5 Practice Pointers for Better 501(r) Compliance

If you work on finances for a nonprofit hospital, you are probably familiar with the 501(r) regulation’s new requirements. Released by the IRS in December of 2014, it represents a complicated laundry list of mandates hospitals must satisfy in order to maintain nonprofit tax-exempt status. However, few hospitals appreciate the impact the regulation has on the traditional third party medical debt collection process, and the potential risk it poses to both the hospital and its third-party collection agency partners.

Several of the regulation’s requirements are problematic, particularly those pertaining to notice regarding financial assistance plans and the commencement of extraordinary collection activities (ECA). To avoid any potential liability under the Fair Debt Collection Practices Act (FDCPA) or the Unfair, Deceptive or Abusive Acts and Practices Section of the Dodd-Frank Act, consider these practice pointers:

  1. Normal collection activities involving calls and letters may still be performed during the first 120 days after the provider sends the patient a bill following discharge. 501(r) does not impact traditional collection activities.
  2. Do not begin ECAs before the hospital has provided the patient with the 30-day notice to do so. Make absolutely sure the information contained in the notice to the patient regarding the commencement of ECAs is indeed accurate, non-threatening and specific to the particular patient. A hospital that includes a laundry list of possible ECAs in this letter that may or may not be taken can expose the third party collection agency and its hospital to risk under the FDCPA for making false threats under the Unfair, Deceptive or Abusive Practices section of Dodd-Frank.  
  3. Do not report a medical debt to a credit reporting agency until 180 days after the date the provider sends a bill to the patient following discharge. Although 501(r) only restricts the reporting of medical debt to 120 days following the bill drop post discharge, the recently announced National Consumer Assistance Plan requires 180 days of protection to the consumer. This is to allow insurance and other third party payers to contribute their portion to payment of the bill.
  4. Together with your healthcare collection agency partner, establish a communication chain regarding remediation. Following the expiration of the 120-day period referenced above, but prior to the expiration of 240 days following the date the first bill is provided to the consumer following discharge, a patient otherwise assumed to not participate in the hospital’s financial assistance plan may become eligible and participate. Once this occurs, any ECA taken by the collection agency must be unraveled or remediated such that the patient is placed in the position it would have been had no ECAs been taken. This type of remediation is very complicated and not only impacts the reversal of ECAs, it may also impact the charges assessed for the services rendered by the hospital.
  5. Third-party collection agencies and the nonprofit hospitals they serve should meet to identify roles, responsibilities, communication channels and system flags to ensure an accurate exchange of information about a patient’s financial assistance plan eligibility. Monthly meetings between representatives from each organization is recommended during the 501(r)-associated compliance program’s first six months of implementation.Those meetings should be held at least quarterly thereafter.

Working through each of these issues means taking the time to put together a tandem compliance strategy with each of your partners. Talk with your collection agencies, and work together to determine mutual pain points, which might represent low-hanging opportunity to make recovery, and overall business, easier and less risky.

By Rozanne Andersen