Health Care Reform Sets Higher Bar for Non-Profit Hospital Exemption Status

Health Care Reform Sets Higher Bar for Non-Profit Hospital Exemption Status

Non-Profit and Public Hospitals. New IRC § 501(r), enacted as part of this year's health care reform legislation, imposes new tax exemption qualification requirements on non-profit hospitals as IRC § 501(c)(3) organizations. IRC § 501(r) applies to any organization operating a facility subject to state licensing registration, or similar requirements to be recognized as a hospital. The new Section also applies to any other organization which the Service determines is providing hospital care as its principal function or purpose constituting the basis for its exemption under Section 501(c)(3). If an organization operates more than one hospital facility, the organization must meet the requirements of section 501(r) separately with respect to such facility, and the organization will not be treated as described in Section 501(c)(3) with respect to any such facility for which the requirements of Section 501(r) are not separately met.

LEXIS users can access in Taxation of Hospitals & Health Care Organizations § 4.03[2][h] for additional insights by authors Doug Mancino and Robert Louthian.

Health Information Technology Organizations. In his January 20, 2006 State of the Union Address, former President George W. Bush announced his plan to ensure that most Americans have electronic health records within 10 years, stating "By computerizing health records, we can avoid dangerous medical mistakes, reduce costs, and improve care." The health information technology (HIT) contemplated by the mandate included electronic health records, computerized prescribing and ordering of diagnostic tests, clinical decision support tools, and the technology necessary to achieve the secure exchange of electronic health information (often referred to as "interoperability"). While the Bush mandate was clear it was, essentially, unfunded. Accordingly, the establishment and maintenance of health information technology organizations (HIT Organizations) and networks was left to the private sector. In 2009, the unfunded mandate, became a funded mandate when Congress passed The Health Information Technology for Economic and Clinical Health Act (the "HITECH Act"), which is part of the American Recovery and Reinvestment Act of 2009 ("ARRA"), which was signed by President Obama on February 17, 2009.

For additional insights, see Taxation of Hospitals & Health Care Organizations § 10.15.

Supporting Organizations - Organizations Controlled by Donors. The Pension Protection Act of 2006 added new IRC Section 509(f)(2) which prevents an organization from qualifying as a Type I "operated, supervised, or controlled by" organization or as a Type III, "operated in connection with" supporting organization if the organization accepts any gifts or contribution from a person (other than a public charity, not including a supporting organization) who controls, directly and indirectly, either alone or together with family members or controlled entities the governing body of the supporting organization. See Taxation of Hospitals & Health Care Organizations § 13.07[6] for a more detailed discussion.