A financial assistance policy decides who qualifies for a discount, how the discount is figured, and what the practice may do when the balance goes unpaid. Section 501(r) of the Internal Revenue Code requires one from every tax-exempt hospital facility, and it fixes the collection rules that travel with it. The IRS calls the document a financial assistance policy. The instructions to Form 990, Schedule H call the same document a charity care policy.
What this covers
- A policy under section 501(r) must cover all emergency and other medically necessary care, be widely publicized, and state the eligibility criteria, the basis for charges, and the method for applying.
- Federal law sets no income percentage. The final regulations left the threshold to each facility, and the common pattern is free care near 200 percent of the federal poverty guidelines with discounts reaching 300 or 400 percent.
- Once a patient is eligible, the charge for emergency or medically necessary care cannot exceed the amounts generally billed to insured patients, and gross charges cannot stand for other covered care.
- The 240 in the rule is a day count, not an income limit. A facility must accept a financial assistance application for at least 240 days after the first post-discharge billing statement.
- Collection work is gated. The facility must notify the patient, hold extraordinary collection actions for at least 120 days, and give 30 days of written notice before one begins.
The rule sets the floor on publication, notice and timing. It leaves the income percentages to the facility, and that is the gap a written policy has to close.Eligibility is a local decision, and the record has to show how it was made.
This article covers four moving parts: who has to keep the policy, what the document must contain, how the income thresholds are set, and how the policy constrains collection activity. It uses the federal rule as the model, because that is what auditors, payers and plaintiff lawyers compare a policy against.
Who has to keep a financial assistance policy
Section 501(r) entered the tax code through section 9007(a) of the Affordable Care Act, enacted March 23, 2010, and it applies to tax years beginning after that date. It binds a hospital facility operated by a 501(c)(3) organization, and it applies facility by facility. The final regulations took effect December 29, 2015.
Four requirements sit inside the section: a community health needs assessment every three years under 501(r)(3), the two written policies under 501(r)(4), a limit on charges under 501(r)(5), and billing and collection rules under 501(r)(6). Missing the needs assessment carries a $50,000 excise tax under section 4959, and failing any of the four can cost the exemption.
A private practice, a for-profit ABA company, or a behavioral health group that is not a 501(c)(3) hospital falls outside 501(r). The rule still matters to those practices, because it is the model payers and auditors expect. A practice that takes HRSA Health Center Program funds faces a separate sliding fee requirement. The workflow that carries any policy into the billing system is a medical billing services function, not a front-desk one.
The IRS calls the document a financial assistance policy. The instructions to Form 990, Schedule H call the same document a charity care policy, and the form asks whether the organization used the federal poverty guidelines as a factor in deciding eligibility. It is one document with two names.
What the policy has to contain
Section 1.501(r)-4(b)(1)(iii) lists six items the policy must include, and paragraph (b)(2) adds the detail that makes them enforceable.
- The eligibility criteria for financial assistance and whether that assistance is free or discounted care.
- The basis for calculating the amounts charged to patients.
- The method for applying for financial assistance.
- The actions the facility may take if a bill goes unpaid, unless a separate billing and collections policy carries them.
- Any outside information the facility uses to presumptively decide eligibility, and when it uses a prior eligibility determination.
- A list of the other providers who deliver emergency or medically necessary care in the facility, and which of them the policy covers.
The policy must also state the method the facility uses to determine amounts generally billed, including the look-back percentage and how it was calculated, or how a member of the public can obtain both free in writing.
A second document, the emergency medical care policy, requires care for emergency medical conditions without discrimination and without regard to eligibility for assistance. Emergency medical conditions are defined by EMTALA in section 1867 of the Social Security Act. The policy must bar anything that discourages someone from seeking emergency care, including a demand for payment before treatment.
A third document is the plain language summary. It is a short statement, and the regulation names seven elements.
- A brief description of the eligibility requirements and the assistance offered.
- A brief summary of how to apply.
- The web address and physical location where the policy and application form can be obtained.
- Instructions for getting a free copy by mail.
- Contact information for the office that answers questions and the office that helps with the application.
- A statement about available translations.
