

‘‘center’’ rather than a department and 

may or may not have the term ‘‘public 

health’’ in its name. As long as a 

hospital facility is soliciting and taking 

into account input received from the 

unit of a local, state, tribal, or regional 

government with jurisdiction over and 

expertise in public health, it will satisfy 

the requirement to solicit and take into 

account input received from a 

governmental public health department. 

The 2013 proposed regulations 

provided flexibility in allowing a 

hospital facility to choose the level of 

government that it concluded was most 

appropriate for its CHNA, and did not 

require a hospital facility to solicit input 

from a local public health department, 

in particular, because not all 

jurisdictions will have local public 

health departments available to 

participate in the CHNA process. 

Several commenters asked that the final 

regulations require a hospital facility to 

solicit input from a local public health 

department if one exists in its 

community. Other commenters, 

however, expressly supported allowing 

flexibility to choose the particular 

governmental health department from 

which to seek input. 

The Treasury Department and the IRS 

believe that public health departments 

represent the broad interests of the 

jurisdictions they serve and have special 

knowledge of and expertise in public 

health, regardless of whether they are 

local, state, tribal, or regional 

departments. Several commenters noted 

that local public health departments 

may vary greatly in their capacity to 

participate in a CHNA process. In 

addition, the community served by a 

hospital facility may span the 

jurisdictions of multiple local public 

health departments. Thus, even when a 

hospital facility’s locality has a local 

public health department, the hospital 

facility still might reasonably decide 

that a public health department at a 

different jurisdictional level may be a 

more appropriate source of input for its 

CHNA. Accordingly, the final 

regulations preserve the flexible 

approach of the 2013 proposed 

regulations and allow a hospital facility 

to select the jurisdictional level (local, 

state, tribal or regional) of the public 

health department that is most 

appropriate for its CHNA. 

One commenter asked that the final 

regulations identify State Offices of 

Rural Health (SORHs) as governmental 

public health entities from which 

hospital facilities may seek input. This 

commenter stated that SORHs operate 

on a statewide basis and routinely 

conduct rural health planning efforts, 

including both health service access 

assessments and population health 

status assessments. The Treasury 

Department and the IRS note that the 

substantial majority of SORHs are 

located in state health departments, 

such that rural hospital facilities 

soliciting input from these state SORHs 

would presumably be soliciting input 

from a state public health department. 

However, because some SORHs are 

located in state universities or other 

nonprofits or government departments 

other than public health departments, 

the final regulations separately identify 

SORHs as a source of input from which 

hospital facilities may solicit and take 

into account input to satisfy the relevant 

requirement. 

One commenter stated that hospital 

facilities are increasingly employing or 

contracting with public health experts. 

This commenter further stated that it 

would seem illogical for a hospital 

facility to be considered to have failed 

to meet the CHNA requirements because 

it relied on more specific, in-depth 

advice and input from a public health 

expert without necessarily working with 

a public health agency with strained 

available resources that is attempting to 

serve a larger geographic area with a 

broader set of public health needs than 

those the hospital facility might address. 

The Treasury Department and the IRS 

note that public health expertise alone 

does not result in a person’s 

representing the broad interests of the 

community, while a governmental 

public health department both offers 

public health expertise and is 

responsible for ensuring that the broad 

interests of the community are 

represented. Thus, while hospital 

facilities are free to contract with public 

health experts to assist with their 

CHNAs, the final regulations require a 

hospital facility to solicit and take into 

account input received from a 

governmental public health department. 

B. Medically Underserved, Low-Income, 

and Minority Populations 

Several commenters asked that 

hospital facilities be required to seek 

input from certain specified groups, 

such as the disabled, individuals with 

chronic diseases, women and children, 

and LEP populations, in addition to the 

requirement in the 2013 proposed 

regulations to seek input from medically 


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underserved, low-income, and minority 

populations. As noted in section 3.a.i of 

this preamble, ‘‘medically underserved’’ 

populations are defined in the 2013 

proposed regulations and these final 

regulations as populations ‘‘at risk of 

not receiving adequate medical care as 

a result of being uninsured or 

underinsured or due to geographic, 

language, financial, or other barriers.’’ 

The Treasury Department and the IRS 

believe this definition (along with the 

inclusion of low-income and minority 

populations) should be sufficiently 

broad to encompass many of the 

populations cited by commenters to the 

extent such populations are at risk of 

not receiving adequate medical care. 

Moreover, even if a hospital facility 

does not solicit input from a particular 

population while conducting its CHNA, 

any person can participate in the CHNA 

process by submitting written comments 

on the hospital facility’s most recently 

conducted CHNA and most recently 

adopted implementation strategy, as 

described in section 3.a.iii.C of this 

preamble. Accordingly, the final 

regulations do not expand the 

populations from whom a hospital 

facility is required to solicit input 

beyond medically underserved, 

minority, and low-income populations. 

One commenter asked that the final 

regulations define the broader category 

of ‘‘minority populations’’ to include 

certain sub-categories of persons, such 

as persons with disabilities and LEP 

individuals, and require hospital 

facilities to consult a member or 

representative of each such sub-category 

identified in their community served. 

Because the sub-categories within the 

broad categories of minority and 

medically underserved populations will 

likely vary greatly from community to 

community, the final regulations 

continue to provide hospital facilities 

with the flexibility to identify the 

significant minority and medically 

underserved populations in their 

communities with whom they should 

consult and do not mandate any specific 

approach. 

C. Written Comments 

While some comments in response to 

Notice 2011–52 recommended a 

requirement that a hospital facility take 

into account public input on a draft 

version of its CHNA report before 

finalizing the report, this 

recommendation was not adopted in the 

2013 proposed regulations due to the 

complexity of the additional timeframes 

and procedures such a process would 

require. Instead, the 2013 proposed 

regulations required hospital facilities to 

consider written comments received 

from the public on the hospital facility’s 

most recently conducted CHNA and 

most recently adopted implementation 

strategy. Because a new CHNA must be 

conducted and an implementation 

strategy adopted at least once every 

three years, the Treasury Department 

and the IRS intended for this 

requirement to establish the same sort of 

continual feedback on CHNA reports 

suggested by commenters, albeit over a 

different timeframe. 

In response to the 2013 proposed 

regulations, some commenters 

continued to advocate for requiring 

comments on a draft CHNA report 

before it is finalized, stating that the 

burdens of such a rule would be 

reasonable and commensurate with the 

benefits of giving interested individuals 

additional opportunities to participate 

in the CHNA. These commenters added 

that without a mandatory opportunity to 

comment on the draft CHNA report, 

interested individuals and organizations 

may not be aware that a hospital facility 

is conducting its CHNA until the CHNA 

is complete, and that opening up the 

CHNA report for comment in ‘‘real 

time’’ would yield findings more 

indicative of community priorities and 

provide a better framework for 

collaboration. Other commenters, 

however, supported the proposed 

requirement that hospital facilities take 

into account input in the form of written 

comments received on the hospital 

facility’s most recently conducted 

CHNA and most recently adopted 

implementation strategy, stating that 

such comments may provide extremely 

valuable information to guide future 

assessments and implementation 

strategies and that this is a practical way 

of taking various perspectives into 

account. 

The Treasury Department and the IRS 

continue to believe that the opportunity 

for the public to submit written 

comments on previously adopted CHNA 

reports and implementation strategies 

will result in a meaningful exchange 

over time and that the longer timeframe 

will both give the public sufficient time 

to provide comments (including 

comments reflecting changing 

circumstances) and give hospital 

facilities sufficient time to take the 

comments into account when 

conducting their next CHNA. The 

Treasury Department and the IRS also 

note that hospital facilities’ CHNA 

processes will be taking into account 

input in ‘‘real time’’ from various 

community stakeholders, including, at a 

minimum, governmental public health 

departments and medically 

underserved, low-income, and minority 

populations (or persons serving or 

representing them). Accordingly, the 

final regulations retain the requirement 

that a hospital facility take into account 

written comments on the hospital 

facility’s most recently conducted 

CHNA report and most recently adopted 

implementation strategy and do not 

adopt an additional requirement to post 

a draft CHNA report for public comment 

before it is finalized. In addition, the 

Treasury Department and the IRS note 

that hospital facilities may choose to 

post a draft CHNA report for public 

comment, and both the 2013 proposed 

regulations and these final regulations 

facilitate this option by specifying that 

the posting of a draft CHNA report will 

not trigger the start of a hospital 

facility’s next three-year CHNA cycle. 

A few commenters asked how the 

public is expected to comment on the 

implementation strategy if the 

information is not made available 

outside of the Form 990 reporting 

process. As discussed in section 8.a of 

this preamble, a hospital organization 

must either attach to its Form 990 a 

copy of the most recently adopted 

implementation strategy for each 

hospital facility it operates or provide 

on the Form 990 the URL(s) of the Web 

page(s) on which it has made each 

implementation strategy widely 

available on a Web site. Section 6104 

requires Forms 990 to be made available 

to the public by both the filing 

organization and the IRS, and members 

of the public may obtain a copy of a 

hospital organization’s Forms 990 from 

one of the privately-funded 

organizations that gathers and 

disseminates Forms 990 online or by 

completing IRS Form 4506–A, ‘‘Request 

for Public Inspection or Copy of Exempt 

or Political Organization IRS Form.’’ 

One commenter requested 

clarification on how hospital facilities 

should be collecting written comments 

from the public, asking, for example, if 

written comments must be collected via 

a form on a Web site or by email or 

mailed letter. The final regulations do 

not require a specific method for 

collection of these written comments, 

providing hospital facilities with the 

flexibility to set up a collection and 

tracking system that works with their 

internal systems and makes the most 

sense for their particular community. 

A few commenters asked that the final 

regulations clarify how hospital 

facilities should respond to written 

comments received from the public. 

One commenter proposed that a 

hospital facility designate a 

representative or division responsible 

for providing substantive responses to 

written comments to demonstrate that 

the hospital facility has received the 


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comment and to ensure that the public 

will be able to provide continual 

feedback during the interim period 

between formal CHNAs. In contrast, 

another commenter stated that requiring 

hospitals to individually address each 

community concern through feedback 

could become burdensome. As 

discussed in section 3.a.iv of this 

preamble, the final regulations require 

hospital facilities to describe generally 

any input received in the form of 

written comments (or from any other 

source) in their CHNA reports. The 

Treasury Department and the IRS expect 

that this description in the CHNA report 

will provide sufficient confirmation that 

comments have been received and 

considered and intend that hospital 

facilities will otherwise have flexibility 

in determining whether further 

responses are necessary. Thus, the final 

regulations do not adopt any specific 

requirements regarding how hospital 

facilities must respond to written 

comments received from the public. 

Finally, one commenter sought 

confirmation that the requirement to 

take into account written comments on 

the hospital facility’s ‘‘most recently 

conducted CHNA’’ means that hospital 

facilities must take into account public 

comments submitted after the CHNA or 

implementation strategy is finalized to 

inform and influence future CHNAs and 

implementation strategies. This is an 

accurate description of this provision in 

both the 2013 proposed regulations and 

these final regulations. The Treasury 

Department and the IRS intend that the 

phrase ‘‘most recently conducted 

CHNA’’ refers not to a CHNA that is in 

process but rather to the last CHNA that 

was ‘‘conducted,’’ typically determined 

as of the date the hospital facility makes 

an adopted and complete CHNA report 

widely available to the public. 

D. Additional Sources of Input 

The 2013 proposed regulations 

provided that, in addition to soliciting 

input from the three required sources, a 

hospital facility may take into account 

input from a broad range of persons 

located in or serving its community, 

including, but not limited to, health care 

consumers and consumer advocates, 

nonprofit and community-based 

organizations, academic experts, local 

government officials, local school 

districts, health care providers and 

community health centers, health 

insurance and managed care 

organizations, private businesses, and 

labor and workforce representatives. 

Numerous commenters requested that 

the final regulations require, rather than 

simply permit, hospital facilities to 

solicit input from additional sources, 

including from patient and health care 

consumer organizations located in or 

serving the hospital facility’s 

community, county governing boards, 

experts in nutrition or the local food 

system, and housing service providers. 

While these sources may have valuable 

input to contribute to a hospital 

facility’s CHNA, mandating input from 

some or all of these sources could result 

in a final rule that is unsuited for 

particular communities and further 

complicate the CHNA process and the 

ability to collaborate. Accordingly, the 

final regulations do not require 

hospitals to solicit input from additional 

persons, although a hospital facility is 

free to solicit input from the suggested 

sources (as well as other sources) and 

must take into account input received 

from any person (including these 

sources) in the form of written 

comments on the most recently 

conducted CHNA or most recently 

adopted implementation strategy. 

E. Input on Financial and Other Barriers 

The 2012 proposed regulations 

requested comments on the potential 

link between the needs of a hospital 

facility’s community, as determined 

through the hospital facility’s most 

recently conducted CHNA, and a 

hospital facility’s FAP. The preamble to 

the 2013 proposed regulations 

recognized that the need to improve 

access to care by removing financial 

barriers can be among the significant 

health needs assessed in a CHNA, and 

the 2013 proposed regulations 

themselves provided that input from 

persons representing the broad interests 

of the community includes, but is not 

limited to, input on any financial and 

other barriers to access to care in the 

community. 

Several commenters stated that the 

CHNA process offers an opportunity to 

inquire about financial and other 

barriers to care, which could provide 

useful information to a hospital facility 

in updating and evaluating its FAP. 

However, other commenters noted that 

section 501(r) does not require a link 

between a hospital facility’s CHNA and 

its FAP. These commenters further 

stated that because CHNAs are already 

required to take into account input from 

persons who represent the broad 

interests of the community and the 

decision of how to meet those needs is 

the responsibility of the hospital’s 

governing board, a linkage should be 

allowed at the discretion of the hospital 

facility but not required. 

In acknowledgement of the 

importance of assessing financial 

barriers to care in the CHNA process, 

the final regulations expressly provide 

that the health needs of a community 

may include the need to address 

financial and other barriers to access to 

care in the community. However, 

consistent with the approach taken in 

Notice 2011–52 and the 2013 proposed 

regulations, the final regulations focus 

on ensuring transparency regarding the 

health needs identified through a CHNA 

rather than requiring hospital facilities 

to identify any particular categories of 

health needs. As with all significant 

health needs identified through a 

CHNA, a hospital facility’s decision as 

to whether and how to address a 

significant health need involving 

financial barriers to care (including 

through an amendment to a hospital 

facility’s FAP) will be disclosed 

publicly in the hospital facility’s 

implementation strategy and subject to 

public comments in preparing the next 

CHNA. Thus, the final regulations do 

not require any additional link between 

a hospital facility’s CHNA and its FAP. 

iv. Documentation of a CHNA 

Similar to the 2013 proposed 

regulations, the final regulations 

provide that a hospital facility must 

document its CHNA in a CHNA report 

that is adopted by an authorized body 

of the hospital facility and includes: (1) 

A definition of the community served 

by the hospital facility and a description 

of how the community was determined; 

(2) a description of the process and 

methods used to conduct the CHNA; (3) 

a description of how the hospital facility 

solicited and took into account input 

received from persons who represent 

the broad interests of the community it 

serves; (4) a prioritized description of 

the significant health needs of the 

community identified through the 

CHNA, along with a description of the 

process and criteria used in identifying 

certain health needs as significant and 

prioritizing those significant health 

needs; and (5) a description of resources 

potentially available to address the 

significant health needs identified 

through the CHNA. 

Both the 2013 proposed regulations 

and these final regulations provide that 

a CHNA report will be considered to 

describe the process and methods used 

to conduct the CHNA if the CHNA 

report describes the data and other 

information used in the assessment, as 

well as the methods of collecting and 

analyzing this data and information, and 

identifies any parties with whom the 

hospital facility collaborated, or with 

whom it contracted for assistance, in 

conducting the CHNA. Some 

commenters requested that this 

provision be modified to permit the 

referencing of publicly available source 


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materials (for example, public health 

agency data) on which the hospital 

facility relied in conducting its CHNA. 

The final regulations clarify that a 

hospital facility may rely on (and the 

CHNA report may describe) data 

collected or created by others in 

conducting its CHNA and, in such 

cases, may simply cite the data sources 

rather than describe the ‘‘methods of 

collecting’’ the data. 

A few commenters requested 

clarification on how a hospital facility’s 

CHNA report should describe input 

received in the form of written 

comments, with one such commenter 

asking if a general summary of the input 

provided, the number of comments 

received, and the time period during 

which the comments were received will 

be sufficient. The final regulations 

retain the provisions of the 2013 

proposed regulations, which stated that 

a CHNA report will be considered to 

describe how the hospital facility took 

into account community input if it 

summarizes, in general terms, the input 

provided and how and over what time 

period it was provided. This language 

applies to written comments, as well as 

to any other type of input provided. In 

addition, like the 2013 proposed 

regulations, the final regulations 

provide that a CHNA report does not 

need to name or otherwise identify any 

specific individual providing input on 

the CHNA, which would include input 

provided by individuals in the form of 

written comments. 

v. Collaboration on CHNA Reports 

The 2013 proposed regulations 

provided that a hospital organization 

may choose to conduct its CHNA in 

collaboration with other organizations 

and facilities, including related and 

unrelated hospital organizations and 

facilities, for-profit and government 

hospitals, governmental departments, 

and nonprofit organizations. In general, 

every hospital facility must document 

its CHNA in a separate CHNA report. 

However, the 2013 proposed regulations 

made clear that portions of a hospital 

facility’s CHNA report may be 

substantively identical to portions of the 

CHNA reports of other facilities or 

organizations, if appropriate under the 

facts and circumstances. The 2013 

proposed regulations further provided 

that collaborating hospital facilities that 

define their community to be the same 

and that conduct a joint CHNA process 

may produce a joint CHNA report. The 

final regulations amend the proposed 

regulations to clarify that joint CHNA 

reports must contain all of the same 

basic information that separate CHNA 

reports must contain (discussed in 

section 3.a.iv of this preamble). 

Numerous commenters expressed 

support for allowing joint CHNA 

reports, noting that the purpose of 

collaboration is to make the most 

efficient use of resources in assessing 

community needs and devising 

strategies to address those needs and 

that communities would benefit from 

strengthened collaborative partnerships 

that help build broad-based support for 

community-wide solutions to the 

underlying causes of health problems. 

In addition, several of these commenters 

stated that joint CHNA reports would 

more effectively leverage the health data 

expertise of governmental public health 

departments without placing an 

unreasonable burden on departments 

that serve jurisdictions with more than 

one tax-exempt hospital facility. 

Another commenter stated that joint 

CHNA reports both enhance overall 

community health and lessen confusion 

in the community by providing a more 

comprehensive view of the identified 

needs and associated strategies for 

addressing those needs. For these 

reasons, the final regulations continue 

to permit collaborating hospital 

facilities to produce joint CHNA reports. 

Several commenters recommended 

that the final regulations go beyond 

simply permitting collaboration to 

expressly encouraging, or even 

requiring, hospital facilities located in 

the same jurisdiction to collaborate in 

conducting a CHNA and developing an 

implementation strategy. One of these 

commenters stated that this would help 

ensure that the community is not 

overburdened by multiple CHNA 

efforts, noting that a ‘‘go it alone’’ 

approach in a jurisdiction with multiple 

hospitals is likely to be neither the most 

efficient nor the most effective way to 

improve the overall health of the 

community. Another commenter, 

however, stated that the discretion to 

work collaboratively with others should 

be left to each particular hospital 

facility, given the many health care 

providers operating in a typical 

community. 

Like the 2013 proposed regulations, 

the final regulations encourage and 

facilitate collaboration among hospital 

facilities by allowing for joint CHNA 

reports. However, section 501(r) applies 

separately to each hospital organization 

(and, in the case of hospital 

organizations operating more than one 

hospital facility, each hospital facility) 

and, therefore, it is not appropriate to 

require hospital organizations to meet 

the section 501(r)(3) requirements 

collaboratively with other organizations. 

Accordingly, the final regulations 

facilitate, but do not require, 

collaboration. 

Two commenters asked whether the 

requirement that collaborating hospital 

facilities must ‘‘conduct a joint CHNA 

process’’ to adopt a joint CHNA report 

means that the collaborating hospital 

facilities must make the joint CHNA 

report widely available to the public 

(including posting the CHNA report on 

a Web site) on the same day. The 

Treasury Department and the IRS do not 

intend for collaborating hospital 

facilities to have to make a joint CHNA 

report widely available to the public on 

the same day. Thus, in response to these 

comments and to avoid potential 

confusion, the final regulations remove 

the reference to a joint CHNA process. 

A. Defining a Common Community 

Several commenters expressed 

concern regarding the requirement that 

hospital facilities that collaborate on a 

CHNA and intend to produce a joint 

CHNA report must define their 

communities to be the same. Two of 

these commenters requested that a 

hospital facility collaborating on a 

CHNA being conducted for a larger 

shared community also be able to 

identify and address needs that are 

highly localized in nature or occurring 

within only a small portion of that 

community. The 2013 proposed 

regulations and these final regulations 

define ‘‘health needs’’ to include 

requisites for the improvement or 

maintenance of health status in 

particular parts of the community, such 

as particular neighborhoods or 

populations experiencing health 

disparities. Accordingly, a joint CHNA 

conducted for a larger area could 

identify as a significant health need a 

need that is highly localized in nature 

or occurs within only a small portion of 

that larger area. In addition, nothing in 

the final regulations prevents a hospital 

facility collaborating on a CHNA from 

supplementing a joint CHNA report 

with its own assessment of more highly 

localized needs. Because the 2013 

proposed regulations already allowed 

collaborating hospital facilities to 

address highly localized needs 

experienced in a particular part of their 

shared community, the final regulations 

do not amend the proposed regulations 

in response to these comments. 

One commenter requested that 

collaborating hospital facilities that 

serve different communities be allowed 

to adopt a joint CHNA report, stating 

that requiring all hospital facilities 

participating in a joint CHNA report to 

define their community to be the same 

would appear to prohibit collaboration 

between general and specialized 


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hospital facilities in the same 

geographic area if the specialized 

hospital facilities define their 

communities in terms of service area or 

principal function and the general 

hospital facilities define their 

communities geographically. 

The 2013 proposed regulations and 

these final regulations permit hospital 

facilities with different but overlapping 

communities to collaborate in 

conducting a CHNA and to include 

substantively identical portions in their 

separate CHNA reports if appropriate 

under the facts and circumstances. The 

final regulations elaborate upon this 

point with an example of two hospital 

facilities with overlapping, but not 

identical, communities that are 

collaborating in conducting a CHNA 

and state that, in such a case, the 

portions of each hospital facility’s 

CHNA report relevant to the shared 

areas of their communities may be 

identical. Thus, the final regulations not 

only expressly permit hospital facilities 

with different communities (including 

general and specialized hospitals) to 

collaborate but also allow such hospital 

facilities to adopt substantively 

identical CHNA reports to the extent 

appropriate. 

A few commenters recommended that 

the final regulations make clear that, to 

the extent that the communities served 

by collaborating hospital facilities differ, 

a CHNA report must reflect the unique 

needs of the community of the 

particular hospital facility adopting the 

report. By stating that collaborating 

hospital facilities with different but 

overlapping communities may include 

substantively identical portions in their 

separate CHNA reports only ‘‘if 

appropriate under the facts and 

circumstances,’’ the 2013 proposed 

regulations and these final regulations 

convey that the CHNA reports of 

collaborating hospital facilities should 

differ to reflect any material differences 

in the communities served by those 

hospital facilities. 

B. Collaborating With Public Health 

Departments 

Two commenters requested that 

hospital facilities be permitted to adopt 

the CHNA of a local public health 

department in the event that: (1) The 

hospital facility has the same 

community as the local public health 

department (as defined by the hospital 

facility), and (2) the CHNA adopted by 

the local public health department 

meets the requirements set forth in these 

regulations. The final regulations clarify 

that if a governmental public health 

department has conducted a CHNA for 

all or part of a hospital facility’s 

community, portions of the hospital 

facility’s CHNA report may be 

substantively identical to those portions 

of the health department’s CHNA report 

that address the hospital facility’s 

community. The final regulations also 

clarify that a hospital facility that 

collaborates with a governmental public 

health department in conducting its 

CHNA may adopt a joint CHNA report 

produced by the hospital facility and 

public health department, as long as the 

other requirements applicable to joint 

CHNA reports are met. 

vi. Making the CHNA Report Widely 

Available to the Public 

The 2013 proposed regulations 

provided that a hospital facility must 

make its CHNA report widely available 

to the public both by making the CHNA 

report widely available on a Web site 

and by making a paper copy of the 

CHNA report available for public 

inspection without charge at the 

hospital facility. The 2013 proposed 

regulations further provided that the 

CHNA report must be made widely 

available to the public in this manner 

until the date the hospital facility has 

made widely available to the public its 

two subsequent CHNA reports. 

A few commenters recommended that 

the final regulations require the CHNA 

report to be translated into multiple 

languages. Commenters also 

recommended that the hospital facility 

be required to make paper copies of the 

CHNA report available in locations 

other than the hospital facility that may 

be more accessible to the community at 

large and proactively inform the 

community when the report is available. 

The Treasury Department and the IRS 

note that section 501(r)(3) requires the 

CHNA to be made ‘‘widely available’’ to 

the public, in contrast to the 

requirement in section 501(r)(4) 

regarding measures to ‘‘widely 

publicize’’ the FAP. The Treasury 

Department and the IRS have 

interpreted the term ‘‘widely publicize’’ 

to require proactive efforts to inform, 

and make a document available in, the 

community at large, but have not so 

interpreted the term ‘‘widely available.’’ 

The Treasury Department and the IRS 

interpret ‘‘widely available’’ in a 

manner consistent with how that term is 

defined for purposes of section 6104 

(relating to disclosure of annual 

information returns). See § 301.6104(d)– 

2(b) (interpreting the term ‘‘widely 

available’’ in section 6104(d)(4) to 

include the posting of information 

returns and exemption applications on 

a Web page). Accordingly, the final 

regulations retain the definition of 

‘‘widely available’’ set forth in the 

proposed regulations and decline to 

adopt a definition that would include 

the suggested measures to translate and 

proactively publicize the CHNA report 

within the community served by the 

hospital facility. 

Additional commenters requested that 

hospital facilities be required to post 

their CHNA reports (and 

implementation strategies) on a 

national, searchable Web site. Given 

that hospital facilities are already 

required to conspicuously post their 

CHNA reports on a Web site, any 

individual interested in a particular 

hospital facility’s CHNA report should 

be able to locate it. The Treasury 

Department and the IRS do not have, 

and cannot require a third party to host, 

a comprehensive Web site containing all 

hospital facilities’ CHNA reports. 

Accordingly, the final regulations do not 

adopt this additional suggested 

requirement. 

One commenter asked that the final 

regulations clarify how a hospital 

facility is required to make a paper copy 

of its CHNA report available for public 

inspection and, specifically, whether a 

paper copy of the CHNA report must be 

publicly displayed or, rather, may be 

made available only upon request. The 

final regulations clarify that a hospital 

facility need only make a paper copy of 

the CHNA report available for public 

inspection upon request. 

vii. Frequency of the CHNA Cycle 

The 2013 proposed regulations 

provided that, to satisfy the CHNA 

requirements for a particular taxable 

year, a hospital facility must conduct a 

CHNA in that taxable year or in either 

of the two taxable years immediately 

preceding such taxable year. A few 

commenters requested that the final 

regulations provide flexibility in the 

timeline to limit impediments to 

collaboration amongst hospital facilities 

with different taxable years. 

Commenters also requested that the 

CHNA cycle match the five-year cycle 

that local public health departments 

follow in conducting their community 

health assessments for national 

accreditation by the Public Health 

Accreditation Board. One such 

commenter stated that adopting this 

five-year timeline would avoid 

duplication of effort and incentivize 

hospital facilities to collaborate more 

fully with local public health 

departments. Because section 

501(r)(3)(A)(i) requires a hospital 

organization to conduct a CHNA in the 

current or one of the two prior taxable 

years, the final regulations do not adopt 

these suggestions. 


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b. Implementation Strategies 

The final regulations provide, 

consistent with the 2013 proposed 

regulations, that a hospital facility’s 

implementation strategy is a written 

plan that, with respect to each 

significant health need identified 

through the CHNA, either: (1) Describes 

how the hospital facility plans to 

address the health need, or (2) identifies 

the health need as one the hospital 

facility does not intend to address and 

explains why the hospital facility does 

not intend to address the health need. 

The preamble to the 2013 proposed 

regulations further provided that 

although an implementation strategy 

must consider the significant health 

needs identified through a hospital 

facility’s CHNA, the implementation 

strategy is not limited to considering 

only those health needs and may 

describe activities to address health 

needs that the hospital facility identifies 

in other ways. Several commenters 

supported this proposed flexibility to 

discuss health needs identified in ways 

other than through conducting a CHNA, 

with two such commenters requesting 

that this language appear in the 

regulatory text of the final regulations. 

Another commenter, however, stated 

that CHNA reports and implementation 

strategies should be tightly integrated 

and expressed concern that allowing or 

encouraging hospital facilities to 

introduce in the implementation 

strategy additional needs beyond those 

identified in the CHNA may undermine 

the role of community input. 

In general, the final regulations under 

section 501(r) provide detail only with 

respect to the minimum elements that 

must be included in the various 

documents and policies required under 

sections 501(r)(3) and 501(r)(4), 

preserving flexibility for hospital 

facilities to otherwise determine the 

contents of such documents and 

policies. Consistent with this approach, 

the final regulations do not prohibit 

implementation strategies from 

discussing health needs identified 

through means other than a CHNA, 

provided that all of the significant 

health needs identified in the CHNA are 

also discussed. 

Many commenters recommended that 

the statutory requirements that a CHNA 

‘‘take into account input from persons 

who represent the broad interests of the 

community’’ and ‘‘be made widely 

available to the public’’ should also 

apply to implementation strategies to 

allow communities to monitor, assist, 

and provide input on hospital facilities’ 

efforts to address health needs. With 

respect to making the implementation 

strategy more accessible to the public, 

commenters also asked that the final 

regulations clarify how the public may 

access an implementation strategy that 

is attached to the Form 990. 

Section 501(r)(3)(B) applies the 

requirements regarding community 

input and wide availability to the public 

only to CHNAs. In addition, only 

section 501(r)(3)(A)(i), which refers to 

CHNAs, and not section 501(r)(3)(A)(ii), 

which refers to implementation 

strategies, cross-references the 

requirements regarding community 

input and wide availability to the public 

contained in section 501(r)(3)(B). 

Accordingly, the final regulations do not 

adopt the suggested changes. However, 

the 2013 proposed regulations and these 

final regulations respond to 

commenters’ requests to require public 

input on the implementation strategy by 

requiring a hospital facility to take into 

account comments received on the 

previously adopted implementation 

strategy when the hospital facility is 

conducting the subsequent CHNA. 

Furthermore, as discussed in section 8.a 

of this preamble, the 2013 proposed 

regulations and these final regulations 

respond to commenters’ requests to 

require the implementation strategy to 

be made widely available to the public 

by requiring a hospital organization to 

attach to its Form 990 a copy of the most 

recently adopted implementation 

strategy for each hospital facility it 

operates (or provide on the Form 990 

the URL(s) of the Web page(s) on which 

it has made each implementation 

strategy widely available on a Web site). 

As noted in section 3.a.iii.C of this 

preamble, section 6104 requires Forms 

990 to be made available to the public 

by both the filing organization and the 

IRS, and members of the public may 

easily obtain a copy of a hospital 

organization’s Forms 990 from one of 

the privately-funded organizations that 

gathers and disseminates Forms 990 

online or by completing IRS Form 4506– 

A. 

i. Describing How a Hospital Facility 

Plans To Address a Significant Health 

Need 

In describing how a hospital facility 

plans to address a significant health 

need identified through the CHNA, the 

2013 proposed regulations provided that 

the implementation strategy must: (1) 

Describe the actions the hospital facility 

intends to take to address the health 

need, the anticipated impact of these 

actions, and the plan to evaluate such 

impact; (2) identify the programs and 

resources the hospital facility plans to 

commit to address the health need; and 

(3) describe any planned collaboration 

between the hospital facility and other 

facilities or organizations in addressing 

the health need. 

Many commenters supported the 

proposed requirement that a hospital 

facility include a plan to evaluate the 

impact of its efforts in its 

implementation strategy and further 

recommended that the final regulations 

require hospital facilities to actually 

perform the planned evaluation and 

publish the results of the evaluation. 

Some of these commenters 

recommended publication of the results 

in the subsequent CHNA report. Other 

commenters requested permission for 

hospital facilities to accomplish the 

‘‘plan to evaluate the impact’’ of the 

implementation strategy through the 

process of conducting the next CHNA. 

In response to these comments, the final 

regulations replace the proposed 

requirement that the implementation 

strategy describe a plan to evaluate its 

impact with a requirement that the 

CHNA report include an evaluation of 

the impact of any actions that were 

taken since the hospital facility finished 

conducting its immediately preceding 

CHNA to address the significant health 

needs identified in the hospital facility’s 

prior CHNA(s). 

The preamble to the 2013 proposed 

regulations provided the example that if 

a hospital facility’s CHNA identified 

high rates of financial need or large 

numbers of uninsured individuals and 

families in the community as a 

significant health need in its 

community, its implementation strategy 

could describe a program to address that 

need by expanding its financial 

assistance program and helping to enroll 

uninsured individuals in sources of 

insurance such as Medicare, Medicaid, 

Children’s Health Insurance Program 

(CHIP), and the new Health Insurance 

Marketplaces (also known as 

Exchanges), as appropriate. A few 

commenters stated that, in addition to 

examples involving access to health 

care, it would be helpful to have 

examples of other interventions 

designed to prevent illness or to address 

social, behavioral, and environmental 

factors that influence community 

health. An implementation strategy may 

describe the actions the hospital facility 

intends to take to address any 

significant health needs identified 

through the CHNA process, and, as 

noted in section 3.a.ii of this preamble, 

the final regulations specify that the 

health needs identified through a CHNA 

may, for example, include the need to 

prevent illness, to ensure adequate 

nutrition, or to address social, 

behavioral, and environmental factors 

that influence health in the community. 


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Thus, the final regulations make clear 

that an implementation strategy may 

describe interventions designed to 

prevent illness or to address social, 

behavioral, and environmental factors 

that influence community health. 

ii. Describing Why a Hospital Facility Is 

Not Addressing a Significant Health 

Need 

The 2013 proposed regulations 

provided that a hospital facility may 

provide a brief explanation of its reason 

for not addressing a significant health 

need, including, but not limited to, 

resource constraints, relative lack of 

expertise or competencies to effectively 

address the need, a relatively low 

priority assigned to the need, a lack of 

identified effective interventions to 

address the need, and/or the fact that 

the need is being addressed by other 

facilities or organizations in the 

community. Several commenters 

thought hospital facilities should not be 

able to cite ‘‘resource constraints’’ or 

‘‘lack of expertise’’ as reasons for not 

addressing a significant health need. 

These commenters state that a hospital 

facility that is unable, for reasons of lack 

of resources or expertise or other factors, 

to address a community health need 

should instead collaborate with 

community partners to address that 

need. Other commenters supported 

allowing hospital facilities to provide 

any explanation as to why some health 

needs will not be addressed, consistent 

with the proposed rule. 

As discussed in section 3.a.v of this 

preamble, the final regulations permit 

but do not require collaboration. Thus, 

the final regulations preserve the ability 

for a hospital facility to explain its 

reasons for not addressing a significant 

health need (including resource 

constraints or a lack of expertise), even 

if those reasons could be mitigated 

through collaboration. 

iii. Joint Implementation Strategies 

The 2013 proposed regulations 

provided that a hospital facility 

adopting a joint CHNA report along 

with other hospital facilities and 

organizations (as described in section 

3.a.v of this preamble) may also adopt 

a joint implementation strategy as long 

as it meets certain specified 

requirements. 

Numerous commenters generally 

supported joint implementation 

strategies, with some of these 

commenters stating that such 

collaboration is an important way to 

conserve resources, promote crosssystem strategies, and yield better 

outcomes. Commenters also noted that 

the proposed approach avoids the need 

to create duplicative separate 

documents while still ensuring that 

information for each hospital facility is 

clearly presented. Accordingly, the final 

regulations adopt the proposed 

provision allowing for joint 

implementation strategies. 

iv. When the Implementation Strategy 

Must Be Adopted 

To satisfy the CHNA requirements 

with respect to any taxable year, section 

501(r)(3)(A)(ii) requires a hospital 

facility to adopt an implementation 

strategy to meet the health needs 

identified through the CHNA described 

in section 501(r)(3)(A)(i). The 2013 

proposed regulations provided that, to 

satisfy this requirement, an authorized 

body of the hospital facility must adopt 

an implementation strategy to meet the 

health needs identified through a 

hospital facility’s CHNA by the end of 

the same taxable year in which the 

hospital facility finishes conducting the 

CHNA. In addition, the Treasury 

Department and the IRS sought 

comments on whether this rule would 

materially inhibit the ability of hospital 

facilities with different taxable years to 

collaborate with each other or otherwise 

burden hospital facilities unnecessarily. 

Some commenters requested 

additional time in which to adopt the 

implementation strategy to 

accommodate collaboration between 

hospital facilities, public health 

departments, and community 

organizations with different fiscal years 

and on different CHNA schedules. 

Suggestions from these commenters 

ranged from an additional four and a 

half months to 12 months after the end 

of the taxable year in which the CHNA 

was conducted. 

In response to these comments, the 

final regulations provide hospital 

facilities with an additional four and a 

half months to adopt the 

implementation strategy, specifically 

requiring an authorized body of the 

hospital facility to adopt an 

implementation strategy to meet the 

health needs identified through a CHNA 

on or before the 15th day of the fifth 

month after the end of the taxable year 

in which the hospital facility finishes 

conducting the CHNA. By matching the 

date by which an authorized body of the 

hospital facility must adopt the 

implementation strategy to the due date 

(without extensions) of the Form 990 

filed for the taxable year in which the 

CHNA is conducted, this approach does 

not materially reduce transparency, 

because an implementation strategy (or 

the URL of the Web site on which it is 

posted) is made available to the public 

through the Form 990. The final 

regulations do not go further and permit 

a hospital facility to delay adoption of 

an implementation strategy until the 

due date for the Form 990 including 

extensions. This is because hospital 

facilities need to report on Form 4720 

any excise tax they owe under section 

4959 as a result of failing to meet the 

CHNA requirements in a taxable year by 

the 15th day of the fifth month 

following the end of that taxable year 

and thus need to know whether they 

have met the requirement to adopt an 

implementation strategy by that date. 

Because all hospital organizations 

now have until the 15th day of the fifth 

month following the close of the taxable 

year in which they conduct a CHNA to 

adopt the associated implementation 

strategy, the final regulations remove 

the transition rule that allowed for this 

result for CHNAs conducted in a 

hospital facility’s first taxable year 

beginning after March 23, 2012. 

c. Exception for Hospital Facilities That 

Are New, Newly Acquired, or Newly 

Subject to Section 501(r) 

The 2013 proposed regulations 

provided that a hospital facility that was 

newly acquired or placed into service by 

a hospital organization, or that became 

newly subject to section 501(r) because 

the hospital organization that operated 

it was newly recognized as described in 

section 501(c)(3), must meet the CHNA 

requirements by the last day of the 

second taxable year beginning after the 

date, respectively, the hospital facility 

was acquired, placed into service, or 

newly subject to section 501(r). 

Several commenters interpreted the 

2013 proposed regulations as providing 

new and newly acquired hospital 

facilities with only two taxable years to 

meet the CHNA requirements. Two such 

commenters requested that these 

hospital facilities be given three taxable 

years, to correspond to the length of the 

CHNA cycle provided in the statute. 

The 2013 proposed regulations gave 

hospital facilities two complete taxable 

years plus the portion of the taxable 

year of acquisition, licensure, or section 

501(c)(3) recognition (as applicable) to 

meet the CHNA requirements. As noted 

in the preamble to the 2013 proposed 

regulations, a short taxable year of less 

than twelve months is considered a 

taxable year for purposes of section 

501(r). Thus, the portion of the taxable 

year in which a hospital facility is 

acquired or placed into service, or 

becomes newly subject to section 501(r), 

is a taxable year for purposes of the 

CHNA requirements, regardless of 

whether that taxable year is less than 

twelve months. As a result, a deadline 

of the last day of the second taxable year 


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beginning after the date of acquisition, 

licensure, or section 501(c)(3) 

recognition provides these new hospital 

facilities with three taxable years (even 

if less than three full calendar years) to 

meet the section 501(r)(3) requirements. 

By contrast, a deadline of the last day 

of the third taxable year beginning after 

the date of acquisition, licensure, or 

section 501(c)(3) recognition would 

provide these new hospital facilities 

with more than three taxable years, and 

possibly close to four taxable years, to 

meet the CHNA requirements. 

Accordingly, the final regulations 

continue to require hospital facilities 

that are newly acquired or placed into 

service (or become newly subject to 

section 501(r)) to meet the CHNA 

requirements by the last day of the 

second taxable year beginning after the 

later of the date of acquisition, 

licensure, or recognition of section 

501(c)(3) status. 

i. Acquired Hospital Facilities 

The 2013 proposed regulations 

provided that a hospital facility that was 

newly acquired must meet the CHNA 

requirements by the last day of the 

second taxable year beginning after the 

date the hospital facility was acquired. 

Several commenters asked for guidance 

on whether and how this rule for 

acquisitions applies in the case of a 

merger of two hospital organizations. 

