Government Hospital Organizations and Consequences of 501(r) Non-Compliance

Nick McLaughlin

Regional Director of Ridiculously Nice Sales at Americollect

Many government hospital organizations were told they were off the 501(r) hook in 2016. New guidance from the IRS significantly narrows that loophole, and one unnamed county hospital has already had it’s 501(c)(3) status revoked. In the redacted tax status letter to the hospital, IRS officials stated that the hospital’s failures were “egregious,” and that “the organization’s administrators made it clear that [the hospital] had neither the will, the financial resources, nor the staff to follow through with (501(r) requirements”. Loss of the 501(c)(3) exemption eliminates a hospital’s ability to use certain employee benefit plans, subjects hospitals to income, property, and other taxes, disallows receipt of tax-deductible contributions, and bars use of tax-exempt bonds.

For those unfamiliar, 501(r) requires hospitals to standardize billing and collection policies, conduct Community Health Needs Assessments (CHNAs), respond to the needs found in the CHNA, and proactively notify patients of the availability of financial assistance – all in order to justify tax-exempt status. According to the IRS clarification, unless your hospital is not recognized as tax-exempt under Section 501(c)(3), you are required to comply with the 501(r) regulations.

One common question has been, “What if I don’t have to file a Form 990?” There are a handful of hospitals that are excused from filing a Form 990 under Revenue Procedure 95-48 and the Affordable Care Act did not change the requirements regarding which organizations are required to file a Form 990. That said, the IRS made it clear that in order 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 Community Health Needs Assessment reports and Financial Assistance Policies widely available on a website.”

So, if you’re saying to yourself right now, “Well, I guess we have to do this thing but where do I start?” We are here to help! Our team has helped hospitals across the U.S. get up to speed with 501(r) absolutely free. Our only ask is that the next time you’re looking for a new Early Out or Bad Debt partner, you give us a chance to show you the difference Ridiculously Nice can make! On our website,, you will find an entire bootcamp regarding 501(r) compliant Financial Assistance and Billing and Collection Policies, what you need to add to your current Collection Agency Agreements for 501(r) compliance, as well as how to comply with the “Reasonable Efforts” and “Widely Publicized” requirements. Also available there are recorded webinars that cover Financial Assistance Policy requirements as well as the regulations around Extraordinary Collection Actions. The resources are extensive, helpful, and we encourage you to take advantage of them! In addition, Americollect will be hosting our popular two-part webinar series on 501(r) readiness February 26th and March 5th.  Please feel free to contact us for more information at

Please don’t hesitate to reach out to us with any questions you may have. We are here to help and would love to connect with you to assist you in getting up to speed with the wonderful adventure of 501(r)!

Link to the letter:

Link to updated guidance:


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