- A statement that an eligible patient cannot be charged more than the amounts generally billed for emergency or medically necessary care.
Financial assistance cannot be denied because an applicant left out information the policy or the application form never asked for, and a facility may grant assistance on an attestation when the paperwork is thin. A behavioral health practice writing its own policy decides which services it covers, whether 97153 for adaptive behavior treatment by protocol or an evaluation code, and the discount for each.
A facility has to translate the policy, the application form and the plain language summary for each limited English proficiency language group that is the lesser of 1,000 people or 5 percent of the community it serves.
Income thresholds: what the rule says and what the sector uses
The final regulations declined to set an income threshold. A policy states its own eligibility criteria, and those criteria can rest on the federal poverty guidelines, an income level that is not tied to them, an asset test, medical indigency, insurance status or underinsurance status. Section 501(r) requires no particular percentage.
A 240 percent federal poverty threshold does not appear in section 501(r) or in the regulations under it. The only 240 in the rule is the 240-day application period in section 1.501(r)-6(c). Eligibility percentages come from each facility or from state law, not from the IRS.
The Form 990, Schedule H reporting menu shows what facilities actually do. Free care sits at 100, 150 or 200 percent of the guidelines, and discounted care at 200, 250, 300, 350 or 400 percent, with an Other line. That is a reporting menu rather than a rule, and it tracks the common shape of a policy.
| Income band | Common policy treatment | 2026 guideline, family of four |
|---|---|---|
| At or below 200 percent | Free care, or a nominal charge | $66,000 |
| Above 200 to 300 percent | Sliding-scale discount | $66,000 to $99,000 |
| Above 300 to 400 percent | Smaller sliding-scale discount | $99,000 to $132,000 |
| Above 400 percent | Usually no assistance | Above $132,000 |
The 2026 guidelines for the 48 contiguous states and the District of Columbia put one person at $15,960 and a family of four at $33,000, with $5,680 added per person. The notice took effect January 13, 2026.
State law can raise the floor. Washington requires free care to 300 percent of the guidelines at its large systems and 200 percent at smaller hospitals. Vermont sets free care to 250 percent and a discount to 400 percent. California reaches 350 percent, and Illinois writes off care to 200 percent and discounts to 600 percent.
A HRSA Health Center Program grantee must run a sliding fee discount program: a full discount or a nominal charge at or below 100 percent of the guidelines, at least three partial discount classes from 101 to 200 percent, and no discount above 200 percent. Title X family planning extends to 250 percent.
The ACA limit on what an eligible patient can be charged
Section 501(r)(5) caps the charge. For emergency or other medically necessary care, a FAP-eligible patient cannot be charged more than the amounts generally billed to patients who have insurance. For all other care the policy covers, the charge must be less than gross charges. Gross charges can appear on the statement, but the amount the patient personally owes must be lower.
The regulation measures the charge as what the patient personally owes after every discount, deduction and insurance payment is applied. An insured patient who is eligible for assistance still gets the cap on copays, coinsurance and deductibles.
| Method | How the cap is set | What the policy has to state |
|---|---|---|
| Look-back | Divide the amounts allowed by the chosen insurers over a prior 12-month period by the gross charges for those claims, which produces a percentage of gross charges | The percentage and how it was calculated, or how to obtain that in writing free of charge |
| Prospective Medicare or Medicaid | Run the claim through the billing and coding process as if the patient were a Medicare fee-for-service or Medicaid beneficiary, and set the cap at the total allowed amount | Which program applies, and the circumstances for each if both are used |
A facility picks one method at a time and may change it. The look-back calculation uses Medicare fee-for-service alone, Medicare fee-for-service plus all private insurers that pay the facility, or Medicaid alone or combined with the others. A facility recalculates at least once a year and must apply a new percentage by the 120th day after the measurement period ends. The percentage is usually well below 100, so the cap is often a fraction of the posted price.
The cap does not turn on insurance status. Section 501(r)(5) draws no line between an insured and an uninsured eligible patient.
What to keep in the file
A reviewer asks for the record, not the intent. Keep these together and dated.
- The current policy, application form and plain language summary, with the date each took effect, plus the translation record for each covered language group.