The final regulations provide that, in 

the case of a merger that results in the 

liquidation of one organization and 

survival of another, the hospital 

facilities formerly operated by the 

liquidated organization will be 

considered ‘‘acquired,’’ meaning they 

will have until the last day of the 

second taxable year beginning after the 

date of the merger to meet the CHNA 

requirements. Thus, the final 

regulations treat mergers equivalently to 

acquisitions. 

ii. New Hospital Organizations 

One commenter asked whether a new 

hospital organization must meet the 

CHNA requirements by the last day of 

the second taxable year beginning after 

the date of licensure or section 501(c)(3) 

recognition if the organization seeks and 

obtains recognition of section 501(c)(3) 

status based on its planned activities 

before the hospital facility it plans to 

operate is licensed and placed into 

service. A facility is not considered a 

‘‘hospital facility’’ until it is licensed, 

registered, or similarly recognized as a 

hospital by a state, and an organization 

operating a hospital facility is not 

subject to section 501(r) until it is 

recognized as described in section 

501(c)(3). Thus, the Treasury 

Department and the IRS intend that a 

new hospital organization must meet 

the CHNA requirements by the last day 

of the second taxable year beginning 

after the later of the effective date of the 

determination letter or ruling 

recognizing the organization as 

described in section 501(c)(3) or the first 

date a facility operated by the 

organization was licensed, registered, or 

similarly recognized by its state as a 

hospital. The final regulations are 

amended to make this clarification. 

iii. Transferred or Terminated Hospital 

Facilities 

One commenter recommended that a 

hospital organization should not be 

required to meet the CHNA 

requirements in a particular taxable year 

with respect to a hospital facility if, 

before the end of that taxable year, the 

hospital organization transfers the 

hospital facility to an unaffiliated 

organization or otherwise terminates its 

operation of that hospital facility. This 

commenter reasoned that requiring a 

hospital organization to invest time and 

energy in conducting a CHNA and 

developing an implementation strategy 

for a hospital facility will create 

inefficiencies if the organization is 

transferring or terminating its operation 

of the hospital facility, as the new 

hospital organization may have different 

perceptions of the community’s needs 

and the optimal channels for addressing 

those needs. In response to this 

comment, the final regulations provide 

that a hospital organization is not 

required to meet the requirements of 

section 501(r)(3) with respect to a 

hospital facility in a taxable year if the 

hospital organization transfers all 

ownership of the hospital facility to 

another organization or otherwise ceases 

its operation of the hospital facility 

before the end of the taxable year. The 

same rule applies if the facility ceases 

to be licensed, registered, or similarly 

recognized as a hospital by a state 

during the taxable year. 

Another commenter asked whether a 

government hospital organization that 

voluntarily terminates its section 

501(c)(3) status must meet the CHNA 

requirements in the taxable year of 

termination to avoid an excise tax under 

section 4959. As noted in section 1.d of 

this preamble, government hospital 

organizations that have previously been 

recognized as described in section 

501(c)(3) but do not wish to comply 

with the requirements of section 501(r) 

may submit a request to voluntarily 

terminate their section 501(c)(3) 

recognition as described in section 

7.04(14) of Rev. Proc. 2014–4 (or a 

successor revenue procedure). A 

government hospital organization that 

terminates its section 501(c)(3) 

recognition in this manner is no longer 

considered a ‘‘hospital organization’’ 

within the meaning of these regulations 

and therefore will not be subject to 

excise tax under section 4959 for failing 

to meet the CHNA requirements during 

the taxable year of its termination. 

4. Financial Assistance Policies and 

Emergency Medical Care Policies 

In accordance with the statute and the 

2012 proposed regulations, the final 

regulations require hospital 

organizations to establish written FAPs 

as well as written emergency medical 

care policies. 

a. Financial Assistance Policies 

Consistent with the 2012 proposed 

regulations, the final regulations 

provide that a hospital organization 

meets the requirements of section 

501(r)(4)(A) with respect to a hospital 

facility it operates only if the hospital 

organization establishes for that hospital 

facility a written FAP that applies to all 

emergency and other medically 

necessary care provided by the hospital 

facility. 

A number of commenters noted that 

patients, including emergency room 

patients, are commonly seen (and 

separately billed) by private physician 

groups or other third-party providers 

while in the hospital setting. 

Commenters asked for clarification on 

the extent to which a hospital facility’s 

FAP must apply to other providers a 

patient might encounter in the course of 

treatment in a hospital facility, 

including non-employee providers in 

private physician groups or hospitalowned practices. Some of these 

commenters noted that patients are 

often unaware of the financial 

arrangements between various providers 

in the hospital facility and may 

unknowingly be transferred to a 

provider that separately bills the 

patients for care. A few commenters 

noted that emergency room physicians 

in some hospital facilities separately bill 

for emergency medical care provided to 

patients and recommended that the 

section 501(r) requirements apply to 

such emergency room physicians. 

In response to comments and to 

provide transparency to patients, the 

final regulations require a hospital 

facility’s FAP to list the providers, other 

than the hospital facility itself, 

delivering emergency or other medically 

necessary care in the hospital facility 

and to specify which providers are 

covered by the hospital facility’s FAP 

(and which are not). As discussed in 

section 1.g of this preamble, the final 


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6The 2012 proposed regulations stated that a 

hospital facility’s FAP must specify ‘‘all financial 

assistance available under the FAP, including all 

discount(s).’’ Although the term ‘‘all discount(s)’’ 

was not qualified with the phrase ‘‘available under 

the FAP,’’ this interpretation was intended. The 

final regulations add ‘‘available under the FAP’’ 

after ‘‘all discounts’’ to clarify that discounts may 

be offered outside of the FAP. 

regulations also clarify that a hospital 

facility’s FAP must apply to all 

emergency and other medically 

necessary care provided in a hospital 

facility by a partnership owned in part 

by, or a disregarded entity wholly 

owned by, the hospital organization 

operating the hospital facility, to the 

extent such care is not an unrelated 

trade or business with respect to the 

hospital organization. In addition, the 

Treasury Department and the IRS note 

that if a hospital facility outsources the 

operation of its emergency room to a 

third party and the care provided by 

that third party is not covered under the 

hospital facility’s FAP, the hospital 

facility may not be considered to 

operate an emergency room for purposes 

of the factors considered in Rev. Rul. 

69–545 (1969–2 CB 117) (providing 

examples illustrating whether a 

nonprofit hospital claiming exemption 

under section 501(c)(3) is operated to 

serve a public rather than a private 

interest, with one activity of the section 

501(c)(3) hospital being the operation of 

a full time emergency room). 

i. Eligibility Criteria and Basis for 

Calculating Amounts Charged to 

Patients 

Section 501(r)(4)(A)(i) and (ii) require 

a hospital facility’s FAP to specify the 

eligibility criteria for financial 

assistance, whether such assistance 

includes free or discounted care, and 

the basis for calculating amounts 

charged to patients. Accordingly, the 

2012 proposed regulations provided that 

a hospital facility’s FAP must specify all 

financial assistance available under the 

FAP, including all discounts and free 

care and, if applicable, the amount(s) 

(for example, gross charges) to which 

any discount percentages will be 

applied. The 2012 proposed regulations 

also provided that a hospital facility’s 

FAP must specify all of the eligibility 

criteria that an individual must satisfy 

to receive each discount, free care, or 

other level of assistance. 

A number of commenters asked that 

hospital facilities be allowed to offer 

patients certain discounts—including 

self-pay discounts, certain discounts 

mandated under state law, and 

discounts for out-of-state patients— 

outside of their FAPs and that this 

assistance not be subject to the 

requirements of sections 501(r)(4) 

through 501(r)(6), including the AGB 

limitation of section 501(r)(5)(A). 

Several commenters noted that 

subjecting all assistance provided by 

hospital facilities to the AGB limitation 

could result in hospitals offering fewer 

discounts or less assistance than they 

might otherwise provide to certain 

categories of patients. 

The Treasury Department and the IRS 

recognize that not all discounts a 

hospital facility might offer its patients 

are properly viewed as ‘‘financial 

assistance’’ and intend that hospital 

facilities may offer payment discounts 

or other discounts outside of their FAPs 

and may charge discounted amounts in 

excess of AGB to individuals that are 

not FAP-eligible. Accordingly, the final 

regulations only require the FAP to 

describe discounts ‘‘available under the 

FAP’’ rather than all discounts offered 

by the hospital facility.6 The Treasury 

Department and the IRS note, however, 

that only the discounts specified in a 

hospital facility’s FAP (and, therefore, 

subject to the AGB limitation) may be 

reported as ‘‘financial assistance’’ on 

Schedule H, ‘‘Hospitals,’’ of the Form 

990. Moreover, discounts provided by a 

hospital facility that are not specified in 

a hospital facility’s FAP will not be 

considered community benefit activities 

for purposes of section 9007(e)(1)(B) of 

the Affordable Care Act (relating to 

reports on costs incurred for community 

benefit activities) nor for purposes of the 

totality of circumstances that are 

considered in determining whether a 

hospital organization is described in 

section 501(c)(3). 

Some commenters asked for the final 

regulations to confirm that hospital 

facilities will be given the flexibility to 

develop FAP-eligibility criteria that 

respond to local needs. Like the 2012 

proposed regulations, the final 

regulations do not mandate any 

particular eligibility criteria and require 

only that a FAP specify the eligibility 

criteria for receiving financial assistance 

under the FAP. 

A number of commenters 

recommended that the final regulations 

require the FAP to contain a statement 

that explains the patient’s obligation to 

cooperate with the hospital facility’s 

requests for information needed to make 

an eligibility determination. The 

Treasury Department and the IRS 

decline to impose this specific 

requirement but note that hospital 

facilities have the flexibility to include 

any additional information in the FAP 

that the hospital facility chooses to 

convey or that may be helpful to the 

community, including such a statement. 

ii. Method for Applying for Financial 

Assistance 

Section 501(r)(4)(A)(iii) requires a 

hospital facility’s FAP to include the 

method for applying for financial 

assistance under the FAP. Accordingly, 

the 2012 proposed regulations provided 

that a hospital facility’s FAP must 

describe how an individual applies for 

financial assistance under the FAP and 

that either the hospital facility’s FAP or 

FAP application form (including 

accompanying instructions) must 

describe the information or 

documentation the hospital facility may 

require an individual to submit as part 

of his or her FAP application. The 2012 

proposed regulations also made clear 

that financial assistance may not be 

denied based on the omission of 

information or documentation if such 

information or documentation was not 

specifically required by the FAP or FAP 

application form. 

Numerous commenters asked that the 

final regulations add language to ensure 

that hospital facilities are not prohibited 

from granting financial assistance 

despite an applicant’s failure to provide 

any or all information or documentation 

described in the FAP or FAP application 

form and requested that hospital 

facilities have the flexibility to grant 

financial assistance based on other 

evidence or an attestation by the 

applicant. While the Treasury 

Department and the IRS intend to 

require hospital facilities to establish a 

transparent application process under 

which individuals may not be denied 

financial assistance based on a failure to 

provide information or documentation 

unless that information or 

documentation is described in the FAP 

or FAP application form, they do not 

intend to restrict hospital facilities’ 

ability to grant financial assistance to an 

applicant who has failed to provide 

such information or documentation. 

Accordingly, the final regulations 

expressly state that a hospital facility 

may grant financial assistance under its 

FAP notwithstanding an applicant’s 

failure to provide such information. 

Thus, a hospital facility may grant 

financial assistance based on evidence 

other than that described in a FAP or 

FAP application form or based on an 

attestation by the applicant, even if the 

FAP or FAP application form does not 

describe such evidence or attestations. 

One commenter stated that the 

example in the 2012 proposed 

regulations of a hospital facility with a 

FAP that requires certain specified 

documentation demonstrating 

household income (including federal tax 

returns or paystubs) or ‘‘other reliable 


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evidence of the applicant’s earned and 

unearned household income’’ was 

contrary to the idea that a FAP must 

‘‘describe the information and 

documentation’’ required. The Treasury 

Department and the IRS intended for the 

reference to ‘‘other reliable evidence’’ in 

the example to signal that a hospital 

facility may be flexible in allowing 

applicants to provide alternative 

documentation to demonstrate 

eligibility. The example was not 

intended to suggest that a reference in 

a FAP or FAP application form to 

‘‘reliable evidence’’ alone (without also 

identifying specific documentation 

applicants could provide) would be 

sufficient. To clarify this intent, the 

example of the FAP application form in 

the final regulations is modified so that 

the instructions identify specific 

documentation (including federal tax 

returns, paystubs, or documentation 

establishing qualification for certain 

specified state means-tested programs) 

but also state that if an applicant does 

not have any of the listed documents to 

prove household income, he or she may 

call the hospital facility’s financial 

assistance office and discuss other 

evidence that may be provided to 

demonstrate eligibility. 

A number of commenters noted that 

total reliance on paper applications does 

not reflect current practices in which 

much information is gathered from 

patients orally, with a few commenters 

recommending that the final regulations 

expressly permit eligibility 

determinations on the basis of 

information obtained through face-toface meetings or over the phone rather 

than through a paper application 

process. The Treasury Department and 

the IRS did not intend to mandate paper 

applications or to imply that 

information needed to determine FAPeligibility could not be obtained from an 

individual in other ways. Accordingly, 

and in response to comments, the final 

regulations amend the definition of 

‘‘FAP application’’ to clarify that the 

term is not intended to refer only to 

written submissions and that a hospital 

facility may obtain information from an 

individual in writing or orally (or a 

combination of both). 

Numerous commenters stated that 

hospitals can, and commonly do, rely 

on trustworthy methods and sources of 

information other than FAP applications 

to determine FAP-eligibility and 

recommended that hospital facilities be 

allowed to rely on these information 

sources and methods to determine FAPeligibility, provided that the sources and 

methods are disclosed in the FAP or on 

the hospital facility’s Form 990. 

Commenters also recommended that a 

hospital should be able to rely on prior 

FAP-eligibility determinations, 

provided that such reliance is disclosed 

in its FAP. 

As discussed in section 6.b.vi of this 

preamble, the final regulations permit a 

hospital facility to determine that an 

individual is eligible for assistance 

under its FAP based on information 

other than that provided by the 

individual or based on a prior FAPeligibility determination, provided that 

certain conditions are met. Given this 

change, and consistent with 

commenters’ recommendations, the 

final regulations require a hospital 

facility to describe in its FAP any 

information obtained from sources other 

than individuals seeking assistance that 

the hospital facility uses, and whether 

and under what circumstances it uses 

prior FAP-eligibility determinations, to 

presumptively determine that 

individuals are FAP-eligible. 

Some commenters requested that the 

final regulations specifically prohibit 

hospital facilities from using social 

security numbers or credit card 

information or from running credit 

checks that damage consumer credit, 

while another commenter would impose 

a requirement that all requested 

information or documentation be 

reasonable and adequate to establish 

eligibility for the hospital facility’s FAP. 

The final regulations do not prescribe or 

restrict the information or 

documentation a hospital facility may 

request but do require that a hospital 

facility describe such information or 

documentation in its FAP or FAP 

application form. The Treasury 

Department and the IRS expect that the 

transparency achieved by requiring the 

information or documentation to be 

described in the FAP or FAP application 

form will discourage hospital facilities 

from requesting information or 

documentation that is unreasonable or 

unnecessary to establish eligibility. 

A number of commenters noted that 

a patient’s financial status may change 

over time and requested clarification on 

the point in time used to determine 

financial eligibility. A few of these 

commenters requested clarification that 

a hospital facility has the discretion to 

determine that point in time in its FAP, 

a few recommended that a specific point 

in time be used (for example, the date 

of service or the date of application), 

and a few suggested that the final 

regulations should require the point in 

time to be specified in a FAP. 

The Treasury Department and the IRS 

intend for hospital facilities to have the 

flexibility to choose the time period 

used to determine FAP eligibility and 

expect that that the relevant point(s) in 

time will be made clear based on the 

information and/or documentation 

requested from applicants in the FAP or 

FAP application form. For example, if a 

hospital facility’s FAP application form 

asks for ‘‘last month’s’’ income, the 

hospital facility presumably will look at 

the applicant’s income from the month 

preceding the submission of the FAP 

application to determine whether the 

applicant satisfies the income-based 

eligibility criteria. Similarly, the 

example regarding application methods 

in these final regulations describes a 

hospital facility that requests proof of 

household income in the form of payroll 

check stubs ‘‘from the last month’’ 

(which would reflect wages in the time 

period shortly before the application) or, 

if last month’s wages are not 

representative of the applicant’s annual 

income, a copy of the applicant’s ‘‘most 

recent federal tax return’’ (which would 

reflect annual income in a year 

preceding the application). Because the 

Treasury Department and the IRS expect 

that the time period(s) used to assess 

eligibility should be evident from the 

information and/or documentation 

requested to demonstrate eligibility, the 

final regulations do not provide further 

elaboration on this point. 

iii. Actions That May Be Taken in the 

Event of Nonpayment 

In the case of a hospital facility that 

does not have a separate billing and 

collections policy, section 

501(r)(4)(A)(iv) requires a hospital 

facility’s FAP to include actions that 

may be taken in the event of 

nonpayment. Accordingly, the 2012 

proposed regulations provided that 

either a hospital facility’s FAP or a 

separate written billing and collections 

policy established for the hospital 

facility must describe the actions that 

the hospital facility (or other authorized 

party) may take related to obtaining 

payment of a bill for medical care, 

including, but not limited to, any 

extraordinary collection actions 

described in section 501(r)(6). 

A few commenters recommended that 

the final regulations require governing 

board approval of the billing and 

collections policy of a hospital facility. 

The Treasury Department and the IRS 

note that these final regulations, like the 

2012 proposed regulations, provide that 

a FAP ‘‘established’’ by a hospital 

facility must describe the hospital 

facility’s actions in the event of 

nonpayment unless the hospital facility 

has ‘‘established’’ a billing and 

collections policy that describes these 

actions. As described in section 4.c of 

this preamble, a billing and collections 

policy or a FAP is ‘‘established’’ only if 


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it is adopted by an authorized body of 

the hospital facility, which includes the 

governing body of the hospital facility 

or a committee of, or other party 

authorized by, such governing body. 

Thus, the final regulations provide that 

an authorized body of the hospital 

facility must adopt the hospital facility’s 

FAP and, if applicable, billing and 

collections policy. 

Two commenters asked that hospital 

facilities with separate billing and 

collections policies be required both to 

include some basic information about 

those policies in their FAPs and to 

translate the separate billing and 

collections policies into foreign 

languages. The 2012 proposed 

regulations provided that a hospital 

facility that described its actions in the 

event of nonpayment in a separate 

billing and collections policy must state 

in its FAP that the actions in the event 

of nonpayment are described in a 

separate billing and collections policy 

and explain how members of the public 

may readily obtain a free copy of this 

separate policy. In addition, the 

definition of ‘‘readily obtainable 

information’’ in the 2012 proposed 

regulations provided that a separate 

billing and collections policy would be 

readily obtainable if it were made 

available free of charge both on a Web 

site and in writing upon request in the 

same manner that a FAP is made 

available on a Web site and upon 

request, which included making 

translated copies available on a Web site 

and upon request. To clarify that 

translations were intended to be part of 

making a billing and collections policy 

readily obtainable, § 1.501(r)–4(b)(6) of 

the final regulations relating to ‘‘readily 

obtainable information’’ has been 

amended to expressly refer to the 

provision of translations. 

iv. Widely Publicizing the FAP 

Section 501(r)(4)(A)(v) requires a 

hospital facility’s FAP to include 

measures to widely publicize the FAP 

within the community served by a 

hospital facility. To satisfy this 

requirement, the 2012 proposed 

regulations provided that a FAP must 

include, or explain how members of the 

public may readily obtain a free written 

description of, the measures taken by 

the hospital facility to— 

• Make the FAP, FAP application 

form, and a plain language summary of 

the FAP (together, ‘‘FAP documents’’) 

widely available on a Web site; 

• Make paper copies of the FAP 

documents available upon request and 

without charge, both in public locations 

in the hospital facility and by mail; 

• Notify and inform visitors to the 

hospital facility about the FAP through 

conspicuous public displays or other 

measures reasonably calculated to 

attract visitors’ attention; and 

• Notify and inform residents of the 

community served by the hospital 

facility about the FAP in a manner 

reasonably calculated to reach those 

members of the community who are 

most likely to require financial 

assistance. 

Several commenters asked that 

hospitals be given the flexibility to 

‘‘widely publicize’’ the FAP in any 

manner they see fit. The Treasury 

Department and the IRS view the 

provisions in the 2012 proposed 

regulations as already giving hospital 

facilities broad flexibility to determine 

the methods they think are best to notify 

and inform their patients and broader 

communities about their FAPs. In 

addition, the Treasury Department and 

the IRS see the requirements to make 

the FAP widely available on a Web site 

and to make paper copies available 

upon request as minimal steps that are 

necessary to ensure patients have the 

information they need to seek financial 

assistance. Accordingly, the final 

regulations continue to require a 

hospital facility to make the FAP 

documents available upon request and 

widely available on a Web site and to 

notify and inform both visitors to the 

hospital and members of the community 

served by the hospital about its FAP. 

One commenter suggested that a 

hospital facility’s FAP should only be 

required to ‘‘summarize’’ the measures 

to widely publicize the FAP, suggesting 

that requiring detailed information 

about such measures would 

unnecessarily increase mailing, copying, 

and compliance costs. In response to 

this comment and to reduce the 

documentation burden associated with 

the FAP, these final regulations 

eliminate the requirement that the FAP 

list the measures taken to widely 

publicize the FAP and instead require 

only that a hospital facility implement 

the measures to widely publicize the 

FAP in the community it serves. This 

approach is consistent with the 

definition of ‘‘establishing’’ a FAP 

discussed in section 4.c of this 

preamble, which includes not only 

adopting the FAP but also implementing 

it, and with the Joint Committee on 

Taxation’s (JCT) Technical Explanation 

of the Affordable Care Act. See Staff of 

the Joint Committee on Taxation, 

Technical Explanation of the Revenue 

Provisions of the ‘‘Reconciliation Act of 

2010,’’ as Amended, in Combination 

with the ‘‘Patient Protection and 

Affordable Care Act’’ (March 21, 2010), 

at 82 (Technical Explanation) (stating 

that section 501(r)(4) requires each 

hospital facility to ‘‘adopt, implement, 

and widely publicize’’ a written FAP). 

A. Widely Available on a Web Site 

A number of commenters stated that 

FAPs will be updated more frequently 

than summaries, so that making the full 

FAP widely available on a Web site 

would be burdensome. One of these 

commenters stated that the full FAP is 

not especially useful for most patients, 

as it is written for internal compliance 

and difficult for the general public to 

understand. On the other hand, 

numerous other commenters strongly 

supported the requirement to make 

these documents widely available on a 

Web site, with some noting that doing 

so would allow patients to more easily 

identify the assistance they might be 

eligible for and to speak knowledgeably 

with financial assistance personnel at 

the hospital facility. The Treasury 

Department and the IRS believe that 

making the complete FAP widely 

available to the public on a Web site is 

important in achieving transparency 

and that the benefits of this 

transparency outweigh the burdens 

incurred in posting an updated 

document on a Web site. Thus, the final 

regulations retain this requirement. 

B. Making Paper Copies Available Upon 

Request 

With respect to the requirement to 

make paper copies of the FAP 

documents available upon request and 

without charge in public locations in 

the hospital facility, one commenter 

stated that ‘‘public locations’’ could be 

interpreted to mean all public locations 

in the hospital and that essentially every 

area of the hospital could be classified 

as a public location. Another 

commenter asked that ‘‘public 

locations’’ specifically include the 

admissions areas and the emergency 

room, noting that patients and their 

family members generally pass through 

one of those two areas during their stay 

and that having at least one uniform 

location where these documents are 

available would help ensure that 

patients know where to go for paper 

copies. In response to these comments, 

the final regulations specify that ‘‘public 

locations’’ in a hospital facility where 

paper copies must be provided upon 

request include, at a minimum, the 

emergency room (if any) and the 

admissions areas. 

Other commenters asked that making 

paper copies ‘‘available upon request’’ 

should be required only with respect to 

patients who indicate that they lack 

access to the Internet. The final 


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7 In recognition of the fact that not all hospital 

facilities will define the communities they serve 

along strictly geographic lines, the final regulations 

are amended to refer to ‘‘members’’ of the hospital 

facility’s community rather than ‘‘residents.’’ 

regulations clarify that hospital facilities 

may inform individuals requesting 

copies that the various FAP documents 

are available on a Web site or otherwise 

offer to provide the documents 

electronically (for example, by email or 

on an electronic screen). However, the 

Treasury Department and the IRS 

continue to believe that making paper 

copies of the FAP documents available 

to those persons who request them is 

important to achieve adequate 

transparency. Accordingly, the final 

regulations also make clear that a 

hospital facility must provide a paper 

copy unless the individual indicates he 

or she would prefer to receive or access 

the document electronically. 

C. Notifying and Informing Hospital 

Facility Patients 

With respect to the requirement in the 

2012 proposed regulations to notify and 

inform visitors to a hospital facility 

about the FAP through a conspicuous 

public display (or other measures 

reasonably calculated to attract visitors’ 

attention), a number of commenters 

asked for clarification on what makes a 

public display ‘‘conspicuous,’’ with one 

such commenter noting that placement 

of a small placard in a corner of a 

financial assistance office that is rarely 

seen by patients should not be 

sufficient. 

The Treasury Department and the IRS 

believe that what makes a public 

display ‘‘conspicuous’’ is both for the 

display to be of a noticeable size and for 

the display to be placed in a location in 

the hospital facility where visitors are 

likely to see it. Thus, similar to the 

requirement regarding making paper 

copies of the FAP documents available 

upon request in ‘‘public locations’’ in 

the hospital facility, the final 

regulations clarify that hospital facilities 

must notify and inform visitors about 

the FAP in ‘‘public locations’’ in the 

hospital facility, including, at a 

minimum, the emergency room (if any) 

and admissions areas. 

In addition to notifying patients about 

the FAP through a conspicuous public 

display (or through other measures 

reasonably calculated to attract visitors’ 

attention), the final regulations also 

require hospital facilities to widely 

publicize their FAPs by providing FAP 

information to patients before discharge 

and with billing statements. The 2012 

proposed regulations included the 

notification of patients about the FAP 

before discharge and with billing 

statements as part of the notification 

component of reasonable efforts to 

determine FAP-eligibility under section 

501(r)(6). However, these efforts to 

notify and inform patients about the 

FAP before discharge and with billing 

statements may also be appropriately 

categorized as measures to widely 

publicize the FAP under section 

501(r)(4). Thus, the final regulations 

consolidate all of the requirements that 

involve notifying patients generally 

about the FAP under the section 

501(r)(4) widely publicizing 

requirements. As a result, the 

notification component of reasonable 

efforts to determine FAP-eligibility 

under the section 501(r)(6) final 

regulations is simplified and is focused 

primarily on those patients against 

whom a hospital facility actually 

intends to engage in extraordinary 

collection actions. The Treasury 

Department and the IRS expect that 

moving the requirement that hospital 

facilities notify and inform patients 

about the FAP with billing statements 

and as part of their intake or discharge 

process from the section 501(r)(6) 

regulations to the section 501(r)(4) 

regulations will increase understanding 

of the requirements and compliance, 

without a loss of notification to patients. 

In addition to requiring hospital 

facilities to notify individuals about 

their FAPs before discharge and on 

billing statements as part of widely 

publicizing their FAPs, the final 

regulations also amend these 

requirements in several important 

respects in response to comments to the 

2012 proposed regulations. First, rather 

than require a full plain language 

summary with billing statements, the 

final regulations require only that a 

hospital facility’s billing statement 

include a conspicuous written notice 

that notifies and informs the recipient 

about the availability of financial 

assistance under the hospital facility’s 

FAP and includes the telephone number 

of the hospital facility office or 

department that can provide 

information about the FAP and FAP 

application process and the direct Web 

site address (or URL) where the copies 

of the FAP documents may be obtained. 

This change responds to those 

comments (discussed in greater length 

in section 6.b.iii of this preamble) that 

noted that a reference on the billing 

statement to the availability of the FAP 

and a brief description of how to obtain 

more information should provide 

sufficient notification to patients while 

minimizing costs for hospital facilities. 

Second, some commenters appeared 

to interpret the phrase ‘‘before 

discharge’’ in the 2012 proposed 

regulations as requiring distribution ‘‘at 

discharge’’ and suggested that the latter 

requirement would not work because 

outpatients do not always revisit with a 

hospital registration staff member after 

care is provided or may never be 

physically present at the hospital 

facility. In response to these comments, 

the final regulations refer to offering the 

plain language summary as part of 

either the ‘‘intake or discharge process,’’ 

and the Treasury Department and the 

IRS intend that those terms be 

interpreted broadly to include whatever 

processes are used to initiate or 

conclude the provision of hospital care 

to individuals who are patients of the 

hospital facility. In addition, in 

response to commenters who noted that 

many patients will have no interest in 

receiving a plain language summary of 

the FAP because they know they are not 

FAP-eligible, the final regulations 

require only that a hospital facility 

‘‘offer’’ (rather than ‘‘provide’’) a plain 

language summary as part of the intake 

or discharge process. Thus, a hospital 

facility will not have failed to widely 

publicize its FAP because an individual 

declines to take a plain language 

summary that the hospital facility 

offered on intake or before discharge or 

indicates that he or she would prefer to 

receive or access a plain language 

summary electronically rather than 

receive a paper copy. 

D. Notifying and Informing the Broader 

Community 

Several commenters recommended 

eliminating altogether the requirement 

to notify and inform members of the 

hospital facility’s community about the 

FAP, stating that the other three 

measures to widely publicize the FAP 

are sufficient and that this additional 

specification is vague, open to 

subjective interpretation, and overly 

burdensome for hospitals. Other 

commenters, however, strongly 

supported the requirement, particularly 

the special emphasis placed on 

members of the community most likely 

to need financial help. 

The Treasury Department and the IRS 

interpret the phrase ‘‘widely publicize 

. . . within the community to be served 

by the organization’’ in section 

501(r)(4)(v) as going beyond merely 

making a FAP ‘‘widely available’’ on a 

Web site or upon request and requiring 

hospital facilities to affirmatively reach 

out to the members of the communities 

they serve to notify and inform them 

about the financial assistance they offer. 

Accordingly, the final regulations retain 

the requirement to notify and inform 

members 7 of the hospital’s community 


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in a manner reasonably calculated to 

reach those members who are most 

likely to require financial assistance 

from the hospital facility. 

E. Plain Language Summary of the FAP 

The 2012 proposed regulations 

defined the plain language summary of 

the FAP as a written statement that 

notifies an individual that the hospital 

facility offers financial assistance under 

a FAP and provides certain specified 

information, including but not limited 

to: (1) The direct Web site address and 

physical location(s) (including a room 

number, if applicable) where the 

individual can obtain copies of the FAP 

and FAP application form; and (2) the 

contact information, including 

telephone numbers and physical 

location (including a room number, if 

applicable), of hospital facility staff who 

can provide the individual with 

information about the FAP and the FAP 

application process, as well as of the 

nonprofit organizations or government 

agencies, if any, that the hospital facility 

has identified as available sources of 

assistance with FAP applications. 

A number of commenters noted that 

many hospitals currently assist patients 

with the FAP application process and 

that such assistance can be very 

important for low-income patients with 

literacy barriers. A few commenters 

requested that the final regulations 

require hospitals to assist and/or 

provide contact information for hospital 

staff who can assist with the FAP 

application process. One commenter 

suggested that the plain language 

summary should not have to include the 

contact information of nonprofit 

organizations or government agencies 

that assist with FAP applications, 

recommending instead that hospital 

facilities be able to include the contact 

information for the hospital facility’s 

own community health clinics as 

sources of FAP application assistance. 

Although assisting patients with the 

FAP application process can be an 

important step in ensuring that patients 

obtain the financial assistance for which 

they are eligible, nonprofit organizations 

or government agencies can be as 

effective sources of this assistance as 

hospital facilities themselves. To ensure 

both that patients have notice of how to 

obtain assistance with the FAP 

application process and that hospital 

facilities have the flexibility to refer 

patients to other organizations rather 

than provide assistance themselves, the 

final regulations require the plain 

language summary to include the 

contact information of a source of 

assistance with FAP applications but 

allow for this source to be either the 

hospital facility itself or a different 

organization. More specifically, the final 

regulations provide that the plain 

language summary must include the 

contact information of either the 

hospital facility office or department 

that can provide assistance with (rather 

than just ‘‘information about’’) the FAP 

application process or, if the hospital 

facility does not provide assistance with 

the FAP application process, at least one 

nonprofit organization or government 

agency that the hospital facility has 

identified as an available source of such 

assistance. 

One commenter recommended that 

the plain language summary of the FAP 

only be required to list a department 

rather than a physical location because 

hospital facility remodeling and 

redesign could mean that the precise 

physical location could be subject to 

change, therefore requiring re-drafting of 

the plain language summary. Another 

commenter asked that the final 

regulations clarify that the plain 

language summary may identify the 

location and phone number of the 

appropriate office or department to 

contact for more information about the 

FAP, without naming a specific staff 

person. 

The Treasury Department and the IRS 

continue to think that the physical 

location in the hospital facility where 

patients can obtain copies of the FAP 

and FAP application form and 

information about and/or assistance 

with the FAP application process is 

important, basic information to provide 

to individuals in the plain language 

summary. Therefore, the final 

regulations continue to require this 

information regarding physical location. 

However, the final regulations remove a 

specific reference to a room number to 

give hospital facilities more flexibility to 

describe the physical location in the 

manner that makes the most sense for 

the hospital facility. The final 

regulations also clarify that the plain 

language summary may identify the 

location and phone number of the 

appropriate office or department to 

contact for more information about the 

FAP and, if applicable, assistance with 

the FAP application process and does 

not need to name a specific staff person. 

One commenter recommended that, 

in addition to the required items of 

information described in the 2012 

proposed regulations, the plain language 

summary should provide a basic outline 

of the FAP application process and the 

appropriate times to apply. This 

commenter stated that many patients 

will rely on the plain language summary 

for information about the FAP, in lieu 

of reading the FAP itself, and that 

information about when and how to 

apply for financial assistance is basic 

information a patient needs to have. The 

Treasury Department and the IRS agree 

that information about how to apply for 

financial assistance is important 

information for individuals to have, and 

the final regulations therefore require 

this information to be included in the 

plain language summary. Any 

additional burden created by requiring 

this information should be mitigated by 

the fact that the final regulations do not 

require the plain language summary to 

be included with all billing statements 

and other written communications 

provided during the notification period. 

As for ‘‘when’’ to apply, while patients 

generally have at least 240 days from the 

date of the first bill to apply for 

financial assistance, the deadline for 

any particular patient’s FAP application 

will depend on whether and when the 

hospital facility sends that patient the 

notice about potential extraordinary 

collection actions described in section 

6.b.iii.C of this preamble that states a 

deadline. Given the resulting variability 

in deadlines, the final regulations do not 

require the plain language summary to 

include a description of the appropriate 

times to apply. 

A few commenters asked that the 

plain language summary be required to 

include a statement regarding patient 

responsibilities. The Treasury 

Department and the IRS do not intend 

for the list of elements required to be 

included in a plain language summary 

of the FAP to limit a hospital facility’s 

ability to provide additional 

information. Accordingly, a hospital 

facility is permitted, but not required, to 

include in its plain language summary 

any additional items of information it 

deems relevant to the FAP and FAP 

application process. 

F. Translating the FAP Documents 

The 2012 proposed regulations 

provided that hospital facilities must 

translate FAP documents into the 

primary language of any LEP 

populations that constitute more than 

10 percent of the members of the 

community served by the hospital 

facility. One commenter asked that this 

requirement be eliminated altogether, at 

least with regard to small or rural 

hospital facilities, while two other 

commenters supported the 10-percent 

threshold for translation. Many 

additional commenters requested that 

the translation threshold be lowered 

from 10 percent to the lesser of 5 

percent or 500 LEP individuals. They 

noted that some federal translation 

thresholds are set as low as 500 LEP 

individuals and that a 5-percent 


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8 If there are fewer than 50 persons in a language 

group that reaches the 5-percent trigger, the 

recipient of federal financial assistance does not 

have to translate vital written materials to satisfy 

the safe harbor but rather may provide written 

notice in the primary language of the LEP language 

group of the right to receive competent oral 

interpretation of those written materials, free of 

cost. 

threshold would result in greater 

consistency with translation guidance 

provided by the Department of Health 

and Human Services (HHS). See HHS, 

‘‘Guidance to Federal Financial 

Assistance Recipients Regarding Title VI 

Prohibition Against National Origin 

Discrimination Affecting Limited 

English Proficient Persons,’’ 68 FR 

47,311 (August 8, 2003) (‘‘HHS 

Guidance’’). The HHS Guidance 

includes a ‘‘safe harbor’’ that considers 

it strong evidence that a hospital 

receiving federal financial assistance is 

in compliance with written translation 

obligations under Title VI of the Civil 

Rights Act of 1964 (42 U.S.C. 2000d, et 

seq.) if it provides written translations 

of vital documents for each eligible LEP 

language group that constitutes 5 

percent or 1,000, whichever is less, of 

the population of persons eligible to be 

served or likely to be affected or 

encountered.8

Both Medicaid and Medicare Part A 

constitute ‘‘federal financial assistance’’ 

for purposes of Title VI of the Civil 

Rights Act, and the Treasury 

Department and the IRS expect that 

virtually every hospital facility operated 

by an organization described in section 

501(c)(3) accepts Medicaid and/or 

Medicare Part A. The Treasury 

Department and the IRS also expect that 

documents that describe the financial 

assistance offered by a hospital facility 

and that are necessary to apply for such 

financial assistance would be 

considered ‘‘vital’’ for purposes of the 

Title VI obligations. Therefore, the 

Treasury Department and the IRS expect 

that many hospital facilities are already 

translating these documents to meet 

their Title VI obligations, often in 

accordance with the safe harbor in the 

HHS Guidance. As a result, the Treasury 

Department and the IRS agree with 

commenters that it is reasonable and 

appropriate to make the translation 

threshold applicable to the FAP 

documents generally consistent with the 

5-percent/1000 person threshold under 

the HHS Guidance safe harbor, and the 

final regulations adopt this change. 

The 2012 proposed regulations 

provided that a hospital facility could 

determine whether a LEP group 

exceeded the relevant threshold based 

on the latest data available from the U.S. 

Census Bureau or other similarly 

reliable data. One commenter requested 

clarification on whether to use the U.S. 

Census Bureau’s decennial survey or 

more updated information provided 

through the American Community 

Survey. The Treasury Department and 

the IRS believe that a hospital facility 

basing its determination of LEP 

populations in whole or in part on data 

from the U.S. Census Bureau should be 

allowed to use either the latest 

decennial census data or the latest 

American Community Survey data. In 

addition, other data sources may also be 

reasonable to use to determine LEP 

populations for purposes of these 

regulations. For example, the HHS 

Guidance notes that, in determining the 

LEP persons eligible to be served or 

likely to be affected or encountered, it 

may be appropriate for hospitals to 

examine not only census data but also 

their prior experiences with LEP 

patients, data from school systems and 

community organizations, and data from 

state and local governments. See HHS 

Guidance, 68 FR at 47314. The Treasury 

Department and the IRS intend that a 

hospital facility be able to use these 

same data sources in determining the 

LEP persons in the community it serves 

or likely to be affected or encountered 

for purposes of these final regulations. 

Therefore, rather than list the various 

data sources a hospital facility may use 

to determine its LEP populations, the 

final regulations provide that a hospital 

facility may use any reasonable method 

to determine such populations. 

Several commenters recommended 

that hospital facilities only be required 

to translate the plain language summary 

of the FAP and the FAP application 

form, not the full FAP, stating that the 

summary and application form are the 

documents most useful to patients and 

that few, if any, patients request the full 

FAP. The Treasury Department and the 

IRS believe that the benefits of ensuring 

that LEP populations have access to the 

details provided in the FAP that are not 

captured in a summary or application 

form outweigh the additional costs that 

hospital facilities may incur in 

translating the full FAP document. 

Accordingly, the final regulations do not 

adopt this comment. 

Several commenters recommended 

that the final regulations require 

hospitals to provide access to oral 

interpreters or bilingual staff on request, 

regardless of whether the thresholds for 

written translations are met. The 

Treasury Department and the IRS 

believe it would be overly burdensome 

to require hospital facilities to provide 

access to oral interpreters or bilingual 

staff for every language possibly spoken 

in a community. Accordingly, the final 

regulations do not adopt this comment. 

b. Emergency Medical Care Policy 

To satisfy the requirements of section 

501(r)(4)(B), the 2012 proposed 

regulations provided that a hospital 

facility must establish a written policy 

that requires the hospital facility to 

provide, without discrimination, care 

for emergency medical conditions 

(within the meaning of the Emergency 

Medical Treatment and Labor Act 

(EMTALA), section 1867 of the Social 

Security Act (42 U.S.C. 1395dd)) to 

individuals, regardless of whether they 

are FAP-eligible. The 2012 proposed 

regulations further provided that an 

emergency medical care policy will 

generally satisfy this standard if it 

requires the hospital facility to provide 

the care for any emergency medical 

condition that the hospital facility is 

required to provide under Subchapter G 

of Chapter IV of Title 42 of the Code of 

Federal Regulations, which is the 

subchapter regarding the Centers for 

Medicare and Medicaid Services’ (CMS) 

standards and certification that includes 

the regulations under EMTALA. In 

addition, § 1.501(r)–4(c)(2) of the 2012 

proposed regulations provided that a 

hospital facility’s emergency medical 

care policy would not meet the 

requirements of section 501(r)(4)(B) 

unless it prohibited the hospital facility 

from engaging in actions that 

discouraged individuals from seeking 

emergency medical care, such as by 

demanding that emergency department 

patients pay before receiving treatment 

or by permitting debt collection 

activities in the emergency department 

or in other areas of the hospital facility 

where such activities could interfere 

with the provision, without 

discrimination, of emergency medical 

care. 

