501r Questions and Answers

Shawn Gretz, President

Our charity program offers a partial discount or full write-off based on the current Federal Poverty Guidelines. If a patient is approved for partial charity, are we required to reactivate the account (cancel with the agency) and restart the billing cycle based on the new balance?

Not necessarily, but you do have to send an approval letter with a 30-day notification to pay the remaining account balance in full before collection actions can begin again.

When a patient applies for financial assistance and the account has already been submitted to our outside collection agency, does 501(r) require us to retract the account from the agency while the account is pending review for financial assistance?

No. You do not need to retract the account but you should notify the collection agency and ask them to put the account on hold. For instance with Epic, we normally use billing indicators to automatically notify us of accounts that are put in financial assistance work queues. If approved, we receive a different billing indicator notifying us of approval and we wait for the balance change in the adjustment/withdrawal file. If denied, we normally get a different billing indicator. Unless your policy reads differently, then you will have to retract while pending.

Our current process is that once notified of the passing of the patient, the spouse will then become responsible for the outstanding balance and our communication is targeted toward the spouse and collection processes. When we make the spouse become responsible for the charges, per 501(r) rules, do we need to reset the aging to allow for 120 days to pass before sending to collections?     

I would suggest you define who the “responsible party” is in the financial assistance policy. By defining who is in the billing and collection policy, it will allow the “reasonable efforts” period to continue without starting over. For example, a responsible party is defined as all individuals who live together, married, and/or by state law, are required to pay for services regardless of whose name is used for initial correspondence.

We bill some outpatient (retail) pharmacy. Is this a required charge to be eligible for charity care and to refund if qualified, under 501 regulations? If we do include it, would we need to follow 501(r) guidelines and refund any amount going back 240 days including these charges if the patient already paid?

Yes, you can exclude this and many do. The IRS allows you to exclude any services you wish, but this requires an update of your policy. This is especially the case if the pharmacy falls under the same Tax ID or reports up to the same financials of the 501(c)(3) hospital or health system.

Does a physician list that includes generic practice names such as Chiropractor, Orthodontics, Dentist, Plastic Surgery, and Optometry meet the 501(r) requirements?             

Technically, no, this doesn’t meet the requirements. In a follow-up to the final regulations, the IRS specified that the actual names of the physician practices like “XYZ Radiologists. LTD” should be spelled out. Also, a hospital facility should update its list of providers by adding new or missing information, correcting erroneous information, and deleting obsolete information at least quarterly. Make sure you take reasonable steps to ensure that the list is accurate. The good news is if you forgot about this, it is considered a minor mistake that doesn’t have to be reported, just corrected.

Right now we have a financial assistance policy posted for each of our affiliates/critical access hospitals.  The intent is that each of the policies are the same as our master policy.  Is there any reason that we need a separate policy for each one?  Can we just indicate in the master policy which locations it applies to and then have a separate board approval page for each location attached to the policy?

Yes, you can have one master agreement for all hospitals in a health system. The only stipulation is that you need to use the most generous AGB for all hospitals. Finally, the final regulation allows the board to specify an individual or committee to approve the financial assistance policies on behalf of the hospital. Because the ability to have all hospital boards approving the same policy is cumbersome, I would suggest instead to create a committee assigned by the board at each hospital to take up approval processes and relieve some of the additional work of the board. This will also make it easier on the Revenue Cycle team!

Does the 501(r) Compliance apply to clinic and hospital services?

Yes and No.

1. It depends upon the tax reporting of the hospital. If the clinic is its own entity and doesn’t report up through the hospital financials, then it could be considered a disregarded entity and the answer would be no. If the clinic reports up through the hospital’s financials then the answer is yes. Check with your CFO or

Controller to make sure.

2. You could always just add the clinic as part of your exclusion lists in your financial assistance policy and then the answer is No.

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