- The provider list, showing which providers the policy covers.
- Each completed application and the income and household documentation the application form describes.
- The written eligibility determination and the basis for it.
- The amounts generally billed method and, for the look-back method, the percentage and the calculation behind it.
- The billing notices, the record of the oral notification attempt, and the written agreement with each debt collector.
How the policy constrains collections
Section 501(r)(6) bars extraordinary collection actions until the facility has made reasonable efforts to find out whether the patient is eligible. The list is broad: selling the debt, reporting it to a credit bureau, refusing or delaying medically necessary care over an old balance, and any step that needs a legal process, such as a lien, a foreclosure, a bank attachment, a civil suit, an arrest, a body attachment or a wage garnishment.
Two clocks run from the first post-discharge billing statement. The facility must hold extraordinary collection actions for at least 120 days, and notify the patient at least 30 days before it starts one, with a written notice that names the action and a deadline, plus a reasonable effort at oral notice. The application period runs to the later of the 240th day after that first statement, a deadline set in the notice, or the end of the time given after a presumptive eligibility decision.
Print the financial assistance notice on every statement, with the phone number and the web address for the policy documents.
Hand over the plain language summary at intake or discharge, and try once by phone to reach the patient.
Block collection actions for at least 120 days, then give 30 days of written notice.
Suspend collection action when an application arrives, ask in writing for anything missing, and give a reasonable time to supply it.
Decide in writing, refund anything paid above what the patient owes, and reverse any credit report entry.
A patient who is presumptively eligible for less than the most generous assistance still gets notice of the basis for that decision and a reasonable chance to apply for more. A decision built on information the facility has reason to believe is wrong does not count as reasonable efforts.
A signed statement that a patient does not want to apply does not count as reasonable efforts and does not clear the way for collection action. Neither does a payment taken from a patient before emergency care.
Charity care policy questions
Section 501(r) binds a hospital facility operated by a 501(c)(3) organization, and it applies facility by facility. A private practice or a for-profit behavioral health company sits outside the rule. Those practices still gain from a written policy, because it settles the same questions in advance: who qualifies, what the discount is, and when collection can start.
The federal rule sets none. The final regulations left the threshold to each facility, so a policy states its own criteria. The common pattern is free care near 200 percent of the federal poverty guidelines with a sliding scale to 300 or 400 percent. State law can raise the floor above that. In 2026, a family of four at 200 percent is $66,000.
No. A 240 percent threshold does not appear in section 501(r) or in the regulations under it. The 240 in the rule is a day count: the application period ends no earlier than the 240th day after the first post-discharge billing statement. Eligibility percentages come from the facility or from state law.
They are the ceiling on what an eligible patient can be charged for emergency or other medically necessary care. The figure comes from one of two methods. The look-back method multiplies gross charges by a percentage built from what insurers allowed over a prior 12-month period. The prospective method prices the claim as if the patient were a Medicare or Medicaid beneficiary.
At least 240 days from the first post-discharge billing statement, and longer when the written notice sets a later deadline or the facility gave the patient time to seek more generous assistance after a presumptive decision. A facility may accept an application outside the window. A complete application suspends collection action while the facility decides the case.
Only after the facility has made reasonable efforts to determine eligibility. It holds extraordinary collection actions for at least 120 days from the first post-discharge billing statement, notifies the patient in writing at least 30 days before the action, and makes a reasonable effort at oral notice. A signed waiver does not substitute for those steps.
The bottom line
A financial assistance policy is a short document with a long reach. It sets who qualifies, caps the charge, and gates collection activity on a clock. A practice that writes it once and follows it consistently has an answer for every patient who asks, and a record for anyone who reviews.
Does your practice have a written financial assistance policy?
The MedFactor team builds the policy, the application form and the plain language summary, then wires the billing system so an account holds until the application window closes. Send your current policy and we will show you where a reviewer would push back.
Request a free financial policy reviewThis article describes the federal rules in section 501(r) of the Internal Revenue Code and the regulations at 26 CFR 1.501(r)-1 through 1.501(r)-6, and it is general information rather than legal or tax advice, so confirm your obligations with counsel or a tax adviser.