Some commenters stated that the 

regulations under EMTALA already 

establish rules for registration processes 

and discussions regarding a patient’s 

ability to pay in the emergency 

department and that the final 

regulations should not go beyond those 

requirements. A number of commenters 

noted that the broad language regarding 

‘‘debt collection in the emergency 

department’’ could be read to proscribe 

ordinary and unobjectionable activities 

in the emergency room, such as 

collecting co-payments on discharge, 

checking for qualification for financial 

or public assistance, and asking for 

insurance information or co-pays after 

patients are stabilized and waiting 

(sometimes for long periods of time) for 

test results or follow-up visits from their 

physician. 


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Section 1.501(r)–4(c)(2) of the 2012 

proposed regulations was intended to 

apply only to debt collection activities 

in the emergency department (or other 

areas of the hospital facility) that could 

interfere with the provision of 

emergency care, not to all payment 

activities in the emergency department 

regardless of their potential to interfere 

with care. To make this intent clear, the 

final regulations are revised to prohibit 

‘‘debt collection activities that interfere 

with the provision, without 

discrimination, of emergency medical 

care,’’ regardless of where such 

activities occur. 

In addition, the Treasury Department 

and the IRS note that, since the 

publication of the 2012 proposed 

regulations, CMS has made clear that 

the regulations under EMTALA prohibit 

applicable hospital facilities from 

engaging in actions that delay the 

provision of screening and treatment for 

an emergency medical condition to 

inquire about method of payment or 

insurance status, or from using 

registration processes that unduly 

discourage individuals from remaining 

for further evaluation, such as by 

requesting immediate payment before or 

while providing screening or stabilizing 

treatment for emergency medical 

conditions. See CMS Memorandum 

S&C–14–06—Hospitals/CAHs re: 

EMTALA Requirements & Conflicting 

Payor Requirements or Collection 

Practices, at 6–7 (Dec. 13, 2013). As a 

result, a hospital facility that provides 

the screening care and stabilizing 

treatment for emergency medical 

conditions, as applicable, that the 

hospital facility is required to provide 

under the regulations under EMTALA, 

should generally not be engaging in the 

activities that § 1.501(r)–4(c)(2) of the 

final regulations requires emergency 

medical care policies to prohibit. 

Two commenters asked whether the 

emergency medical care policy may be 

in the same document as the FAP. The 

final regulations do not prevent an 

emergency medical care policy from 

being included within the same 

document as the FAP or from being 

added to an already existing document 

related to emergency medical care (such 

as a document setting forth EMTALA 

compliance). 

c. Establishing the FAP and Other 

Policies 

Consistent with the 2012 proposed 

regulations, the final regulations 

provide that a hospital organization will 

have established a FAP, a separate 

billing and collections policy, or an 

emergency medical care policy for a 

hospital facility only if an authorized 

body of the hospital facility has adopted 

the policy and the hospital facility has 

implemented the policy. 

The 2012 proposed regulations 

provided that a hospital facility has 

‘‘implemented’’ a policy if it has 

‘‘consistently carried out’’ the policy. A 

number of commenters asked for more 

clarity on when a policy will be deemed 

to be ‘‘consistently carried out.’’ Two of 

these commenters would deem a 

hospital facility to have consistently 

carried out a policy only if the hospital 

facility attests that a policy that meets 

the requirements of section 501(r)(4) has 

been followed in all cases. 

As discussed in section 2.a of this 

preamble, the final regulations provide 

that omissions or errors that are minor 

and either inadvertent or due to 

reasonable cause will not result in a 

failure to meet the requirements of 

section 501(r)(4) (or any other 

requirements under section 501(r)) as 

long as they are corrected in accordance 

with § 1.501(r)–2(b)(1)(ii) of the final 

regulations. Therefore, the final 

regulations make clear that the Treasury 

Department and the IRS do not intend 

that every error in implementing a 

policy described in section 501(r)(4) 

will result in a failure to meet the 

requirements of section 501(r)(4). On the 

other hand, a policy that is simply 

adopted by an authorized body of a 

hospital facility but not followed in any 

regular fashion has not been 

‘‘established’’ for purposes of section 

501(r)(4). Whether a policy is 

‘‘consistently carried out’’ is to be 

determined based on all of the facts and 

circumstances. However, if the 

authorized body of a hospital facility 

adopts a policy and provides reasonable 

resources for and exercises due 

diligence regarding its implementation, 

then the standard should be met. 

The 2012 proposed regulations 

provided that, while a hospital 

organization must separately establish a 

FAP for each hospital facility it 

operates, such policies ‘‘may contain the 

same operative terms.’’ Several 

commenters asked that hospital 

organizations operating multiple 

facilities be permitted to adopt one FAP 

for all of their facilities. These 

commenters argued that many hospital 

systems have centralized patient 

financial services operations, including 

FAPs, and that adopting a single FAP 

would avoid both significant 

administrative costs as well as patient 

confusion about differences in financial 

responsibilities based on location. 

The final regulations clarify that 

multiple hospital facilities may have 

identical FAPs, billing and collections 

policies, and/or emergency medical care 

policies established for them (or even 

share one joint policy document), 

provided that the information in the 

policy or policies is accurate for all such 

facilities and any joint policy clearly 

states that it is applicable to each 

facility. The final regulations also note, 

however, that different hospital 

facilities may have different AGB 

percentages or use different methods to 

determine AGB that would need to be 

reflected in each hospital facility’s FAP 

(or, in the case of AGB percentages, in 

a separate document that can be readily 

obtained). 

5. Limitation on Charges 

The final regulations provide that a 

hospital organization meets the 

requirements of section 501(r)(5) with 

respect to a hospital facility it operates 

only if the hospital facility limits the 

amounts charged for any emergency or 

other medically necessary care it 

provides to a FAP-eligible individual to 

not more than AGB. The final 

regulations also require a hospital 

facility to limit the amounts charged to 

FAP-eligible individuals for all other 

medical care covered under the FAP to 

less than the gross charges for that care. 

a. Amounts Generally Billed 

The 2012 proposed regulations 

provided two methods for hospital 

facilities to use to determine AGB. The 

first was a ‘‘look-back’’ method based on 

actual past claims paid to the hospital 

facility by either Medicare fee-forservice alone or Medicare fee-for-service 

together with all private health insurers 

paying claims to the hospital facility 

(including, in each case, any associated 

portions of these claims paid by 

Medicare beneficiaries or insured 

individuals). The second method was 

‘‘prospective,’’ in that it required the 

hospital facility to estimate the amount 

it would be paid by Medicare and a 

Medicare beneficiary for the emergency 

or other medically necessary care at 

issue if the FAP-eligible individual were 

a Medicare fee-for-service beneficiary. 

For purposes of the 2012 proposed 

regulations, the term ‘‘Medicare fee-forservice’’ included only health insurance 

available under Medicare Parts A and B 

and not health insurance plans 

administered under Medicare 

Advantage. 

Many commenters stated that 

allowing hospital facilities only two 

methods for calculating AGB was 

insufficiently flexible. Some 

commenters asked that the final 

regulations only require hospital 

facilities to fully disclose and describe 

the method they used to determine AGB 

on their Forms 990, without requiring 


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hospital facilities to determine AGB in 

any particular manner. A few 

commenters noted that Medicare and 

insurer reimbursement models may shift 

over time and that flexibility will be 

needed to ensure that the methods for 

determining AGB set forth in the final 

regulations do not become antiquated or 

hamper evolution in reimbursement 

models. However, no additional 

methods to determine AGB were 

identified. 

Providing hospital facilities complete 

discretion to select methods in 

determining AGB would make it very 

difficult for the IRS to enforce the 

statutory requirement that hospital 

facilities not charge FAP-eligible 

individuals more than AGB and difficult 

for the public to understand and 

recognize whether hospital facilities are 

complying with this requirement. 

However, the Treasury Department and 

the IRS recognize that Medicare and 

insurer reimbursement methodologies 

may evolve over time and that 

additional ways to determine AGB may 

be identified in the future. Therefore, 

the final regulations allow the Treasury 

Department and the IRS to provide for 

additional methods to determine AGB 

in future published guidance as 

circumstances warrant. 

Many commenters suggested that the 

options for determining AGB should be 

expanded or amended to permit 

hospital facilities to base AGB on the 

payments of private, commercial 

insurers only, without also taking into 

account Medicare payments. Some 

commenters specifically asked for the 

ability to determine AGB based on 

‘‘either the best, or an average of the 

three best, negotiated commercial 

rates,’’ as suggested in the JCT’s 

Technical Explanation. See Technical 

Explanation at 82. These commenters 

reasoned that individuals with 

commercial insurance are more 

representative of FAP-eligible 

populations than Medicare beneficiaries 

(as the latter generally include the 

elderly). A few commenters also 

suggested that Medicare rates are an 

inappropriate proxy for AGB because 

they are not the result of negotiations 

between parties and, according to these 

commenters, do not always cover the 

costs of providing care to Medicare 

beneficiaries. On the other hand, other 

commenters recommended that AGB be 

based on Medicare alone, arguing that 

this would increase transparency 

because amounts reimbursed by 

Medicare are publicly verifiable. 

Because Medicare reimbursements 

constitute a large proportion of most 

hospital facilities’ total insurance 

reimbursements, the Treasury 

Department and the IRS continue to 

believe a method of determining AGB 

that excludes Medicare and is based 

only on the claims or rates of private 

health insurers would be inconsistent 

with the statutory phrase ‘‘amounts 

generally billed to individuals who have 

insurance.’’ On the other hand, the 

Treasury Department and the IRS find 

no support in either the statutory 

language of section 501(r)(5) or the 

Technical Explanation for requiring 

(rather than just allowing) AGB to be 

based on Medicare alone. Thus, the final 

regulations continue to allow hospital 

facilities using the look-back method to 

base AGB on the claims of Medicare feefor-service plus all private health 

insurers, as well as on Medicare alone. 

A few commenters noted that 

Medicaid is the largest governmental 

payer for children’s hospitals and 

recommended that hospital facilities be 

able to use Medicaid rates in calculating 

AGB. The final regulations adopt this 

recommendation and allow hospital 

facilities to base AGB on Medicaid rates, 

either alone or in combination with 

Medicare (or, under the look-back 

method, together with Medicare and all 

private health insurers), at the hospital 

facility’s option. 

With respect to Medicaid, one 

commenter noted that, in many states, 

private managed care organizations 

operate Medicaid managed care plans 

and that the final regulations should 

expressly state whether Medicaid 

managed care claims and rates are to be 

included when determining AGB. In 

response to this comment, the final 

regulations provide that the term 

‘‘Medicaid,’’ as used in the final 

regulations, includes medical assistance 

provided through a contract between the 

state and a Medicaid managed care 

organization or a prepaid inpatient 

health plan and that such assistance is 

not considered reimbursements from or 

claims allowed by a private health 

insurer. By contrast, the final 

regulations, like the 2012 proposed 

regulations, provide that a hospital 

facility must treat health insurance 

plans administered by private health 

insurers under Medicare Advantage as 

the plans of private health insurers. 

Many commenters asked how the 

limitation on charges to AGB applies to 

insured individuals who are eligible for 

financial assistance. Most of these 

commenters recommended that the AGB 

limitation apply only to uninsured 

individuals, asserting that section 

501(r)(5) was enacted to provide 

uninsured individuals in need of 

assistance with the benefit of rates 

negotiated by insurance companies and 

that requiring the use of AGB for 

insured patients could inadvertently 

reduce the availability of financial 

assistance for insured patients. One 

commenter suggested that, for insured 

patients who receive a partial financial 

assistance discount, AGB should be 

equal to the amounts generally billed for 

the care minus payments made by the 

third-party insurer. Another commenter 

suggested that the AGB limitation 

should only apply to the patient liability 

and not include payments made by 

third parties, such as health insurers. 

The Treasury Department and the IRS 

note that section 501(r)(5) does not 

distinguish between insured and 

uninsured FAP-eligible individuals. 

Accordingly, the final regulations 

continue to apply the AGB limitation of 

section 501(r)(5) to all individuals 

eligible for assistance under the hospital 

facility’s FAP, without specific 

reference to the individual’s insurance 

status. In response to the comments, 

however, the final regulations clarify 

that, for purposes of the section 

501(r)(5) limitation on charges, a FAPeligible individual is considered to be 

‘‘charged’’ only the amount he or she is 

personally responsible for paying, after 

all deductions and discounts (including 

discounts available under the FAP) have 

been applied and less any amounts 

reimbursed by insurers. Thus, in the 

case of a FAP-eligible individual who 

has health insurance coverage, a 

hospital facility will not fail to meet the 

section 501(r)(5) requirements because 

the total amount required to be paid by 

the FAP-eligible individual and his or 

her health insurer together exceeds 

AGB, as long as the FAP-eligible 

individual is not personally responsible 

for paying (for example, in the form of 

co-payments, co-insurance, or 

deductibles) more than AGB for the care 

after all reimbursements by the insurer 

have been made. The final regulations 

also add several examples 

demonstrating how the limitation on 

charges works when applied to insured 

FAP-eligible individuals. 

A few commenters asked that the final 

regulations clarify that AGB represents 

the maximum amount hospital facilities 

can charge to FAP-eligible individuals 

and that hospital facilities may charge 

FAP-eligible individuals less than AGB 

(that is, provide a more generous 

discount under a FAP). The Treasury 

Department and the IRS have added an 

example to the final regulations to 

confirm this point. 

The 2012 proposed regulations 

provided that, after choosing a 

particular method to determine AGB, a 

hospital facility must continue using 

that method indefinitely. The preamble 

to the 2012 proposed regulations 


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requested comments on whether a 

hospital facility should be allowed to 

change its method of determining AGB 

under certain circumstances or 

following a certain period of time and, 

if so, under what circumstances or how 

frequently. Commenters uniformly 

noted that there could be many practical 

reasons that a hospital facility might 

want to change its method for 

determining AGB, such as changes in 

technologies or processes that make a 

previously-selected method less 

administrable. 

In response to these comments, the 

final regulations provide that a hospital 

facility may change the method it uses 

to determine AGB at any time. However, 

because the final regulations under 

section 501(r)(4) require a hospital 

facility’s FAP to describe the method 

used to determine AGB, a hospital 

facility must update its FAP to describe 

a new method before implementing it. 

A number of commenters noted that 

the 2012 proposed regulations do not 

define the term ‘‘medically necessary 

care.’’ Some commenters asked that the 

final regulations provide that hospital 

facilities have the discretion to 

determine how non-emergency and 

elective services are considered under 

their FAPs. Other commenters 

recommended that the final regulations 

define the term ‘‘medically necessary 

care.’’ Suggested definitions included 

the Medicaid definition used in the 

hospital facility’s state or other 

definitions provided by state law, a 

definition that refers to the generally 

accepted medical practice in the 

community, or a definition based on the 

determination made by the examining 

physician or medical team. 

The final regulations allow hospital 

facilities to define the term ‘‘medically 

necessary care’’ for purposes of their 

FAPs and the AGB limitation in 

recognition of the fact that health care 

providers and health insurers may have 

reasonable differences in opinion on 

whether some health care services are 

medically necessary in particular 

circumstances. In defining medically 

necessary care for purposes of their 

FAPs and the AGB limitation, the final 

regulations clarify that hospital facilities 

may (but are not required to) use the 

Medicaid definition used in the hospital 

facility’s state, other definitions 

provided by state law, or a definition 

that refers to the generally accepted 

standards of medicine in the community 

or an examining physician’s 

determination. 

i. Look-Back Method 

Under the look-back method for 

determining AGB, a hospital facility 

determines AGB for any emergency or 

other medically necessary care provided 

to a FAP-eligible individual by 

multiplying the hospital facility’s gross 

charges for that care by one or more 

percentages of gross charges, called 

‘‘AGB percentages.’’ Hospital facilities 

must calculate their AGB percentages no 

less frequently than annually by 

dividing the sum of certain claims for 

emergency and other medically 

necessary care by the sum of the 

associated gross charges for those 

claims. A hospital facility may use the 

look-back method to calculate one 

average AGB percentage for all 

emergency and other medically 

necessary care provided by the hospital 

facility, or multiple AGB percentages for 

separate categories of care (such as 

inpatient and outpatient care or care 

provided by different departments) or 

for separate items or services. However, 

a hospital facility calculating multiple 

AGB percentages must calculate AGB 

percentages for all emergency and other 

medically necessary care it provides. 

The 2012 proposed regulations 

provided that the AGB percentages must 

be based on all claims that have been 

‘‘paid in full’’ to the hospital facility for 

emergency and other medically 

necessary care by Medicare fee-forservice alone, or by Medicare fee-forservice together with all private health 

insurers, during a prior 12-month 

period. A few commenters asked 

whether the phrase ‘‘claims . . . paid in 

full’’ as used in the 2012 proposed 

regulations was intended to include 

claims that a hospital facility had 

partially written off as bad debt and/or 

treated as paid in full after taking into 

account a discount it had granted. If so, 

commenters asked whether the hospital 

facility should only include the reduced 

amount actually paid when calculating 

the AGB percentage(s). One commenter 

also asked whether the amount a 

hospital facility has accepted for the 

claim in a sale to a third-party debt 

collector should be treated as ‘‘paid in 

full.’’ Two commenters suggested that, 

instead of being based on claims ‘‘paid 

in full,’’ the AGB percentages should be 

based on ‘‘contracted rates’’ or the 

amounts that are allowed by health 

insurers. 

To eliminate the uncertainty created 

by the phrase ‘‘paid in full,’’ the final 

regulations provide that, when 

calculating its AGB percentage(s) under 

the look-back method, a hospital facility 

should include in the numerator the full 

amount of all of the hospital facility’s 

claims for emergency and other 

medically necessary care that have been 

‘‘allowed’’ (rather than ‘‘paid’’) by 

health insurers during the prior 12- 

month period. For these purposes, the 

full amount allowed by a health insurer 

should include both the amount to be 

reimbursed by the insurer and the 

amount (if any) the individual is 

personally responsible for paying (in the 

form of co-payments, co-insurance, or 

deductibles), regardless of whether and 

when the individual actually pays all or 

any of his or her portion and 

disregarding any discounts applied to 

the individual’s portion (under the FAP 

or otherwise). 

Several commenters interpreted the 

2012 proposed regulations to mean that 

hospital facilities had to include the 

claims for all emergency and other 

medically necessary care provided 

during the prior 12-month period when 

calculating AGB percentages. These 

commenters pointed out that many of 

the claims for care provided toward the 

end of a 12-month period will not be 

adjudicated by an insurer until some 

amount of time after the end of that 12- 

month period. Under both the 2012 

proposed regulations and these final 

regulations, the inclusion of a claim in 

a hospital facility’s calculation of its 

AGB percentage(s) is not based on 

whether the care associated with the 

claim was provided during the prior 12- 

month period. Rather, it is based on 

whether the claim is ‘‘allowed’’ 

(formerly, ‘‘paid in full’’) during the 

prior 12-month period. The final 

regulations clarify this point. The final 

regulations also state that, if the amount 

a health insurer will allow for a claim 

has not been finally determined as of 

the last day of the 12-month period used 

to calculate the AGB percentage(s), a 

hospital facility should exclude the 

amount of the claim from that 

calculation and include it in the 

subsequent 12-month period during 

which the amount allowed is finally 

determined. 

A few commenters asked that hospital 

facilities be permitted to calculate AGB 

percentages under the look-back method 

based on claims for all medical care 

allowed in the prior 12-month period, 

rather than just the claims for 

emergency and medically necessary 

care. These commenters stated that it 

would be administratively burdensome 

to have to sift out only the claims for 

emergency and medically necessary 

care. Accordingly, the final regulations 

provide that a hospital facility may 

include in the calculation of its AGB 

percentage(s) claims for all medical care 

allowed during the prior 12-month 

period rather than just the claims 

allowed for emergency and other 

medically necessary care. The Treasury 

Department and the IRS note that the 

calculation of a hospital facility’s AGB 


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percentage(s) includes only claims 

allowed by insurers and that insurers 

generally allow claims only for care that 

is medically necessary. Thus, the 

Treasury Department and the IRS do not 

expect that there will be a significant 

difference between AGB percentages 

based on all claims allowed by insurers 

and AGB percentages based on all 

claims allowed by insurers for 

emergency and other medically 

necessary care. 

A few commenters noted that the 

health care delivery system is migrating 

from a fee-for-service model to other 

methods of payment, used by both 

public and private payers, that include 

‘‘value-based,’’ accountable care, and 

shared savings payments. These 

commenters stated that the 2012 

proposed regulations failed to account 

for these other methods of payment 

because the method of calculating AGB 

percentages appeared to be based on 

claims for individual episodes of care, 

while value-based, accountable care, 

shared savings, and similar payments 

are not necessarily tied to individual 

episodes of care. 

As a general matter, the Treasury 

Department and the IRS interpret the 

statutory phrase ‘‘amounts generally 

billed to individuals who have 

insurance covering such care’’ as 

referring to amounts billed or 

reimbursed for care received by those 

insured individuals. It is not clear, and 

commenters did not address, how lump 

sum payments from an insurer with no 

direct connection to any specific 

individual’s care would appropriately 

be included in a determination of AGB. 

As a result, the final regulations do not 

amend the look-back method or the 

prospective method to specifically 

account for any such separate payment 

streams. However, if a hospital facility 

can reasonably allocate a capitated (or 

other lump sum) payment made by an 

insurer to care received by particular 

patients during a twelve-month period 

and has also tracked the gross charges 

for that care, it may be able to 

reasonably incorporate such payments 

into its calculation of one or more AGB 

percentages under the look-back method 

described in the final regulations. In 

addition, the Treasury Department and 

the IRS will continue to consider 

whether hospital facilities need 

alternative methods of determining AGB 

that directly accommodate capitated 

payments or value-based, accountable 

care, shared savings, and similar 

payments, and, if so, such alternative 

methods may be provided in future 

regulations, revenue rulings, or other 

published guidance. 

The look-back method described in 

the 2012 proposed regulations only 

included claims paid by Medicare feefor-service and/or private health 

insurers as primary payers. One 

commenter indicated that payments 

made by secondary payers should also 

be included in a hospital facility’s 

calculation of its AGB percentage(s) 

because considering only primary 

payers and patient co-insurance, copayments, and deductibles artificially 

depresses the AGB percentages. The 

Treasury Department and the IRS intend 

for hospital facilities to be able to 

include in the calculation of their AGB 

percentages the total amount of claims 

for care allowed by primary insurers 

(including both the amounts paid by 

primary insurers and the amounts 

insured individuals are personally 

responsible for paying in the form of copayments, co-insurance, or deductibles), 

regardless of whether secondary 

insurers end up paying some or all of 

the insured individual’s portion. In 

addition, if an individual’s primary 

insurer does not cover a certain 

procedure but his or her secondary 

insurer does, including the amount 

allowed by the secondary insurer in the 

calculation of the hospital facility’s AGB 

percentage(s) will not result in any 

duplication because only one amount 

was allowed by an insurer. Moreover, if 

the secondary insurer is of the type that 

is otherwise being included in the 

hospital facility’s calculation of the AGB 

percentage (that is, Medicare, Medicaid, 

and/or a private health insurer), the 

amounts allowed by the secondary 

insurer should be included in the 

calculation to ensure that the resulting 

AGB percentage(s) is fully 

representative of the amounts allowed 

by the applicable type of insurer(s). 

Thus, to eliminate any confusion, the 

final regulations remove the references 

to ‘‘primary payers’’ contained in the 

2012 proposed regulations. 

Numerous commenters asked that 

hospital organizations be permitted to 

calculate AGB percentages on a systemwide basis, stating that many hospital 

systems have centralized patient 

financial services operations and that 

permitting a system-wide calculation 

would avoid both significant 

administrative costs and patient 

confusion about differences in financial 

responsibilities based on location. 

Because different hospital facilities 

within a system can serve distinct 

geographic areas, offer significantly 

different services, and have different 

negotiated rates with insurers, allowing 

hospital systems to calculate AGB 

percentages across the entire system 

could result in AGB percentages that 

would not accurately reflect the 

amounts generally billed to individuals 

with insurance by the separate hospital 

facilities within the system. 

Specifically, a system-wide AGB 

percentage would be an average across 

hospital facilities, some of which may 

have lower negotiated reimbursement 

rates with insurers or more Medicare 

patients than others. Use of a systemwide AGB percentage could result in 

higher charges for the FAP-eligible 

patients of those hospital facilities in 

the system with lower negotiated 

reimbursement rates or more Medicare 

patients than would be the case if the 

AGB were calculated on a facility-byfacility basis. Accordingly, the final 

regulations do not permit such systemwide calculations. However, because 

hospital facilities that have satisfied 

CMS criteria to bill and be covered 

under one Medicare provider number 

may find it administratively difficult to 

separate claims by hospital facility, the 

final regulations allow hospital facilities 

that are covered under the same 

Medicare provider agreement (as 

identified by the same CMS 

Certification Number) to calculate one 

AGB percentage (or multiple AGB 

percentages for separate categories of 

care or separate items or services) based 

on the claims and gross charges for all 

such hospital facilities and implement 

the AGB percentage(s) across all such 

hospital facilities. 

One commenter asked that the final 

regulations clarify that a hospital 

organization operating more than one 

hospital facility may select the lookback method for some of its facilities 

and the prospective method for others. 

The 2012 proposed regulations were not 

intended to prevent different hospital 

facilities operated by the same hospital 

organization from using different 

methods to determine AGB at different 

hospital facilities, and these final 

regulations expressly state that this is 

permissible. 

The 2012 proposed regulations 

provided that a hospital facility must 

begin applying its AGB percentage(s) by 

the 45th day after the end of the 12- 

month period the hospital facility used 

in calculating the AGB percentage(s) 

and requested comments regarding 

whether a hospital facility needs more 

than 45 days. Numerous commenters 

stated that hospital facilities need a 

period longer than 45 days both to 

complete the calculation and to make 

the updates to their policies, processes, 

systems, and communications necessary 

to implement the changes and 

recommended periods ranging from 60 

to 120 days. In response to these 


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comments, the final regulations allow a 

hospital facility to take up to 120 days 

after the end of the 12-month period 

used in calculating the AGB 

percentage(s) to begin applying its new 

AGB percentage(s). The Treasury 

Department and the IRS note that, 

because the final regulations under 

section 501(r)(4) require a hospital 

facility’s FAP to state the hospital 

facility’s AGB percentage(s) or explain 

how members of the public may readily 

obtain such percentages, a hospital 

facility must update its FAP (or other 

readily obtainable material) to reflect 

new AGB percentage(s). 

The 2012 proposed regulations 

requested comments regarding whether 

a hospital facility using the look-back 

method should have the option to base 

its AGB-percentage calculation on a 

representative sample of claims (rather 

than all claims) that were paid in full 

over a prior 12-month period and, if so, 

how hospital facilities would ensure 

that such samples are representative and 

reliable. A few commenters suggested 

that the final regulations should permit 

the use of samples, but they did not 

provide much additional explanation of 

why samples were necessary or how 

samples could be determined in a 

representative and reliable way. Other 

commenters argued that samples would 

be inaccurate and that permitting the 

use of sampling would give hospital 

facilities an excessive ability to 

manipulate their computations and 

exacerbate problems with transparency 

or protections for consumers. Because 

legitimate concerns were raised by 

commenters with respect to sampling 

and no comments explained why the 

use of samples was necessary or how 

hospital facilities could ensure that such 

samples would be representative and 

reliable, the final regulations do not 

allow hospital facilities using the lookback method to base their calculation of 

AGB percentage(s) on a sample of 

claims. The Treasury Department and 

the IRS note, however, that, to the 

degree using all claims in calculating 

AGB percentages takes longer than 

using a representative sample, hospital 

facilities have 120, not 45, days after the 

end of the applicable 12-month period 

to calculate and implement AGB 

percentages under the final regulations. 

The 2012 proposed regulations also 

requested comments regarding whether 

hospital facilities might significantly 

increase their gross charges after 

calculating one or more AGB 

percentages and whether such an 

increase could mean that determining 

AGB by multiplying current gross 

charges by an AGB percentage would 

result in charges that exceed the 

amounts that are in fact generally billed 

to those with insurance at the time of 

the charges. A number of commenters 

stated that such safeguards are 

unnecessary, since most hospitals do 

not update their gross charges more than 

once a year, increases are generally 

based on an annual market analysis, and 

AGB calculations would not drive 

hospitals to change their gross charges. 

After considering the comments 

received on this issue, the final 

regulations do not modify the proposed 

rule in this regard. 

ii. Prospective Method 

Under the prospective method 

described in the 2012 proposed 

regulations, a hospital facility could 

determine AGB for any emergency or 

other medically necessary care that the 

hospital facility provided to a FAPeligible individual by using the same 

billing and coding process the hospital 

facility would use if the individual were 

a Medicare fee-for-service beneficiary 

and setting AGB for that care at the 

amount that Medicare and the Medicare 

beneficiary together would be expected 

to pay for the care. The Treasury 

Department and the IRS requested 

comments regarding whether a hospital 

facility should also have the option of 

determining AGB based on the private 

health insurer with the lowest rate or 

the three private health insurers with 

the three lowest rates. Some 

commenters who responded to this 

request for comments said hospital 

facilities should have this option under 

both the prospective and the look-back 

methods, while other commenters 

recommended that AGB be based on 

Medicare alone. For reasons discussed 

previously in this section 5.a of the 

preamble (including the fact that 

Medicare reimbursements constitute a 

large proportion of most hospital 

facilities’ total insurance 

reimbursements), the Treasury 

Department and the IRS believe that 

excluding Medicare and basing AGB 

only on the private health insurer with 

the lowest rate or the three private 

health insurers with the three lowest 

rates would not accurately capture the 

amounts generally billed by hospital 

facilities to individuals with insurance 

in many cases. Thus, the final 

regulations do not permit hospital 

facilities to determine AGB using the 

prospective method based on the private 

health insurers with the lowest rate or 

the three private health insurers with 

three lowest rates. 

Consistent with changes made to the 

look-back method, the final regulations 

allow hospital facilities to determine 

AGB under the prospective method 

based on Medicaid, either alone or in 

combination with Medicare fee-for 

service. More specifically, the final 

regulations provide that a hospital 

facility using the prospective method 

may base AGB on either Medicare feefor-service or Medicaid or both, 

provided that, if it uses both, its FAP 

describes the circumstances under 

which it will use Medicare fee-forservice or Medicaid in determining 

AGB. 

b. Gross Charges 

The 2012 proposed regulations 

provided that a hospital facility must 

charge a FAP-eligible individual less 

than the gross charges for any medical 

care provided to that individual. Several 

commenters argued that, unlike the 

AGB requirement in section 

501(r)(5)(A), the language regarding the 

prohibition on the use of gross charges 

in section 501(r)(5)(B) does not refer to 

FAP-eligible individuals, in particular. 

As a result, these commenters 

recommended that the final regulations 

prohibit the use of gross charges for all 

individuals, not just FAP-eligible 

individuals. 

The Treasury Department and the IRS 

believe it is reasonable to interpret 

section 501(r)(5)(B)’s prohibition on 

gross charges in the context of section 

501(r)(5) as a whole, which is intended 

to limit the amounts charged to FAPeligible individuals. The JCT clarified 

this intent in the Technical Explanation, 

remarking that ‘‘[a] hospital facility may 

not use gross charges . . . when billing 

individuals who qualify for financial 

assistance.’’ See Technical Explanation, 

at 82. Thus, the final regulations 

continue to apply the prohibition on 

gross charges only to FAP-eligible 

individuals. 

The 2012 proposed regulations 

applied the AGB limitation only to 

charges to FAP-eligible individuals for 

emergency or other medically necessary 

care, while the prohibition on charging 

FAP-eligible individuals gross charges 

would also apply to ‘‘all other medical 

care.’’ A few commenters interpreted 

this language to mean that the 

prohibition on gross charges applies 

even to elective procedures not covered 

under the FAP. In response, the final 

regulations clarify that this limitation 

applies only to charges for care covered 

under a hospital facility’s FAP, which 

may, but need not, cover care that is 

neither emergency nor medically 

necessary care. 

c. Safe Harbor for Certain Charges in 

Excess of AGB 

The 2012 proposed regulations 

included a safe harbor under which a 


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hospital facility would not violate 

section 501(r)(5) if it charged more than 

AGB for emergency or other medically 

necessary care, or charged gross charges 

for any medical care, to a FAP-eligible 

individual who had not submitted a 

complete FAP application as of the time 

of the charge, provided that the hospital 

facility made and continued to make 

reasonable efforts to determine whether 

the individual was FAP-eligible (within 

the meaning of and during the periods 

required under section 501(r)(6)). 

Because the steps to notify 

individuals about the FAP that remain 

in the regulations under section 

501(r)(6) (as opposed to those that have 

been moved to the regulations under 

section 501(r)(4)) are focused on the 

individuals against whom a hospital 

facility actually intends to initiate 

extraordinary collection actions, the 

§ 1.501(r)–5(d) safe harbor in the final 

regulations does not retain the 

requirement in the 2012 proposed 

regulations that the hospital facility 

make reasonable efforts to determine 

whether the individual is FAP-eligible 

within the meaning of the section 

501(r)(6) regulations. Instead, the safe 

harbor focuses on remedying the 

overcharging by requiring that, if an 

individual submits a complete FAP 

application and is determined to be 

FAP-eligible for care, the hospital 

facility must refund any amounts the 

individual has paid for the care that 

exceeds the amount he or she is 

determined to be personally responsible 

for paying as a FAP-eligible individual. 

For reasons discussed in section 6.b.v.B 

of this preamble, the § 1.501(r)–5(d) safe 

harbor in the final regulations also 

contains an exception to this general 

requirement to refund under which a 

hospital facility is not required to 

refund excess payments of less than $5. 

One commenter suggested that the 

§ 1.501(r)–5(d) safe harbor should only 

require a hospital facility to refund 

amounts paid by a FAP-eligible 

individual in excess of AGB. As part of 

properly implementing their FAPs, 

hospital facilities should charge FAPeligible individuals only the amounts 

they are determined to owe as FAPeligible individuals. Thus, a hospital 

facility should not be permitted to 

charge FAP-eligible individuals more 

than AGB and be able to avail itself of 

the § 1.501(r)–5(d) safe harbor unless it 

is willing to refund any amounts paid 

by a FAP-eligible individual that exceed 

the amount he or she is determined to 

owe as a FAP-eligible individual. 

Two commenters recommended that 

the safe harbor under the section 

501(r)(5) regulations require a hospital 

facility to charge all individuals AGB or 

less during the application period 

unless it has affirmatively determined 

that the individual is not FAP-eligible. 

The Treasury Department and the IRS 

expect that a hospital facility will not be 

able to affirmatively determine whether 

most of its patients are FAP-eligible 

because most of its patients who are not 

FAP-eligible will not apply for financial 

assistance. Accordingly, such a rule 

would undercut the purpose of the safe 

harbor and is not adopted by these final 

regulations. 

As discussed further in section 6.a.iv 

of this preamble, two commenters noted 

that charging individuals an upfront 

payment as a condition of receiving care 

may be tantamount to denying that care 

in the case of medically indigent people, 

and the final regulations consider 

demanding payment of a past bill as a 

condition of receiving future medically 

necessary care to be an extraordinary 

collection action. In addition, the 

Treasury Department and the IRS 

believe that the § 1.501(r)–5(d) safe 

harbor should not protect hospital 

organizations that charge an upfront 

payment in excess of AGB to FAPeligible individuals. Accordingly, the 

final regulations provide that the 

§ 1.501(r)–5(d) safe harbor does not 

apply to charges made or requested as 

a pre-condition of providing medically 

necessary care to a FAP-eligible 

individual. Thus, if a hospital facility 

requires an individual to make an 

upfront payment for medically 

necessary care that exceeds the AGB for 

the care and the individual turns out to 

be FAP-eligible, the hospital facility will 

have failed to meet the requirements of 

section 501(r)(5). 

6. Billing and Collection 

Consistent with the statute, the final 

regulations provide that a hospital 

organization meets the requirements of 

section 501(r)(6) with respect to a 

hospital facility it operates only if the 

hospital facility does not engage in 

extraordinary collection actions (ECAs) 

against an individual to obtain payment 

for care before making reasonable efforts 

to determine whether the individual is 

FAP-eligible for the care. For these 

purposes, and consistent with the 2012 

proposed regulations, a hospital facility 

will be considered to have engaged in 

ECAs against an individual to obtain 

payment for care if the hospital facility 

engages in such ECAs against any other 

individual who has accepted or is 

required to accept responsibility for the 

first individual’s hospital bill for the 

care. 

One commenter interpreted the 

provision in the 2012 proposed 

regulations regarding ECAs against 

individuals with responsibility for a 

patient’s hospital bill as applying to 

private and public insurers covering all 

or a portion of the patient’s hospital bill. 

Under the Code, the term ‘‘individual’’ 

does not include any trust, estate, 

partnership, association, company, 

corporation, or governmental entity and, 

thus, would not include any private or 

public insurer. Accordingly, the final 

regulations retain the provision in the 

2012 proposed regulations regarding 

ECAs against individuals with 

responsibility for a patient’s hospital 

bill. This provision does not require a 

hospital facility to make reasonable 

efforts to determine FAP-eligibility 

before engaging in ECAs against private 

or public insurers or any other liable 

third parties that are not individuals. 

The 2012 proposed regulations also 

provided that a hospital facility will be 

considered to have engaged in an ECA 

against an individual to obtain payment 

for care if any purchaser of the 

individual’s debt or any debt collection 

agency or other party to which the 

hospital facility has referred the 

individual’s debt has engaged in an ECA 

against the individual to obtain payment 

for the care. Many commenters asked 

that the regulations relieve hospital 

facilities from strict liability under 

section 501(r)(6) for the actions of third 

parties, provided that the hospital 

facility acts in good faith to supervise 

and enforce the section 501(r)(6) 

obligations of its contractual agreements 

with collection agents and takes 

remedial steps with respect to any 

contractual violations it discovers. 

These commenters argued that a 

hospital’s tax-exempt status should not 

be placed in jeopardy by a debt 

collection agency’s actions of which it is 

unaware. Other commenters, however, 

recommended that the final regulations 

retain the provision holding hospital 

facilities accountable for the billing and 

collection actions of third-party 

contractors and debt buyers. 

The Treasury Department and the IRS 

continue to believe that hospital 

facilities must be held accountable for 

the ECAs of the debt collection agencies 

and debt buyers to which they refer or 

sell debt. Otherwise, hospital facilities 

could easily avoid their responsibilities 

under section 501(r)(6) by referring or 

selling their debt to third parties. 

Nonetheless, the Treasury Department 

and the IRS expect that the concerns of 

these commenters are largely addressed 

by the provision, outlined in section 2.b 

of this preamble, under which a hospital 

facility’s failure to meet the 

requirements of section 501(r)(6) will be 

excused if the failure is not willful or 

egregious and the hospital facility both 


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corrects and discloses the failure in 

accordance with published guidance. 

Under this provision, if a hospital 

facility acts reasonably and in good faith 

to supervise and enforce the section 

501(r)(6) obligations of its contractual 

agreements with debt collectors or 

purchasers and corrects any contractual 

violations it discovers, then an error on 

the part of the debt collectors or 

purchasers should not be willful and, 

provided that it is not egregious, could 

be excused if the hospital facility 

corrects and discloses the failure in 

accordance with the procedures 

outlined in the revenue procedure 

described in § 1.501(r)–2(c). 

Accordingly, the final regulations retain 

the provision holding a hospital facility 

accountable for the ECAs of the third 

parties collecting debt on its behalf or to 

which it sells debt. 

One commenter interpreted the 2012 

proposed regulations as suggesting that 

a hospital facility must meet the section 

501(r)(6) requirements with respect to 

all care provided by the hospital facility, 

even if that care is elective and not 

medically necessary. Section § 1.501(r)– 

6(b) of these final regulations and the 

2012 proposed regulations define ECAs 

as actions related to obtaining payment 

of bills ‘‘for care covered under the 

hospital facility’s FAP.’’ Both the 

proposed and final regulations under 

section 501(r)(4) only require a FAP to 

cover emergency and other medically 

necessary care. Because a hospital 

facility has discretion over whether its 

FAP covers elective procedures that are 

not medically necessary, it has 

discretion over whether or not it must 

meet the section 501(r)(6) requirements 

with respect to such elective care. 

a. Extraordinary Collection Actions 

The 2012 proposed regulations 

defined ECAs as actions taken by a 

hospital facility against an individual 

related to obtaining payment of a bill for 

care covered under the hospital 

facility’s FAP that require a legal or 

judicial process, involve selling an 

individual’s debt to another party, or 

involve reporting adverse information 

about an individual to consumer credit 

reporting agencies or credit bureaus 

(collectively, ‘‘credit agencies’’). 

Some commenters asked that the final 

regulations clarify that certain 

additional actions, such as writing off 

an account to bad debt, sending a 

patient a bill, or calling a patient by 

telephone to make reasonable inquiries, 

are not ECAs. These actions do not 

require a legal or judicial process or 

involve reporting adverse information to 

a credit agency or the selling of an 

individual’s debt and would not come 

within the definition of ECAs under 

either the 2012 proposed regulations or 

the final regulations. However, because 

there are many possible actions that 

would not be ECAs and such actions 

cannot be exhaustively listed in the 

regulations, the final regulations do not 

respond to these comments by 

enumerating actions that are not ECAs 

(although they do provide for some 

exceptions with respect to the ECAs that 

are enumerated, as described in sections 

6.a.ii and 6.a.iii of the preamble). 

i. Reports to Credit Agencies 

Many commenters argued that 

reporting adverse information to a credit 

agency should not be considered an 

ECA because such reporting is not a 

collection action and is a common 

practice of hospital facilities. One 

commenter argued that Congress could 

not have intended credit agency 

reporting to be an ECA because section 

501(r)(4)(A)(iv) provides that a taxexempt hospital facility’s FAP or 

separate billing and collection policy 

must include, among other items, ‘‘the 

actions the organization may take in the 

event of non-payment, including 

collections action[s] and reporting to 

credit agencies.’’ Other commenters 

supported defining ECAs to include 

reporting an individual’s non-payment 

of a debt to a credit agency, noting that 

such an action is a tool in collecting 

debt and can have extraordinarily 

detrimental consequences for 

individuals by resulting in bad credit 

records for many years. 

