This is the most common question I receive after going through the arduous proposed 501(r) regulations with providers. Most of the proposed regulations for 501(r) 4-6 were released last summer; however, the IRS remained virtually silent until the end of April on proposed penalties for violating those regulations. The new proposed penalties will take a scaled approach similar to the penalties for HIPPA breach.
According to the proposed regulations a minor and inadvertent violation, which is corrected promptly, will not be considered a breach. Omissions, over the minor and inadvertent level, but not willful and egregious, which are promptly discovered and corrected, will be forgiven with correct disclosures. Only those violations found to be willful and egregious will result in remove of the 501(c)3 status.
Now before you celebrate and cancel your extensive implementation plans for your new improved and widely publicized FAP, let us think for a moment about what willful and egregious could possibly be defined as. What is a deliberate, flagrant violation of these provisions? Personally, I think it is knowing they exist and not doing anything about it. Believe it or not, some facilities are doing just that. They believe that because they offer charity care, and they have a financial assistance policy they are covered. They do not want to spend time on all the specifics and extras provided for in the new 501(r).
This tiered approach does give you the flexibility to build a program without being concerned over every I being dotted and T being crossed, but you have to substantially build the program. You can not ignore it. The key too not being willful and egregious is to attempt to do the right thing.
These regulations are too big to ignore. Don’t be foiled by a tiered system that allows for no action as two of its options, because the final option is deadly to a tax exempt health system.