Did You Know That 100,000,000 Americans Qualify For Free Care?
SOURCE: Memberly Benefits.
Healthcare costs can feel overwhelming for both individuals and employers. Fortunately, there are federal rules designed to ensure fairness in how nonprofit hospitals bill patients and provide financial assistance. One of the most important is IRS Section 501(r). Here’s a breakdown of what it is, how it works, and why it matters for employees, employers, and plan sponsors.
What is IRS Section 501(r)?
Section 501(r) was enacted under the Affordable Care Act (ACA) and applies to nonprofit hospitals that are recognized as tax-exempt under IRS Code Section 501(c)(3). To maintain their tax-exempt status, hospitals must meet specific obligations around billing, collections, and community benefits.
501(r) requires nonprofit hospitals to:
– Conduct a Community Health Needs Assessment (CHNA) every three years and adopt an implementation strategy
– Establish and widely publicize a Financial Assistance Policy (FAP)
– Limit charges for patients eligible for financial assistance to amounts generally billed (AGB), often benchmarked to Medicare rates
– Make reasonable efforts to determine if a patient qualifies for financial assistance before engaging in extraordinary collection actions (ECAs)
How Can It Be Used?
For patients, 501(r) provides a pathway to reduced or even forgiven hospital bills if they meet certain financial criteria. It ensures nonprofit hospitals can’t aggressively pursue collections without first screening for financial assistance eligibility.
For employers and plan sponsors, it can be leveraged in Reference-Based Pricing (RBP) strategies and settlement negotiations. By benchmarking allowable charges to Medicare, 501(r) strengthens the case for fair pricing when hospitals bill excessive rates.
Who Qualifies for 501(r) Protections?
Patients qualify if they receive care from a nonprofit hospital covered by 501(r). Qualification for financial assistance depends on income, family size, and hospital-specific FAP criteria, but typically applies to uninsured, underinsured, or high-balance patients whose income is at or below 200–400% of the Federal Poverty Level (FPL).
Need Help Communicating 501(r) Rights to Your Team?
Your employees may be eligible for hospital financial assistance they don’t know exists. Our benefits experts can help you develop clear communication strategies that inform your workforce of their Section 501(r) protections. Get in touch to get started.
Can Employees on Health Plans Use It?
Yes. Employees enrolled in employer-sponsored health plans may still qualify for financial assistance under 501(r) if they face high out-of-pocket hospital bills, deductibles, or balance bills. For example:
– An employee with a high-deductible plan unable to pay a $5,000 inpatient bill may qualify for partial forgiveness
– A worker balance-billed under an RBP plan can use 501(r) to reduce or eliminate collection exposure
Can Plan Sponsors Use 501(r)?
Yes. Plan sponsors and brokers can incorporate 501(r) into their cost-containment strategies:
– Negotiating hospital bills to Medicare-based levels
– Supporting employees with guidance on applying for hospital financial assistance
– Ensuring employees are protected from aggressive collection practices
What Types of Hospitals Must Offer 501(r) Protections?
501(r) applies only to nonprofit hospitals that claim tax-exempt status under IRS Code Section 501(c)(3). These hospitals must:
– Publicly post their Financial Assistance Policy (FAP) on their website
– Provide translated copies for non-English speakers in their service area
– Apply discounts to qualifying patients for emergency and medically necessary care
– Refrain from charging eligible patients “gross charges” that exceed amounts generally billed
For-profit hospitals and certain specialty facilities (like physician-owned surgical centers) are not bound by 501(r), though some voluntarily offer charity care.
Examples of 501(r) in Action
– A nonprofit hospital reduces a $40,000 surgery bill to $8,000 for a patient under 250% of the FPL
– An employer plan using RBP negotiates a $120,000 hospital claim down to $35,000, citing Medicare-based billing standards and 501(r) AGB limits
– An employee facing balance billing after an ER visit applies through the hospital’s FAP and has the bill waived
Key Takeaway
IRS Section 501(r) is a powerful but often overlooked tool for protecting patients, employees, and employer health plans from unfair hospital billing. By ensuring nonprofit hospitals provide transparent, fair-priced care and accessible financial assistance, 501(r) can reduce costs for everyone involved.
Protect Your Employees from Unfair Hospital Billing
Section 501(r) exists to help, but many employees don’t know their rights. We can help you integrate financial assistance education into your benefits program—potentially saving your team members thousands in medical costs. Contact our team to discuss your approach.
Talk to Memberly
Memberly helps employers integrate 501(r) protections into their health plan strategies — whether through RBP, direct contracting, or employee support programs.
Contact: Dom Maggiore
Phone: (631) 905-6555
Email: dom.maggiore@memberlybenefits.com
Web: www.memberlybenefits.com