The Treasury Department and the IRS 

view reporting to credit agencies as a 

collection action because it is a tool to 

collect delinquent debts, and bad credit 

reports can have extraordinarily 

detrimental consequences for the 

affected individuals. Moreover, the 

requirement under section 

501(r)(4)(A)(iv) that a hospital facility 

describe reporting to credit agencies in 

its FAP or billing and collections policy 

evidences Congress’s concern regarding 

such reporting. In addition, the JCT’s 

Technical Explanation states that 

‘‘ ‘reasonable efforts’ includes 

notification . . . before collection action 

or reporting to credit agencies is 

initiated.’’ Technical Explanation, at 82. 

Because section 501(r)(6) only requires 

a hospital facility to make reasonable 

efforts before initiating an ECA, this 

statement supports the conclusion that 

reporting to credit agencies is an ECA. 

Accordingly, the final regulations 

continue to include the reporting of 

adverse information to credit agencies 

as an ECA. 

ii. Certain Liens 

The 2012 proposed regulations 

provided a non-exclusive list of 

examples of actions that require a legal 

or judicial process, which included the 

placement of a lien on an individual’s 

property. Numerous commenters noted 

that, when a patient has sued a third 

party due to an auto accident or other 

type of accident and, as a part of the 

settlement, is entitled to receive 

reimbursement for medical bills, state 

laws commonly allow hospitals to place 

a lien on that portion of potential 

settlement proceeds. Commenters stated 

that they often need to move quickly if 

they will ever be able to take possession 

of such funds and asked that the final 

rule confirm that this common practice 

will not be treated as an ECA against the 

patient. 

The proceeds of settlements, 

judgments, or compromises arising from 

a patient’s suit against a third party who 

caused the patient’s injuries come from 

the third party, not from the injured 

patient, and thus hospital liens to obtain 

such proceeds should not be treated as 

collection actions against the patient. In 

addition, the portion of the proceeds of 

a judgment, settlement, or compromise 

attributable under state law to care that 

a hospital facility has provided may 

appropriately be viewed as 

compensation for that care. 

Accordingly, in response to comments, 

the final regulations expressly provide 

that these liens are not ECAs. 

iii. Sale of an Individual’s Debt to 

Another Party 

A number of commenters argued that 

debt sales should not be considered 

ECAs because they are an important 

way for hospitals to avoid having to 

collect debt themselves. Some 

commenters noted that holding hospital 

facilities accountable for the actions of 

debt buyers should be sufficient to 

ensure that debt buyers do not 

themselves engage in ECAs before 

reasonable efforts are made. In addition, 

several commenters argued that certain 

debt sales are beneficial to the patient as 

well as to the hospital facility because, 

for example, the buyer may service the 

debt more efficiently or be able to offer 

extended payment plans at no or low 

interest that the hospital facility cannot. 

These commenters recommended that 

debt sales should not be considered 

ECAs if the purchaser of the debt is 

contractually obligated not to take any 

actions that are ECAs and/or the debt is 

returnable to or recallable by the 

hospital facility. 

Other commenters stated that hospital 

facilities lose control of the debt once 


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9The interest rate in effect under section 

6621(a)(2) was 3 percent at the time these final 

regulations were published. See Rev. Rul. 2014–29, 

2014–52 IRB 960 (Dec. 22, 2014). 

they sell it and that debt buyers 

typically purchase medical debts for 

pennies on the dollar, without full 

information about the individual 

patients, and are thus more likely to 

pursue flawed claims and engage in 

abusive practices. These commenters 

recommended that debt sales be 

prohibited altogether, even after 

reasonable efforts are made to determine 

an individual’s FAP-eligibility. 

The Treasury Department and the IRS 

note that section 501(r)(6) does not 

prohibit any collection actions outright; 

therefore, the final regulations do not 

prohibit debt sales altogether. The final 

regulations do, however, retain the 

general rule that debt sales are ECAs 

because the Treasury Department and 

the IRS agree with those commenters 

who noted that hospitals have less 

control over a debt once it has been sold 

and that debt buyers will generally have 

less information regarding the 

individual and the debt and more 

incentive to engage in ECAs before 

making reasonable efforts to determine 

whether an individual is FAP-eligible. 

Nonetheless, the Treasury Department 

and the IRS believe these concerns 

about debt sales are mitigated in certain 

cases in which contractual arrangements 

with debt buyers both allow hospital 

facilities to retain control over the debt 

and benefit patients. Accordingly, the 

final regulations provide that the sale of 

an individual’s debt is not an ECA if, 

prior to the sale, the hospital facility 

enters into a legally binding written 

agreement with the purchaser of the 

debt containing four conditions. First, 

the purchaser must agree not to engage 

in any ECAs to obtain payment of the 

debt. Second, the purchaser must agree 

not to charge interest on the debt in 

excess of the rate in effect under section 

6621(a)(2) at the time the debt is sold (or 

such other interest rate set by notice or 

other guidance published in the Internal 

Revenue Bulletin).9 Third, the debt 

must be returnable to or recallable by 

the hospital facility upon a 

determination by the hospital facility or 

the purchaser that the individual is 

FAP-eligible. And, fourth, if the 

individual is determined to be FAPeligible and the debt is not returned to 

or recalled by the hospital facility, the 

purchaser must adhere to procedures 

specified in the agreement that ensure 

that the individual does not pay, and 

has no obligation to pay, the purchaser 

and the hospital facility together more 

than he or she is personally responsible 

for paying as a FAP-eligible individual. 

Because debt sales subject to these four 

conditions are not considered to be 

ECAs under the final regulations, a 

hospital facility may make these debt 

sales without first having made 

reasonable efforts to determine FAPeligibility. Debt sales that do not satisfy 

these four conditions are ECAs and 

therefore may not be made until after a 

hospital facility has made reasonable 

efforts to determine FAP-eligibility, as 

described in section 6.b of this 

preamble. 

iv. Including Additional Actions as 

ECAs 

The preamble to the 2012 proposed 

regulations asked whether deferring or 

denying care based on a pattern of 

nonpayment, requiring deposits before 

providing care, or charging interest on 

medical debts should constitute ECAs. 

Some commenters opined that these 

actions should be categorized as ECAs 

to protect patients, with two 

commenters adding that requiring 

deposits is tantamount to denying care 

for medically indigent people. Other 

commenters recommended that these 

activities should not be ECAs, noting 

that requiring some deposit from 

patients prior to scheduling nonemergency care is a common practice 

among health care providers and that 

interest is charged by many credit 

providers. One of these commenters also 

stated that it is not inappropriate or 

extraordinary for a hospital to defer 

provision of care to a patient who has 

a documented pattern of non-payment 

unless that patient is seeking emergency 

care covered under EMTALA through 

the emergency department. 

The Treasury Department and the IRS 

view the charging of interest on medical 

debt as a charge for the extension of 

credit rather than a collection action. In 

addition, the Treasury Department and 

the IRS interpret the term ‘‘collection 

action’’ as applying to actions to collect 

debts owed for services already 

rendered, not conditions imposed before 

any services have been provided or any 

debts have been incurred. Thus, the 

Treasury Department and the IRS do not 

believe that requiring a payment 

(whether partial or full) before 

providing care is a collection action 

unless it is related to an attempt to 

collect a prior medical bill. Accordingly, 

the final regulations do not include 

these activities as ECAs. 

However, if a hospital facility defers 

or denies, or requires a payment before 

providing, medically necessary care 

because of an individual’s nonpayment 

of one or more bills for previously 

provided care, such actions constitute 

actions to collect the unpaid bills. 

Moreover, these collection actions can 

properly be viewed as extraordinary, 

given that such actions can potentially 

jeopardize the health of the debtor. 

While one commenter asserted that ‘‘it 

is not inappropriate’’ for a hospital to 

defer the provision of care on the basis 

of a documented pattern of nonpayment unless it is care sought through 

the emergency department covered 

under EMTALA, the relevant question 

for purposes of section 501(r)(6) is not 

whether deferring or denying care based 

on past nonpayment is permitted under 

EMTALA but rather whether it is a 

collection action that is extraordinary. 

In addition, as two commenters pointed 

out, requiring deposits can be 

tantamount to denying care for 

medically indigent people, and thus 

requiring payment before providing 

medically necessary care because of 

nonpayment of past bills is also an ECA 

with respect to those past bills. 

Therefore, the final regulations include 

such collection actions within the 

definition of ECAs. The final regulations 

also elaborate on when a requirement 

for payment will be considered to be 

‘‘because of’’ an individual’s 

nonpayment of one or more bills for 

previously provided care. In particular, 

the final regulations provide that, if a 

hospital facility requires payment before 

providing care to an individual with one 

or more outstanding bills, such a 

payment requirement will be presumed 

to be because of the individual’s 

nonpayment of the outstanding bill(s) 

unless the hospital facility can 

demonstrate that it required the 

payment from the individual based on 

factors other than, and without regard 

to, his or her nonpayment of past bills. 

Several commenters also 

recommended that patients who are 

eligible for hospital financial assistance, 

means-tested public programs, or 

subsidies should not be subject to any 

ECAs or other collection actions. 

Section 501(r)(6) requires hospital 

facilities to determine whether an 

individual is FAP-eligible before 

engaging in ECAs but does not bar ECAs 

altogether against individuals that have 

been determined to be FAP-eligible or 

eligible for assistance under public 

programs. Therefore, the final 

regulations do not adopt this comment. 

b. Reasonable Efforts 

The 2012 proposed regulations 

provided that, with respect to any care 

provided by a hospital facility to an 

individual, the hospital facility would 

have made reasonable efforts to 

determine whether the individual is 

FAP-eligible only if the hospital facility 


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78986 Federal Register / Vol. 79, No. 250 / Wednesday, December 31, 2014 / Rules and Regulations 

10See section 501(r)(7) (providing that the 

Secretary ‘‘shall issue such regulations and 

guidance as may be necessary to carry out the 

provisions of [section 501(r)], including guidance 

relating to what constitutes reasonable efforts to 

determine the eligibility of a patient under a’’ FAP 

for purposes of section 501(r)(6)). 

notified the individual about the FAP, 

provided a reasonably sufficient amount 

of time for the individual to apply for 

financial assistance, and processed FAP 

applications received from the 

individual during a specified period. 

For purposes of meeting these 

requirements, the 2012 proposed 

regulations described both an initial 

120-day ‘‘notification period’’ during 

which the hospital facility was required 

to notify an individual about the FAP 

and a 240-day ‘‘application period’’ 

during which a hospital facility was 

required to process any application 

submitted by the individual, with both 

periods starting on the date of the first 

bill. A hospital facility providing the 

necessary notification during the 120- 

day notification period could begin to 

engage in ECAs against an individual 

after the end of the 120-day notification 

period but was required to suspend any 

such ECAs if the individual submitted 

a FAP application during the remainder 

of the application period (and to reverse 

such ECAs if the individual was 

determined to be FAP-eligible). 

Many commenters stated that the 

reasonable efforts regime set forth in the 

2012 proposed regulations was too 

detailed and prescriptive and asked that 

the final regulations adopt this regime 

as a safe harbor rather than as a 

requirement. These commenters asked 

that hospital facilities be allowed to 

maintain current practices regarding the 

manner and timeframe of notification 

about the FAP and processing of FAP 

applications, provided that these 

practices are made transparent, such as 

by requiring that these practices be 

disclosed in FAPs, billing and collection 

policies, or the hospital facility’s Form 

990. 

The Treasury Department and the IRS 

do not believe that disclosure alone of 

a hospital facility’s notification and 

FAP-eligibility determination processes 

constitutes reasonable efforts to 

determine whether individuals are FAPeligible. While the regulations under 

section 501(r)(4) require such disclosure 

to be made in the FAP or a separate 

billing and collections policy, such 

disclosure will not meaningfully or 

adequately accomplish the requirement 

that Congress intended when it enacted 

section 501(r)(6) and expressly called 

for the Secretary to issue guidance 

defining reasonable efforts to determine 

FAP-eligibility.10 Accordingly, the final 

regulations do not provide hospital 

facilities with complete discretion over 

how to make reasonable efforts to 

determine FAP-eligibility. However, the 

final regulations do make a number of 

modifications, as described further in 

this section of the preamble, that are 

designed to reduce the compliance 

burden on hospital facilities while at the 

same time ensuring that the reasonable 

efforts taken to determine whether 

individuals are FAP-eligible adequately 

protect patients. 

The final regulations also contain a 

number of changes to § 1.501(r)–6(c) of 

the 2012 proposed regulations that are 

intended to streamline and simplify the 

presentation of the applicable rules and 

not to have a substantive effect. 

i. Notification and Application Periods 

The 2012 proposed regulations 

requested comments on whether the 

notification and application periods 

should start later than the date of the 

first billing statement, such as the date 

of discharge, in the case of patients 

staying at a hospital facility for a 

prolonged period of time and receiving 

billing statements in the mail before 

being discharged. The majority of 

commenters responding to this request 

for comments stated that the notification 

and application periods should start no 

earlier than the time of discharge so that 

the ‘‘clock’’ on the periods would not 

start until the patient was aware of the 

billing statements and able to focus on 

the notifications about the FAP. On the 

other hand, one commenter noted that 

inpatients present the best opportunity 

for in-person financial counseling 

activity and that there was therefore no 

need for the periods to begin after 

discharge rather than the first billing 

statement. Another commenter opined 

that the requirements relating to FAP 

notification and applications would be 

confusing to both providers and 

consumers if the FAP notification and 

application periods did not always start 

on the date of the first billing statement. 

In response to the majority of 

comments on the issue and to ensure 

that patients who receive care over a 

prolonged period of time receive 

adequate notification about the FAP and 

impending ECAs and have an adequate 

opportunity to apply for financial 

assistance, the final regulations provide 

that the applicable 120- and 240-day 

periods start on the date that the first 

‘‘post-discharge’’ billing statement is 

provided, rather than just the first 

billing statement. For these purposes, 

the final regulations clarify that a billing 

statement for care is considered ‘‘postdischarge’’ if it is provided to an 

individual after the care (whether 

inpatient or outpatient) is provided and 

the individual has left the hospital 

facility. 

Many commenters asked that the 

lengths of the proposed 120-day 

notification period and/or 240-day 

application period be modified. Some 

commenters suggested a shorter 

application period of 90, 120, or 180 

days, with the notification period either 

being concurrent with, or a shorter 

period within, the application period. 

Several of the commenters who 

requested one concurrent notification 

and application period noted the 

complexity associated with tracking two 

different, overlapping periods. In 

arguing for a shorter application period, 

many commenters stated that a 240-day 

application period would unduly 

interfere with hospital facilities’ ability 

to recover from patients with resources 

available to pay the amounts due. 

Other commenters, however, 

suggested longer notification or 

application periods. One commenter 

suggested one concurrent notification 

and application period of 240 days, 

stating that it would be more effective 

and less burdensome for all involved to 

simply prohibit all ECAs during the 

entire 240-day application period. Other 

commenters requested an application 

period of one or two years, noting that 

many times ECAs are not commenced 

until long after 240 days and that many 

patients may not realize that money is 

owed until after 240 days, particularly 

if they believe that outstanding charges 

might be covered by an insurer. 

Commenters also noted that FAPeligible individuals may not promptly 

respond to notifications regarding a 

hospital facility’s FAP if they are sick or 

have literacy issues. Several 

commenters recommended that patients 

be allowed to raise FAP-eligibility as an 

affirmative defense against ECAs at any 

time, not just during the application 

period. One commenter requested 

clarification that hospitals may extend 

the application period beyond 240 days. 

The Treasury Department and the IRS 

continue to believe that 120 days from 

the first post-discharge billing statement 

is an appropriate amount of time for 

hospital facilities to wait before 

initiating ECAs against patients whose 

FAP-eligibility is undetermined so that 

patients have sufficient time to learn 

about the FAP and apply for financial 

assistance. As noted in the preamble to 

the 2012 proposed regulations, such a 

120-day period is consistent with some 

state requirements or recommendations 

to wait 120 days before taking certain 

ECAs and, based on typical billing 

cycles reported by commenters, should 

ensure patients receive at least three 


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Federal Register / Vol. 79, No. 250 / Wednesday, December 31, 2014 / Rules and Regulations 78987 

11 If the hospital facility never intends to initiate 

an ECA against an individual, and therefore never 

sends a written notice about potential ECAs (and/ 

or a notice with a deadline for applying) to the 

individual, the application period is irrelevant 

because section 501(r)(6) only requires a hospital 

facility to make reasonable efforts to determine 

FAP-eligibility before engaging in an ECA. 

bills before facing an ECA. Moreover, 

since the release of the 2012 proposed 

regulations, a taskforce of healthcare 

finance professionals, healthcare 

providers, consumer advocates, 

collections agencies, and credit agencies 

has recommended that hospitals wait 

120 days from the date of the first 

billing statement before commencing 

ECAs ‘‘to protect patients from undue 

haste in use of ECAs.’’ See Best 

Practices for Resolution of Medical 

Accounts: A Report from the Medical 

Debt Collection Task Force, at 9 (Jan. 

2014), available at http://

www.hfma.org/medicaldebt/. Therefore, 

the final regulations generally provide 

that a hospital facility may not initiate 

ECAs against an individual whose FAPeligibility has not been determined 

before 120 days after the first postdischarge billing statement. However, 

due to changes made in the final 

regulations regarding the notification 

requirements described in section 6.b.iii 

of this preamble, the 120-day period 

during which a hospital facility may not 

initiate ECAs is no longer called a 

‘‘notification period.’’ 

With respect to the application 

period, the Treasury Department and 

the IRS agree with some commenters 

that it is generally a good practice for 

hospital facilities to allow individuals to 

raise FAP-eligibility as a defense against 

ECAs at any time and not just during a 

limited application period. In fact, the 

Treasury Department and the IRS 

understand that many hospital facilities 

currently will accept and process FAP 

applications from patients at any time, 

and the definition of ‘‘application 

period’’ in the final regulations 

expressly states that hospital facilities 

may continue to do this. Moreover, 

many hospital facilities may prefer 

simply to allow FAP applications to be 

submitted at any time rather than track 

application periods for each patient on 

an episode-of-care basis. However, in 

the interest of sound tax administration 

and achieving certainty for hospital 

facilities, the question of whether a 

hospital facility has met the 

requirements of section 501(r)(6) should 

not be left open indefinitely. 

Accordingly, although hospital facilities 

may continue to accept and process FAP 

applications at any time, the final 

regulations provide an application 

period after which a hospital facility is 

not required to accept and process FAP 

applications for purposes of meeting 

section 501(r)(6). 

The Treasury Department and the IRS 

continue to believe that about eight 

months (240 days) after the first postdischarge bill is a reasonable period of 

time for a hospital facility to give a 

patient to apply for financial assistance 

to be considered to have made 

reasonable efforts to determine whether 

the patient is FAP-eligible. As one 

commenter pointed out, individuals 

may commonly have to wait several 

months before they know how much of 

a charge for health care services an 

insurer will cover and how much they 

are personally responsible for paying. In 

addition, the amount of time allowed for 

FAP applications to be submitted 

should take into account the fact that a 

large proportion of applicants may face 

obstacles such as continuing illness, 

literacy issues, or language barriers. 

While some commenters asserted that 

an application period of 240 days from 

the first bill would unduly interfere 

with hospitals’ ability to collect debts 

from non-FAP-eligible individuals, they 

provided little support or further 

explanation for this general claim, and 

other commenters suggested that many 

ECAs are not commenced until long 

after 240 days from the first bill. 

Moreover, under both the 2012 

proposed regulations and these final 

regulations, hospital facilities may 

initiate ECAs against an individual as 

early as 120 days after the first postdischarge bill without failing to meet 

the requirements of section 501(r)(6), 

provided the required notifications have 

been given prior to the initiation of the 

ECAs. Some of these ECAs may have to 

be suspended or reversed if the patients 

against whom the ECAs are taken 

subsequently submit FAP applications, 

but the Treasury Department and the 

IRS have no reason to believe that the 

costs associated with such possible 

suspensions or reversals only for the 

subset of patients who submit FAP 

applications during the application 

period will be so significant as to render 

it impractical to initiate any ECAs 

during the application period. 

In addition, as discussed in section 

6.b.vi of this preamble, many 

commenters indicated that hospital 

facilities use a variety of methods and 

sources of information other than FAP 

applications submitted by individuals to 

predict potential FAP-eligibility with a 

high degree of accuracy. Presumably, 

hospital facilities will be able to use 

such methods and information sources 

to focus ECAs on those patients unlikely 

to be FAP-eligible, thereby minimizing 

the risk that they will have to reverse a 

significant number of ECAs. If a hospital 

facility receives a complete FAP 

application during the application 

period from an individual after 

initiating an ECA against the individual, 

it must process the application, but, if 

the individual is determined to be 

ineligible for financial assistance, no 

reversal of ECAs will be necessary (and 

suspension will be necessary only for 

the period of time the application is 

being processed). 

For all of these reasons, the Treasury 

Department and the IRS believe that an 

application period that ends no earlier 

than 240 days from the first postdischarge bill appropriately balances the 

need to protect FAP-eligible patients 

from ECAs before FAP-eligibility is 

determined with the need to avoid 

undue interference with hospital 

facilities’ ability to collect debts from 

non-FAP-eligible individuals. 

The final regulations further provide 

that the application period for the care 

of an individual who has not been 

presumptively determined to be FAPeligible (as discussed in section 6.b.vi of 

the preamble) will be longer than 240 

days if the hospital facility provides the 

individual with a written notice about 

available financial assistance and 

potential ECAs (described in section 

6.b.iii.C of this preamble) that states a 

deadline that is after the 240th day from 

the first post-discharge bill. For 

example, if a hospital facility provides 

an individual with a written notice 

about potential ECAs to obtain payment 

for care on the 250th day after the first 

post-discharge bill for the care and 

informs the individual that he or she 

has 30 days to apply for financial 

assistance before the identified ECAs 

may be initiated (the minimum number 

of days the deadline may be from the 

date the written notice is provided), the 

hospital facility would be required to 

process any FAP application that the 

individual submits by the 280th day 

after the first post-discharge bill. Thus, 

with the exception of individuals who 

are presumptively determined to be 

FAP-eligible (as described further in 

section 6.b.vi of this preamble), an 

individual’s application period will 

remain open until at least 30 days after 

the hospital facility provides the 

individual with a written notice that 

sets a deadline after which ECAs may be 

initiated.11

ii. Meeting the Section 501(r)(6) 

Requirements on an ‘‘Episode-of-Care’’ 

Basis 

A number of commenters 

recommended that the reasonable efforts 

requirements be applied on an 

‘‘individual patient’’ basis rather than 


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on an ‘‘episode-of-care’’ basis to avoid 

unnecessary duplication of notifications 

to one individual and complexity in 

tracking multiple notification and 

application periods. In addition, one 

commenter noted that, at such time as 

a hospital would engage in an ECA, it 

would seek to identify and aggregate all 

outstanding and delinquent bills for a 

patient and then initiate an ECA to 

obtain payment of all the bills together 

rather than each bill separately. 

In response to these comments, the 

final regulations clarify that a hospital 

facility may satisfy the notification 

requirements simultaneously for 

multiple episodes of care for purposes 

of notifying the individual about its FAP 

and potential ECAs. Notwithstanding 

this allowance for multiple episodes of 

care, the Treasury Department and the 

IRS continue to believe that patients 

should not have less opportunity or 

time to apply for financial assistance 

simply because they received care from 

a hospital facility in the past, especially 

since illness and accumulating hospital 

bills themselves could result in a 

deterioration of an individual’s financial 

circumstances. Thus, the final 

regulations also provide that, if a 

hospital facility aggregates an 

individual’s outstanding bills for 

multiple episodes of care before 

initiating one or more ECAs to obtain 

payment for those bills, it may not 

initiate the ECA(s) until 120 days after 

it provided the first post-discharge bill 

for the most recent episode of care 

included in the aggregation. Similarly, 

although, as a formal matter, a separate 

application period starts with each 

episode of care, as a practical matter, 

hospital facilities have the option of 

measuring the 240-day period from the 

first post-discharge bill for the most 

recent episode of care. 

iii. Notification Requirements 

To satisfy the notification component 

of ‘‘reasonable efforts’’ with respect to 

any care provided to an individual, the 

2012 proposed regulations required a 

hospital facility to take the following 

actions: (1) Distribute a plain language 

summary of the FAP, and offer a FAP 

application form, to the individual 

before discharge from the hospital 

facility; (2) include a plain language 

summary of the FAP with all (and at 

least three) billing statements for the 

care and with all other written 

communications regarding the bill 

provided during a 120-day notification 

period; (3) during the notification 

period, inform the individual about the 

FAP in all oral communications 

regarding the amount due for the care; 

and (4) provide the individual with at 

least one written notice informing the 

individual about the ECAs the hospital 

facility (or other authorized party) may 

take if the individual did not submit a 

FAP application or pay the amount due. 

As discussed in section 4.a.iv.C of this 

preamble, the requirement to provide a 

plain language summary of the FAP as 

part of the discharge or intake process 

is included under § 1.501(r)–4 of the 

final regulations as part of widely 

publicizing the FAP, rather than under 

§ 1.501(r)–6(c) of the final regulations. 

Rather than require that a plain 

language summary of the FAP be 

included with all (and at least three) 

billing statements and with all other 

written communications regarding the 

bill provided during a 120-day period 

after the first bill, § 1.501(r)–4 of the 

final regulations requires that all billing 

statements include a notice informing 

patients about the availability of 

financial assistance and how to get 

information about and a copy of the 

FAP, and § 1.501(r)–6(c) of the final 

regulations requires that a plain 

language summary of the FAP be 

included with one post-discharge 

written communication. The final 

regulations continue to require oral 

notification about the FAP as part of 

reasonable efforts to determine FAPeligibility in § 1.501(r)–6(c), but amend 

this requirement to focus the oral 

notification on those patients against 

whom the hospital facility intends to 

engage in ECAs rather than require it for 

all patients who communicate with the 

hospital facility about the amount due 

for the care. Finally, § 1.501(r)–6(c) of 

the final regulations continues to 

require a notice about potential ECAs 

but requires notice only of the ECAs the 

hospital facility intends to initiate rather 

than all ECAs that may be initiated. The 

comments received on, and the 

modifications to the components of, the 

notification actions that remain in 

§ 1.501(r)–6(c) of the final regulations 

are discussed in greater detail in this 

section 6.b.iii of the preamble. In 

general, the Treasury Department and 

the IRS expect that these modifications 

will significantly reduce the burden on 

hospital facilities without significantly 

reducing the notice given to patients 

about the availability of financial 

assistance. 

A. Providing Plain Language Summaries 

With Written Communications 

Many commenters stated that 

requiring hospital facilities to include 

plain language summaries with all 

billing statements (as well as with all 

other written communications) during 

the notification period would result in 

significant programming, printing, and 

mailing costs. A number of commenters 

suggested that a reference to the 

availability of the FAP and a brief 

description of how to obtain more 

information should be sufficient 

information for patients, with some 

commenters adding that if plain 

language summaries had to be included 

with bills at all, the requirement should 

be limited to only one or two bills. 

Other commenters noted that multiple 

notices over time are important, as 

patients may be in varying states of 

readiness for information on financial 

assistance, and these commenters 

singled out notices with billing 

statements as especially effective. 

In response to these comments, the 

notification component of reasonable 

efforts under the final regulations 

requires a hospital facility to provide a 

plain language summary of the FAP to 

an individual only if and when it sends 

that individual the written notice about 

potential ECAs described in section 

6.b.iii.C of this preamble. Thus, hospital 

facilities need only incur the additional 

costs that may be associated with the 

provision of a plain language summary 

one time and only with respect to the 

smaller pool of patients against whom 

the hospital facility actually intends to 

engage in ECAs, not with respect to all 

patients against whom it might one day 

want to engage in ECAs. As a result, the 

final regulations significantly reduce the 

burden on hospital facilities in notifying 

individuals about their FAPs. 

At the same time, many of the 

commenters who argued that including 

a plain language summary with every 

bill would be unnecessarily costly also 

noted that a brief description of how to 

obtain more information about the FAP 

should provide sufficient notification to 

patients. Other commenters stressed the 

importance of repeated notices about 

the FAP with bills. In response to these 

comments, and for reasons discussed in 

section 4.a.iv.C of this preamble, the 

final regulations require a conspicuous 

written notice about the FAP to be 

included on a hospital facility’s billing 

statement as part of ‘‘widely 

publicizing’’ the FAP for purposes of 

meeting the requirements under section 

501(r)(4). Because the final regulations 

require this conspicuous notice about 

the FAP to be included on billing 

statements, the Treasury Department 

and the IRS do not expect that the final 

regulations significantly reduce the 

information available to individuals 

who may be FAP-eligible or their 

opportunity to learn about or apply for 

financial assistance. 


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B. Oral Notification 

Some commenters stated that the 

requirement that the hospital facility 

inform the individual about the FAP in 

all oral communications regarding the 

amount due for care was overly 

burdensome, prohibitively difficult to 

document, prone to human error, and 

too dependent on the cooperation of the 

individual (who may, for example, hang 

up before receiving information about 

the FAP). A few commenters asked that 

the oral communication requirement be 

limited to those patients who indicate 

they may have difficulty paying their 

bill rather than applying to any patient 

with a question ‘‘regarding the amount 

due for care,’’ as the latter could include 

many routine billing inquiries. Other 

commenters stated that orally-conveyed 

information can be the most effective 

way to ensure that patients know 

financial assistance is available, 

especially in the case of LEP 

populations or individuals with literacy 

issues. 

In response to commenters, the final 

regulations replace the oral notification 

requirement in the 2012 proposed 

regulations with a requirement that a 

hospital facility make a reasonable effort 

to orally notify an individual about the 

hospital facility’s FAP and about how 

the individual may obtain assistance 

with the FAP application process at 

least 30 days before the initiation of 

ECAs against the individual. By 

allowing hospital facilities to target their 

oral notifications to those individuals 

against whom they actually intend to 

engage in ECAs, the final regulations 

respond to the concern that the oral 

notification rule in the 2012 proposed 

regulations was too burdensome by 

greatly reducing the oral notifications 

that hospital facilities must make. At the 

same time, the final regulations ensure 

that individuals who may need financial 

assistance receive oral notification about 

a hospital facility’s FAP prior to the 

hospital facility’s initiation of ECAs, 

which addresses concerns raised by 

commenters who stressed the 

importance of orally-conveyed 

information for potentially FAP-eligible 

individuals. 

C. Notification About Impending ECAs 

A few commenters would eliminate 

the requirement in the 2012 proposed 

regulations of a written notice informing 

individuals about the ECAs the hospital 

facility may take if the individual does 

not submit a FAP application or pay the 

amount due by the specified deadline, 

stating that such a written notice could 

be considered a ‘‘threatening’’ 

communication that is prohibited by the 

federal Fair Debt Collection Practices 

Act (FDCPA) (15 U.S.C. 1601 et seq.). 

The FDCPA does not prevent a debt 

collector from informing an individual 

about an ECA if the ECA is lawful and 

the debt collector ‘‘intends’’ or has a 

‘‘present intention’’ to take the action. 

See 15 U.S.C. 1692e(4)–(5), 1692f(6). In 

accordance with this language in the 

FDCPA and in response to comments, 

the final regulations amend the 

requirement regarding the written notice 

about ECAs to require that the notice 

state the ECA(s) that the hospital facility 

(or other authorized party) actually 

‘‘intends to take,’’ rather than requiring 

a description of every ECA a hospital 

‘‘may’’ take in the future. Furthermore, 

like the 2012 proposed regulations, the 

final regulations do not require a 

hospital facility (or third party 

collecting a hospital facility’s debt) to 

provide this notice unless and until it 

actually intends to initiate one or more 

ECA(s) against an individual. This 

ability to wait to send the notice not 

only should eliminate any conflict with 

the FDCPA but also limits the burden 

associated with providing the notice 

because a hospital facility need only 

send it to the subset of patients against 

whom it actually intends to initiate 

ECAs. 

Similar to the 2012 proposed 

regulations, the final regulations also 

require the written notice to state a 

deadline after which the identified 

ECA(s) may be initiated that is no earlier 

than 30 days after the date that the 

written notice is provided. In addition, 

the final regulations require the written 

notice to generally indicate that 

financial assistance is available for 

eligible individuals. 

D. Documenting Notification 

The 2012 proposed regulations 

provided that, if an individual had not 

submitted a FAP application and the 

hospital facility had notified the 

individual as described in the 2012 

proposed regulations and documented 

that it had so notified the individual, 

the hospital facility would be deemed to 

have met the reasonable efforts 

requirements of section 501(r)(6) and 

could engage in ECAs against that 

individual. With respect to 

documenting compliance with the 

notification requirements, one 

commenter asked whether a hard copy 

or electronic image of every relevant 

piece of paper given to every individual 

would be required. 

The final regulations eliminate any 

separate requirement under the section 

501(r)(6) regulations to document 

notification. The Treasury Department 

and the IRS note, however, that hospital 

organizations will have to report 

whether and how they made reasonable 

efforts to determine FAP-eligibility 

before engaging in ECAs on their Forms 

990 and, as a general matter, are 

responsible for maintaining records to 

substantiate any information required 

by the Form 990. See section 6033(a)(1); 

§ 1.6001–1(c). 

E. Miscellaneous Issues Involving 

Written Communications 

Numerous commenters noted that 

hospital facilities’ billing systems are 

transitioning from paper to electronic 

delivery and stated that the 2012 

proposed regulations seemed to 

envision that most written 

communications would be provided in 

paper form. In response to these 

comments, the final regulations clarify 

that a hospital facility may provide any 

of the written notices or 

communications described in 

§ 1.501(r)–6 of the final regulations 

electronically (for example by email) to 

any individual who indicates he or she 

prefers to receive the written notice or 

communication electronically. 

A number of provisions in the 2012 

proposed regulations referred to the date 

a written notice or communication was 

‘‘provided,’’ and one commenter asked 

whether ‘‘provides’’ means the date the 

statement is placed into the U.S. mail or 

the date the statement is received by the 

patient. The final regulations clarify 

that, in the case of any written notice or 

communication that is mailed, the 

communication will be considered 

‘‘provided’’ on the date of mailing. A 

communication may also be considered 

provided on the date it is sent 

electronically or delivered by hand. 

iv. Incomplete FAP Applications 

In the case of an individual who 

submits an incomplete FAP application 

during the application period, the 2012 

proposed regulations provided that a 

hospital facility must suspend ECAs 

(defined as not initiating any ECAs or 

taking further action on any previously 

initiated ECAs) taken against the 

individual until either the individual’s 

FAP application was completed and 

processed or the ‘‘completion deadline’’ 

had passed without the individual’s 

having completed the FAP application. 

The 2012 proposed regulations further 

provided that the completion deadline 

could be no earlier than the later of 30 

days from the date of a written notice 

about impending ECAs or the last day 

of the application period. Some 

commenters expressed concern that 

these provisions in the 2012 proposed 

regulations effectively allowed an 

individual to submit a FAP application 


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form with minimal information on it 

and thereby automatically defer ECAs 

for up to 240 days. 

In response to this concern, and to 

provide hospital facilities with 

additional flexibility to work with 

individuals submitting incomplete FAP 

applications in a manner appropriate to 

the particular circumstances, the final 

regulations provide that a hospital 

facility must suspend ECAs against the 

individual until either the individual 

completes the FAP application and the 

hospital facility determines whether the 

individual is FAP-eligible or until the 

individual has failed to respond to 

requests for additional information and/ 

or documentation within a reasonable 

period of time. The Treasury 

Department and the IRS expect the 

reasonableness of the period of time 

individuals are given to complete a FAP 

application before ECAs may resume 

will depend on the particular facts and 

circumstances, including the amount of 

additional information and/or 

documentation that is being requested. 

Although the final regulations 

potentially permit a hospital facility to 

initiate or resume ECAs before the end 

of the application period against an 

individual who has failed to respond to 

requests for additional information and/ 

or documentation, if the individual 

subsequently completes the FAP 

application during the application 

period, the final regulations would 

require the hospital facility to again 

suspend any ECAs taken against the 

individual until the hospital determines 

whether the individual is FAP-eligible 

(and, if the individual is determined to 

be FAP-eligible, to reverse such ECAs). 

A few commenters requested 

clarification that hospital facilities are 

required to suspend only those ECAs 

relating to the care at issue upon the 

submission of a FAP application, not 

ECAs relating to past care for which the 

hospital facility has already satisfied the 

reasonable efforts requirements. The 

final regulations include this 

clarification (in the context of 

processing both incomplete as well as 

complete FAP applications) by 

providing that a hospital facility must 

only suspend any ECAs taken against 

the individual ‘‘to obtain payment for 

the care’’ at issue. 

Two commenters suggested that the 

requirement to suspend ECAs ignores 

specific time frames that must be 

followed to prevent a hospital facility’s 

legal rights from being jeopardized, such 

as filing a claim in a bankruptcy 

proceeding and filing a responsive 

pleading or responding to a motion by 

prescribed deadlines in pending legal 

actions. One of these commenters 

recommended that the final regulations 

allow for ECAs to continue even when 

an incomplete FAP application is 

submitted if suspending the ECA would 

result in the hospital facility’s legal 

rights being jeopardized. 

In response to these comments, the 

final regulations add a provision stating 

that filing a claim in a bankruptcy 

proceeding is not an ECA, so the 

requirement to suspend ECAs will not 

jeopardize the ability to file such claims. 

The final regulations do not adopt the 

suggestion that ECAs be permitted to 

continue ‘‘if suspending the ECA would 

result in the hospital facility’s legal 

rights being jeopardized,’’ as this is a 

vague standard that would be difficult 

to enforce and could substantially 

diminish the protection afforded by the 

suspension requirement. The Treasury 

Department and the IRS also note that, 

under the final regulations, ECAs taken 

against an individual who has 

submitted an incomplete FAP 

application only have to be suspended 

for a ‘‘reasonable period of time,’’ not a 

period of at least 240 days from the first 

post-discharge bill. 

The final regulations require hospital 

facilities to provide a notice about 

potential ECAs (and an accompanying 

plain language summary of the FAP) to 

an individual who has submitted an 

incomplete FAP application under the 

provisions relating to notification about 

the FAP rather than separately requiring 

this notice under the provisions relating 

to incomplete FAP applications (as had 

been done in the 2012 proposed 

regulations). This change is made to 

simplify the regulations and is not 

intended to have any substantive effect 

for individuals who submit an 

incomplete FAP application before 

ECAs have been initiated. 

Finally, to ensure that individuals 

who submit an incomplete FAP 

application during the application 

period know who they can contact for 

assistance in completing the 

application, and in response to 

commenters who stressed the 

importance of oral communication 

generally, the final regulations require a 

hospital facility to provide such 

individuals with the contact 

information of a hospital facility office 

or department (or, alternatively, a 

nonprofit organization or government 

agency) that can provide assistance with 

the FAP application process. 

v. Complete FAP Applications 

A. General Requirements Following 

Receipt of Complete FAP Applications 

Like the 2012 proposed regulations, 

the final regulations provide that, if a 

hospital facility receives a complete 

FAP application from an individual 

during the application period, the 

hospital facility will have made 

reasonable efforts to determine whether 

the individual is FAP-eligible only if it 

suspends any ECAs taken against the 

individual to obtain payment for the 

care, makes and documents an 

eligibility determination in a timely 

manner, and notifies the individual in 

writing of the determination and the 

basis for the determination. 

A few commenters recommended that 

the final regulations require FAPeligibility determinations to be made 

within a specified period of time, with 

the suggested time ranges being five 

business days, 30 days, and 45 days. 

However, another commenter agreed 

with the proposed rule that hospital 

facilities evaluate whether an applicant 

is eligible in ‘‘a timely manner’’ (while 

also adding that ‘‘30 days seems 

reasonable’’). Yet another commenter 

noted that many FAPs will require 

individuals to apply for Medicaid before 

the individual is eligible for financial 

assistance from the hospital facility and 

requested that the regulations suspend 

the time period in which the hospital 

facility must make the FAP-eligibility 

determination to allow time for a 

Medicaid application to be filed and a 

Medicaid eligibility determination to be 

made. 

The Treasury Department and the IRS 

believe that the reasonableness of the 

time period required to make an 

eligibility determination will vary 

depending upon particular facts and 

circumstances. For example, a hospital 

facility’s receipt of an unusually large 

number of FAP applications in a 

particular week might reasonably result 

in that hospital facility taking longer to 

process the applications than would 

ordinarily be the case. In addition, the 

Treasury Department and the IRS note 

that the final regulations require 

hospital facilities to suspend ECAs 

between the time a complete FAP 

application is submitted and the time an 

eligibility determination is made, 

providing some protection for patients 

during this time period. Thus, the final 

regulations do not adopt a specific 

period of time in which a hospital 

facility must make a FAP-eligibility 

determination, opting instead to 

continue to require the determination to 

be made ‘‘in a timely manner’’ to 

provide hospital facilities with the 

appropriate flexibility to address varied 

situations. In addition, in cases in 

which a hospital facility believes an 

individual who has submitted a 

complete FAP application may qualify 

for Medicaid, the final regulations 


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clarify that a hospital facility may 

postpone making a FAP-eligibility 

determination until after the 

individual’s Medicaid application has 

been completed and submitted and a 

determination as to Medicaid eligibility 

has been made. However, as is generally 

the case when an individual has 

submitted a complete FAP application, 

a hospital facility may not initiate or 

resume any ECAs to obtain payment for 

the care at issue until a FAP-eligibility 

determination has been made. 

