Guidance for Tax-Exempt Hospitals to Report List of Providers Covered by FAP

By Nanaz Benyamini, CPA, Los Angeles

Editor: Mark G. Cook, CPA, MBA, CGMA

On June 26, 2015, the IRS issued Notice 2015-46, which provides guidance to tax-exempt hospitals on how they may satisfy the requirement to report a list of providers who provide emergency or other medically necessary care in their facility that are covered by the hospital's financial assistance policy (FAP).

Tax-exempt hospitals qualifying as Sec. 501(c)(3) organizations are exempt from income taxes on income related to their exempt purpose. Tax-exempt hospitals have been the subject of increased congressional scrutiny for many years, leaving many legislators questioning whether the amount of community benefit and relief provided by tax-exempt hospitals justifies the tax subsidy provided by their tax exemptions. As a direct result of this scrutiny, the Patient Protection and Affordable Care Act, P.L. 111-148, enacted on March 23, 2010, added to the Internal Revenue Code Sec. 501(r), which imposes additional requirements for tax-exempt hospitals to qualify as Sec. 501(c)(3) organizations. A tax-exempt hospital organization must meet all of the following requirements on a facility-by-facility basis to qualify as a Sec. 501(c)(3) organization:

  • It must establish written financial assistance and emergency medical care policies (FAP);
  • It must limit amounts charged for emergency or other medically necessary care to individuals eligible for assistance under the hospital's FAP;
  • It must make reasonable efforts to determine whether an individual is eligible for assistance under the hospital's FAP before engaging in extraordinary collection actions against the individual; and
  • It must conduct a community health needs assessment (CHNA) and adopt an implementation strategy at least once every three years.

With respect to the requirement for a written FAP, the IRS issued final regulations explaining that a hospital facility's FAP must apply to all emergency and medically necessary care provided in the hospital facility to the extent that the care is provided by the hospital facility itself or an entity that is substantially related to the hospital. The IRS further clarified that a hospital facility's FAP must include a list of providers, other than the hospital facility itself, that deliver emergency or other medically necessary care in the hospital facility, and the list must specify which providers are covered by the hospital facility's FAP and which providers are not (Regs. Secs. 1.501(r)-4(b)(1)(i) and 1.501(r)-4(b)(1)(iii)(F)). The final regulations apply with respect to tax years beginning after Dec. 29, 2015.

New Guidance

Tax-exempt hospitals have been struggling with the practical logistics of how to compile and maintain such a provider list. In an effort to provide guidance to organizations, the IRS issued Notice 2015-46, which clarifies the manner in which the hospitals may comply with the provider list disclosure requirements.

A hospital facility may list the names of individual doctors, practice groups, or any other entities (other than the hospital facility itself) that are providing emergency or medically necessary care in the hospital facility, by the name used either to contract with the hospital or to bill patients for care provided. If all of the doctors in a practice group that provide emergency care or other medically necessary care in the hospital are covered by the hospital's FAP, then the hospital facility may include the name of the practice group in its provider list and indicate the services that are covered (rather than naming each individual doctor, which could produce a lengthy list). A hospital facility may also choose to refer to an entire department providing a type of service, so long as the list clearly indicates which services and providers the FAP covers.

The hospital facility must specify the circumstances under which emergency or medically necessary care is partially covered by the FAP and which services are not covered.

While the hospital facility is required to report which of its providers the FAP covers, the hospital is not required to disclose, in cases where the provider is not covered by the hospital FAP, whether a particular provider is (or may be) covered by another entity's financial aid policy or program.

Given the fluid nature of any provider list, a hospital facility may maintain its list of providers in a document separate from the FAP, perhaps in an appendix, provided that the document contains the date on which it was created or last updated. If a hospital facility maintains its provider list in a document separate from the FAP, the hospital facility's FAP must so inform the reader and explain how members of the public may readily obtain the list free, both online and on paper.

The FAP itself must be approved by an authorized body within the hospital organization for the FAP to be considered established. If the only change made to the FAP is to change the provider list (whether the provider list is included in the FAP or in a separate document), then the FAP does not need to be adopted by the authorized body of the organization again for it to be considered established for Sec. 501(r) purposes.

The notice clarifies that an omission of the name of a provider or a covered service on a facility's provider list could be considered minor and inadvertent or due to reasonable cause, so long as the facility takes reasonable steps to ensure that its list is accurate. Specifically, a facility that updates its list of providers at least quarterly is considered to be taking reasonable steps.


While Notice 2015-46 in some ways simplifies the clerical concerns for a hospital that is attempting to comply with the Sec. 501(r) exemption requirements, it does not alleviate the underlying stress placed on hospitals by Sec. 501(r) to justify their value in addressing community needs.

This notice further emphasizes theintent of the final regulations promulgated for this Code section to apply the same standards of public benefit under which a tax-exempt hospital is required to operate to the outside providers of emergency care with whom the hospital may be contracted. For example, if a tax-exempt hospital outsources its emergency department to an independent provider group that is not owned by the hospital, and the independent provider group is not covered by the hospital's FAP for emergency or medically necessary care, then the hospital's own Sec. 501(c)(3) tax exemption may come under scrutiny.

The rationale is that it brings into question whether the emergency room function, arguably a significant department of a tax-exempt hospital, is operating for the benefit of a private interest rather than that of the community. As a result, tax-exempt hospitals should take great care in navigating the potential implications when entering into contracts with outside health care providers.


Mark Cook is a partner with SingerLewak LLP in Irvine, Calif.

For additional information about these items, contact Mr. Cook at 949-261-8600 or

Unless otherwise noted, contributors are members of or associated with SingerLewak LLP.

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