5 Steps to Expand Your Hospital’s Financial Assistance Policy and Stay Compliant

In light of the COVID-19 pandemic, millions of Americans are expected to lose their health insurance—likely resulting in a notable increase in underinsured and uninsured patients who qualify for Financial Assistance Policy (FAP) programs.

To meet the anticipated increase in financial assistance requests and remain compliant, hospitals should start preparing in advance of the demand.

Following are steps your hospital can take immediately to prepare for the increased demand; adhere to state, local, and IRS compliance standards; and reduce the likelihood of an audit.


Hospitals provide a critical community service, offering subsidized care to underinsured and uninsured patients through FAP programs. These policies provide monetary aid to those who need assistance but don’t qualify for state Medicaid or other assistance programs.

As part of the Affordable Care Act, IRS Regulation 501(r) has mandated not-for-profit hospitals develop and maintain a FAP policy since December 29, 2015. Failure to do so can result in fines and even loss of tax-exempt status.

Although 501(r) applies to not-for-profit hospitals, many states have regulations around FAPs that may apply to all acute care hospitals, including for-profit and specialty hospitals. Per IRS regulations, there’s a 240-day window for patients to apply for financial assistance from the date of their first billing statement.

Key Preparation Steps

1. Review FAP and Emergency Services Policies

It’s important to review your FAP and emergency policy for key elements, including eligibility criteria for financial assistance as well as clear definitions of charity and discounted care. Your emergency policy should also define emergency and medically necessary services, including:

  • Emergency medical treatment
  • Labor act language
  • Other regulatory requirements

Spelling out critical definitions can help your policy guidelines to be compliant, understandable, and correctly applied when patients need assistance.

2. Have Appropriate Public Notice

One of the main requirements under Regulation 501(r) is that hospitals widely publicize the FAP. This includes supplying proper, visible notifications and signs that are posted in all admission areas. Specific information regarding your program, policy, and applications should be available in both paper and electronic versions.    

3. Train and Educate Revenue Cycle Staff  

Implementing your FAP program in accordance with all compliance guidelines can be difficult, but properly training your revenue cycle leaders, providing clear directions to staff, and streamlining program operations can ease the challenges.

To be effective, your staff should understand the following:

  • Filing and approval timelines
  • Appeal processes for patients who are denied FAP benefits
  • Steps to obtain and complete application information in a timely and accurate manner
  • How to monitor and track the process of approvals, appeals, and denials

4. Review and Revise Billing and Collections Policies

There are a number of rules and regulations regarding billing and collections activities under Regulation 501(r) as well as state requirements. Some elements include information on billing statements and cycles in addition to limitations on extraordinary collection actions.

To determine if your FAP program is ready for IRS audit, it’s important to review your billing practices in the full revenue cycle, such as:

  • Admitting a patient through bad debt processes
  • Working with outsourced vendors
  • Communicating with collection agencies

Your staff should know how to navigate each of these processes correctly and understand which errors might trigger a compliance issue.

5. Get Started Immediately

It’s important to prepare for an increased demand in financial aid as soon as possible by conducting a comprehensive examination of your FAP, based on state, local, and federal requirements. Management should determine if your hospital’s program not only supports increased demand, but also meets program and process changes.

Approaching your FAP analysis in this way can help your hospital stay compliant, provide critical services to the community, and maintain its tax-exempt status.

We’re Here to Help

Implementing or changing your hospital’s core processes can be challenging. To learn more about how to get started, contact your Moss Adams professionals.

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