Like the 2012 proposed regulations, 

the final regulations make clear that if 

a hospital facility determines whether 

an individual is FAP-eligible for care 

based on a complete FAP application 

before initiating any ECAs against the 

individual to obtain payment for the 

care, it has made reasonable efforts to 

determine whether the individual is 

FAP-eligible for the care, regardless of 

what notification about the FAP (or, if 

applicable, about what the individual 

needs to provide to complete an 

incomplete FAP application) had been 

or continues to be provided to the 

individual. 

B. Requirements When an Individual Is 

Determined To Be FAP-Eligible 

The 2012 proposed regulations 

provided that if a hospital facility 

determines an individual to be FAPeligible, the hospital facility must 

provide the individual with a billing 

statement that indicates the amount the 

individual owes as a FAP-eligible 

individual and shows (or describes how 

the individual can get information 

regarding) the AGB for the care and how 

the hospital facility determined the 

amount the individual owes as a FAPeligible individual. The hospital facility 

would also be required to refund any 

excess payments made by the FAPeligible individual and take all 

reasonably available measures to reverse 

any ECA (with the exception of a sale 

of debt) taken against the individual to 

obtain payment for the care at issue. 

One commenter recommended that 

notification about FAP-eligibility be 

optional in cases in which 100 percent 

of a patient’s account has been written 

off under a hospital facility’s FAP. The 

Treasury Department and the IRS 

believe that providing a patient who has 

been determined to be eligible for free 

care with some written documentation 

of that eligibility determination is 

necessary both to notify the patient and 

to protect him or her in the event of any 

future erroneous charges for the care. 

However, the Treasury Department and 

the IRS do agree that a billing statement 

indicating a $0 balance is not necessary 

in addition to a written notification 

about eligibility for free care. 

Accordingly, the final regulations 

require written notification that an 

individual is determined to be eligible 

for free care but do not require a billing 

statement indicating that nothing is 

owed for the care (or stating or 

describing how the individual can get 

information regarding AGB for the care). 

A few commenters asked about the 

time period to which the requirement to 

refund FAP-eligible patients applies and 

requested clarification that hospital 

facilities are not required to refund 

amounts previously paid to the hospital 

for care unless the individual is 

determined to be FAP-eligible for that 

care. The 2012 proposed regulations and 

the final regulations refer only to 

refunds of payments ‘‘for the care’’ at 

issue and are intended to require 

refunds only of payments for the 

episode(s) of care to which an 

individual’s FAP application (and 

therefore his or her FAP-eligibility 

determination) relates. Thus, if an 

individual receives and pays for a 

hospital facility’s care in both year 1 

and year 3 but only applies for financial 

assistance in year 3 for the care received 

in year 3 and is determined to be FAPeligible for the care provided in year 3, 

the hospital facility would only have to 

refund any excess amounts the 

individual paid for the year 3 care, not 

any amount the individual paid for the 

year 1 care. Because the 2012 proposed 

regulation required only refunds for 

‘‘the care’’ at issue, the Treasury 

Department and the IRS do not believe 

that the final regulations need to be 

amended to further clarify this point. 

Two commenters asked that the final 

regulations set a reasonable threshold, 

such as $5, for required refunds, noting 

that some states apply such thresholds. 

The Treasury Department and the IRS 

agree that the administrative costs 

associated with requiring hospital 

facilities to process refunds in amounts 

of less than $5 would outweigh the 

benefits to FAP-eligible patients. 

Accordingly, the final regulations do not 

require a hospital facility to refund any 

amount a FAP-eligible individual has 

paid for care that exceeds the 

discounted amount he or she owes for 

the care as a FAP-eligible individual if 

such excess amount is less than $5. In 

addition, recognizing that inflation and 

other factors may create the need to 

increase the $5 threshold in the future, 

the final regulations allow the Treasury 

Department or the IRS to increase the 

threshold in a notice or other guidance 

published in the Internal Revenue 

Bulletin. 

One commenter sought clarification 

about whether hospital facilities are 

required to make refunds only to 

individuals determined to be FAPeligible or also to their insurers. The 

2012 proposed regulations required 

refunds only of the amounts the FAPeligible individual had paid ‘‘in excess 

of the amount he or she is determined 

to owe as a FAP-eligible individual.’’ 

Thus, only refunds to the individual 

were intended to be required. However, 

to clarify this intent, the final 

regulations require the hospital facility 

to provide refunds ‘‘to the individual’’ 

and refer to the amount the individual 

is ‘‘personally responsible for paying’’ 

rather than the amount the individual 

‘‘owes.’’ 

One commenter recommended that 

reversal of ECAs only be required upon 

a determination that an individual is 

FAP-eligible to the extent of the 

adjustment to the bill made as a result 

of FAP-eligibility, so that, for example, 

if a patient were still liable for 50 

percent of a bill after an adjustment for 

a FAP discount, ECAs could continue to 

be used to collect the discounted 

amount owed. Other commenters, 

however, supported the requirement to 

reverse ECAs, stating that it, along with 

the requirement to provide refunds, 

were reasonable and sufficient measures 

to protect patients. 

As noted previously in this preamble, 

the Treasury Department and the IRS 

believe that reasonable efforts to 

determine FAP-eligibility necessitate 

giving patients a reasonable period of 

time of at least eight months (240 days) 

after the first post-discharge bill to learn 

about a hospital facility’s FAP and 

apply for assistance. Nonetheless, the 

final regulations, like the 2012 proposed 

regulations, allow hospital facilities to 

initiate ECAs against individuals whose 

FAP-eligibility has not been determined 

as early as 120 days after the first postdischarge bill to avoid undue 

interference with hospital facilities’ 

ability to collect debts from non-FAPeligible individuals. However, if a 

hospital facility does initiate an ECA 

against an individual before the end of 

the 240-day application period and the 

individual is subsequently determined 

to be FAP-eligible, the Treasury 

Department and the IRS believe the 

hospital facility should reverse the ECA 

altogether and begin the collection 

process anew based on the adjusted 

amount. The Treasury Department and 

the IRS expect that such a rule will 

encourage hospital facilities not to begin 

ECAs during the application period 

against individuals they believe are 

likely to be FAP-eligible. 


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vi. Presumptive FAP-Eligibility 

Determinations Based on Third-Party 

Information or Prior FAP-Eligibility 

Determinations 

The 2012 proposed regulations 

provided that a hospital facility has 

made reasonable efforts to determine 

whether an individual is FAP-eligible if 

it determines that the individual is 

eligible for the most generous assistance 

available under the FAP based on 

information other than that provided by 

the individual, such as the individual’s 

eligibility under one or more meanstested public programs. The 2012 

proposed regulations also provided that 

a hospital facility will not have made 

reasonable efforts to determine whether 

an individual is FAP-eligible as a result 

of obtaining a signed waiver from the 

individual and defined a FAP-eligible 

individual as an individual eligible for 

FAP assistance without regard to 

whether the individual has applied for 

such assistance. 

The Treasury Department and the IRS 

recognized that these provisions, 

together, effectively left a hospital 

facility with two options if it wanted to 

engage in an ECA against an individual 

who had not submitted a FAP 

application: either notify the individual 

about the FAP during the notification 

period or provide the individual with 

the most generous assistance available 

under the FAP. Accordingly, the 

preamble to the 2012 proposed 

regulations requested comments on how 

to provide additional flexibility under 

the regulations to hospital facilities 

seeking to determine whether an 

individual is FAP-eligible, and, in 

particular, on how a hospital facility 

might reasonably determine whether an 

individual is FAP-eligible in ways other 

than soliciting and processing FAP 

applications. The preamble to the 2012 

proposed regulations also requested 

comments regarding whether a hospital 

facility might be able to rely on prior 

FAP-eligibility determinations for a 

period of time to avoid having to redetermine whether an individual is 

FAP-eligible every time he or she 

receives care. 

Numerous commenters stated that 

hospitals can, and commonly do, rely 

on trustworthy methods and sources of 

information other than FAP applications 

to determine FAP-eligibility. Some 

noted the use of public and private 

records and data sources that, often in 

combination with predictive models 

and algorithms, could presumptively 

determine FAP-eligibility, including for 

discounts on a sliding scale that are less 

than the most generous available under 

the FAP. A number of these commenters 

suggested that allowing hospital 

facilities to use these information 

sources and methods to presumptively 

determine eligibility only for the most 

generous discounts under a FAP could 

inadvertently result in fewer individuals 

receiving financial assistance. Other 

commenters noted that hospital 

facilities could readily and accurately 

determine the insurance status or 

residency of particular individuals and, 

therefore, determine that such 

individuals are not FAP-eligible when 

such eligibility depends on being 

uninsured or on being a resident of the 

state in which the hospital facility is 

licensed. Most of these commenters 

generally recommended that hospital 

facilities be allowed to rely on 

information sources and methods other 

than FAP applications to determine 

FAP-eligibility as long as the sources 

and methods are disclosed (for example, 

in the FAP or on the hospital facility’s 

Form 990) and/or the individual is 

given a reasonable opportunity to 

provide information indicating FAPeligibility or eligibility for a greater 

discount than the one provided. A few 

commenters, however, recommended 

against the use of predictive models that 

rely on credit scores, noting that such 

methods assess creditworthiness rather 

than financial need. A few commenters 

also suggested that predictive models 

should only be used to approve 

someone for financial assistance, not to 

deem them ineligible for it. 

In addition, commenters 

recommended that hospital facilities 

should be able to rely on prior FAP 

eligibility determinations, arguing that it 

would be burdensome and costly to 

require a hospital facility to redetermine whether an individual is 

FAP-eligible every time the individual 

receives care. Suggestions ranged from 

allowing reliance on prior FAP 

applications for a certain time period 

(90 days, four months, six months, or 

twelve months) to allowing hospital 

facilities the flexibility to determine 

how long FAP-eligibility status may last. 

Most of these commenters 

recommended that a hospital facility’s 

reliance on prior FAP-eligibility 

determinations should be disclosed in 

its FAP and/or that patients should be 

given a reasonable opportunity to 

resubmit an application if and when 

their financial situation changes. 

In response to these comments and to 

encourage hospital facilities to provide 

discounts to potentially FAP-eligible 

individuals who have not submitted 

FAP applications, the final regulations 

provide that, in addition to 

presumptively determining that an 

individual is eligible for the most 

generous assistance available under its 

FAP, a hospital facility may also 

presumptively determine that an 

individual is eligible for less than the 

most generous assistance available 

under the FAP based on information 

other than that provided by the 

individual or based on a prior FAPeligibility determination (hereinafter 

referred to as presumptive 

determinations). Most commenters 

recognized, though, that presumptive 

determinations that an individual is 

eligible for less than the most generous 

assistance available under a FAP should 

not relieve a hospital facility of the 

obligation to give patients a reasonable 

opportunity to seek more generous 

assistance by providing additional 

information related to FAP-eligibility. 

Accordingly, the final regulations 

provide that a presumptive 

determination that an individual is 

eligible for less than most generous 

assistance available under a FAP only 

constitutes reasonable efforts to 

determine FAP-eligibility if three 

conditions are met. First, the hospital 

facility must notify the individual 

regarding the basis for the presumptive 

FAP-eligibility determination and the 

way he or she may apply for more 

generous assistance available under the 

FAP. Second, the hospital facility must 

give the individual a reasonable period 

of time to apply for more generous 

assistance before initiating ECAs to 

obtain the discounted amounted owed 

for the care. And, third, the hospital 

facility must process any complete FAP 

application that the individual submits 

by the end of the application period or, 

if later, by the end of the reasonable 

time period given to apply for more 

generous assistance. 

The final regulations do not treat as 

reasonable efforts a presumptive 

determination that an individual is not 

FAP-eligible. The Treasury Department 

and the IRS believe that before being 

subjected to ECAs, individuals who 

have received no financial assistance 

under a FAP and who have not 

submitted a complete FAP application 

should, at a minimum, receive a notice 

about the FAP (through a plain language 

summary) and about the deadline for 

submitting a FAP application before 

ECAs may be initiated, as described in 

section 6.b.iii of this preamble. The 

Treasury Department and the IRS note, 

however, that even though presumptive 

determinations of FAP-ineligibility do 

not constitute reasonable efforts to 

determine FAP-eligibility for purposes 

of section 501(r)(6), a hospital facility is 

not prohibited from using third-party 

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12With respect to deferring or denying (or 

requiring payment before providing) emergency 

medical care, in particular, hospital organizations 

are separately subject to the requirements under 

Subchapter G of Chapter IV of Title 42 of the Code 

of Federal Regulations, which includes the 

regulations under EMTALA, and the emergency 

medical care policy they adopt to meet the 

requirements of section 501(r)(4)(B) (as discussed in 

section 4.b of this preamble). 

eligibility determinations to try to 

predict which of its patients are 

unlikely to be FAP-eligible. 

A number of commenters asked that 

the definition of ‘‘FAP-eligible 

individual’’ be revised such that it 

applies only to individuals ‘‘known to 

be eligible for financial assistance.’’ 

Allowing hospital facilities to assume 

individuals are not FAP-eligible unless 

and until they obtain knowledge to the 

contrary would relieve hospital facilities 

of any obligation to make reasonable 

efforts to determine whether individuals 

are FAP-eligible and thereby undercut 

the purpose of section 501(r)(6). 

Accordingly, the definition of FAPeligible individual is not amended to 

apply only to individuals known to be 

FAP-eligible. 

Many commenters also asked that 

hospital facilities be allowed to use 

targeted and limited waivers in 

determining FAP-eligibility, such as 

waivers for individuals who the hospital 

facility has no reason to believe may be 

FAP-eligible or individuals with 

adequate insurance and the ability to 

meet any co-pays and deductibles. In 

addition, one commenter asked that the 

final regulations provide that making 

reasonable efforts to determine an 

individual is FAP-eligible includes 

obtaining an attestation from the 

individual that his or her income and/ 

or assets exceed certain thresholds in 

the FAP and that the attestation was not 

made under coercion. 

The Treasury Department and the IRS 

continue to believe that obtaining 

signatures from individuals on a waiver 

form is not a meaningful way to 

determine that they are not FAPeligible. The Treasury Department and 

the IRS note, however, that the final 

regulations define a complete FAP 

application as information and 

documentation provided by an 

individual that is sufficient to determine 

the individual’s FAP-eligibility, and an 

individual’s attestation regarding his or 

her income or other criteria relevant to 

FAP-eligibility could be sufficient to 

determine FAP-eligibility and therefore 

could be considered a complete FAP 

application. Thus, if a hospital facility 

makes a determination as to whether an 

individual is FAP-eligible based an 

individual’s attestation regarding his or 

her income or other relevant eligibility 

criteria—and the hospital facility has no 

reason to believe that the information on 

the statement is incorrect and did not 

obtain the information from the 

individual under duress or through the 

use of coercive practices—the hospital 

facility will have made a determination 

based on a complete FAP application 

and, thus, have made reasonable efforts 

to determine whether the individual is 

FAP-eligible for purposes of section 

501(r)(6). 

vii. Reasonable Efforts in the Case of 

Denying or Deferring Care Based on Past 

Nonpayment 

As discussed in section 6.a.iv of this 

preamble and in response to comments, 

the final regulations include as an ECA 

the deferral or denial of (or the 

requirement of a payment before 

providing) medically necessary care 

because of the individual’s nonpayment 

of one or more bills for previously 

provided care. Unlike other ECAs, the 

timing of this ECA involving the 

deferral or denial of care will depend on 

when an individual seeks medically 

necessary care from the hospital facility, 

a contingency over which the hospital 

facility has no control. In addition, if the 

provision of medically necessary care is 

at stake, the individual’s application for 

financial assistance should be 

completed and his or her FAP-eligibility 

should be determined as quickly as 

possible to avoid jeopardizing the 

individual’s health. 

Based on these considerations, the 

final regulations provide that, in the 

case of an ECA involving deferral and 

denial of (or requiring payment before 

providing) care only, a hospital facility 

is not required to provide the oral and 

written notification about the FAP and 

potential ECAs discussed in section 

6.b.iii of this preamble at least 30 days 

in advance of initiating this ECA to have 

made reasonable efforts to determine 

whether the individual is FAP-eligible. 

However, to avail itself of this 

exception, a hospital facility (or other 

authorized party) must satisfy several 

conditions. First, the hospital facility 

must provide the individual with a FAP 

application form (to ensure the 

individual may apply immediately, if 

necessary) and notify the individual in 

writing about the availability of 

financial assistance for eligible 

individuals and the deadline, if any, 

after which the hospital facility will no 

longer accept and process a FAP 

application submitted by the individual 

for the previously provided care at 

issue. This deadline must be no earlier 

than the later of 30 days after the date 

that the written notice is provided or 

240 days after the date that the first 

post-discharge billing statement for the 

previously provided care was provided. 

Thus, although the ECA involving 

deferral or denial of care may occur 

immediately after the requisite written 

(and oral) notice is provided, the 

individual must be afforded at least 30 

days after the notice to submit a FAP 

application for the previously provided 

care. In addition, the hospital facility 

must notify the individual about the 

FAP in the two other ways discussed in 

section 6.b.iii of the preamble (though 

without regard to the requirement to do 

so at least 30 days before the initiation 

of an ECA): namely, by providing a 

plain language summary of the FAP and 

by orally notifying the individual about 

the hospital facility’s FAP and about 

how the individual may obtain 

assistance with the FAP application 

process. Finally, if an individual 

submits a FAP application for 

previously provided care during the 

application period, the hospital facility 

must process the application on an 

expedited basis, to ensure that 

medically necessary care is not 

unnecessarily delayed. 

In the case of the ECA involving the 

deferral or denial of care, the final 

regulations also provide an exception to 

the general rule that reasonable efforts 

to determine FAP-eligibility ordinarily 

will require a hospital to wait at least 

120 days after the first post-discharge 

bill before initiating ECAs. Under the 

exception, a hospital facility may defer 

or deny (or require payment before 

providing) medically necessary care 12

because of an individual’s nonpayment 

of one or more bills for previously 

provided care even though such deferral 

or denial (or payment requirement) is 

within 120 days of the first postdischarge bill for the previously 

provided care. Without such an 

exception in the final regulations, 

hospital facilities would effectively be 

required to provide medically necessary 

care to individuals with past due bills 

when these individuals are seeking care 

within 120 days of the first postdischarge bill. 

The Treasury Department and the IRS 

note that the modified reasonable efforts 

to determine FAP-eligibility discussed 

in this section 6.b.vii of the preamble 

would not be necessary if a hospital 

facility had already determined whether 

the individual was FAP-eligible for the 

previously provided care at issue based 

on a complete FAP application or had 

presumptively determined the 

individual was FAP-eligible for the 

previously provided care as described in 

section 6.b.vi of this preamble. The 

modified reasonable efforts would also 

not be needed in cases in which 120 


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days had passed since the first postdischarge bill for the previously 

provided care, and the hospital facility 

had already notified the individual 

about intended ECAs as described in 

section 6.b.iii of this preamble. 

viii. Agreements With Other Parties 

The 2012 proposed regulations 

provided that if a hospital facility refers 

or sells an individual’s debt to another 

party during the application period, the 

hospital facility will have made 

reasonable efforts to determine whether 

the individual is FAP-eligible only if it 

first obtains a legally binding written 

agreement from the other party to abide 

by certain specified requirements. The 

2012 proposed regulations requested 

comments regarding the feasibility of 

this rule. Commenters who responded 

to this request for comments generally 

indicated that imposing such 

contractual obligations on debt 

collection agencies or debt buyers was 

not especially unusual or unworkable, 

and, thus, the Treasury Department and 

the IRS adopt the provisions of the 2012 

proposed regulations with only minor 

clarifying revisions that are not 

intended to be substantive changes. In 

the event a hospital facility does sell or 

refer an individual’s debt and the debt 

buyer or collection agent takes one or 

more of the steps required to have made 

reasonable efforts to determine whether 

the individual is FAP-eligible, the final 

regulations also clarify the hospital 

facility will be treated as having taken 

those steps for purposes of making 

reasonable efforts under section 

501(r)(6). 

7. Section 501(r) and State Law 

Requirements 

Numerous commenters noted that 

their states already had laws in effect 

covering some or most of the same 

subject matter as the requirements 

described in §§ 1.501(r)–3 through 

1.501(r)–6 of the proposed regulations 

and argued that requiring compliance 

with the section 501(r) regulations in 

addition to what hospitals are already 

required to do under state law would 

create unnecessary duplication of effort 

and administrative burden. Others went 

further and argued that the requirements 

described in §§ 1.501(r)–3 through 

1.501(r)–6 of the proposed regulations 

conflicted or were inconsistent with 

certain state law requirements. Areas of 

inconsistency noted by commenters 

included the timing and content of 

notices that must be provided to 

patients, rules regarding the limitations 

on charges, and the periods of time 

during which the hospital facilities 

must wait to commence certain 

collection actions. Most of these 

commenters recommended that a 

hospital facility should be deemed to 

have complied with the section 501(r) 

requirements if it complies with the 

relevant state law(s) applicable to it. On 

the other hand, some commenters asked 

the Treasury Department and the IRS to 

clarify that nothing in the proposed 

regulations will preempt state laws that 

contain additional or more stringent 

requirements. 

Given the wide variation among state 

laws covering some of the same subject 

matter as section 501(r), providing that 

compliance with section 501(r) requires 

only compliance with the applicable 

state law would result in widely 

divergent rules for charitable hospitals 

in different states. A rule equating 

compliance with state law to 

compliance with section 501(r) would 

also mean that IRS revenue agents 

assessing section 501(r) compliance 

would need to learn each state’s laws or 

that the state office responsible for 

enforcing the particular state law would 

have to confirm a hospital facility’s 

compliance with the relevant state law 

in each taxable year under audit. 

More importantly, the language in 

many of the state laws cited by 

commenters as analogous does not 

match the statutory language in section 

501(r)—for example, by not including 

concepts such as AGB, ECAs, or 

‘‘reasonable efforts’’ to determine FAPeligibility or by requiring CHNAs every 

five years as opposed to every three 

years. In these cases, simply deeming 

compliance with state law to result in 

compliance with section 501(r) would 

be inconsistent with the statutory 

language under section 501(r). 

While many of the requirements in 

the state laws cited by commenters do 

not match the provisions in the 2012 or 

2013 proposed regulations and while 

some state laws might require more or 

less of hospital facilities than the 

comparable provision in the proposed 

regulations, commenters failed to cite 

any state laws that conflict with the 

proposed regulations in a way that 

would make it impossible for a hospital 

facility to comply with both the state 

and the federal requirement. For 

example, although some state laws set 

forth a limitation on charges that is 

different from the limit that would 

result from the AGB methods described 

in the 2012 proposed regulations, none 

of the state laws identified by 

commenters prohibit hospital facilities 

from charging FAP-eligible individuals 

less than the state law limit. Similarly, 

AGB under section 501(r)(5) is only a 

maximum amount that hospital 

facilities can charge FAP-eligible 

individuals, and hospital facilities are 

free to provide more generous discounts 

in their FAPs (including free care). As 

a result, hospital facilities are always 

free to charge the lesser of AGB or a 

limitation on charges imposed by state 

law or to establish a uniform discount 

that will always fall below both the state 

and federal maximum charges. 

Similarly, the periods of time during 

which hospital facilities must wait to 

commence certain collection activities 

in both the 2012 proposed regulations 

and certain state laws cited by 

commenters are minimum periods, and 

a hospital facility is always free to wait 

for the longer of the two applicable 

periods without violating either section 

501(r)(6) or state law requirements. 

Accordingly, the final regulations do 

not contain any provisions equating 

compliance with one or more 

requirements in applicable state law to 

compliance with one or more of the 

requirements in the final regulations. In 

addition, the final regulations are not 

intended to preempt any state laws or 

regulations, and the Treasury 

Department and the IRS expect that any 

additional or stricter requirements 

under a state’s laws or regulations will 

continue to apply to hospital facilities 

licensed in that state. 

8. Reporting Requirements Related to 

CHNAs 

The final regulations state, consistent 

with the statute and the 2013 proposed 

regulations, that a hospital organization 

must provide with its Form 990 a 

description of how it is addressing the 

community health needs identified for 

each facility it operates, its audited 

financial statements, and the amount of 

the excise tax imposed on the 

organization under section 4959 during 

the taxable year. 

a. Description of How Community 

Health Needs Are Being Addressed 

In accordance with section 

6033(b)(15)(A), the 2013 proposed 

regulations required a hospital 

organization to furnish annually on its 

Form 990 a description of the actions 

taken during the taxable year to address 

the significant health needs identified 

through its most recently conducted 

CHNA, or, if no actions were taken with 

respect to one or more of those health 

needs, the reasons no actions were 

taken. Numerous commenters expressed 

support for this requirement to annually 

furnish a description of how a hospital 

facility is addressing health needs 

identified through a CHNA, with some 

commenters stating that it increases 

transparency and accountability and 

would provide written documentation 


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13On the other hand, a hospital facility’s failure 

to meet the CHNA requirements will give rise to the 

excise tax under section 4959 notwithstanding its 

correction and disclosure pursuant to the guidance 

described in section 2.c of this preamble. 

of progress over time. Other commenters 

stated that the annual updates would be 

burdensome and duplicative, given that 

the 2013 proposed regulations also 

required hospital facilities to attach to 

their Forms 990 their most recently 

adopted implementation strategies (or 

provide the URL where the 

implementation strategies are made 

widely available on a Web site). 

As discussed in section 3.b of this 

preamble, it is true that a hospital 

facility’s implementation strategy must 

describe, with respect to each 

significant health need identified 

through the CHNA, how the hospital 

facility plans to address the health need 

or why the hospital facility does not 

intend to address the health need. 

However, as noted in the preamble to 

the 2013 proposed regulations, section 

6033(b)(15)(A) contemplates an annual 

furnishing of information regarding how 

a hospital facility is actually addressing 

needs identified through a CHNA each 

year, while an implementation strategy 

is a plan for addressing these needs that 

only has to be updated every three 

years. Accordingly, the final regulations 

retain the requirement that hospital 

facilities annually furnish information 

on their Form 990s about how they are 

addressing the significant health needs 

identified through their CHNAs. 

b. Audited Financial Statements 

The 2013 proposed regulations 

reiterated the requirement of section 

6033(b)(15)(B) that a hospital 

organization attach to its Form 990 a 

copy of its audited financial statements 

for the taxable year—or, in the case of 

an organization the financial statements 

of which are included in consolidated 

financial statements with other 

organizations, such consolidated 

financial statements. In the preamble to 

the 2013 proposed regulations, the 

Treasury Department and the IRS 

requested comments regarding whether 

hospital organizations whose financial 

statements are included in consolidated 

financial statements should be able to 

redact financial information about any 

taxable organizations that are members 

of the consolidated group. 

Two commenters stated that 

information about taxable organizations 

should be redacted from publicly 

available financial statements without 

further elaboration while another 

commenter stated that the information 

provided on the Form 990 should be as 

detailed as possible to keep tax-exempt 

hospitals accountable. Consolidated 

financial statements are fully integrated, 

making redaction of one particular 

organization’s financial information 

difficult. The few comments received 

did not provide any explanation as to 

how such redactions could be 

accomplished without compromising 

the clarity of the statement. 

Accordingly, the final regulations adopt 

the proposed requirement without 

change. 

c. Reporting Requirements for 

Government Hospital Organizations 

A number of commenters have asked 

whether and how government hospital 

organizations can satisfy the reporting 

requirements related to CHNAs, since 

they are excused from filing a Form 990 

under Rev. Proc. 95–48. As noted in the 

preamble to the 2013 proposed 

regulations, the Affordable Care Act did 

not change the requirements regarding 

which organizations are required to file 

a Form 990. Accordingly, a government 

hospital organization (other than one 

that is described in section 509(a)(3)) 

that has been excused from filing a 

Form 990 under Rev. Proc. 95–48 or a 

successor revenue procedure is not 

required to file a Form 990. Because 

government hospital organizations 

described in Rev. Proc. 95–48 are 

relieved from the annual filing 

requirements under section 6033, they 

are also relieved from any new reporting 

requirements imposed on hospital 

organizations under section 6033, 

including under section 6033(b)(10)(D) 

and (b)(15) and the requirement to 

attach one or more implementation 

strategies to a Form 990. However, to be 

treated as described in section 501(c)(3), 

government hospital organizations still 

must meet all section 501(r) 

requirements that do not involve 

disclosure on or with the Form 990, 

including making their CHNA reports 

and FAPs widely available on a Web 

site. 

9. Excise Tax on Failure To Meet CHNA 

Requirements 

Section 4959 imposes a $50,000 

excise tax on a hospital organization 

that fails to meet the CHNA 

requirements with respect to any taxable 

year. The 2013 proposed regulations 

provided that the excise tax applies on 

a facility-by-facility basis and may be 

imposed on a hospital organization for 

each taxable year that a hospital facility 

fails to meet the section 501(r)(3) 

requirements. 

One commenter suggested that the 

full $50,000 excise tax should apply 

only in instances where a hospital 

facility fails to conduct a CHNA 

altogether, with a sliding scale of tax 

applied to organizations that conduct a 

CHNA but fail to substantially comply 

with all of the CHNA requirements. 

Another commenter suggested applying 

the $50,000 excise tax separately for 

each failure of a hospital facility to meet 

each component of the section 501(r)(3) 

requirements. 

Section 4959 applies the $50,000 

excise tax to a hospital organization that 

fails to meet the requirements of section 

501(r)(3) for any taxable year. Section 

501(r)(3) requires that, in conducting a 

CHNA, a hospital must take into 

account input from persons who 

represent the broad interests of the 

community, make the CHNA widely 

available to the public, and adopt an 

implementation strategy to meet the 

needs identified through the CHNA. 

Section 4959 appears to provide for one 

$50,000 excise tax if a hospital facility 

fails one or any combination of those 

components of satisfying section 

501(r)(3). It does not appear to provide 

for either a separate $50,000 excise tax 

for each component or a tax of less than 

$50,000 if a hospital facility fails some, 

but not all, of those components. Thus, 

the final regulations do not adopt these 

commenters’ suggestions. 

However, as discussed in section 2.b 

of this preamble, a hospital facility’s 

omission or error with respect to the 

CHNA requirements will not be 

considered a failure to meet the CHNA 

requirements if the omission or error 

was minor and either inadvertent or due 

to reasonable cause and the hospital 

facility corrects the omission or error in 

accordance with § 1.501(r)–2(b)(1)(ii). If, 

as a result of this rule, an omission or 

error with respect to the CHNA 

requirements is not considered a failure 

to meet the CHNA requirements, the 

omission or error will not give rise to a 

$50,000 excise tax under section 4959.13

10. Requirement of a Section 4959 

Excise Tax Return and Time for Filing 

the Return 

Final and temporary regulations and a 

cross-reference notice of proposed 

rulemaking published on August 15, 

2013, amended the existing regulations 

under sections 6011 and 6071 to require 

hospital organizations liable for the 

excise tax imposed by section 4959 in 

any taxable year to file Form 4720 by 

the 15th day of the fifth month after the 

end of the taxable year. No public 

comments were received on these 

amendments to sections 6011 and 6071. 

Therefore, these final regulations adopt 

the text of the temporary and proposed 

regulations without substantive change 

and remove the temporary regulations. 

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substantive change by moving the 

content of § 53.6011–1T(c) into existing 

paragraph § 53.6011–1(b). 

Effective/Applicability Dates 

Numerous commenters requested a 

transition period for hospital facilities to 

come into compliance with the final 

regulations to provide adequate time for 

hospital facilities to make needed 

changes in personnel, policies, 

procedures, and information systems. 

Specific transition periods of six months 

and one year were recommended. 

Several commenters also requested that 

the final regulations clarify how 

hospital facilities’ compliance with 

section 501(r) will be assessed for the 

period between the date section 501(r) 

was enacted (March 23, 2010) and the 

date the final regulations are applicable. 

In response to these comments, the 

final regulations under section 501(r) 

apply to a hospital facility’s taxable 

years beginning after December 29, 

2015, which will give all hospital 

facilities at least a year to come into 

compliance with the final regulations. 

For taxable years beginning on or before 

December 29, 2015, the final regulations 

provide that a hospital facility may rely 

on a reasonable, good faith 

interpretation of section 501(r). A 

hospital facility will be deemed to have 

operated in accordance with a 

reasonable, good faith interpretation of 

section 501(r) if it has complied with 

the provisions of the 2012 and/or 2013 

proposed regulations or these final 

regulations. 

The final regulations under sections 

4959 and 6033 either clarify or confirm 

compliance with statutory requirements 

that are already in effect and therefore 

do not require a transition period. Thus, 

the final regulations under section 4959 

apply on and after December 29, 2014, 

and the final regulations under section 

6033 apply to returns filed on or after 

December 29, 2014. 

The temporary regulations under 

section 6071 have applied since August 

15, 2013, and this Treasury decision 

adopts the proposed regulations that 

cross-referenced the text of those 

temporary regulations without 

substantive change. Thus, the final 

regulations under section 6071 apply on 

and after August 15, 2013. 

Availability of IRS Documents 

IRS notices, revenue rulings, and 

revenue procedures cited in this 

preamble are made available by the 

Superintendent of Documents, U.S. 

Government Printing Office, 

Washington, DC 20402. 

Effect on Other Documents 

The following publication is obsolete 

as of December 29, 2014: Notice 2014– 

2 (2014–3 IRB 1). 

Special Analyses 

It has been determined that this rule 

is not a significant regulatory action as 

defined in Executive Order 12866, as 

supplemented by Executive Order 

13563. Therefore, a regulatory 

assessment is not required. It also has 

been determined that section 553(b) of 

the Administrative Procedure Act (5 

U.S.C. chapter 5) does not apply to the 

final regulations. It is hereby certified 

the collection of information in these 

regulations will not have a significant 

economic impact on a substantial 

number of small entities. The collection 

of information is in § 1.501(r)–3, 

§ 1.501(r)–4, § 1.501(r)–6(c), § 1.6033– 

2(a)(2)(ii)(l), § 53.6011–1, and 

§ 53.6071–1 of the regulations. The 

certification is based on the following: 

Consistent with the requirements 

imposed by section 501(r)(3), § 1.501(r)– 

3 of the regulations requires hospital 

facilities to conduct a CHNA and adopt 

an implementation strategy. However, 

these requirements need only be 

satisfied once over a period of three 

taxable years. Moreover, some hospital 

facilities already conduct similar 

community needs assessments under 

state law, and the Treasury Department 

and the IRS expect that these facilities 

will be able to draw upon pre-existing 

processes and resources to some extent. 

In addition, section 501(r)(3) itself 

already requires a hospital facility to 

conduct and widely publicize a CHNA 

that takes into account input of persons 

representing the broad interests of the 

community and to adopt an 

implementation strategy, so much of the 

collection of information burden 

associated with CHNAs is imposed by 

statute, not by these regulations. 

Consistent with the requirements 

imposed by section 501(r)(4), § 1.501(r)– 

4 of the regulations requires hospital 

facilities to establish two written 

policies—a financial assistance policy 

(FAP) and an emergency medical care 

policy—but much of the work involved 

in putting such policies into writing 

will be performed once, with updates 

made periodically thereafter. Moreover, 

while hospital facilities may need to 

periodically modify these policies to 

reflect changed circumstances, the 

proposed regulations attempt to 

minimize that ongoing burden by giving 

hospital facilities the option of 

providing certain information separately 

from the policy, as long as the policy 

explains how members of the public can 

readily obtain this information free of 

charge. In addition, section 501(r)(4) 

itself already requires a hospital facility 

to establish a FAP that includes 

eligibility criteria and other specified 

elements and an emergency medical 

care policy, so much of the collection of 

information burden associated with 

these policies is imposed by statute, not 

by regulations. 

In addition, as a general matter, 

§§ 1.501(r)–4(b)(5) and 1.501(r)–6(c) of 

the regulations, which, respectively, 

describe how a hospital facility widely 

publicizes its FAP and makes 

reasonable efforts to determine 

eligibility for assistance under its FAP, 

are designed to ensure that a hospital 

facility can meet these requirements by 

providing basic information about its 

FAP using pre-existing processes (such 

as the issuance of billing statements) 

and resources (such as its Web site and 

physician networks) in providing this 

information. 

The applicability date under the final 

regulations also gives all hospital 

facilities at least one year to come into 

compliance with all of the final 

regulations under section 501(r). 

Consistent with the requirements 

imposed by section 6033(b)(15), 

§ 1.6033–2(a)(2)(ii)(l) of the regulations 

requires affected organizations to report 

annually on a Form 990 actions taken 

during the year to address community 

health needs and to attach audited 

financial statements to the Form 990. To 

assist the IRS and the public, the 

regulations also require affected 

organizations to attach to the Form 990 

a copy of the most recently adopted 

implementation strategy or provide the 

URL of a Web page where it is available 

to the public. For affected organizations, 

the burden of providing either a copy of 

the implementation strategy or the 

address of a Web site where it can be 

found will be minimal. Consequently, 

the regulations under section 6033 do 

not add significantly to the impact on 

small entities imposed by the statutory 

scheme. 

Sections 53.6011–1 and 53.6071–1 of 

the regulations merely provide guidance 

as to the timing and filing of Form 4720 

for charitable hospital organizations 

liable for the section 4959 excise tax, 

and completing the applicable portion 

(Schedule M) of the Form 4720 for this 

purpose imposes little incremental 

burden in time or expense. The liability 

for the section 4959 excise tax is 

imposed by statute, and not these 

regulations. In addition, a charitable 

hospital organization may already be 

required to file the Form 4720 under the 

existing final regulations in §§ 53.6011– 


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1 and 53.6071–1 if it is liable for another 

Chapter 41 or 42 excise tax. 

For these reasons, a Regulatory 

Flexibility Analysis under the 

Regulatory Flexibility Act (5 U.S.C. 

chapter 6) is not required. Pursuant to 

section 7805(f) of the Code, the 2012 

and 2013 proposed regulations (as well 

the cross-reference notice of proposed 

rulemaking under sections 6011 and 

6071) preceding these final regulations 

were submitted to the Chief Counsel for 

Advocacy of the Small Business 

Administration for comment on its 

impact on small entities and no 

comments were received. 

Drafting Information 

The principal authors of these final 

regulations are Preston J. Quesenberry, 

Amy F. Giuliano, Amber L. MacKenzie, 

and Stephanie N. Robbins, Office of the 

Chief Counsel (Tax-Exempt and 

Government Entities). However, other 

personnel from the Treasury 

Department and the IRS participated in 

their development. 

List of Subjects 

26 CFR Part 1 

Income taxes, Reporting and 

recordkeeping requirements. 

26 CFR Part 53 

Excise taxes, Foundations, 

Investments, Lobbying, Reporting and 

recordkeeping requirements. 

26 CFR Part 602 

Reporting and recordkeeping 

requirements. 

Adoption of Amendment to the 

Regulations 

Accordingly, 26 CFR parts 1, 53, and 

602 are amended as follows: 

PART 1—INCOME TAXES 

■ Paragraph 1. The authority citation 

for part 1 continues to read in part as 

follows: 

Authority: 26 U.S.C. 7805 * * * 

■ Par. 2. Section 1.501(r)–0 is added to 

read as follows: 

§ 1.501(r)–0 Outline of regulations. 

This section lists the table of contents 

for §§ 1.501(r)–1 through 1.501(r)–7. 

§ 1.501(r)–1 Definitions. 

(a) Application. 

(b) Definitions. 

(1) Amounts generally billed (AGB). 

(2) AGB percentage. 

(3) Application period. 

(4) Authorized body of a hospital 

facility. 

(5) Billing and collections policy. 

(6) Date provided. 

(7) Discharge. 

(8) Disregarded entity. 

(9) Emergency medical care. 

(10) Emergency medical conditions. 

(11) Extraordinary collection action 

(ECA). 

(12) Financial assistance policy (FAP). 

(13) FAP application. 

(14) FAP application form. 

(15) FAP-eligible. 

(16) Gross charges. 

(17) Hospital facility. 

(18) Hospital organization. 

(19) Medicaid. 

(20) Medicare fee-for-service. 

(21) Noncompliant facility income. 

(22) Operating a hospital facility. 

(23) Partnership agreement. 

(24) Plain language summary of the 

FAP. 

(25) Presumptive FAP-eligibility 

determination. 

(26) Private health insurer. 

(27) Referring. 

(28) Substantially-related entity. 

(29) Widely available on a Web site. 

§ 1.501(r)–2 Failures to satisfy section 

501(r). 

(a) Revocation of section 501(c)(3) 

status. 

(b) Minor omissions and errors. 

(1) In general. 

(2) Minor. 

(3) Inadvertent. 

(4) Reasonable cause. 

(c) Excusing certain failures if 

hospital facility corrects and discloses. 

(d) Taxation of noncompliant hospital 

facilities. 

(1) In general. 

(2) Noncompliant facility income. 

(3) No aggregation. 

(4) Interaction with other Code 

provisions. 

(e) Instances in which a hospital 

organization is not required to meet 

section 501(r). 

§ 1.501(r)–3 Community health needs 

assessments. 

(a) In general. 

(b) Conducting a CHNA. 

(1) In general. 

(2) Date a CHNA is conducted. 

(3) Community served by a hospital 

facility. 

(4) Assessing community health 

needs. 

(5) Persons representing the broad 

interests of the community. 

(6) Documentation of a CHNA. 

(7) Making the CHNA report widely 

available to the public. 

(c) Implementation strategy. 

(1) In general. 

(2) Description of how the hospital 

facility plans to address a significant 

health need. 

(3) Description of why a hospital 

facility is not addressing a significant 

health need. 

(4) Joint implementation strategies. 

(5) When the implementation strategy 

must be adopted. 

(d) Exception for acquired, new, and 

terminated hospital facilities. 

(1) Acquired hospital facilities. 

(2) New hospital organizations. 

