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The BDO Knows Healthcare Newsletter is published by The BDO Center for Healthcare Excellence & Innovation and provides timely information and resources for healthcare organizations.

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Tax-Exempt Hospitals

Section 501(r) and Beyond

New provisions outlined in Section 501(r) of the Internal Revenue Code further distinguish the practices of tax-exempt hospitals from those of for-profit hospitals.

Final regulations implementing the 501(r) provisions have been issued and are applicable in tax years beginning after Dec. 29, 2015. This means that if a hospital’s tax year ends December 31, 2015, there must be compliance with the rules as of January 1, 2016. The final rules require a tax-exempt hospital to:

Conduct a community health needs assessment at least once every three years and adopt an implementation strategy to meet the needs identified
Establish a written financial assistance policy (FAP) and a written policy relating to emergency medical care
Not use gross charges, and limit amounts charged for emergency or other medically necessary care provided to FAP-eligible people, to not more than the amounts generally billed to individuals who have insurance covering such care
Make reasonable efforts to determine whether an individual is FAP-eligible before engaging in extraordinary collection actions

These assessments and policies must be communicated to patients and the public, including making them available online and in different languages. So it is very easy for the IRS to do a quick check to see if they are there.

Hospitals should examine their own policies and pursue compliance immediately due to the threat of revocation of tax-exempt status from noncompliance. It is important to note that compliance with state laws does not necessarily coincide with compliance with the Internal Revenue Code provisions of 501(r).

We encourage you to reach out to our professionals to discuss 501(r) and other tax exemption considerations and how your organization could be impacted. Feel free to leave a question or comment below, or reach out to Laura Kalick directly at

For specific questions around community health needs assessment implementation and other healthcare advisory support please contact Cortney Marcin (, Gina Tapper ( or Rachel Laureno (

Read our insights on issues specific to tax-exempt hospitals here.  

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