Health Reform: Is the Hospital Industry Misapplying Congressional Intent?

October 11, 2010

Thunder rolled down from Capitol Hill last week when Sen. Charles Grassley (R–Iowa) claimed that certain hospital systems and associations were misapplying the intent of Section 501(r)(5)(B) that prohibits the use of gross charges under the Patient Protection and Affordable Care Act. In their comments to the IRS regarding implementing regulations, the American Association of Hospitals (AHA) urged the IRS to apply a “gross charges” basis to charge those who do not qualify for financial assistance, and to use it as a starting place for calculating assistance to those who do.

At issue, is how nonprofit hospitals should interpret and apply the limitation as to what a hospital may charge individuals eligible under their financial assistance policies. The AHA and other groups have claimed they should be able to apply financial assistance to gross charges or charge master rates, as long as no eligible patient pays more than the lowest commercial rate or what Medicare pays. Sen. Grassley claims Congress intended that financial assistance policies of tax-exempt hospitals be applied to the lower adjusted basis and not by starting with charge master rates.

According to Sen. Grassley, Congress expected tax-exempt hospitals to maximize the amount of charity care, and he said, “the intent in prohibiting the use of charge master rates or gross charges was clear.” His comments are important, because he was the architect of provisions in the health reform law applicable to tax-exempt organizations requiring these hospitals to do more and not less charitable care.

This is just one in a series of issues that have arisen in the interpretation of the new health legislation, as the IRS struggles to promulgate rules and regulations to implement the new law. We will keep you informed on new developments. For more in this area, see IRS Addresses Hospital Concerns Regarding Section
and Nonprofit Hospitals in Need of an Aspirin.

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