(3) New hospital facilities. 

(4) Transferred or terminated hospital 

facilities. 

(e) Transition rule for CHNAs 

conducted in taxable years beginning 

before March 23, 2012. 

§ 1.501(r)–4 Financial assistance policy 

and emergency medical care policy. 

(a) In general. 

(b) Financial assistance policy. 

(1) In general. 

(2) Eligibility criteria and basis for 

calculating amounts charged to patients. 

(3) Method for applying for financial 

assistance. 

(4) Actions that may be taken in the 

event of nonpayment. 

(5) Widely publicizing the FAP. 

(6) Readily obtainable information. 

(7) Providing documents 

electronically. 

(8) Medically necessary care. 

(c) Emergency medical care policy. 

(1) In general. 

(2) Interference with provision of 

emergency medical care. 

(3) Relation to federal law governing 

emergency medical care. 

(4) Examples. 

(d) Establishing the FAP and other 

policies. 

(1) In general. 

(2) Implementing a policy. 

(3) Establishing a policy for more than 

one hospital facility. 

§ 1.501(r)–5 Limitation on charges. 

(a) In general. 

(b) Amounts generally billed. 

(1) In general. 

(2) Meaning of charged. 

(3) Look-back method. 

(4) Prospective Medicare or Medicaid 

method. 

(5) Examples. 

(c) Gross charges. 

(d) Safe harbor for certain charges in 

excess of AGB. 

(e) Medically necessary care. 

§ 1.501(r)–6 Billing and collection. 

(a) In general. 

(b) Extraordinary collection actions. 

(1) In general. 

(2) Certain debt sales that are not 

ECAs. 

(3) Liens on certain judgments, 

settlements, or compromises. 


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(4) Bankruptcy claims. 

(c) Reasonable efforts. 

(1) In general. 

(2) Presumptive FAP-eligibility 

determinations based on third-party 

information or prior FAP-eligibility 

determinations. 

(3) Reasonable efforts based on 

notification and processing of 

applications. 

(4) Notification. 

(5) Incomplete FAP applications. 

(6) Complete FAP applications. 

(7) When no FAP application is 

submitted. 

(8) Suspending ECAs while a FAP 

application is pending. 

(9) Waiver does not constitute 

reasonable efforts. 

(10) Agreements with other parties. 

(11) Clear and conspicuous 

placement. 

(12) Providing documents 

electronically. 

§ 1.501(r)–7 Effective/applicability dates. 

(a) Effective/applicability date. 

(b) Reasonable interpretation for 

taxable years beginning on or before 

December 29, 2015. 

■ Par. 3. Sections 1.501(r)–1 through 

1.501(r)–7 are added to read as follows: 

§ 1.501(r)–1 Definitions. 

(a) Application. The definitions set 

forth in this section apply to 

§§ 1.501(r)–2 through 1.501(r)–7. 

(b) Definitions—(1) Amounts 

generally billed (AGB) means the 

amounts generally billed for emergency 

or other medically necessary care to 

individuals who have insurance 

covering such care, determined in 

accordance with § 1.501(r)–5(b). 

(2) AGB percentage means a 

percentage of gross charges that a 

hospital facility uses under § 1.501(r)– 

5(b)(3) to determine the AGB for any 

emergency or other medically necessary 

care it provides to an individual who is 

eligible for assistance under its financial 

assistance policy (FAP). 

(3) Application period means the 

period during which a hospital facility 

must accept and process an application 

for financial assistance under its FAP 

submitted by an individual in order to 

have made reasonable efforts to 

determine whether the individual is 

FAP-eligible under § 1.501(r)–6(c). A 

hospital facility may accept and process 

an individual’s FAP application 

submitted outside of the application 

period. With respect to any care 

provided by a hospital facility to an 

individual, the application period 

begins on the date the care is provided 

and ends on the later of the 240th day 

after the date that the first postdischarge billing statement for the care 

is provided or either— 

(i) In the case of an individual who 

the hospital facility is notifying as 

described in § 1.501(r)–6(c)(4), the 

deadline specified by a written notice 

described in § 1.501(r)–6(c)(4); or 

(ii) In the case of an individual who 

the hospital facility has presumptively 

determined to be eligible for less than 

the most generous assistance available 

under the FAP as described in 

§ 1.501(r)–6(c)(2), the end of the 

reasonable period of time described in 

§ 1.501(r)–6(c)(2)(i)(B). 

(4) Authorized body of a hospital 

facility means— 

(i) The governing body (that is, the 

board of directors, board of trustees, or 

equivalent controlling body) of the 

hospital organization that operates the 

hospital facility or a committee of, or 

other party authorized by, that 

governing body to the extent such 

committee or other party is permitted 

under state law to act on behalf of the 

governing body; or 

(ii) The governing body of an entity 

that is disregarded or treated as a 

partnership for federal tax purposes that 

operates the hospital facility or a 

committee of, or other party authorized 

by, that governing body to the extent 

such committee or other party is 

permitted under state law to act on 

behalf of the governing body. 

(5) Billing and collections policy 

means a written policy that includes all 

of the elements described in § 1.501(r)– 

4(b)(4)(i). 

(6) Date provided means, in the case 

of any billing statement, written notice, 

or other written communication that is 

mailed, the date of mailing. The date 

that a billing statement, written notice, 

or other written communication is 

provided can also be the date such 

communication is sent electronically or 

delivered by hand. 

(7) Discharge means to release from a 

hospital facility after the care at issue 

has been provided, regardless of 

whether that care has been provided on 

an inpatient or outpatient basis. Thus, a 

billing statement for care is considered 

‘‘post-discharge’’ if it is provided to an 

individual after the care has been 

provided and the individual has left the 

hospital facility. 

(8) Disregarded entity means an entity 

that is generally disregarded as separate 

from its owner for federal tax purposes 

under § 301.7701–3 of this chapter. One 

example of a disregarded entity is a 

domestic single member limited liability 

company that does not elect to be 

classified as an association taxable as a 

corporation for federal tax purposes. 

(9) Emergency medical care means 

care provided by a hospital facility for 

emergency medical conditions. 

(10) Emergency medical conditions 

means emergency medical conditions as 

defined in section 1867 of the Social 

Security Act (42 U.S.C. 1395dd). 

(11) Extraordinary collection action 

(ECA) means an action described in 

§ 1.501(r)–6(b)(1). 

(12) Financial assistance policy (FAP) 

means a written policy that meets the 

requirements described in § 1.501(r)– 

4(b). 

(13) FAP application means the 

information and accompanying 

documentation that an individual 

submits to apply for financial assistance 

under a hospital facility’s FAP. An 

individual is considered to have 

submitted a complete FAP application if 

he or she provides information and 

documentation sufficient for the 

hospital facility to determine whether 

the individual is FAP-eligible and an 

incomplete FAP application if he or she 

provides some, but not sufficient, 

information and documentation to 

determine FAP-eligibility. The term 

‘‘FAP application’’ does not refer only to 

written submissions, and a hospital 

facility may obtain information from an 

individual in writing or orally (or a 

combination of both). 

(14) FAP application form means the 

application form (and any 

accompanying instructions) that a 

hospital facility makes available for 

individuals to submit as part of a FAP 

application. 

(15) FAP-eligible means eligible for 

financial assistance under a hospital 

facility’s FAP for care covered by the 

FAP, without regard to whether an 

individual has applied for assistance 

under the FAP. 

(16) Gross charges, or the 

chargemaster rate, means a hospital 

facility’s full, established price for 

medical care that the hospital facility 

consistently and uniformly charges 

patients before applying any contractual 

allowances, discounts, or deductions. 

(17) Hospital facility means a facility 

that is required by a state to be licensed, 

registered, or similarly recognized as a 

hospital. Multiple buildings operated 

under a single state license are 

considered to be a single hospital 

facility. For purposes of this paragraph 

(b)(17), the term ‘‘state’’ includes only 

the 50 states and the District of 

Columbia and not any U.S. territory or 

foreign country. References to a hospital 

facility taking actions include instances 

in which the hospital organization 

operating the hospital facility takes 

actions through or on behalf of the 

hospital facility. 


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(18) Hospital organization means an 

organization recognized (or seeking to 

be recognized) as described in section 

501(c)(3) that operates one or more 

hospital facilities. If the section 

501(c)(3) status of such an organization 

is revoked, the organization will, for 

purposes of section 4959, continue to be 

treated as a hospital organization during 

the taxable year in which such 

revocation becomes effective. 

(19) Medicaid means any medical 

assistance program administered by the 

state in which a hospital facility is 

licensed in accordance with Title XIX of 

the Social Security Act (42 U.S.C. 1396 

through 1396w–5), including programs 

in which such medical assistance is 

provided through a contract between the 

state and a Medicaid managed care 

organization or a prepaid inpatient 

health plan. 

(20) Medicare fee-for-service means 

health insurance available under 

Medicare Part A and Part B of Title 

XVIII of the Social Security Act (42 

U.S.C. 1395c through 1395w–5). 

(21) Noncompliant facility income 

means income that a hospital 

organization operating more than one 

hospital facility derives from a hospital 

facility that fails to meet one or more of 

the requirements of section 501(r) 

during a taxable year as determined in 

accordance with § 1.501(r)–2(d). 

(22) Operating a hospital facility—(i) 

In general. Operating a hospital facility 

includes operating the facility through 

the organization’s own employees or 

contracting out to another organization 

to operate the facility. For example, if an 

organization hires a management 

company to operate the facility, the 

hiring organization is considered to 

operate the facility. An organization also 

operates a hospital facility if it is the 

sole member or owner of a disregarded 

entity that operates the hospital facility. 

In addition, an organization operates a 

hospital facility if it owns a capital or 

profits interest in an entity treated as a 

partnership for federal tax purposes that 

operates the hospital facility, unless 

paragraph (b)(22)(ii) of this section 

applies. For purposes of this paragraph 

(b)(22), an organization is considered to 

own a capital or profits interest in an 

entity treated as a partnership for 

federal tax purposes if it owns such an 

interest directly or indirectly through 

one or more lower-tier entities treated as 

partnerships for federal tax purposes. 

(ii) Exception for certain partnerships. 

An organization does not operate a 

hospital facility despite owning a 

capital or profits interest in an entity 

treated as a partnership for federal tax 

purposes that operates the hospital 

facility if— 

(A) The organization does not have 

control over the operation of the 

hospital facility operated by the 

partnership sufficient to ensure that the 

operation of the hospital facility furthers 

an exempt purpose described in section 

501(c)(3) and thus treats the operation of 

the hospital facility, including the 

facility’s provision of medical care, as 

an unrelated trade or business described 

in section 513 with respect to the 

hospital organization; or 

(B) At all times since March 23, 2010, 

the organization has been organized and 

operated primarily for educational or 

scientific purposes and has not engaged 

primarily in the operation of one or 

more hospital facilities and, pursuant to 

a partnership agreement entered into 

before March 23, 2010— 

(1) Does not own more than 35 

percent of the capital or profits interest 

in the partnership (determined in 

accordance with section 707(b)(3)); 

(2) Does not own a general partner 

interest, managing-member interest, or 

similar interest in the partnership; and 

(3) Does not have control over the 

operation of the hospital facility 

sufficient to ensure that the hospital 

facility complies with the requirements 

of section 501(r). 

(23) Partnership agreement means, for 

purposes of paragraph (b)(22)(ii)(B) of 

this section, all written agreements 

among the partners, or between one or 

more partners and the partnership and 

concerning affairs of the partnership 

and responsibilities of the partners, 

whether or not embodied in a document 

referred to by the partners as the 

partnership agreement. A partnership 

agreement also includes any 

modifications to the agreement agreed to 

by all partners, or adopted in any other 

manner provided by the partnership 

agreement, except for modifications 

adopted on or after March 23, 2010, that 

affect whether or not the agreement is 

described in paragraph (b)(22)(ii)(B) of 

this section. In addition, a partnership 

agreement includes provisions of 

federal, state, or local law that were in 

effect before March 23, 2010, and 

continue to be in effect that govern the 

affairs of the partnership or are 

considered under such law to be part of 

the partnership agreement. 

(24) Plain language summary of the 

FAP means a written statement that 

notifies an individual that the hospital 

facility offers financial assistance under 

a FAP and provides the following 

additional information in language that 

is clear, concise, and easy to 

understand: 

(i) A brief description of the eligibility 

requirements and assistance offered 

under the FAP. 

(ii) A brief summary of how to apply 

for assistance under the FAP. 

(iii) The direct Web site address (or 

URL) and physical locations where the 

individual can obtain copies of the FAP 

and FAP application form. 

(iv) Instructions on how the 

individual can obtain a free copy of the 

FAP and FAP application form by mail. 

(v) The contact information, including 

telephone number and physical 

location, of the hospital facility office or 

department that can provide 

information about the FAP and of 

either— 

(A) The hospital facility office or 

department that can provide assistance 

with the FAP application process; or 

(B) If the hospital facility does not 

provide assistance with the FAP 

application process, at least one 

nonprofit organization or government 

agency that the hospital facility has 

identified as an available source of 

assistance with FAP applications. 

(vi) A statement of the availability of 

translations of the FAP, FAP application 

form, and plain language summary of 

the FAP in other languages, if 

applicable. 

(vii) A statement that a FAP-eligible 

individual may not be charged more 

than AGB for emergency or other 

medically necessary care. 

(25) Presumptive FAP-eligibility 

determination means a determination 

that an individual is FAP-eligible based 

on information other than that provided 

by the individual or based on a prior 

FAP-eligibility determination, as 

described in § 1.501(r)–6(c)(2). 

(26) Private health insurer means any 

organization that is not a governmental 

unit that offers health insurance, 

including nongovernmental 

organizations administering a health 

insurance plan under Medicare 

Advantage (Part C of Title XVIII of the 

Social Security Act, 42 U.S.C. 1395w–21 

through 1395w–29). For purposes of 

§ 1.501(r)–5(b), medical assistance 

provided through a contract between the 

state and a Medicaid managed care 

organization or a prepaid inpatient 

health plan is not considered to be a 

reimbursement from or a claim allowed 

by a private health insurer. 

(27) Referring an individual’s debt to 

a debt collection agency or other party 

means contracting with, delegating to, 

or otherwise using the debt collection 

agency or other party to collect amounts 

owed by the individual to the hospital 

facility while still maintaining 

ownership of the debt. 

(28) Substantially-related entity 

means, with respect to a hospital facility 

operated by a hospital organization, an 

entity treated as a partnership for 


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federal tax purposes in which the 

hospital organization owns a capital or 

profits interest, or a disregarded entity 

of which the hospital organization is the 

sole member or owner, that provides 

emergency or other medically necessary 

care in the hospital facility, unless the 

provision of such care is an unrelated 

trade or business described in section 

513 with respect to the hospital 

organization. Notwithstanding the 

preceding sentence, a partnership that 

qualifies for the exception described in 

paragraph (b)(22)(ii)(B) of this section is 

not considered a substantially-related 

entity within the meaning of this 

paragraph (b)(28). 

(29) Widely available on a Web site 

means— 

(i) The hospital facility conspicuously 

posts a complete and current version of 

the document on— 

(A) The hospital facility’s Web site; 

(B) If the hospital facility does not 

have its own Web site separate from the 

hospital organization that operates it, 

the hospital organization’s Web site; or 

(C) A Web site established and 

maintained by another entity, but only 

if the Web site of the hospital facility or 

hospital organization (if the facility or 

organization has a Web site) provides a 

conspicuously-displayed link to the 

Web page where the document is 

posted, along with clear instructions for 

accessing the document on that Web 

site; 

(ii) Individuals with access to the 

Internet can access, download, view, 

and print a hard copy of the document 

from the Web site— 

(A) Without requiring special 

computer hardware or software (other 

than software that is readily available to 

members of the public without payment 

of any fee); 

(B) Without paying of a fee to the 

hospital facility, hospital organization, 

or other entity maintaining the Web site; 

and 

(C) Without creating an account or 

being otherwise required to provide 

personally identifiable information; and 

(iii) The hospital facility provides 

individuals who ask how to access a 

copy of the document online with the 

direct Web site address, or URL, of the 

Web page where the document is 

posted. 

§ 1.501(r)–2 Failures to satisfy section 

501(r). 

(a) Revocation of section 501(c)(3) 

status. Except as otherwise provided in 

paragraphs (b) and (c) of this section, a 

hospital organization failing to meet one 

or more of the requirements of section 

501(r) separately with respect to one or 

more hospital facilities it operates may 

have its section 501(c)(3) status revoked 

as of the first day of the taxable year in 

which the failure occurs. In determining 

whether to continue to recognize the 

section 501(c)(3) status of a hospital 

organization that fails to meet one or 

more of the requirements of section 

501(r) with respect to one or more 

hospital facilities, the Commissioner 

will consider all relevant facts and 

circumstances including, but not 

limited to, the following: 

(1) Whether the organization has 

previously failed to meet the 

requirements of section 501(r), and, if 

so, whether the same type of failure 

previously occurred. 

(2) The size, scope, nature, and 

significance of the organization’s 

failure(s). 

(3) In the case of an organization that 

operates more than one hospital facility, 

the number, size, and significance of the 

facilities that have failed to meet the 

section 501(r) requirements relative to 

those that have complied with these 

requirements. 

(4) The reason for the failure(s). 

(5) Whether the organization had, 

prior to the failure(s), established 

practices or procedures (formal or 

informal) reasonably designed to 

promote and facilitate overall 

compliance with the section 501(r) 

requirements. 

(6) Whether the practices or 

procedures had been routinely followed 

and the failure(s) occurred through an 

oversight or mistake in applying them. 

(7) Whether the organization has 

implemented safeguards that are 

reasonably calculated to prevent similar 

failures from occurring in the future. 

(8) Whether the organization 

corrected the failure(s) as promptly after 

discovery as is reasonable given the 

nature of the failure(s). 

(9) Whether the organization took the 

measures described in paragraphs (a)(7) 

and (a)(8) of this section before the 

Commissioner discovered the failure(s). 

(b) Minor omissions and errors—(1) In 

general. A hospital facility’s omission of 

required information from a policy or 

report 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 section 501(r) if the 

following conditions are satisfied: 

(i) Such omission or error was minor 

and either inadvertent or due to 

reasonable cause. 

(ii) The hospital facility corrects such 

omission or error as promptly after 

discovery as is reasonable given the 

nature of the omission or error. Such 

correction must include establishment 

(or review and, if necessary, revision) of 

practices or procedures (formal or 

informal) that are reasonably designed 

to promote and facilitate overall 

compliance with the requirements of 

section 501(r). 

(2) Minor. In the case of multiple 

omissions or errors, the omissions or 

errors are considered minor for 

purposes of this paragraph (b) only if 

they are minor in the aggregate. 

(3) Inadvertent. For purposes of this 

paragraph (b), the fact that the same 

omission or error has been made and 

corrected previously is a factor tending 

to show that an omission or error is not 

inadvertent. 

(4) Reasonable cause. For purposes of 

this paragraph (b), the fact that a 

hospital facility has established 

practices or procedures (formal or 

informal) reasonably designed to 

promote and facilitate overall 

compliance with the section 501(r) 

requirements prior to the occurrence of 

an omission or error is a factor tending 

to show that the omission or error is due 

to reasonable cause. 

(c) Excusing certain failures if 

hospital facility corrects and discloses. 

A hospital facility’s failure to meet one 

or more of the requirements described 

in §§ 1.501(r)–3 through 1.501(r)–6 that 

is neither willful nor egregious shall be 

excused for purposes of this section if 

the hospital facility corrects and makes 

disclosure in accordance with rules set 

forth by revenue procedure, notice, or 

other guidance published in the Internal 

Revenue Bulletin. For purposes of this 

paragraph (c), a ‘‘willful’’ failure 

includes a failure due to gross 

negligence, reckless disregard, or willful 

neglect, and an ‘‘egregious’’ failure 

includes only very serious failures, 

taking into account the severity of the 

impact and the number of affected 

persons. Whether a failure is willful or 

egregious will be determined based on 

all of the facts and circumstances. A 

hospital facility’s correction and 

disclosure of a failure in accordance 

with the relevant guidance is a factor 

tending to show that the failure was not 

willful. 

(d) Taxation of noncompliant hospital 

facilities—(1) In general. Except as 

otherwise provided in paragraphs (b) 

and (c) of this section, if a hospital 

organization that operates more than 

one hospital facility fails to meet one or 

more of the requirements of section 

501(r) separately with respect to a 

hospital facility during a taxable year, 

the income derived from the 

noncompliant hospital facility 

(‘‘noncompliant facility income’’) 

during that taxable year will be subject 


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to tax computed as provided in section 

11 (or as provided in section 1(e) if the 

hospital organization is a trust described 

in section 511(b)(2)), but substituting 

the term ‘‘noncompliant facility 

income’’ for ‘‘taxable income,’’ if— 

(i) The hospital organization 

continues to be recognized as described 

in section 501(c)(3) during the taxable 

year; but 

(ii) The hospital organization would 

not continue to be recognized as 

described in section 501(c)(3) during the 

taxable year based on the facts and 

circumstances described in paragraph 

(a) of this section (but disregarding 

paragraph (a)(3) of this section) if the 

noncompliant hospital facility were the 

only hospital facility operated by the 

organization. 

(2) Noncompliant facility income—(i) 

In general. For purposes of this 

paragraph (d), the noncompliant facility 

income derived from a hospital facility 

during a taxable year will be the gross 

income derived from that hospital 

facility during the taxable year, less the 

deductions allowed by chapter 1 that 

are directly connected to the operation 

of that hospital facility during the 

taxable year, excluding any gross 

income and deductions taken into 

account in computing any unrelated 

business taxable income described in 

section 512 that is derived from the 

facility during the taxable year. 

(ii) Directly connected deductions. For 

purposes of this paragraph (d), to be 

directly connected with the operation of 

a hospital facility that has failed to meet 

the requirements of section 501(r), an 

item of deduction must have proximate 

and primary relationship to the 

operation of the hospital facility. 

Expenses, depreciation, and similar 

items attributable solely to the operation 

of a hospital facility are proximately and 

primarily related to such operation, and 

therefore qualify for deduction to the 

extent that they meet the requirements 

of section 162, section 167, or other 

relevant provisions of the Internal 

Revenue Code (Code). Where expenses, 

depreciation, and similar items are 

attributable to a noncompliant hospital 

facility and other hospital facilities 

operated by the hospital organization 

(and/or to other activities of the hospital 

organization unrelated to the operation 

of hospital facilities), such items shall 

be allocated among the hospital 

facilities (and/or other activities) on a 

reasonable basis. The portion of any 

such item so allocated to a 

noncompliant hospital facility is 

proximately and primarily related to the 

operation of that facility and shall be 

allowable as a deduction in computing 

the facility’s noncompliant facility 

income in the manner and to the extent 

it would meet the requirements of 

section 162, section 167, or other 

relevant provisions of the Code. 

(3) No aggregation. In computing the 

noncompliant facility income of a 

hospital facility, the gross income from 

(and the deductions allowed with 

respect to) the hospital facility may not 

be aggregated with the gross income 

from (and the deductions allowed with 

respect to) the hospital organization’s 

other noncompliant hospital facilities 

subject to tax under this paragraph (d) 

or its unrelated trade or business 

activities described in section 513. 

(4) Interaction with other Code 

provisions—(i) Hospital organization 

operating a noncompliant hospital 

facility continues to be treated as taxexempt. A hospital organization 

operating a noncompliant hospital 

facility subject to tax under this 

paragraph (d) shall continue to be 

treated as an organization that is exempt 

from tax under section 501(a) because it 

is described in section 501(c)(3) for all 

purposes of the Code. In addition, the 

application of this paragraph (d) shall 

not, by itself, result in the operation of 

the noncompliant hospital facility being 

considered an unrelated trade or 

business described in section 513 with 

respect to the hospital organization. 

Thus, for example, the application of 

this paragraph (d) shall not, by itself, 

affect the tax-exempt status of bonds 

issued to finance the noncompliant 

hospital facility. 

(ii) Noncompliant hospital facility 

operated by a tax-exempt hospital 

organization is subject to tax. A 

noncompliant hospital facility described 

in paragraph (d)(1) of this section is 

subject to tax under this paragraph (d), 

notwithstanding the fact that the 

hospital organization operating the 

hospital facility is otherwise exempt 

from tax under section 501(a) and 

subject to tax under section 511(a) and 

that § 1.11–1(a) of this chapter states 

such organizations are not liable for the 

tax imposed under section 11. 

(iii) Noncompliant hospital facility 

not a business entity. A noncompliant 

hospital facility subject to tax under this 

paragraph (d) is not considered a 

business entity for purposes of 

§ 301.7701–2(b)(7) of this chapter. 

(e) Instances in which a hospital 

organization is not required to meet 

section 501(r). A hospital organization is 

not required to meet the requirements of 

section 501(r) (and, therefore, is not 

subject to any consequence described in 

this section for failing to meet the 

requirements of section 501(r)) with 

respect to— 

(1) Any hospital facility it is not 

‘‘operating’’ within the meaning of 

§ 1.501(r)–1(b)(22); 

(2) The operation of a facility that is 

not required by a state to be licensed, 

registered, or similarly recognized as a 

hospital; or 

(3) Any activities that constitute an 

unrelated trade or business described in 

section 513 with respect to the hospital 

organization. 

§ 1.501(r)–3 Community health needs 

assessments. 

(a) In general. With respect to any 

taxable year, a hospital organization 

meets the requirements of section 

501(r)(3) with respect to a hospital 

facility it operates only if— 

(1) The hospital facility has 

conducted a community health needs 

assessment (CHNA) that meets the 

requirements of paragraph (b) of this 

section in such taxable year or in either 

of the two taxable years immediately 

preceding such taxable year (except as 

provided in paragraph (d) of this 

section); and 

(2) An authorized body of the hospital 

facility (as defined in § 1.501(r)–1(b)(4)) 

has adopted an implementation strategy 

to meet the community health needs 

identified through the CHNA, as 

described in paragraph (c) of this 

section, on or before the 15th day of the 

fifth month after the end of such taxable 

year. 

(b) Conducting a CHNA—(1) In 

general. To conduct a CHNA for 

purposes of paragraph (a) of this section, 

a hospital facility must complete all of 

the following steps: 

(i) Define the community it serves. 

(ii) Assess the health needs of that 

community. 

(iii) In assessing the health needs of 

the community, solicit and take into 

account input received from persons 

who represent the broad interests of that 

community, including those with 

special knowledge of or expertise in 

public health. 

(iv) Document the CHNA in a written 

report (CHNA report) that is adopted for 

the hospital facility by an authorized 

body of the hospital facility. 

(v) Make the CHNA report widely 

available to the public. 

(2) Date a CHNA is conducted. For 

purposes of this section, a hospital 

facility will be considered to have 

conducted a CHNA on the date it has 

completed all of the steps described in 

paragraph (b)(1) of this section. Solely 

for purposes of determining the taxable 

year in which a CHNA has been 

conducted under this paragraph (b)(2), a 

hospital facility will be considered to 

have completed the step of making a 


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CHNA report widely available to the 

public on the date it first makes the 

CHNA report widely available to the 

public as described in paragraph 

(b)(7)(i) of this section. 

(3) Community served by a hospital 

facility. In defining the community it 

serves for purposes of paragraph (b)(1)(i) 

of this section, a hospital facility may 

take into account all of the relevant facts 

and circumstances, including the 

geographic area served by the hospital 

facility, target population(s) served (for 

example, children, women, or the aged), 

and principal functions (for example, 

focus on a particular specialty area or 

targeted disease). However, a hospital 

facility may not define its community to 

exclude medically underserved, lowincome, or minority populations who 

live in the geographic areas from which 

the hospital facility draws its patients 

(unless such populations are not part of 

the hospital facility’s target patient 

population(s) or affected by its principal 

functions) or otherwise should be 

included based on the method the 

hospital facility uses to define its 

community. In addition, in determining 

its patient populations for purposes of 

defining its community, a hospital 

facility must take into account all 

patients without regard to whether (or 

how much) they or their insurers pay for 

the care received or whether they are 

eligible for assistance under the hospital 

facility’s financial assistance policy. In 

the case of a hospital facility consisting 

of multiple buildings that operate under 

a single state license and serve different 

geographic areas or populations, the 

community served by the hospital 

facility is the aggregate of such areas or 

populations. 

(4) Assessing community health 

needs. To assess the health needs of the 

community it serves for purposes of 

paragraph (b)(1)(ii) of this section, a 

hospital facility must identify 

significant health needs of the 

community, prioritize those health 

needs, and identify resources (such as 

organizations, facilities, and programs 

in the community, including those of 

the hospital facility) potentially 

available to address those health needs. 

For these purposes, the health needs of 

a community include requisites for the 

improvement or maintenance of health 

status both in the community at large 

and in particular parts of the 

community (such as particular 

neighborhoods or populations 

experiencing health disparities). These 

needs may include, for example, the 

need to address financial and other 

barriers to accessing care, to prevent 

illness, to ensure adequate nutrition, or 

to address social, behavioral, and 

environmental factors that influence 

health in the community. A hospital 

facility may determine whether a health 

need is significant based on all of the 

facts and circumstances present in the 

community it serves. In addition, a 

hospital facility may use any criteria to 

prioritize the significant health needs it 

identifies, including, but not limited to, 

the burden, scope, severity, or urgency 

of the health need; the estimated 

feasibility and effectiveness of possible 

interventions; the health disparities 

associated with the need; or the 

importance the community places on 

addressing the need. 

(5) Persons representing the broad 

interests of the community—(i) In 

general. For purposes of paragraph 

(b)(1)(iii) of this section, a hospital 

facility must solicit and take into 

account input received from all of the 

following sources in identifying and 

prioritizing significant health needs and 

in identifying resources potentially 

available to address those health needs: 

(A) At least one state, local, tribal, or 

regional governmental public health 

department (or equivalent department 

or agency), or a State Office of Rural 

Health described in section 338J of the 

Public Health Service Act (42 U.S.C. 

254r), with knowledge, information, or 

expertise relevant to the health needs of 

that community. 

(B) Members of medically 

underserved, low-income, and minority 

populations in the community served by 

the hospital facility, or individuals or 

organizations serving or representing 

the interests of such populations. For 

purposes of this paragraph (b), 

medically underserved populations 

include populations experiencing health 

disparities or at risk of not receiving 

adequate medical care as a result of 

being uninsured or underinsured or due 

to geographic, language, financial, or 

other barriers. 

(C) Written comments received on the 

hospital facility’s most recently 

conducted CHNA and most recently 

adopted implementation strategy. 

(ii) Additional sources of input. In 

addition to the sources described in 

paragraph (b)(5)(i) of this section, a 

hospital facility may solicit and take 

into account input received from a 

broad range of persons located in or 

serving its community, including, but 

not limited to, health care consumers 

and consumer advocates, nonprofit and 

community-based organizations, 

academic experts, local government 

officials, local school districts, health 

care providers and community health 

centers, health insurance and managed 

care organizations, private businesses, 

and labor and workforce 

representatives. 

(6) Documentation of a CHNA—(i) In 

general. For purposes of paragraph 

(b)(1)(iv) of this section, the CHNA 

report adopted for the hospital facility 

by an authorized body of the hospital 

facility must include— 

(A) A definition of the community 

served by the hospital facility and a 

description of how the community was 

determined; 

(B) A description of the process and 

methods used to conduct the CHNA; 

(C) A description of how the hospital 

facility solicited and took into account 

input received from persons who 

represent the broad interests of the 

community it serves; 

(D) A prioritized description of the 

significant health needs of the 

community identified through the 

CHNA, along with a description of the 

process and criteria used in identifying 

certain health needs as significant and 

prioritizing those significant health 

needs; 

(E) A description of the resources 

potentially available to address the 

significant health needs identified 

through the CHNA; and 

(F) An evaluation of the impact of any 

actions that were taken, since the 

hospital facility finished conducting its 

immediately preceding CHNA, to 

address the significant health needs 

identified in the hospital facility’s prior 

CHNA(s). 

(ii) Process and methods used to 

conduct the CHNA. A hospital facility’s 

CHNA report will be considered to 

describe the process and methods used 

to conduct the CHNA for purposes of 

paragraph (b)(6)(i)(B) of this section if 

the CHNA report describes the data and 

other information used in the 

assessment, as well as the methods of 

collecting and analyzing this data and 

information, and identifies any parties 

with whom the hospital facility 

collaborated, or with whom it 

contracted for assistance, in conducting 

the CHNA. In the case of data obtained 

from external source material, the 

CHNA report may cite the source 

material rather than describe the 

method of collecting the data. 

(iii) Input from persons who represent 

the broad interests of the community 

served by the hospital facility. A 

hospital facility’s CHNA report will be 

considered to describe how the hospital 

facility took into account input received 

from persons who represent the broad 

interests of the community it serves for 

purposes of paragraph (b)(6)(i)(C) of this 

section if the CHNA report summarizes, 

in general terms, any input provided by 

such persons and how and over what 


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time period such input was provided 

(for example, whether through meetings, 

focus groups, interviews, surveys, or 

written comments and between what 

approximate dates); provides the names 

of any organizations providing input 

and summarizes the nature and extent 

of the organization’s input; and 

describes the medically underserved, 

low-income, or minority populations 

being represented by organizations or 

individuals that provided input. A 

CHNA report does not need to name or 

otherwise identify any specific 

individual providing input on the 

CHNA. In the event a hospital facility 

solicits, but cannot obtain, input from a 

source described in paragraph (b)(5)(i) 

of this section, the hospital facility’s 

CHNA report also must describe the 

hospital facility’s efforts to solicit input 

from such source. 

(iv) Separate CHNA reports. While a 

hospital facility may conduct its CHNA 

in collaboration with other 

organizations and facilities (including, 

but not limited to, related and unrelated 

hospital organizations and facilities, forprofit and government hospitals, 

governmental departments, and 

nonprofit organizations), every hospital 

facility must document the information 

described in this paragraph (b)(6) in a 

separate CHNA report to satisfy 

paragraph (b)(1)(iv) of this section 

unless it adopts a joint CHNA report as 

described in paragraph (b)(6)(v) of this 

section. However, if a hospital facility is 

collaborating with other facilities and 

organizations in conducting its CHNA 

or if another organization (such as a 

state or local public health department) 

has conducted a CHNA for all or part of 

the hospital facility’s community, 

portions of the hospital facility’s CHNA 

report may be substantively identical to 

portions of a CHNA report of a 

collaborating hospital facility or other 

organization conducting a CHNA, if 

appropriate under the facts and 

circumstances. For example, if two 

hospital facilities with overlapping, but 

not identical, communities are 

collaborating in conducting a CHNA, 

the portions of each hospital facility’s 

CHNA report relevant to the shared 

areas of their communities might be 

identical. Similarly, if the state or local 

public health department with 

jurisdiction over the community served 

by a hospital facility conducts a CHNA 

for an area that includes the hospital 

facility’s community, the hospital 

facility’s CHNA report might include 

portions of the state or local public 

health department’s CHNA report that 

are relevant to its community. 

(v) Joint CHNA reports—(A) In 

general. A hospital facility that 

collaborates with other hospital 

facilities or other organizations (such as 

state or local public health departments) 

in conducting its CHNA will satisfy 

paragraph (b)(1)(iv) of this section if an 

authorized body of the hospital facility 

adopts for the hospital facility a joint 

CHNA report produced for the hospital 

facility and one or more of the 

collaborating facilities and 

organizations, provided that the 

following conditions are met: 

(1) The joint CHNA report meets the 

requirements of paragraph (b)(6)(i) of 

this section. 

(2) The joint CHNA report is clearly 

identified as applying to the hospital 

facility. 

(3) All of the collaborating hospital 

facilities and organizations included in 

the joint CHNA report define their 

community to be the same. 

(B) Example. The following example 

illustrates this paragraph (b)(6)(v): 

Example. P is one of 10 hospital facilities 

located in and serving the populations of a 

particular Metropolitan Statistical Area 

(MSA). P and seven other facilities in the 

MSA, some of which are unrelated to P, 

decide to collaborate in conducting a CHNA 

for the MSA and to each define their 

community as constituting the entire MSA. 

The eight hospital facilities work together 

with the state and local health departments 

of jurisdictions in the MSA to assess the 

health needs of the MSA and collaborate in 

conducting surveys and holding public 

forums to solicit and receive input from the 

MSA’s residents, including its medically 

underserved, low-income, and minority 

populations. The hospital facilities also 

consider the written comments received on 

their most recently conducted CHNAs and 

most recently adopted implementation 

strategies. The hospital facilities then work 

together to prepare a joint CHNA report 

documenting this joint CHNA process that 

contains all of the elements described in 

paragraph (b)(6)(i) of this section. The joint 

CHNA report identifies all of the 

collaborating hospital facilities included in 

the report, including P, by name, both within 

the report itself and on the cover page. The 

board of directors of the hospital organization 

operating P adopts the joint CHNA report for 

P. P has complied with the requirements of 

this paragraph (b)(6)(v) and, accordingly, has 

satisfied paragraph (b)(1)(iv) of this section. 

(7) Making the CHNA report widely 

available to the public—(i) In general. 

For purposes of paragraph (b)(1)(v) of 

this section, a hospital facility’s CHNA 

report is made widely available to the 

public only if the hospital facility— 

(A) Makes the CHNA report widely 

available on a Web site, as defined in 

§ 1.501(r)–1(b)(29), at least until the date 

the hospital facility has made widely 

available on a Web site its two 

subsequent CHNA reports; and 

(B) Makes a paper copy of the CHNA 

report available for public inspection 

upon request and without charge at the 

hospital facility at least until the date 

the hospital facility has made available 

for public inspection a paper copy of its 

two subsequent CHNA reports. 

(ii) Making draft CHNA reports widely 

available. Notwithstanding paragraph 

(b)(7)(i) of this section, if a hospital 

facility makes widely available on a 

Web site (and/or for public inspection) 

a version of the CHNA report that is 

expressly marked as a draft on which 

the public may comment, the hospital 

facility will not be considered to have 

made the CHNA report widely available 

to the public for purposes of 

determining the date on which the 

hospital facility has conducted a CHNA 

under paragraph (b)(2) of this section. 

(c) Implementation strategy—(1) In 

general. For purposes of paragraph (a)(2) 

of this section, a hospital facility’s 

implementation strategy to meet the 

community health needs identified 

through the hospital facility’s CHNA is 

a written plan that, with respect to each 

significant health need identified 

through the CHNA, either— 

(i) Describes how the hospital facility 

plans to address the health need; or 

(ii) Identifies the health need as one 

the hospital facility does not intend to 

address and explains why the hospital 

facility does not intend to address the 

health need. 

(2) Description of how the hospital 

facility plans to address a significant 

health need. A hospital facility will 

have described a plan to address a 

significant health need identified 

through a CHNA for purposes of 

paragraph (c)(1)(i) of this section if the 

implementation strategy— 

(i) Describes the actions the hospital 

facility intends to take to address the 

health need and the anticipated impact 

of these actions; 

(ii) Identifies the resources the 

hospital facility plans to commit to 

address the health need; and 

(iii) Describes any planned 

collaboration between the hospital 

facility and other facilities or 

organizations in addressing the health 

need. 

(3) Description of why a hospital 

facility is not addressing a significant 

health need. In explaining why it does 

not intend to address a significant 

health need for purposes of paragraph 

(c)(1)(ii) of this section, a brief 

explanation of the hospital facility’s 

reason for not addressing the health 

need is sufficient. Such reasons may 

include, for example, resource 

constraints, other facilities or 

organizations in the community 

addressing the need, a relative lack of 

expertise or competency to effectively 


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address the need, the need being a 

relatively low priority, and/or a lack of 

identified effective interventions to 

address the need. 

(4) Joint implementation strategies. A 

hospital facility may develop an 

implementation strategy in 

collaboration with other hospital 

facilities or other organizations, 

including, but not limited to, related 

and unrelated hospital organizations 

and facilities, for-profit and government 

hospitals, governmental departments, 

and nonprofit organizations. In general, 

a hospital facility that collaborates with 

other facilities or organizations in 

developing its implementation strategy 

must still document its implementation 

strategy in a separate written plan that 

is tailored to the particular hospital 

facility, taking into account its specific 

resources. However, a hospital facility 

that adopts a joint CHNA report 

described in paragraph (b)(6)(v) of this 

section may also adopt a joint 

implementation strategy that, with 

respect to each significant health need 

identified through the joint CHNA, 

either describes how one or more of the 

collaborating facilities or organizations 

plan to address the health need or 

identifies the health need as one the 

collaborating facilities or organizations 

do not intend to address and explains 

why they do not intend to address the 

health need. For a collaborating hospital 

facility to meet the requirements of 

paragraph (a)(2) of this section, such a 

joint implementation strategy adopted 

for the hospital facility must— 

(i) Be clearly identified as applying to 

the hospital facility; 

(ii) Clearly identify the hospital 

facility’s particular role and 

responsibilities in taking the actions 

described in the implementation 

strategy and the resources the hospital 

facility plans to commit to such actions; 

and 

(iii) Include a summary or other tool 

that helps the reader easily locate those 

portions of the joint implementation 

strategy that relate to the hospital 

facility. 

(5) When the implementation strategy 

must be adopted—(i) In general. For 

purposes of paragraph (a)(2) of this 

section, an authorized body of the 

hospital facility must adopt the 

implementation strategy on or before the 

15th day of the fifth month after the end 

of the taxable year in which the hospital 

facility completes the final step for the 

CHNA described in paragraph (b)(1) of 

this section, regardless of whether the 

hospital facility began working on the 

CHNA in a prior taxable year. 

