501(r) Hospital Financial Assistance: What the Law Requires

Section 501(r) was enacted as part of the Affordable Care Act (Section 9007) and finalized by the IRS in 2014 ². It establishes a set of requirements that every hospital organization described in Section 501(c)(3) of the Internal Revenue Code must satisfy to maintain its tax-exempt status.

The rationale is straightforward: nonprofit hospitals receive enormous tax benefits — exemption from federal income tax, state and local property taxes, and eligibility for tax-deductible donations. In exchange, 501(r) requires these hospitals to provide a tangible community benefit: financial assistance for patients who cannot afford to pay.

The law applies to each hospital facility operated by a 501(c)(3) organization, not just to the parent organization. A large health system with 15 hospitals must comply at each individual facility. This means each facility must have its own financial assistance policy, its own community health needs assessment, and its own compliance documentation.

501(r) imposes four specific requirements on every covered hospital ²:

1. Financial Assistance Policy (FAP)

Every nonprofit hospital must establish and maintain a written financial assistance policy that specifies:

• —Eligibility criteria for free and discounted care
• —The basis for calculating patient charges
• —The method for applying for financial assistance
• —Actions the hospital may take in the event of nonpayment

The policy must be made widely available — posted on the hospital's website, provided to patients upon request, and offered as part of the intake and billing process.

2. Limitation on Charges

Hospitals cannot charge FAP-eligible patients more than the amounts generally billed (AGB) to patients who have insurance. This prevents the common practice of billing uninsured patients at inflated chargemaster rates while insured patients pay far less. The hospital must calculate its AGB using either a look-back method (based on actual payments from insured patients) or a prospective Medicare method.

3. Billing and Collection Restrictions

Before engaging in extraordinary collection actions (ECAs) — which include lawsuits, wage garnishment, liens on property, credit reporting, and sale of debt — the hospital must:

• —Make reasonable efforts to determine whether the patient qualifies for financial assistance
• —Provide written notice of the financial assistance policy
• —Allow a 120-day notification period and a 240-day application period from the first billing statement

4. Community Health Needs Assessment (CHNA)

Every three years, each hospital facility must conduct a community health needs assessment and adopt an implementation strategy to address identified needs. The CHNA must be made publicly available.

Determining whether your hospital is a 501(c)(3) organization — and therefore subject to 501(r) — is the critical first step. Roughly 76% of U.S. hospitals are nonprofits ¹, so the odds are in your favor.

Here are several ways to verify:

• —IRS Tax Exempt Organization Search: Visit the IRS website and search the Tax Exempt Organization database. Enter the hospital's name to see if it holds 501(c)(3) status.
• —Hospital's own website: Look for phrases like "nonprofit," "not-for-profit," or "tax-exempt" on the About Us or Community Benefits page. Most nonprofit hospitals mention their status publicly.
• —State Attorney General charity registry: Many states maintain a registry of charitable organizations. Search your state's AG website for the hospital's name.
• —AHA Hospital Directory: The American Hospital Association database classifies hospitals by ownership type — nonprofit, for-profit, or government.
• —Ask the billing department directly: Call and ask: "Is this hospital a 501(c)(3) nonprofit organization? Do you have a financial assistance policy under Section 501(r)?" They are required to answer truthfully.

If the hospital is part of a larger health system, the parent organization may be the 501(c)(3) entity. The 501(r) requirements still apply at the individual facility level.

Violations of 501(r) are more common than most patients realize. Hospitals frequently fail to adequately notify patients about financial assistance, pursue collections before the required waiting periods, or charge FAP-eligible patients above the AGB limit.

Common violations include:

• —Sending bills to collections before making reasonable efforts to inform you about financial assistance
• —Not posting the FAP on the hospital's website or not providing it when requested
• —Charging uninsured patients at rates higher than what insured patients pay for the same services
• —Denying applications without valid reasons or without providing a clear appeals process
• —Taking extraordinary collection actions (lawsuits, liens, garnishment) against patients who should qualify for assistance

If you believe a hospital has violated 501(r), you have several options:

• —Document everything. Save all bills, correspondence, denial letters, and records of phone calls. Note dates, times, and names of people you spoke with.
• —File a complaint with the IRS. Use IRS Form 13909 (Tax-Exempt Organization Complaint) to report the violation. The IRS can revoke a hospital's tax-exempt status for noncompliance — a consequence worth billions in lost tax benefits.
• —Contact your state Attorney General. Many state AG offices have consumer health divisions that investigate hospital billing practices.
• —Reach out to local media or advocacy organizations. Hospital billing practices are a high-profile issue, and public scrutiny can accelerate resolution.

If a nonprofit hospital has violated its 501(r) obligations, filing a complaint with the IRS is one of the most effective actions you can take. Hospitals take IRS complaints seriously because their tax-exempt status is at stake.

• —Step 1: Gather documentation. Collect your bill, any financial assistance application you submitted, denial letters, collection notices, and a timeline of events. The more specific you are, the stronger your complaint.
• —Step 2: Download IRS Form 13909. This is the Tax-Exempt Organization Complaint form. It's available on the IRS website as a fillable PDF.
• —Step 3: Complete the form. Identify the hospital, describe the violation clearly, and attach supporting documents. Common violations to cite include failure to notify you of the financial assistance policy, pursuing collections before the 240-day application window expired, or charging you above the AGB rate.
• —Step 4: Submit the form. Mail or fax the completed form to the IRS Exempt Organizations Examination division. The address and fax number are on the form itself.
• —Step 5: Follow up. The IRS does not typically provide updates on individual complaints, but you can call the Exempt Organizations line to confirm receipt. Filing the complaint also creates a record that can support any parallel actions you take through your state AG or in court.

A single complaint may not trigger an audit, but patterns of complaints against the same hospital can lead to formal IRS review. Your complaint contributes to accountability even if the outcome isn't immediate.

Even if you don't file a formal complaint, knowledge of 501(r) is powerful leverage in any billing negotiation with a nonprofit hospital.

When speaking with a billing department:

• —Reference 501(r) by name. Say: "I understand that as a 501(c)(3) hospital, you're required under Section 501(r) to offer financial assistance and to limit charges to the amounts generally billed to insured patients. I'd like to apply for your FAP."
• —Ask for the AGB rate. If you're being charged at full chargemaster prices, request that your charges be reduced to the hospital's AGB — the amount generally billed to insured patients. The hospital is legally required to offer this rate to FAP-eligible patients.
• —Cite the collection timeline. If the hospital is threatening collections, remind them that 501(r) requires a 120-day notification period and a 240-day application period before any extraordinary collection actions. If they haven't followed this timeline, they're in violation.
• —Put it in writing. Follow up every phone call with a written communication that references 501(r) and your specific requests. Written records create accountability and can support a complaint if needed.

Hospitals are well aware that 501(r) violations can result in loss of tax-exempt status — a consequence that dwarfs any individual patient's bill. Most billing departments will work with patients who demonstrate knowledge of their rights under this law.