Collector - May 2020 - 44

Blind Spots
When was the last time you reviewed your compliance procedures related to 501(r)?

B

y now, most collection agencies
working in the healthcare space
are aware of the Section 501(r)
financial assistance policy requirements for
tax-exempt charitable hospitals organized
under section 501(c)(3) of the U.S. Code.
While these regulations have been in
place for some time and have not been
amended since their enactment, it's always
beneficial to review your compliance
procedures to ensure there are no gaps or
potential blind spots. Likewise, for those
thinking of entering the healthcare accounts
receivable market, it can be crucial to
understand these requirements in order to
attract potential clients and reassure them
about your operations.
The Affordable Care Act, enacted in 2010,
added section 501(r) to the Internal Revenue
Code with the intent of encouraging
hospitals to devote more resources to charity
care. In 2014, the IRS and the U.S. Treasury
issued final regulations implementing the
provisions of section 501(r).
Section 501(r) applies to charitable
"hospital organizations" that assert the
provision of hospital care as the basis
for their tax-exempt status under section
501(c)(3). The IRS's implementing
regulations impose four requirements on
these hospital organizations: (1) a community
health needs assessment; (2) a written
financial assistance and emergency medical
care policy; (3) a limitation on charges; and
(4) a limitation on certain collection actions.
Collection agencies and debt buyers need
to pay attention to the billing and collection
requirements imposed by the regulations,
as well as the notification requirements
relating to hospitals' financial assistance
policies (FAPs).
Under the billing and collection
requirements, hospitals must make
"reasonable efforts" to determine a patient's
eligibility under the FAP before engaging in
"extraordinary collection actions" (ECAs)

44

against that individual. This prohibition
extends not only to the ECAs against
the patient, but also against "any other
individual who has accepted or is required to
accept responsibility for the [patient's] care."
Under the regulations, a hospital will
be deemed to have engaged in an ECA if
any purchaser of the individual's debt, any
debt collection agency, any other party to
which the hospital facility has referred the
individual's debt, or any substantially-related
entity has engaged in such an ECA.
ECAs include activities that require a
legal or judicial process. For example:
*	 Placing a lien on an individual's
property;
*	 Foreclosing on an individual's real
property;
*	 Attaching or seizing an individual's
bank account or other personal
property;
*	 Commencing a civil action against an
individual;
*	 Causing an individual's arrest;
*	 Causing an individual to be subject to a
writ of body attachment; and
*	 Garnishing an individual's wages.
As set forth in 26 CFR Section 1.501(r)-6,
ECAs do not include: (1) certain debt sales;
(2) liens on certain judgments, settlements
or compromises; and (3) claims filed in a
bankruptcy proceeding.
As a reminder, before pursuing an
ECA, a hospital must make "reasonable
efforts" to notify the individual about the
hospital's FAP. Additionally, a hospital must
wait 120 days before initiating an ECA
against a patient whose FAP eligibility is
undetermined.
The regulations also provide a 240-day
period during which a hospital facility
is required to process any application
submitted by the individual. While the
requirements to notify patients of the FAP
prior to taking an ECA ultimately apply to
the hospital, collection agencies that contract

with hospitals may have an obligation to
meet these regulatory requirements.
And while neither the statute nor the
regulations provide for a private right of
action for violations, a failure to comply
can jeopardize the tax-exempt status of the
hospital, potentially raise liability related
to the loss of that tax-exempt status, and
spoil the debt collector or debt purchaser's
relationship with the hospital. As a result,
both hospitals and their agents must
understand the regulations.
Fortunately, ACA International members
have access to SearchPoint document #6248,
"501(r) Final Regulations for Charitable
Hospitals," which our compliance analysts
have recently updated with new case law.
It's always beneficial to work with your
charitable hospital clients to periodically
review any collection and billing policies to
ensure procedures are being followed by the
hospital and agency.
Have you checked out ACA's member-only
SearchPoint library? ACA SearchPoint
is filled with documents that put
important compliance information
related to the FDCPA, FCRA, TCPA,
state laws and many other topics at your
fingertips. To access ACA SearchPoint,
visit acainternational.org/searchpoint.

ACAINTERNATIONAL.ORG


http://www.acainternational.org/searchpoint http://www.ACAINTERNATIONAL.ORG

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