(ii) Example. The following example 

illustrates this paragraph (c)(5): 

Example. M is a hospital facility that last 

conducted a CHNA and adopted an 

implementation strategy in Year 1. In Year 3, 

M defines the community it serves, assesses 

the significant health needs of that 

community, and solicits and takes into 

account input received from persons who 

represent the broad interests of that 

community. In Year 4, M documents its 

CHNA in a CHNA report that is adopted by 

an authorized body of M, makes the CHNA 

report widely available on a Web site, and 

makes paper copies of the CHNA report 

available for public inspection. To meet the 

requirements of paragraph (a)(2) of this 

section, an authorized body of M must adopt 

an implementation strategy to meet the 

health needs identified through the CHNA 

completed in Year 4 by the 15th day of the 

fifth month of Year 5. 

(d) Exception for acquired, new, and 

terminated hospital facilities—(1) 

Acquired hospital facilities. A hospital 

organization that acquires a hospital 

facility (whether through merger or 

acquisition) must meet the requirements 

of section 501(r)(3) with respect to the 

acquired hospital facility by the last day 

of the organization’s second taxable year 

beginning after the date on which the 

hospital facility was acquired. In the 

case of a merger between two 

organizations that results in the 

liquidation of one organization and the 

survival of the other organization, the 

hospital facility or facilities formerly 

operated by the liquidated organization 

will be considered ‘‘acquired’’ for 

purposes of this paragraph (d)(1). 

(2) New hospital organizations. An 

organization that becomes newly subject 

to the requirements of section 501(r) 

because it is recognized as described in 

section 501(c)(3) and is operating a 

hospital facility must meet the 

requirements of section 501(r)(3) with 

respect to any hospital facility by the 

last day of the second taxable year 

beginning after the later of the effective 

date of the determination letter or ruling 

recognizing the organization as 

described in section 501(c)(3) or the first 

date that a facility operated by the 

organization was licensed, registered, or 

similarly recognized by a state as a 

hospital. 

(3) New hospital facilities. A hospital 

organization must meet the 

requirements of section 501(r)(3) with 

respect to a new hospital facility it 

operates by the last day of the second 

taxable year beginning after the date the 

facility was licensed, registered, or 

similarly recognized by its state as a 

hospital. 

(4) Transferred or terminated hospital 

facilities. A hospital organization is not 

required to meet the requirements of 

section 501(r)(3) with respect to a 

hospital facility in a taxable year if, 

before the end of that taxable year, the 

hospital organization transfers all 

ownership of the hospital facility to 

another organization or otherwise ceases 

its operation of the hospital facility or 

the facility ceases to be licensed, 

registered, or similarly recognized as a 

hospital by a state. 

(e) Transition rule for CHNAs 

conducted in taxable years beginning 

before March 23, 2012. A hospital 

facility that conducted a CHNA 

described in section 501(r)(3) in either 

its first taxable year beginning after 

March 23, 2010, or its first taxable year 

beginning after March 23, 2011, does 

not need to meet the requirements of 

section 501(r)(3) again until the third 

taxable year following the taxable year 

in which the hospital facility conducted 

that CHNA, provided that the hospital 

facility adopted an implementation 

strategy to meet the community health 

needs identified through that CHNA on 

or before the 15th day of the fifth 

calendar month following the close of 

its first taxable year beginning after 

March 23, 2012. 

§ 1.501(r)–4 Financial assistance policy 

and emergency medical care policy. 

(a) In general. A hospital organization 

meets the requirements of section 

501(r)(4) with respect to a hospital 

facility it operates only if the hospital 

organization establishes for that hospital 

facility— 

(1) A written financial assistance 

policy (FAP) that meets the 

requirements of paragraph (b) of this 

section; and 

(2) A written emergency medical care 

policy that meets the requirements of 

paragraph (c) of this section. 

(b) Financial assistance policy—(1) In 

general. To satisfy paragraph (a)(1) of 

this section, a hospital facility’s FAP 

must— 

(i) Apply to all emergency and other 

medically necessary care provided by 

the hospital facility, including all such 

care provided in the hospital facility by 

a substantially-related entity (as defined 

in § 1.501(r)–1(b)(28)); 

(ii) Be widely publicized as described 

in paragraph (b)(5) of this section; and 

(iii) Include— 

(A) The eligibility criteria for financial 

assistance and whether such assistance 

includes free or discounted care; 

(B) The basis for calculating amounts 

charged to patients; 

(C) The method for applying for 

financial assistance; 

(D) In the case of a hospital facility 

that does not have a separate billing and 

collections policy, the actions that may 

be taken in the event of nonpayment; 

(E) If applicable, any information 

obtained from sources other than an 


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individual seeking financial assistance 

that the hospital facility uses, and 

whether and under what circumstances 

it uses prior FAP-eligibility 

determinations, to presumptively 

determine that the individual is FAPeligible, as described in § 1.501(r)– 

6(c)(2); and 

(F) A list of any providers, other than 

the hospital facility itself, delivering 

emergency or other medically necessary 

care in the hospital facility that specifies 

which providers are covered by the 

hospital facility’s FAP and which are 

not. 

(2) Eligibility criteria and basis for 

calculating amounts charged to 

patients—(i) In general. To satisfy 

paragraphs (b)(1)(iii)(A) and (b)(1)(iii)(B) 

of this section, the FAP must specify the 

following: 

(A) All financial assistance available 

under the FAP, including all discounts 

and free care available under the FAP 

and, if applicable, the amount(s) (for 

example, gross charges) to which any 

discount percentages available under 

the FAP will be applied. 

(B) The eligibility criteria that an 

individual must satisfy to receive each 

discount, free care, or other level of 

assistance available under the FAP. 

(C) The method under § 1.501(r)–5(b) 

the hospital facility uses to determine 

the amounts generally billed to 

individuals who have insurance 

covering emergency or other medically 

necessary care (AGB). If the hospital 

facility uses the look-back method 

described in § 1.501(r)–5(b)(3), the FAP 

also must state the AGB percentage(s) 

that the hospital facility uses to 

determine AGB and describe how the 

hospital facility calculated such 

percentage(s) or, alternatively, explain 

how members of the public may readily 

obtain such percentage(s) and 

accompanying description of the 

calculation in writing and free of charge. 

In addition, the FAP must indicate that, 

following a determination of FAPeligibility, a FAP-eligible individual 

may not be charged more than AGB for 

emergency or other medically necessary 

care. 

(ii) Examples. The following 

examples illustrate this paragraph (b)(2): 

Example 1. (i) Q is a hospital facility that 

establishes a FAP that provides assistance to 

all uninsured and underinsured individuals 

whose family income is less than or equal to 

x% of the Federal Poverty Level (FPL), with 

the level of discount for which an individual 

is eligible under Q’s FAP determined based 

upon the individual’s family income as a 

percentage of FPL. Q’s FAP defines the 

meaning of ‘‘uninsured,’’ ‘‘underinsured,’’ 

‘‘family income,’’ and ‘‘Federal Poverty 

Level.’’ Q’s FAP also states that Q determines 

AGB by multiplying the gross charges for any 

emergency or other medically necessary care 

it provides to a FAP-eligible individual by an 

AGB percentage of 56%. The FAP states, 

further, that Q calculated the AGB percentage 

of 56% based on all claims allowed by 

Medicare and private health insurers over a 

specified 12-month period, divided by the 

associated gross charges for those claims. Q’s 

FAP contains the following chart, specifying 

each discount available under the FAP, the 

amounts (gross charges) to which these 

discounts will be applied, and the specific 

eligibility criteria for each such discount: 

Family income as % 

of FPL 

Discount off of gross 

charges 

>y% ¥ x% ................ 50%. 

>z% ¥ y% ................ 75%. 

≤z% ........................... Free. 

(ii) Q’s FAP also contains a statement that 

no FAP-eligible individual will be charged 

more for emergency or other medically 

necessary care than AGB because Q’s AGB 

percentage is 56% of gross charges and the 

most a FAP-eligible individual will be 

charged is 50% of gross charges. Q’s FAP 

satisfies the requirements of this paragraph 

(b)(2). 

Example 2. (i) R is a hospital facility that 

establishes a FAP that provides assistance 

based on household income. R’s FAP defines 

the meaning of ‘‘household income.’’ R’s FAP 

contains the following chart specifying the 

assistance available under the FAP and the 

specific eligibility criteria for each level of 

assistance offered, which R updates 

occasionally to account for inflation: 

Household 

income 

Maximum amount individual 

will be responsible for paying 

>$b ¥ $a ... 40% of gross charges, up to 

the lesser of AGB or x% of 

household income. 

>$c ¥ $b ... 20% of gross charges, up to 

the lesser of AGB or y% of 

household income. 

≤$c .............. $0 (free). 

(ii) R’s FAP contains a statement that no 

FAP-eligible individual will be charged more 

for emergency or other medically necessary 

care than AGB. R’s FAP also states that R 

determines AGB by multiplying the gross 

charges for any emergency or other medically 

necessary care it provides by AGB 

percentages, which are based on claims 

allowed under Medicare. In addition, the 

FAP provides a Web site address individuals 

can visit, and a telephone number they can 

call, if they would like to obtain an 

information sheet stating R’s AGB 

percentages and explaining how these AGB 

percentages were calculated. This 

information sheet, which R makes available 

on its Web site and provides to any 

individual who requests it, states that R’s 

AGB percentages are 35% of gross charges for 

inpatient care and 61% of gross charges for 

outpatient care. It also states that these 

percentages were based on all claims allowed 

for R’s emergency or other medically 

necessary inpatient and outpatient care by 

Medicare over a specified 12-month period, 

divided by the associated gross charges for 

those claims. R’s FAP satisfies the 

requirements of this paragraph (b)(2). 

(3) Method for applying for financial 

assistance—(i) In general. To satisfy 

paragraph (b)(1)(iii)(C) of this section, a 

hospital facility’s FAP must describe 

how an individual applies for financial 

assistance under the FAP. In addition, 

either the hospital facility’s FAP or FAP 

application form (including 

accompanying instructions) must 

describe the information and 

documentation the hospital facility may 

require an individual to provide as part 

of his or her FAP application and 

provide the contact information 

described in § 1.501(r)–1(b)(24)(v). A 

hospital facility may not deny financial 

assistance under its FAP based on an 

applicant’s failure to provide 

information or documentation unless 

that information or documentation is 

described in the FAP or FAP application 

form. However, a hospital facility may 

grant financial assistance under its FAP 

notwithstanding an applicant’s failure 

to provide information or 

documentation described in the FAP or 

FAP application form and may, for 

example, rely on other evidence of 

eligibility or an attestation by the 

applicant to determine that the 

applicant is FAP-eligible. 

(ii) Example. The following example 

illustrates this paragraph (b)(3): 

Example. S is a hospital facility with a FAP 

that bases eligibility solely on an individual’s 

household income. S’s FAP provides that an 

individual may apply for financial assistance 

by completing and submitting S’s FAP 

application form. S’s FAP also describes how 

individuals can obtain copies of the FAP 

application form. S’s FAP application form 

contains lines on which the applicant lists all 

items of household income received by the 

applicant’s household over the last month 

and the names of the applicant’s household 

members. The instructions to S’s FAP 

application form tell applicants where to 

submit the application and provide that an 

applicant must attach to his or her FAP 

application form proof of household income 

in the form of payroll check stubs from the 

last month or, if last month’s wages are not 

representative of the applicant’s annual 

income, a copy of the applicant’s most recent 

federal tax return. Alternatively, the 

instructions state that an applicant may 

provide documentation of his or her 

qualification for certain specified state 

means-tested programs. The instructions also 

state that if an applicant does not have any 

of the listed documents proving household 

income, he or she may call S’s financial 

assistance office and discuss other evidence 

that may be provided to demonstrate 

eligibility. S does not deny financial 

assistance to FAP applicants based on a 

failure to submit any information or 

documentation not mentioned in the FAP 


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application form or instructions. S’s FAP 

application form instructions also provide 

the contact information of the hospital 

facility office that can provide an applicant 

with information about the FAP and 

assistance with the FAP application process. 

S’s FAP satisfies the requirements of this 

paragraph (b)(3). 

(4) Actions that may be taken in the 

event of nonpayment—(i) In general. To 

satisfy paragraph (b)(1)(iii)(D) of this 

section, either a hospital facility’s FAP 

or a separate written billing and 

collections policy established for the 

hospital facility must describe— 

(A) Any actions that the hospital 

facility (or other authorized party) may 

take related to obtaining payment of a 

bill for medical care, including, but not 

limited to, any extraordinary collection 

actions (ECAs) described in § 1.501(r)– 

6(b); 

(B) The process and time frames the 

hospital facility (or other authorized 

party) uses in taking the actions 

described in paragraph (b)(4)(i)(A) of 

this section, including, but not limited 

to, the reasonable efforts it will make to 

determine whether an individual is 

FAP-eligible before engaging in any 

ECAs, as described in § 1.501(r)–6(c); 

and 

(C) The office, department, 

committee, or other body with the final 

authority or responsibility for 

determining that the hospital facility 

has made reasonable efforts to 

determine whether an individual is 

FAP-eligible and may therefore engage 

in ECAs against the individual. 

(ii) Separate billing and collections 

policy. In the case of a hospital facility 

that satisfies paragraph (b)(1)(iii)(D) of 

this section by establishing a separate 

written billing and collections policy, 

the hospital facility’s FAP must state 

that the actions the hospital facility may 

take in the event of nonpayment are 

described in a separate billing and 

collections policy and explain how 

members of the public may readily 

obtain a free copy of this separate 

policy. 

(5) Widely publicizing the FAP—(i) In 

general. To satisfy the requirement in 

paragraph (b)(1)(ii) of this section to 

widely publicize its FAP, a hospital 

facility must— 

(A) Make the FAP, FAP application 

form, and plain language summary of 

the FAP (as defined in § 1.501(r)– 

1(b)(24)) widely available on a Web site 

(as defined in § 1.501(r)–1(b)(29)); 

(B) Make paper copies of the FAP, 

FAP application form, and plain 

language summary of the FAP available 

upon request and without charge, both 

by mail and in public locations in the 

hospital facility, including, at a 

minimum, in the emergency room (if 

any) and admissions areas; 

(C) Notify and inform members of the 

community served by the hospital 

facility about the FAP in a manner 

reasonably calculated to reach those 

members who are most likely to require 

financial assistance from the hospital 

facility; and 

(D) Notify and inform individuals 

who receive care from the hospital 

facility about the FAP by— 

(1) Offering a paper copy of the plain 

language summary of the FAP to 

patients as part of the intake or 

discharge process; 

(2) Including a conspicuous written 

notice on billing statements that notifies 

and informs recipients about the 

availability of financial assistance under 

the hospital facility’s FAP and includes 

the telephone number of the hospital 

facility office or department that can 

provide information about the FAP and 

FAP application process and the direct 

Web site address (or URL) where copies 

of the FAP, FAP application form, and 

plain language summary of the FAP may 

be obtained; and 

(3) Setting up conspicuous public 

displays (or other measures reasonably 

calculated to attract patients’ attention) 

that notify and inform patients about the 

FAP in public locations in the hospital 

facility, including, at a minimum, the 

emergency room (if any) and admissions 

areas. 

(ii) Accessibility to limited English 

proficient individuals. To widely 

publicize its FAP, a hospital facility 

must accommodate all significant 

populations that have limited English 

proficiency (LEP) by translating its FAP, 

FAP application form, and plain 

language summary of the FAP into the 

primary language(s) spoken by such 

populations. A hospital facility will 

satisfy this translation requirement in a 

taxable year if it makes available 

translations of its FAP, FAP application 

form, and plain language summary of 

the FAP in the language spoken by each 

LEP language group that constitutes the 

lesser of 1,000 individuals or 5 percent 

of the community served by the hospital 

facility or the population likely to be 

affected or encountered by the hospital 

facility. For purposes of this paragraph 

(b)(5)(ii), a hospital facility may 

determine the percentage or number of 

LEP individuals in the hospital facility’s 

community or likely to be affected or 

encountered by the hospital facility 

using any reasonable method. 

(iii) Meaning of notify and inform. For 

purposes of paragraphs (b)(5)(i)(C) and 

(b)(5)(i)(D)(3) of this section, a measure 

will notify and inform members of a 

community or patients about the 

hospital facility’s FAP if the measure, at 

a minimum, notifies the reader or 

listener that the hospital facility offers 

financial assistance under a FAP and 

informs him or her about how or where 

to obtain more information about the 

FAP and FAP application process and to 

obtain copies of the FAP, FAP 

application form, and plain language 

summary of the FAP. 

(iv) Meaning of reasonably calculated. 

Whether one or more measures to 

widely publicize a hospital facility’s 

FAP are reasonably calculated to notify 

and inform members of a community or 

patients about the hospital facility’s 

FAP in the manner described in 

paragraphs (b)(5)(i)(C) and (b)(5)(i)(D)(3) 

of this section will depend on all of the 

facts and circumstances, including the 

primary language(s) spoken by the 

members of the community served by 

the hospital facility and other attributes 

of the community and the hospital 

facility. 

(v) Examples. The following examples 

illustrate this paragraph (b)(5): 

Example 1. (i) Z is a hospital facility. The 

home page and main billing page of Z’s Web 

site conspicuously display the following 

message: ‘‘Need help paying your bill? You 

may be eligible for financial assistance. Click 

here for more information.’’ When readers 

click on the link, they are taken to a Web 

page that explains the various discounts 

available under Z’s FAP and the specific 

eligibility criteria for each such discount. 

This Web page also provides all of the other 

information required to be included in a 

plain language summary of the FAP (as 

defined in § 1.501(r)–1(b)(24)), including a 

telephone number of Z that individuals can 

call and a room number of Z that individuals 

can visit for more information about the FAP 

and assistance with FAP applications. In 

addition, the Web page contains 

prominently-displayed links that allow 

readers to download PDF files of the FAP and 

the FAP application form, free of charge and 

without being required to create an account 

or provide personally identifiable 

information. Z provides any individual who 

asks how to access a copy of the FAP, FAP 

application form, or plain language summary 

of the FAP online with the URL of this Web 

page. By implementing these measures, Z has 

made its FAP widely available on a Web site 

within the meaning of paragraph (b)(5)(i)(A) 

of this section. 

(ii) Z distributes copies of the plain 

language summary of its FAP and its FAP 

application form to all of its referring staff 

physicians and to the community health 

centers serving its community. Z also 

distributes copies of these documents to the 

local health department and to numerous 

public agencies and nonprofit organizations 

in its community that address the health 

issues and other needs of low-income 

populations, in quantities sufficient to meet 

demand. In addition, every issue of the 

quarterly newsletter that Z mails to the 

individuals in its customer database contains 


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a prominently-displayed advertisement 

informing readers that Z offers financial 

assistance and that people having trouble 

paying their hospital bills may be eligible for 

financial assistance. The advertisement 

provides readers with the URL of the Web 

page where Z’s FAP and FAP application 

form can be accessed and a telephone 

number of Z that individuals can call and a 

room number of Z that individuals can visit 

with questions about the FAP or assistance 

with the FAP application process. By 

implementing these measures, Z notifies and 

informs members of its community about the 

FAP within the meaning of paragraph 

(b)(5)(i)(C) of this section. 

(iii) Z makes paper copies of the FAP, FAP 

application form, and plain language 

summary of the FAP available upon request 

and without charge, both by mail and in its 

admissions areas and emergency room. Z also 

conspicuously displays a sign in large font 

regarding the FAP in its admissions areas and 

emergency room. The sign says: ‘‘Uninsured? 

Having trouble paying your hospital bill? 

You may be eligible for financial assistance.’’ 

The sign also provides the URL of the Web 

page where Z’s FAP and FAP application 

form can be accessed. In addition, the sign 

provides a telephone number of Z that 

individuals can call and a room number of 

Z that individuals can visit with questions 

about the FAP or assistance with the FAP 

application process. Underneath each sign, Z 

conspicuously displays copies of a brochure 

that contains all of the information required 

to be included in a plain language summary 

of the FAP (as defined in § 1.501(r)–1(b)(24)). 

Z makes these brochures available in 

quantities sufficient to meet visitor demand. 

Z also offers a plain language summary of the 

FAP as part of its intake process. Z’s billing 

statements include a conspicuously-placed 

statement in large font containing the same 

information that Z includes on its signs. By 

implementing these measures, Z makes a 

paper copy of the FAP, FAP application 

form, and plain language summary of the 

FAP available upon request within the 

meaning of paragraph (b)(5)(i)(B) of this 

section and notifies and informs individuals 

who receive care from the hospital facility 

about the FAP within the meaning of 

paragraph (b)(5)(i)(D) of this section. 

(iv) Because Z takes measures to widely 

publicize the FAP described in paragraphs 

(b)(5)(i)(A), (b)(5)(i)(B), (b)(5)(i)(C), and 

(b)(5)(i)(D) of this section, Z meets the 

requirement to widely publicize its FAP 

under paragraph (b)(1)(ii) of this section. 

Example 2. Assume the same facts as 

Example 1, except that Z serves a community 

in which 6% of the members speak Spanish 

and have limited proficiency in English. Z 

translates its FAP, FAP application form, and 

FAP brochure (which constitutes a plain 

language summary of the FAP) into Spanish, 

and displays and distributes both Spanish 

and English versions of these documents in 

its hospital facility using all of the measures 

described in Example 1. Z also distributes 

Spanish versions of its FAP application form 

and FAP brochure to organizations serving 

Spanish-speaking members of its community. 

Moreover, the home page and main billing 

page of Z’s Web site conspicuously display 

an ‘‘¿Habla Espan ̃ ol?’’ link that takes readers 

to a Web page that summarizes the FAP in 

Spanish and contains links that allow readers 

to download PDF files of the Spanish 

versions of the FAP and FAP application 

form, free of charge and without being 

required to create an account or provide 

personally identifiable information. Z meets 

the requirement to widely publicize its FAP 

under paragraph (b)(1)(ii) of this section. 

(6) Readily obtainable information. 

For purposes of paragraphs (b)(2)(i)(C) 

and (b)(4)(ii) of this section, information 

is readily obtainable by members of the 

public if a hospital facility— 

(i) Makes the information available 

free of charge on a Web site and via a 

paper copy upon request in a manner 

similar to that described in paragraphs 

(b)(5)(i)(A) and (b)(5)(i)(B) of this 

section; and 

(ii) Provides translations of the 

information as described in paragraph 

(b)(5)(ii) of this section. 

(7) Providing documents 

electronically. A hospital facility may 

provide electronically (for example, on 

an electronic screen, by email, or by 

providing the direct Web site address, or 

URL, of the Web page where the 

document or information is posted) any 

document or information that is 

required by this paragraph (b) to be 

provided in the form of a paper copy to 

any individual who indicates he or she 

prefers to receive or access the 

document or information electronically. 

(8) Medically necessary care. For 

purposes of meeting the requirements of 

this section, a hospital facility may (but 

is not required to) use a definition of 

medically necessary care applicable 

under the laws of the state in which it 

is licensed, including the Medicaid 

definition, or a definition that refers to 

the generally accepted standards of 

medicine in the community or to an 

examining physician’s determination. 

(c) Emergency medical care policy— 

(1) In general. To satisfy paragraph (a)(2) 

of this section, a hospital organization 

must establish a written policy for a 

hospital facility that requires the 

hospital facility to provide, without 

discrimination, care for emergency 

medical conditions to individuals 

regardless of whether they are FAPeligible. 

(2) Interference with provision of 

emergency medical care. A hospital 

facility’s emergency medical care policy 

will not be described in paragraph (c)(1) 

of this section unless it prohibits the 

hospital facility from engaging in 

actions that discourage individuals from 

seeking emergency medical care, such 

as by demanding that emergency 

department patients pay before 

receiving treatment for emergency 

medical conditions or by permitting 

debt collection activities that interfere 

with the provision, without 

discrimination, of emergency medical 

care. 

(3) Relation to federal law governing 

emergency medical care. Subject to 

paragraph (c)(2) of this section, a 

hospital facility’s emergency medical 

care policy will be described in 

paragraph (c)(1) of this section if it 

requires the hospital facility to provide 

the care for emergency medical 

conditions that the hospital facility is 

required to provide under Subchapter G 

of Chapter IV of Title 42 of the Code of 

Federal Regulations (or any successor 

regulations). 

(4) Examples. The following examples 

illustrate this paragraph (c): 

Example 1. F is a hospital facility with a 

dedicated emergency department that is 

subject to the Emergency Medical Treatment 

and Labor Act (EMTALA) and is not a critical 

access hospital. F establishes a written 

emergency medical care policy requiring F to 

comply with EMTALA by providing medical 

screening examinations and stabilizing 

treatment and referring or transferring an 

individual to another facility, when 

appropriate, and providing emergency 

services in accordance with 42 CFR 482.55 

(or any successor regulation). F’s emergency 

medical care policy also states that F 

prohibits any actions that would discourage 

individuals from seeking emergency medical 

care, such as by demanding that emergency 

department patients pay before receiving 

treatment for emergency medical conditions 

or permitting debt collection activities that 

interfere with the provision, without 

discrimination, of emergency medical care. 

F’s emergency medical care policy is 

described in paragraph (c)(1) of this section. 

Example 2. G is a rehabilitation hospital 

facility. G does not have a dedicated 

emergency department, nor does it have 

specialized capabilities that would make it 

appropriate to accept transfers of individuals 

who need stabilizing treatment for an 

emergency medical condition. G establishes 

a written emergency medical care policy that 

addresses how it appraises emergencies, 

provides initial treatment, and refers or 

transfers an individual to another facility, 

when appropriate, in a manner that complies 

with 42 CFR 482.12(f)(2) (or any successor 

regulation). G’s emergency medical care 

policy also prohibits G from engaging in 

actions that discourage individuals from 

seeking emergency medical care, such as by 

demanding that patients pay before receiving 

initial treatment for emergency medical 

conditions or permitting debt collection 

activities that interfere with the facility’s 

appraisal and provision, without 

discrimination, of such initial treatment. G’s 

emergency medical care policy is described 

in paragraph (c)(1) of this section. 

(d) Establishing the FAP and other 

policies—(1) In general. A hospital 

organization has established a FAP, a 

billing and collections policy, or an 


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emergency medical care policy for a 

hospital facility only if an authorized 

body of the hospital facility (as defined 

in § 1.501(r)–1(b)(4)) has adopted the 

policy for the hospital facility and the 

hospital facility has implemented the 

policy. 

(2) Implementing a policy. For 

purposes of this paragraph (d), a 

hospital facility will be considered to 

have implemented a policy if the 

hospital facility has consistently carried 

out the policy. 

(3) Establishing a policy for more than 

one hospital facility. A hospital 

organization may establish a FAP, 

billing and collections policy, and/or 

emergency medical care policy for a 

hospital facility that is identical to that 

of other hospital facilities or a joint 

policy that is shared with multiple 

hospital facilities provided that any 

joint policy clearly identifies each 

facility to which it applies. However, 

hospital facilities that have different 

AGB percentages or use different 

methods to determine AGB must 

include in their FAPs (or, in the case of 

information related to AGB percentages, 

otherwise make readily obtainable) 

different information regarding AGB to 

meet the requirements of paragraph 

(b)(2)(i)(C) of this section. 

§ 1.501(r)–5 Limitation on charges. 

(a) In general. A hospital organization 

meets the requirements of section 

501(r)(5) with respect to a hospital 

facility it operates only if the hospital 

facility (and any substantially-related 

entity, as defined in § 1.501(r)–1(b)(28)) 

limits the amount charged for care it 

provides to any individual who is 

eligible for assistance under its financial 

assistance policy (FAP) to— 

(1) In the case of emergency or other 

medically necessary care, not more than 

the amounts generally billed to 

individuals who have insurance 

covering such care (AGB), as 

determined under paragraph (b) of this 

section; and 

(2) In the case of all other medical 

care covered under the FAP, less than 

the gross charges for such care, as 

described in paragraph (c) of this 

section. 

(b) Amounts generally billed—(1) In 

general. For purposes of meeting the 

requirements of paragraph (a)(1) of this 

section, a hospital facility must 

determine AGB for emergency or other 

medically necessary care using a 

method described in paragraph (b)(3) or 

(b)(4) of this section or any other 

method specified in regulations or other 

guidance published in the Internal 

Revenue Bulletin. A hospital facility 

may use only one of these methods to 

determine AGB at any one time, but 

different hospital facilities operated by 

the same hospital organization may use 

different methods. A hospital facility 

may change the method it uses to 

determine AGB at any time. 

(2) Meaning of charged. For purposes 

of paragraph (a)(1) of this section, a 

FAP-eligible individual is considered to 

be ‘‘charged’’ only the amount he or she 

is personally responsible for paying, 

after all deductions, discounts 

(including discounts available under the 

FAP), and insurance reimbursements 

have been applied. Thus, in the case of 

a FAP-eligible individual who has 

health insurance coverage, a hospital 

facility will meet the requirements of 

paragraph (a)(1) of this section if the 

FAP-eligible individual is not 

personally responsible for paying (for 

example, in the form of co-payments, 

co-insurance, and deductibles) more 

than AGB for the care after all 

reimbursements by the health insurer 

have been applied, even if the total 

amount paid by the FAP-eligible 

individual and his or her health insurer 

together exceeds AGB. 

(3) Look-back method—(i) In general. 

A hospital facility may determine AGB 

for any emergency or other medically 

necessary care it provides to a FAPeligible individual by multiplying the 

hospital facility’s gross charges for the 

care by one or more percentages of gross 

charges (AGB percentage(s)). A hospital 

facility using this method must 

calculate its AGB percentage(s) at least 

annually by dividing the sum of the 

amounts of all of its claims for 

emergency and other medically 

necessary care that have been allowed 

by health insurers described in 

paragraph (b)(3)(ii) of this section 

during a prior 12-month period by the 

sum of the associated gross charges for 

those claims. Whether a claim is used in 

calculating a hospital facility’s AGB 

percentage(s) depends on whether the 

claim was allowed by a health insurer 

during the 12-month period used in the 

calculation, not on whether the care 

resulting in the claim was provided 

during that 12-month period. If the 

amount a health insurer will allow for 

a claim has not been finally determined 

as of the last day of the 12-month period 

used to calculate the AGB percentage(s), 

a hospital facility should exclude the 

amount of the claim from that 

calculation and include it in the 

subsequent 12-month period during 

which the amount allowed is finally 

determined. When including allowed 

claims in calculating its AGB 

percentage(s), the hospital facility 

should include the full amount that has 

been allowed by the health insurer, 

including both the amount the insurer 

will pay or reimburse and the amount 

(if any) the individual is personally 

responsible for paying in the form of copayments, co-insurance, and 

deductibles, regardless of whether or 

when the full amount allowed is 

actually paid and disregarding any 

discounts applied to the individual’s 

portion. 

(ii) Health insurers used in 

calculating AGB percentage(s). In 

calculating its AGB percentage(s), a 

hospital facility must include the claims 

allowed during a prior 12-month period 

by— 

(A) Medicare fee-for-service; 

(B) Medicare fee-for-service and all 

private health insurers that pay claims 

to the hospital facility; or 

(C) Medicaid, either alone or in 

combination with the insurer(s) 

described in paragraph (b)(3)(ii)(A) or 

(b)(3)(ii)(B) of this section. 

(iii) One or multiple AGB percentages. 

A hospital facility’s AGB percentage 

that is calculated using the method 

described in this paragraph (b)(3) may 

be one average percentage of gross 

charges for all emergency and other 

medically necessary care provided by 

the hospital facility. Alternatively, a 

hospital facility may calculate multiple 

AGB percentages for separate categories 

of care (such as inpatient and outpatient 

care or care provided by different 

departments) or for separate items or 

services, as long as the hospital facility 

calculates AGB percentages for all 

emergency and other medically 

necessary care provided by the hospital 

facility. 

(iv) Start date for applying AGB 

percentages. For purposes of 

determining AGB under this paragraph 

(b)(3), with respect to any AGB 

percentage that a hospital facility has 

calculated, the hospital facility must 

begin applying the AGB percentage by 

the 120th day after the end of the 12- 

month period the hospital facility used 

in calculating the AGB percentage. 

(v) Use of all claims for medical care. 

A hospital facility determining AGB 

under this paragraph (b)(3) may use 

claims allowed for all medical care 

during a prior 12-month period rather 

than just those allowed for emergency 

and other medically necessary care. 

(vi) Determining AGB percentages for 

more than one hospital facility. 

Although generally a hospital 

organization must calculate AGB 

percentage(s) separately for each 

hospital facility it operates, hospital 

facilities that are covered under the 

same Medicare provider agreement (as 

defined in 42 CFR 489.3 or any 

successor regulations) may calculate one 


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AGB percentage (or multiple AGB 

percentages for separate categories of 

care or for separate items or services) 

using the method described in this 

paragraph (b)(3) based on the claims and 

gross charges for all such hospital 

facilities and implement the AGB 

percentage(s) across all such hospital 

facilities. 

(4) Prospective Medicare or Medicaid 

method. A hospital facility may 

determine AGB for any emergency or 

other medically necessary care provided 

to a FAP-eligible individual by using the 

billing and coding process the hospital 

facility would use if the FAP-eligible 

individual were a Medicare fee-forservice or Medicaid beneficiary and 

setting AGB for the care at the amount 

the hospital facility determines would 

be the total amount Medicare or 

Medicaid would allow for the care 

(including both the amount that would 

be reimbursed by Medicare or Medicaid 

and the amount the beneficiary would 

be personally responsible for paying in 

the form of co-payments, co-insurance, 

and deductibles). A hospital facility 

using the method described in this 

paragraph (b)(4) may base AGB on 

Medicare fee-for-service or Medicaid or 

both, provided that, if it uses both, its 

FAP describes the circumstance under 

which it will use Medicare fee-forservice or Medicaid in determining 

AGB. 

(5) Examples. The following examples 

illustrate this paragraph (b): 

Example 1. On March 15 of Year 1, Y, a 

hospital facility, generates data on the 

amount of all of Y’s claims for emergency 

and other medically necessary care that were 

allowed by all private health insurers and 

Medicare fee-for-service over the 

immediately preceding calendar year. Y 

determines that the private health insurers 

allowed a total amount of $250 million and 

Medicare fee-for-service allowed a total 

amount of $150 million, with the total 

allowed amounts including both the portion 

the insurers agreed to reimburse and the 

portion that the insured patients were 

personally responsible for paying. Y’s gross 

charges for these claims totaled $800 million. 

Y calculates that its AGB percentage is 50% 

of gross charges ($400 million/$800 million). 

Y updates its FAP to reflect the new AGB 

percentage of 50% and makes the updated 

FAP widely available (both on its Web site 

and via paper copies upon request) on April 

1 of Year 1. Between April 1 of Year 1 (less 

than 120 days after the end of the preceding 

calendar year) and March 31 of Year 2, Y 

determines AGB for any emergency or other 

medically necessary care it provides to a 

FAP-eligible individual by multiplying the 

gross charges for the care provided to the 

individual by 50%. Y has determined AGB 

between April 1 of Year 1 and March 31 of 

Year 2 in accordance with this paragraph (b) 

by using the look-back method described in 

paragraph (b)(3) of this section. 

Example 2. On August 20 of Year 1, X, a 

hospital facility, generates data on the 

amount of all of X’s claims for emergency 

and other medically necessary care that were 

allowed by Medicare fee-for-service over the 

12 months ending on July 31 of Year 1. X 

determines that, of these claims for inpatient 

services, Medicare allowed a total amount of 

$100 million (including both the portion 

Medicare agreed to reimburse and the portion 

Medicare beneficiaries were personally 

responsible for paying). X’s gross charges for 

these inpatient claims totaled $250 million. 

Of the claims for outpatient services, 

Medicare allowed a total amount of $125 

million. X’s gross charges for these outpatient 

claims totaled $200 million. X calculates that 

its AGB percentage for inpatient services is 

40% of gross charges ($100 million/$250 

million) and its AGB percentage for 

outpatient services is 62.5% of gross charges 

($125 million/$200 million). Y discloses its 

AGB percentages and describes how they 

were calculated on the Web page where its 

FAP can be accessed, and it updates this Web 

page to reflect the new AGB percentages on 

November 1. Y also starts making an updated 

information sheet with the new AGB 

percentages available upon request on and 

after November 1. Between November 1 of 

Year 1 (less than 120 days after the end of 

the 12-month claim period) and October 31 

of Year 2, X determines AGB for any 

emergency or other medically necessary 

inpatient care it provides to a FAP-eligible 

individual by multiplying the gross charges 

for the inpatient care it provides to the 

individual by 40% and AGB for any 

emergency or other medically necessary 

outpatient care it provides to a FAP-eligible 

individual by multiplying the gross charges 

for the outpatient care it provides to the 

individual by 62.5%. X has determined AGB 

between November 1 of Year 1 and October 

31 of Year 2 in accordance with this 

paragraph (b) by using the look-back method 

described in paragraph (b)(3) of this section. 

Example 3. Whenever Z, a hospital facility, 

provides emergency or other medically 

necessary care to a FAP-eligible individual, 

Z determines the AGB for the care by using 

the billing and coding process it would use 

if the individual were a Medicare fee-forservice beneficiary and setting AGB for the 

care at the amount it determines Medicare 

and the Medicare beneficiary together would 

be expected to pay for the care. Z has 

determined AGB in accordance with this 

paragraph (b) by using the prospective 

Medicare method described in paragraph 

(b)(4) of this section. 

Example 4. Using the look-back method 

described in paragraph (b)(3) of this section, 

W, a hospital facility, calculates that its AGB 

percentage for Year 1 is 60% of gross charges. 

Under W’s FAP, which applies to all 

emergency and other medically necessary 

care provided by W and which has been 

updated to reflect the AGB percentage for 

Year 1, the most that W charges a FAPeligible individual is 50% of gross charges. 

W properly implements its FAP and charges 

no FAP-eligible individual more for 

emergency or other medically necessary care 

than 50% of gross charges in Year 1. W has 

met the requirements of paragraphs (a)(1) and 

(b) of this section in Year 1. 

Example 5. A, an individual, receives 

medically necessary care from hospital 

facility V for which the AGB is $3y. A is 

insured by U, a health insurer. Under U’s 

contracts with V and A, the amount allowed 

for the care V provided to A is $5y. Of that 

amount allowed, A is personally responsible 

for paying $1y (in co-payments and 

deductibles) while U is responsible for 

paying $4y. Based on the eligibility criteria 

specified in its FAP, V determines that A is 

FAP-eligible. Pursuant to paragraph (b)(2) of 

this section, V may charge U and A 

collectively $5y while still meeting the 

requirements of paragraph (a)(1) of this 

section because the amount A is personally 

responsible for paying in co-payments and 

deductibles ($1y) is less than the AGB for the 

care ($3y). 

Example 6. Assume the same facts as 

Example 5, except that under U’s contracts 

with V and A, A is personally responsible for 

paying $4y (in co-payments and deductibles) 

for the care while U is responsible for paying 

V $1y. Because A is FAP-eligible under V’s 

FAP, paragraph (a)(1) of this section requires 

that A not be personally responsible for 

paying V more than $3y (the AGB for the care 

provided). 

(c) Gross charges. A hospital facility 

must charge a FAP-eligible individual 

less than the gross charges for any 

medical care covered under the hospital 

facility’s FAP. A billing statement 

issued by a hospital facility to a FAPeligible individual for medical care 

covered under the FAP may state the 

gross charges for such care and apply 

contractual allowances, discounts, or 

deductions to the gross charges, 

provided that the actual amount the 

individual is personally responsible for 

paying is less than the gross charges for 

such care. 

(d) Safe harbor for certain charges in 

excess of AGB. A hospital facility will 

be deemed to meet the requirements of 

paragraph (a) of this section, even if it 

charges more than AGB for emergency 

or other medically necessary care (or 

gross charges for any medical care 

covered under the FAP) provided to a 

FAP-eligible individual, if— 

(1) The charge in excess of AGB was 

not made or requested as a precondition of providing medically 

necessary care to the FAP-eligible 

individual (for example, an upfront 

payment that a hospital facility requires 

before providing medically necessary 

care); 

(2) As of the time of the charge, the 

FAP-eligible individual has not 

submitted a complete FAP application 

to the hospital facility to obtain 

financial assistance for the care or has 

not otherwise been determined by the 

hospital facility to be FAP-eligible for 

the care; and 

(3) If the individual subsequently 

submits a complete FAP application and 


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is determined to be FAP-eligible for the 

care, the hospital facility refunds any 

amount the individual has paid for the 

care (whether to the hospital facility or 

any other party to whom the hospital 

facility has referred or sold the 

individual’s debt for the care) that 

exceeds the amount he or she is 

determined to be personally responsible 

for paying as a FAP-eligible individual, 

unless such excess amount is less than 

$5 (or such other amount set by notice 

or other guidance published in the 

Internal Revenue Bulletin). 

(e) Medically necessary care. For 

purposes of meeting the requirements of 

this section, a hospital facility may (but 

is not required to) use a definition of 

medically necessary care applicable 

under the laws of the state in which it 

is licensed, including the Medicaid 

definition, or a definition that refers to 

the generally accepted standards of 

medicine in the community or to an 

examining physician’s determination. 

§ 1.501(r)–6 Billing and collection. 

(a) In general. A hospital organization 

meets the requirements of section 

501(r)(6) with respect to a hospital 

facility it operates only if the hospital 

facility does not engage in extraordinary 

collection actions (ECAs), as defined in 

paragraph (b) of this section, against an 

individual to obtain payment for care 

before the hospital facility has made 

reasonable efforts to determine whether 

the individual is eligible for assistance 

for the care under its financial 

assistance policy (FAP), as described in 

paragraph (c) of this section. For 

purposes of this section, with respect to 

any debt owed by an individual for care 

provided by a hospital facility— 

(1) ECAs against the individual 

include ECAs 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 

(2) The hospital facility will be 

deemed to have engaged in an ECA 

against the individual to obtain payment 

for the care, or to have taken one or 

more of the steps necessary to have 

made reasonable efforts to determine 

whether the individual is FAP-eligible 

for the care, if 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 substantiallyrelated entity (as defined in § 1.501(r)– 

1(b)(28)) has engaged in such an ECA or 

taken such steps (whichever is 

applicable). 

