In what appears to be a first-of-its-kind action taken under the Affordable Care Act by the IRS, an unnamed "dual status" 501(c)(3) hospital had its tax exempt status revoked, according to a report from the Healthcare Financial Management Association and the IRS' decision letter.
The hospital was a local, county-run facility according to the letter, which was posted on the IRS website this month, though the letter was dated February 14, 2017. It stated that the action was due to the failure of the hospital to conduct and make widely available a community health needs assessment, on of several criteria stipulated for maintaining tax exempt status.
HFMA said the hospital had made paper copies of the assessment available. Losing the tax exempt status means the hospital can't use certain employee benefit plans and could face income, property, and other taxes. It also bars receipt of tax-deductible contributions and halts the use of tax-exempt bonds.
HFMA pointed to a June 2016 letter to Iowa Senator Charles Grassley, which said that the IRS had completed 2,482 compliance reviews under 501(r)and as a result, 163 hospitals were assigned for "examination." However, no other IRS action was identified.
Still, the cloud now hanging over other tax-exempt hospitals is undeniable as the possibility of more revocations looms.
The ACA stipulates that IRS reviews community-benefit activities of 3,000 tax-exempt hospitals every three years.
In an unusual twist though, the letter shows that the hospital didn't necessarily do all it could to maintain the status.
""The hospital indicated to the IRS that it might have acted on some of the recommendations included in the Implementation Strategy Report, but that a separate written implementation policy was neither drafted nor adopted," the letter said. It also said that officials stated they "really did not need, actually have any use for, or want their tax-exempt status under Section 501(c)(3)," according to the IRS letter. They even went so far as to say the status had impeded certain payment arrangements, and that they had maintained it "only in case any liabilities arose relating to the prior management company that had originally obtained that status from the IRS."
The government called the failures "egregious" and said hospital leaders had "neither the will, the resources, nor the staff to follow through with the" 501(r) requirements, according to the letter.
The requirements for tax-exempt hospitals to maintain their status include conducting a CHNA at least once every three years and making it publicly available on a website; adopting an implementation strategy to meet the needs identified in the CHNA; adopting a financial assistance policy and publicizing it, including by posting it on a website; limiting the amounts charged to individuals eligible for financial assistance; making individuals aware of the financial assistance policy prior to engaging in certain collection actions, HFMA said.