(b) Extraordinary collection actions— 

(1) In general. Except as otherwise 

provided in this paragraph (b), the 

following actions taken by a hospital 

facility against an individual related to 

obtaining payment of a bill for care 

covered under the hospital facility’s 

FAP are ECAs: 

(i) Selling an individual’s debt to 

another party (other than debt sales 

described in paragraph (b)(2) of this 

section). 

(ii) Reporting adverse information 

about the individual to consumer credit 

reporting agencies or credit bureaus. 

(iii) Deferring or denying, or requiring 

a payment before providing, medically 

necessary care because of an 

individual’s nonpayment of one or more 

bills for previously provided care 

covered under the hospital facility’s 

FAP (which is considered an ECA to 

obtain payment for the previously 

provided care, not the care being 

potentially deferred or denied). If a 

hospital facility requires a payment 

before providing medically necessary 

care to an individual with one or more 

outstanding bills for previously 

provided care, such a requirement for 

payment will be presumed to be because 

of the individual’s nonpayment of such 

bill(s) unless the hospital facility can 

demonstrate that it required the 

payment from the individual based on 

factors other than, and without regard 

to, the individual’s nonpayment of past 

bills. 

(iv) Actions that require a legal or 

judicial process, including but not 

limited to— 

(A) Placing a lien on an individual’s 

property (other than a lien described in 

paragraph (b)(3) of this section); 

(B) Foreclosing on an individual’s real 

property; 

(C) Attaching or seizing an 

individual’s bank account or any other 

personal property; 

(D) Commencing a civil action against 

an individual; 

(E) Causing an individual’s arrest; 

(F) Causing an individual to be 

subject to a writ of body attachment; 

and 

(G) Garnishing an individual’s wages. 

(2) Certain debt sales that are not 

ECAs. A hospital facility’s sale of an 

individual’s debt for care provided by 

the hospital facility will not be 

considered an ECA if, prior to the sale, 

the hospital facility has entered into a 

legally binding written agreement with 

the purchaser of the debt pursuant to 

which— 

(i) The purchaser is prohibited from 

engaging in any ECAs to obtain payment 

for the care; 

(ii) The purchaser is prohibited from 

charging interest on the debt in excess 

of the rate in effect under section 

6621(a)(2) at the time the debt is sold (or 

such other interest rate set by notice or 

other guidance published in the Internal 

Revenue Bulletin); 

(iii) The debt is returnable to or 

recallable by the hospital facility upon 

a determination by the hospital facility 

or the purchaser that the individual is 

FAP-eligible; and 

(iv) If the individual is determined to 

be FAP-eligible and the debt is not 

returned to or recalled by the hospital 

facility, the purchaser is required to 

adhere to procedures specified in the 

agreement that ensure that the 

individual does not pay, and has no 

obligation to pay, the purchaser and the 

hospital facility together more than he 

or she is personally responsible for 

paying as a FAP-eligible individual. 

(3) Liens on certain judgments, 

settlements, or compromises. Any lien 

that a hospital facility is entitled to 

assert under state law on the proceeds 

of a judgment, settlement, or 

compromise owed to an individual (or 

his or her representative) as a result of 

personal injuries for which the hospital 

facility provided care is not an ECA. 

(4) Bankruptcy claims. The filing of a 

claim in any bankruptcy proceeding is 

not an ECA. 

(c) Reasonable efforts—(1) In general. 

A hospital facility will have made 

reasonable efforts to determine whether 

an individual is FAP-eligible for care 

only if the hospital facility meets the 

requirements described in paragraph 

(c)(2) or (c)(3) of this section. 

(2) Presumptive FAP-eligibility 

determinations based on third-party 

information or prior FAP-eligibility 

determinations—(i) In general. With 

respect to any care provided by a 

hospital facility to an individual, the 

hospital facility will have made 

reasonable efforts to determine whether 

the individual is FAP-eligible for the 

care if it determines that the individual 

is FAP-eligible for the care based on 

information other than that provided by 

the individual or based on a prior FAPeligibility determination and, if the 

individual is presumptively determined 

to be eligible for less than the most 

generous assistance available under the 

FAP, the hospital facility— 

(A) Notifies the individual regarding 

the basis for the presumptive FAPeligibility determination and the way to 

apply for more generous assistance 

available under the FAP; 

(B) Gives the individual a reasonable 

period of time to apply for more 

generous assistance before initiating 

ECAs to obtain the discounted amount 

owed for the care; and 

(C) If the individual submits a 

complete FAP application seeking more 

generous assistance during the 


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application period (as defined in 

§ 1.501(r)–1(b)(3)), determines whether 

the individual is eligible for a more 

generous discount and otherwise meets 

the requirements described in paragraph 

(c)(6) of this section with respect to that 

complete FAP application. 

(ii) Examples. The following 

examples illustrate this paragraph (c)(2): 

Example 1. V is a hospital facility with a 

FAP under which the specific assistance for 

which an individual is eligible depends 

exclusively upon that individual’s household 

income. The most generous assistance offered 

for care under V’s FAP is free care. V’s FAP 

states that V uses enrollment in certain 

specified means-tested public programs to 

presumptively determine that individuals are 

FAP-eligible. D, an individual, receives care 

from V. Although D does not submit a FAP 

application to V, V learns that D is eligible 

for certain benefits under a state program that 

bases eligibility on household income. Based 

on this knowledge, V presumptively 

determines that D is eligible to receive free 

care under its FAP. V notifies D that it has 

determined he is eligible for free care based 

on his eligibility for the benefits under the 

state program and therefore does not owe V 

anything for the care he received. V has made 

reasonable efforts to determine whether D is 

FAP-eligible under this paragraph (c)(2). 

Example 2. X is a hospital facility with a 

FAP that describes the data, including both 

hospital and publicly-available data, X uses 

to make presumptive FAP-eligibility 

determinations. On January 16, F, an 

individual, receives care from X. Using the 

hospital and publicly-available data 

described in its FAP, X presumptively 

determines that F is eligible for a 50% 

discount under its FAP, a discount that is not 

the most generous discount available under 

the FAP. The first billing statement that X 

sends to F indicates that F has been given a 

50% discount under X’s FAP, explains the 

basis for this presumptive FAP-eligibility 

determination, and informs F that she may 

apply for financial assistance if she believes 

she is eligible for a more generous discount. 

The billing statement indicates that F may 

call 1–800–888–xxxx or visit X’s Web site at 

www.hospitalX.org/FAP to learn more about 

the FAP or the FAP application process. X 

sends F three more billing statements, each 

of which contains the standard written notice 

about the FAP that X includes on all of its 

billing statements in accordance with 

§ 1.501(r)–4(b)(5), but F neither pays the 

amount she is personally responsible for 

paying nor applies for more generous 

financial assistance. The time between the 

first and fourth billing statement constitutes 

a reasonable period of time for F to apply for 

more generous assistance. V has made 

reasonable efforts to determine whether D is 

FAP-eligible under this paragraph (c)(2). 

(3) Reasonable efforts based on 

notification and processing of 

applications. With respect to any care 

provided by a hospital facility to an 

individual, the hospital facility will 

have made reasonable efforts to 

determine whether the individual is 

FAP-eligible for the care if it— 

(i) Notifies the individual about the 

FAP as described in paragraph (c)(4) of 

this section before initiating any ECAs 

to obtain payment for the care and 

refrains from initiating such ECAs (with 

the exception of an ECA described in 

paragraph (b)(1)(iii) of this section) for 

at least 120 days from the date the 

hospital facility provides the first postdischarge billing statement for the care; 

(ii) In the case of an individual who 

submits an incomplete FAP application 

during the application period, notifies 

the individual about how to complete 

the FAP application and gives the 

individual a reasonable opportunity to 

do so as described in paragraph (c)(5) of 

this section; and 

(iii) In the case of an individual who 

submits a complete FAP application 

during the application period, 

determines whether the individual is 

FAP-eligible for the care and otherwise 

meets the requirements described in 

paragraph (c)(6) of this section. 

(4) Notification—(i) In general. With 

respect to any care provided by a 

hospital facility to an individual and 

except as provided in paragraph 

(c)(4)(iii) of this section, a hospital 

facility will have notified an individual 

about its FAP for purposes of paragraph 

(c)(3)(i) of this section only if the 

hospital facility does the following at 

least 30 days before first initiating one 

or more ECA(s) to obtain payment for 

the care: 

(A) Provides the individual with a 

written notice that indicates financial 

assistance is available for eligible 

individuals, identifies the ECA(s) that 

the hospital facility (or other authorized 

party) intends to initiate to obtain 

payment for the care, and states a 

deadline after which such ECA(s) may 

be initiated that is no earlier than 30 

days after the date that the written 

notice is provided. 

(B) Provides the individual with a 

plain language summary of the FAP (as 

defined in § 1.501(r)–1(b)(24)) with the 

written notice described in paragraph 

(c)(4)(i)(A) of this section (or, if 

applicable, paragraph (c)(4)(iii) of this 

section). 

(C) Makes a reasonable effort to orally 

notify the individual about the hospital 

facility’s FAP and about how the 

individual may obtain assistance with 

the FAP application process. 

(ii) Notification in the event of 

multiple episodes of care. A hospital 

facility may satisfy the notification 

requirements described in paragraph 

(c)(4)(i) of this section simultaneously 

for multiple episodes of care and notify 

the individual about the ECA(s) the 

hospital facility intends to initiate to 

obtain payment for multiple outstanding 

bills for care. However, if a hospital 

facility aggregates an individual’s 

outstanding bills for multiple episodes 

of care before initiating one or more 

ECAs to obtain payment for those bills, 

it will have not have made reasonable 

efforts to determine whether the 

individual is FAP-eligible under 

paragraph (c)(3) of this section unless it 

refrains from initiating the ECA(s) until 

120 days after it provided the first postdischarge billing statement for the most 

recent episode of care included in the 

aggregation. 

(iii) Notification before deferring or 

denying care due to nonpayment for 

prior care. In the case of an ECA 

described in paragraph (b)(1)(iii) of this 

section, a hospital facility may notify 

the individual about its FAP less than 

30 days before initiating the ECA, 

provided that the hospital facility does 

the following: 

(A) Otherwise meets the requirements 

of paragraph (c)(4)(i) of this section but, 

instead of the notice described in 

paragraph (c)(4)(i)(A) of this section, 

provides the individual with a FAP 

application form and a written notice 

indicating that financial assistance is 

available for eligible individuals and 

stating the deadline, if any, after which 

the hospital facility will no longer 

accept and process a FAP application 

submitted (or, if applicable, completed) 

by the individual for the previouslyprovided care at issue. This deadline 

must be no earlier than the later of 30 

days after the date that the written 

notice is provided or 240 days after the 

date that the first post-discharge billing 

statement for the previously provided 

care was provided. 

(B) If the individual submits a FAP 

application for the previously provided 

care on or before the deadline described 

in paragraph (c)(4)(iii)(A) of this section 

(or at any time, if the hospital facility 

didn’t provide any such deadline to the 

individual), processes the FAP 

application on an expedited basis. 

(iv) Examples. The following example 

illustrates this paragraph (c)(4): 

Example 1. A, an individual, receives care 

from T, a hospital facility, in February. T 

provides A with the first post-discharge 

billing statement for that care on March 3. 

This and subsequent billing statements that 

T sends to A contain the standard written 

notice about the FAP that X includes on all 

of its billing statements in accordance with 

§ 1.501(r)–4(b)(5). A has not paid her bill or 

submitted a FAP application when T 

provides her with the third billing statement 

for the care, postmarked June 1. With this 

third billing statement, T includes a plain 

language summary of the FAP and a letter 

informing A that if she does not pay the 


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79012 Federal Register / Vol. 79, No. 250 / Wednesday, December 31, 2014 / Rules and Regulations 

amount owed or submit a FAP application by 

July 1, T intends to report A’s delinquency 

to credit reporting agencies. T also calls A 

and informs her about the financial 

assistance available to eligible patients under 

T’s FAP and about how to obtain assistance 

with the FAP application process. A does not 

pay her bill or submit a FAP application by 

July 1. T has made reasonable efforts to 

determine whether A is FAP-eligible, and 

thus may report A’s delinquency to credit 

reporting agencies, as of July 2. 

Example 2. G, an individual, receives care 

from Y, a hospital facility, on May 25 of Year 

1. G does not pay or submit a FAP 

application over the next year, despite Y’s 

sending out numerous bills beginning on 

June 24 that contain the standard written 

notice about the FAP that Y includes on all 

of its billing statements in accordance with 

the requirements under § 1.501(r)–4(b)(5). Y 

also makes numerous attempts to encourage 

E to apply for financial assistance, including 

by calling G to inform her about the financial 

assistance available to eligible patients under 

Y’s FAP and to offer assistance with the FAP 

application process. By June 24 of Year 2, Y, 

which had not previously initiated any ECAs 

against G to obtain payment for the care, 

notifies G in writing that if G does not pay 

or complete a FAP application by July 24 of 

Year 2, Y intends to file a lawsuit seeking a 

judgment for the amount G owes for the care 

and to seek court permission to enforce the 

judgment by either seizing G’s bank account 

or garnishing G’s wages. The written notice 

also includes a plain language summary of 

the FAP. G fails to pay or submit a FAP 

application by July 24 of Year 2. Y has made 

reasonable efforts to determine whether G is 

FAP-eligible, and may seek a judgment for 

the amount G owes and court permission to 

enforce the judgment by seizing G’s bank 

account or garnishing G’s wages, as of July 

25 of Year 2. 

(5) Incomplete FAP applications—(i) 

In general. With respect to any care 

provided by a hospital facility to an 

individual, if an individual submits an 

incomplete FAP application during the 

application period, the hospital facility 

will have notified the individual about 

how to complete the FAP application 

and given the individual a reasonable 

opportunity to do so for purposes of 

paragraph (c)(3)(ii) of this section only 

if the hospital facility— 

(A) Suspends any ECAs to obtain 

payment for the care as described in 

paragraph (c)(8) of this section; and 

(B) Provides the individual with a 

written notice that describes the 

additional information and/or 

documentation required under the FAP 

or FAP application form that must be 

submitted to complete the FAP 

application and that includes the 

contact information described in 

§ 1.501(r)–1(b)(24)(v). 

(ii) FAP application completed. If an 

individual who has submitted an 

incomplete FAP application during the 

application period subsequently 

completes the FAP application during 

the application period (or, if later, 

within a reasonable timeframe given to 

respond to requests for additional 

information and/or documentation), the 

individual will be considered to have 

submitted a complete FAP application 

during the application period, and the 

hospital facility will have made 

reasonable efforts to determine whether 

the individual is FAP-eligible only if it 

meets the requirements for complete 

FAP applications described in 

paragraph (c)(6) of this section. 

(iii) Examples. The following 

examples illustrate this paragraph (c)(5): 

Example 1. (i) Assume the same facts as 

Example 1 in paragraph (c)(4)(iv) of this 

section and the following additional facts: A 

submits an incomplete FAP application to T 

on July 15, which is before the last day of the 

application period on October 29 but after T 

has already initiated ECAs. Eligibility for 

assistance under T’s FAP is based solely on 

an individual’s family income and the 

instructions to T’s FAP application form 

require applicants to attach to their 

application forms certain documentation 

verifying family income. The FAP 

application form that A submits to T on July 

15 includes all of the required income 

information, but A fails to attach the required 

documentation verifying her family income. 

On July 22, a member of T’s staff calls A to 

inform her that she failed to attach any of the 

required documentation of her family income 

and explains what kind of documentation A 

needs to submit and how she can submit it. 

T indicates that the documentation should be 

provided by September 22. T also sends A a 

letter that describes the missing 

documentation that A must submit by 

September 22 (and how to submit it) and 

provides a telephone number A can call and 

room number she can visit to get assistance 

with the FAP application process. T does not 

initiate any new ECAs against A and does not 

take any further action on the ECAs T 

previously initiated against A between July 

15 and September 22. A does not respond to 

T’s letter and does not submit any missing 

documentation by September 22. T has made 

reasonable efforts to determine whether A is 

FAP-eligible, and may initiate or resume 

ECAs against A, as of September 23. 

(ii) On October 10, before the last day of 

the application period on October 29, A 

provides T with the missing documentation. 

Because A has submitted a complete FAP 

application during the application period, to 

meet the requirements of paragraph (a) of this 

section, T must process the FAP application 

documentation to determine whether A is 

FAP-eligible and otherwise meet the 

requirements for complete FAP applications 

described in paragraph (c)(6) of this section. 

Example 2. (i) B, an individual, receives 

care from U, a hospital facility, on January 

10. U has established a FAP that provides 

assistance to all individuals whose 

household income is less than $y, and the 

instructions to U’s FAP application form 

specify the documentation that applicants 

must provide to verify their household 

income. Shortly after receiving care, B 

submits a FAP application form to U 

indicating that he has household income of 

less than $y. B’s FAP application form 

includes all of the required income 

information, but B fails to attach the required 

documentation verifying household income. 

(ii) On February 9, U sends B the first postdischarge billing statement for the care that 

contains the standard written notice about 

the FAP that U includes on all of its billing 

statements in accordance with § 1.501(r)– 

4(b)(5). With this first post-discharge billing 

statement, U includes a letter informing B 

that the income information he provided on 

his FAP application form indicates that he 

may be eligible to pay only x% of the amount 

stated on the billing statement if he can 

provide documentation that verifies his 

household income. In addition, this letter 

describes the type of documentation (which 

is also described in the instructions to U’s 

FAP application form) that B needs to 

provide to complete his FAP application and 

provides a telephone number that B may call 

and room number he may visit if he has 

questions or needs assistance with the FAP 

application process. By the time U is getting 

ready to send B a third billing statement for 

the care, B has not provided any response to 

U’s request for the missing documentation. 

Accordingly, with the third billing statement 

postmarked May 10, U includes a plain 

language summary of the FAP plus a written 

notice informing B that U intends to report 

B’s delinquency to credit reporting agencies 

if B does not submit the missing 

documentation or pay the amount due by 

June 9. U also calls B to inform B about the 

impending ECA and to see if he has 

questions about the missing documentation 

that U has requested. B does not provide any 

response to U’s request for the missing 

documentation by June 9. U has made 

reasonable efforts to determine whether B is 

FAP-eligible, and thus may report B’s 

delinquency to credit reporting agencies, as 

of June 10. 

(6) Complete FAP applications—(i) In 

general. With respect to any care 

provided by a hospital facility to an 

individual, if an individual submits a 

complete FAP application during the 

application period, the hospital facility 

will have made reasonable efforts to 

determine whether the individual is 

FAP-eligible for the care only if the 

hospital facility does the following in a 

timely manner: 

(A) Suspends any ECAs to obtain 

payment for the care as described in 

paragraph (c)(8) of this section. 

(B) Makes a determination as to 

whether the individual is FAP-eligible 

for the care and notifies the individual 

in writing of this eligibility 

determination (including, if applicable, 

the assistance for which the individual 

is eligible) and the basis for this 

determination. 

(C) If the hospital facility determines 

the individual is FAP-eligible for the 

care, does the following: 


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(1) If the individual is determined to 

be eligible for assistance other than free 

care, provides the individual with a 

billing statement that indicates the 

amount the individual owes for the care 

as a FAP-eligible individual and how 

that amount was determined and states, 

or describes how the individual can get 

information regarding, the AGB for the 

care. 

(2) Refunds to the individual any 

amount he or she has paid for the care 

(whether to the hospital facility or any 

other party to whom the hospital facility 

has referred or sold the individual’s 

debt for the care) that exceeds the 

amount he or she is determined to be 

personally responsible for paying as a 

FAP-eligible individual, unless such 

excess amount is less than $5 (or such 

other amount set by notice or other 

guidance published in the Internal 

Revenue Bulletin). 

(3) Takes all reasonably available 

measures to reverse any ECA (with the 

exception of a sale of debt and an ECA 

described in paragraph (b)(1)(iii) of this 

section) taken against the individual to 

obtain payment for the care. Such 

reasonably available measures generally 

include, but are not limited to, measures 

to vacate any judgment against the 

individual, lift any levy or lien (other 

than a lien described in paragraph (b)(3) 

of this section) on the individual’s 

property, and remove from the 

individual’s credit report any adverse 

information that was reported to a 

consumer reporting agency or credit 

bureau. 

(ii) Anti-abuse rule for complete FAP 

applications. A hospital facility will not 

have made reasonable efforts to 

determine whether an individual is 

FAP-eligible if the hospital facility bases 

its determination that the individual is 

not FAP-eligible on information that the 

hospital facility has reason to believe is 

unreliable or incorrect or on information 

obtained from the individual under 

duress or through the use of coercive 

practices. For purposes of this 

paragraph (c)(6)(ii), a coercive practice 

includes delaying or denying emergency 

medical care to an individual until the 

individual has provided information 

requested to determine whether the 

individual is FAP-eligible for the care 

being delayed or denied. 

(iii) Determination based on complete 

FAP applications sufficient for 

reasonable efforts. A hospital facility 

will have made reasonable efforts to 

determine whether an individual is 

FAP-eligible with respect to any ECAs it 

initiates to obtain payment for care if, 

before initiating any such ECAs, it 

determines whether the individual is 

FAP-eligible for the care based on a 

complete FAP application and 

otherwise meets the requirements 

described in this paragraph (c)(6). If 

these conditions are satisfied, the 

hospital facility will have made 

reasonable efforts to determine whether 

the individual is FAP-eligible for the 

care regardless of whether it has notified 

the individual as described in paragraph 

(c)(4) of this section or, if applicable, in 

paragraph (c)(5)(i)(B) of this section. 

(iv) Determining Medicaid eligibility. 

A hospital facility will not fail to have 

made reasonable efforts to determine 

whether an individual is FAP-eligible 

for care if, upon receiving a complete 

FAP application from an individual 

who the hospital facility believes may 

qualify for Medicaid, the hospital 

facility postpones determining whether 

the individual is FAP-eligible for the 

care until after the individual’s 

Medicaid application has been 

completed and submitted and a 

determination as to the individual’s 

Medicaid eligibility has been made. 

(v) Examples. The following examples 

illustrate this paragraph (c)(6): 

Example 1. C, an individual, receives care 

from W, a hospital facility, on September 1. 

W has established a FAP that provides 

assistance only to individuals whose family 

income is less than or equal to x% of the 

Federal Poverty Level (FPL), which, in the 

case of C’s family size, is $y. Upon discharge, 

W’s staff gives C a plain language summary 

of the FAP and informs C that if she needs 

assistance filling out a FAP application form, 

W has a social worker on staff who can assist 

her. C expresses interest in getting assistance 

with a FAP application while she is still on 

site and is directed to K, one of W’s social 

workers. K explains the eligibility criteria in 

W’s FAP to C, and C realizes that to 

determine her family income as a percentage 

of FPL she needs to look at her prior year’s 

tax returns. On September 20, after returning 

home and obtaining the necessary 

information, C submits a FAP application to 

W that contains all of the information and 

documentation required in the FAP 

application form instructions. W’s staff 

promptly examines C’s FAP application and, 

based on the information and documentation 

therein, determines that C’s family income is 

well in excess of $y. On October 1, W sends 

C her first post-discharge billing statement 

for the care she received on September 1. 

With the billing statement, W includes a 

letter informing C that she is not eligible for 

financial assistance because her FAP 

application indicates that she has family 

income in excess of x% of FPL ($y for a 

family the size of C’s family) and W only 

provides financial assistance to individuals 

with family income that is less than x% of 

FPL. W has made reasonable efforts to 

determine whether C is FAP-eligible as of 

October 1. 

Example 2. E, an individual, receives care 

from P, a hospital facility, from February 24 

to 28. E pays a co-payment of $30 at 

discharge and is determined by her insurer 

to be personally responsible for paying 

another $550 in deductibles. P sends E 

several billing statements starting on March 

20 indicating that E owes $550. By July 30, 

E has not paid the $550 or submitted a FAP 

application. On July 30, P notifies E in 

writing that if E does not pay or complete a 

FAP application by August 30, P intends to 

report B’s delinquency to credit reporting 

agencies. The written notice also includes a 

plain language summary of the FAP. In 

addition, P calls E and informs her about the 

financial assistance available to eligible 

patients under P’s FAP and about how to 

obtain assistance with the FAP application 

process. E fails to pay or submit a FAP 

application by August 30. P subsequently 

reports E’s delinquency to credit reporting 

agencies. E then provides a complete FAP 

application to P on November 10, before the 

last day of the application period on 

November 15. P promptly examines the 

application and determines that E is eligible 

for free care under P’s FAP. P contacts the 

credit reporting agencies to which it had 

reported E’s delinquency and asks them to 

remove the adverse information from E’s 

credit report. P also sends E a letter that 

informs her that she is eligible for free care 

under P’s FAP and explains the basis for this 

eligibility determination and includes with 

this letter a check for $30 (the co-payment E 

had paid). P has made reasonable efforts to 

determine whether E is FAP-eligible. 

Example 3. R, a hospital facility, has 

established a FAP that provides financial 

assistance only to individuals whose family 

income is less than or equal to x% of the 

Federal Poverty Level (FPL), based on their 

prior year’s federal tax return. L, an 

individual, receives care from R. While L is 

being discharged from R, she is approached 

by M, an employee of a debt collection 

company that has a contract with R to handle 

all of R’s patient billing. M asks L for her 

family income information, telling L that this 

information is needed to determine whether 

L is eligible for financial assistance. L tells 

M that she does not know what her family 

income is and would need to consult her tax 

returns to determine it. M tells L that she can 

just provide a ‘‘rough estimate’’ of her family 

income. L states that her family income may 

be around $y, an amount slightly above the 

amount that would allow her to qualify for 

financial assistance. M enters $y on the 

income line of a FAP application form with 

L’s name on it and marks L as not FAPeligible. Based on M’s information collection, 

R determines that L is not FAP-eligible and 

notifies L of this determination with her first 

billing statement. Because M had reason to 

believe that the income estimate provided by 

L was unreliable, R has violated the antiabuse rule described in paragraph (c)(6)(ii) of 

this section. Thus, R has not made reasonable 

efforts to determine whether L is FAPeligible. 

(7) When no FAP application is 

submitted. Unless and until an 

individual submits a FAP application 

during the application period, any 

paragraphs of this section that are 

conditioned on an individual’s 

submitting a FAP application (namely, 


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79014 Federal Register / Vol. 79, No. 250 / Wednesday, December 31, 2014 / Rules and Regulations 

paragraphs (c)(2)(i)(C), (c)(3)(ii), and 

(c)(3)(iii) of this section) do not apply, 

and the hospital facility will have made 

reasonable efforts to determine whether 

the individual is FAP-eligible for care, 

and may initiate one or more ECAs to 

obtain payment for the care, once it has 

met the requirements of this section that 

are not contingent on an individual’s 

submission of a FAP application. For 

example, unless and until a hospital 

facility receives a FAP application from 

an individual during the application 

period, the hospital facility has made 

reasonable efforts to determine whether 

the individual is FAP-eligible for care 

(and thus may initiate ECAs to obtain 

payment for the care) once it has 

notified the individual about the FAP as 

described in paragraph (c)(3)(i) of this 

section. 

(8) Suspending ECAs while a FAP 

application is pending. With respect to 

any care provided by a hospital facility 

to an individual, if an individual 

submits a FAP application during the 

application period, the hospital facility 

(or other authorized party) will have 

suspended ECAs for purposes of this 

paragraph (c) only if, after receiving the 

application, the hospital facility (or 

other authorized party) does not initiate, 

or take further action on any previouslyinitiated, ECAs (with the exception of 

an ECA described in paragraph (b)(1)(iii) 

of this section) to obtain payment for the 

care until either— 

(i) The hospital facility has 

determined whether the individual is 

FAP-eligible based on a complete FAP 

application and otherwise met the 

requirements of paragraph (c)(6) of this 

section; or 

(ii) In the case of an incomplete FAP 

application, the individual has failed to 

respond to requests for additional 

information and/or documentation 

within a reasonable period of time given 

to respond to such requests. 

(9) Waiver does not constitute 

reasonable efforts. For purposes of this 

paragraph (c), obtaining a signed waiver 

from an individual, such as a signed 

statement that the individual does not 

wish to apply for assistance under the 

FAP or receive the information 

described in paragraphs (c)(4) or (c)(5) 

of this section, will not itself constitute 

a determination that the individual is 

not FAP-eligible and will not satisfy the 

requirement to make reasonable efforts 

to determine whether the individual is 

FAP-eligible before engaging in ECAs 

against the individual. 

(10) Agreements with other parties. 

With the exception of sales described in 

paragraph (b)(2) of this section, if a 

hospital facility sells or refers an 

individual’s debt related to care to 

another party, the hospital facility will 

have made reasonable efforts to 

determine whether the individual is 

FAP-eligible for the care only if it first 

enters into (and, to the extent 

applicable, enforces) a legally binding 

written agreement with the party that is 

reasonably designed to ensure that no 

ECAs are taken to obtain payment for 

the care until reasonable efforts have 

been made to determine whether the 

individual is FAP-eligible for the care. 

At a minimum, such an agreement must 

provide the following: 

(i) If the individual submits a FAP 

application after the referral or sale of 

the debt but before the end of the 

application period, the party will 

suspend ECAs to obtain payment for the 

care as described in paragraph (c)(8) of 

this section. 

(ii) If the individual submits a FAP 

application after the referral or sale of 

the debt but before the end of the 

application period and is determined to 

be FAP-eligible for the care, the party 

will do the following in a timely 

manner: 

(A) Adhere to procedures specified in 

the agreement that ensure that the 

individual does not pay, and has no 

obligation to pay, the party and the 

hospital facility together more than he 

or she is required to pay for the care as 

a FAP-eligible individual. 

(B) If applicable and if the party 

(rather than the hospital facility) has the 

authority to do so, take all reasonably 

available measures to reverse any ECA 

(other than the sale of a debt or an ECA 

described in paragraph (b)(1)(iii) of this 

section) taken against the individual as 

described in paragraph (c)(6)(i)(C)(3) of 

this section. 

(iii) If the party refers or sells the debt 

to yet another party during the 

application period, the party will obtain 

a written agreement from that other 

party including all of the elements 

described in this paragraph (c)(10). 

(11) Clear and conspicuous 

placement. A hospital facility may print 

any written notice or communication 

described in this paragraph (c), 

including any plain language summary 

of the FAP, on a billing statement or 

along with other descriptive or 

explanatory matter, provided that the 

required information is conspicuously 

placed and of sufficient size to be 

clearly readable. 

(12) Providing documents 

electronically. A hospital facility may 

provide any written notice or 

communication described in this 

paragraph (c) electronically (for 

example, by email) to any individual 

who indicates he or she prefers to 

receive the written notice or 

communication electronically. 

§ 1.501(r)–7 Effective/applicability dates. 

(a) Effective/applicability date. The 

rules of §§ 1.501(r)–1 through 1.501(r)– 

6 apply to taxable years beginning after 

December 29, 2015. 

(b) Reasonable interpretation for 

taxable years beginning on or before 

December 29, 2015. For taxable years 

beginning on or before December 29, 

2015, a hospital facility may rely on a 

reasonable, good faith interpretation of 

section 501(r). A hospital facility will be 

deemed to have operated in accordance 

with a reasonable, good faith 

interpretation of section 501(r) if it has 

complied with the provisions of the 

proposed or final regulations under 

section 501(r) (REG–130266–11 and/or 

REG–106499–12). Accordingly, a 

hospital facility may rely on § 1.501(r)– 

3 of the proposed or final regulations, or 

another reasonable interpretation of 

section 501(r)(3), for any CHNA 

conducted or implementation strategy 

adopted before the first day of the 

hospital organization’s first taxable year 

beginning after December 29, 2015. 

■ Par. 4. Section 1.6012–2 is amended 

by redesignating paragraphs (i) through 

(k) as paragraphs (j) through (l) and 

adding new paragraph (i) to read as 

follows: 

§ 1.6012–2 Corporations required to make 

returns of income. 

* * * * * 

(i) Hospital organizations with 

noncompliant hospital facilities. Every 

hospital organization (as defined in 

§ 1.501(r)–1(b)(18)) that is subject to the 

tax imposed by § 1.501(r)–2(d) shall 

make a return on Form 990–T. The 

filing of a return to pay the tax 

described in § 1.501(r)–2(d) does not 

relieve the organization of the duty of 

filing other required returns. 

* * * * * 

■ Par. 5. Section 1.6012–3 is amended 

by adding new paragraph (a)(10) to read 

as follows: 

§ 1.6012–3 Returns by fiduciaries. 

(a) * * * 

(10) Hospital organizations organized 

as trusts with noncompliant hospital 

facilities. Every fiduciary for a hospital 

organization (as defined in § 1.501(r)– 

1(b)(18)) organized as a trust described 

in section 511(b)(2) that is subject to the 

tax imposed by § 1.501(r)–2(d) shall 

make a return on Form 990–T. The 

filing of a return to pay the tax 

described in § 1.501(r)–2(d) does not 

relieve the organization of the duty of 

filing other required returns. 

* * * * * 


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■ Par. 6. Section 1.6033–2 is amended 

by adding paragraphs (a)(2)(ii)(l) and 

(k)(4) to read as follows: 

§ 1.6033–2 Returns by exempt 

organizations (taxable years beginning after 

December 31, 1969) and returns by certain 

nonexempt organizations (taxable years 

beginning after December 31, 1980). 

(a) * * * 

(2) * * * 

(ii) * * * 

(I) In the case of a hospital 

organization (as defined in § 1.501(r)– 

1(b)(18)) described in section 501(c)(3) 

during the taxable year— 

(1) A copy of its audited financial 

statements for the taxable year (or, in 

the case of an organization the financial 

statements of which are included in 

consolidated financial statements with 

other organizations, such consolidated 

financial statements); 

(2) Either a copy of the most recently 

adopted implementation strategy, 

within the meaning of § 1.501(r)–3(c), 

for each hospital facility it operates or 

the URL of each Web page where it has 

made each such implementation 

strategy widely available on a Web site 

within the meaning of § 1.501(r)– 

1(b)(29) along with or as part of the 

report documenting the community 

health needs assessment (CHNA) to 

which the implementation strategy 

relates; 

(3) For each hospital facility it 

operates, a description of the actions 

taken during the taxable year to address 

the significant health needs identified 

through its most recently conducted 

CHNA, within the meaning of 

§ 1.501(r)–3(b), or, if no actions were 

taken with respect to one or more of 

these health needs, the reason(s) why no 

actions were taken; and 

(4) The amount of the excise tax 

imposed on the organization under 

section 4959 during the taxable year. 

* * * * * 

(k) * * * 

(4) The applicability of paragraph 

(a)(2)(ii)(l) of this section shall be 

limited to returns filed on or after 

December 29, 2014. 

PART 53—FOUNDATION AND SIMILAR 

EXCISE TAXES 

■ Par. 7. The authority citation for part 

53 continues to read in part as follows: 

Authority: 26 U.S.C. 7805 * * * 

■ Par. 8. Section 53.4959–1 is added to 

read as follows: 

§ 53.4959–1 Taxes on failures by hospital 

organizations to meet section 501(r)(3). 

(a) Excise tax for failure to meet the 

section 501(r)(3) requirements—(1) In 

general. If a hospital organization (as 

defined in § 1.501(r)–1(b)(18)) fails to 

meet the requirements of section 

501(r)(3) separately with respect to a 

hospital facility it operates in any 

taxable year, there is imposed on the 

hospital organization a tax equal to 

$50,000. If a hospital organization 

operates multiple hospital facilities and 

fails to meet the requirements of section 

501(r)(3) with respect to more than one 

facility it operates, the $50,000 tax is 

imposed on the hospital organization 

separately for each hospital facility’s 

failure. The tax is imposed for each 

taxable year that a hospital facility fails 

to meet the requirements of section 

501(r)(3). 

(2) Examples. The following examples 

illustrate this paragraph (a): 

Example 1. (i) U is a hospital organization 

that operates only one hospital facility, V. In 

Year 1, V conducts a community health 

needs assessment (CHNA) and adopts an 

implementation strategy to meet the health 

needs identified through the CHNA. In Years 

2 and 3, V does not conduct a CHNA. V fails 

to conduct a CHNA by the last day of Year 

4. Accordingly, U has failed to meet the 

requirements of section 501(r)(3) with respect 

to V in Year 4 because V has failed to 

conduct a CHNA in Years 2, 3, and 4. U is 

subject to a tax equal to $50,000 for Year 4. 

(ii) V also fails to conduct a CHNA by the 

last day of Year 5. Accordingly, U has failed 

to meet the requirements of section 501(r)(3) 

with respect to V in Year 5 because V has 

failed to conduct a CHNA in Years 3, 4, and 

5. U is subject to a tax equal to $50,000 for 

Year 5. 

Example 2. P is a hospital organization 

that operates only one hospital facility, Q. In 

Year 1, Q conducts a CHNA and adopts an 

implementation strategy to meet the health 

needs identified through the CHNA. In Years 

2 and 3, Q does not conduct a CHNA. In Year 

4, Q conducts a CHNA but does not adopt an 

implementation strategy to meet the health 

needs identified through that CHNA by the 

15th day of the fifth month of Year 5. 

Accordingly, P has failed to meet the 

requirements of section 501(r)(3) with respect 

to Q in Year 4 because Q has failed to adopt 

an implementation strategy by the 15th day 

of the fifth month after the end of the taxable 

year in which Q conducted its CHNA. P is 

subject to a tax equal to $50,000 for Year 4. 

Example 3. R is a hospital organization 

that operates two hospital facilities, S and T. 

In Year 1, S and T each conduct a CHNA and 

adopt an implementation strategy to meet the 

health needs identified through the CHNA. In 

Years 2 and 3, S and T do not conduct a 

CHNA. S and T each fail to conduct a CHNA 

by the last day of Year 4. Accordingly, R has 

failed to meet the requirements of section 

501(r)(3) with respect to both S and T in Year 

4. R is subject to a tax equal to $100,000 

($50,000 for S’s failure plus $50,000 for T’s 

failure) for Year 4. 

(b) Interaction with other provisions— 

(1) Correction. Unless a hospital 

organization’s failure to meet the 

requirements of section 501(r)(3) 

involves an omission or error that is 

described in and corrected in 

accordance with § 1.501(r)–2(b) (and is 

thus not considered a failure), a failure 

to meet the requirements of section 

501(r)(3) will result in a tax being 

imposed on the organization under this 

section, notwithstanding the 

organization’s correction and disclosure 

of the failure in accordance with the 

guidance described in § 1.501(r)–2(c). 

(2) Interaction with other taxes. The 

tax imposed by this section is in 

addition to any tax imposed by 

§ 1.501(r)–2(d) or as a result of 

revocation of a hospital organization’s 

section 501(c)(3) status. 

(c) Effective/applicability dates. 

Paragraph (a) of this section applies on 

and after December 29, 2014. 

■ Par. 9. Section 53.6011–1 is amended 

by: 

■ 1. Removing from the first sentence of 

paragraph (b) the language ‘‘or 4965(a),’’ 

and adding ‘‘4959, or 4965(a),’’ in its 

place. 

■ 2. Adding a sentence at the end of 

paragraph (b). 

■ 3. Removing paragraphs (c) and (g). 

■ 4. Redesignating paragraphs (d) 

through (f) as (c) through (e). 

The addition reads as follows: 

§ 53.6011–1 General requirement of return, 

statement, or list. 

* * * * * 

(b) * * * In the case of a tax imposed 

by section 4959 on a hospital 

organization (as defined in § 1.501(r)– 

1(b)(18)), the annual return must 

include the required information for 

each of the organization’s hospital 

facilities that failed to meet the 

requirements of section 501(r)(3) for the 

taxable year. 

* * * * * 

§ 53.6011–1T [Removed] 

■ Par. 10. Section 53.6011–1T is 

removed. 

■ Par. 11. Section 53.6071–1 is 

amended by revising paragraphs (h) and 

(i)(2) to read as follows: 

§ 53.6071–1 Time for filing returns. 

* * * * * 

(h) Taxes on failures by charitable 

hospital organizations to satisfy the 

community health needs assessment 

requirements of section 501(r)(3). A 

hospital organization (as defined in 

§ 1.501(r)–1(b)(18)) liable for tax 

imposed by section 4959 must file a 

Form 4720 as required by § 53.6011– 

1(b), on or before the 15th day of the 

fifth month after the end of the hospital 

organization’s taxable year for which it 


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79016 Federal Register / Vol. 79, No. 250 / Wednesday, December 31, 2014 / Rules and Regulations 

failed to meet the requirements of 

section 501(r)(3). 

(i) * * * 

(2) Paragraph (h) of this section 

applies on and after August 15, 2013. 

§ 53.6071–1T [Removed] 

■ Par. 12. Section 53.6071–1T is 

removed. 

PART 602—OMB CONTROL NUMBERS 

UNDER THE PAPERWORK 

REDUCTION ACT 

■ Par. 13. The authority citation for part 

602 continues to read as follows: 

Authority: 26 U.S.C. 7805. 

■ Par. 14. In § 602.101, paragraph (b) is 

amended by adding the following 

entries in numerical order to the table 

to read as follows: 

§ 602.101 OMB Control numbers. 

* * * * * 

(b) * * * 

CFR part or section 

where identified and 

described 

Current OMB Control 

No. 

* * * * * 

1.501(r)–3 1545–0047 

1.501(r)–4 1545–0047 

1.501(r)–6 1545–0047 

CFR part or section 

where identified and 

described 

Current OMB Control 

No. 

* * * * * 

John M. Dalrymple, 

Deputy Commissioner for Services and 

Enforcement. 

Approved: December 22, 2014. 

Mark J. Mazur, 

Assistant Secretary of the Treasury (Tax 

Policy). 

[FR Doc. 2014–30525 Filed 12–29–14; 4:15 pm] 

BILLING CODE 4830–01–P 


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