Greater Flexibility for Definition of “Hospital” Needed Under ACA Rules, AICPA Tells IRS and Treasury 

Published June 23, 2016

Hospital signThe definition of “hospital” under the Affordable Care Act rules needs to be more flexible, the American Institute of CPAs (AICPA) wrote in a letter to the Internal Revenue Service (IRS) and the U.S. Department of the Treasury. 

Specifically, the AICPA recommended that the Treasury and IRS issue guidance that would exclude certain organizations, which do not function as or operate what is commonly considered a hospital, from the requirements of Internal Revenue Code section 501(r).

The May 23 letter explained that the current language in the Code states that section 501(r) is applicable to organizations that operate a facility “which is required by a State to be licensed, registered, or similarly recognized as a hospital” and “any other organization which the Secretary determines has the provision of hospital care as its principal function.”  The letter stated, “In practice, there are situations where an organization is licensed under state law as a hospital, or an organization may maintain licensed hospital beds, but does not actually function as or operate what is commonly thought of as a hospital.  Therefore, we do not believe the requirements of section 501(r) should apply to these types of organizations.”

The AICPA letter offered specific examples:  “A state may require organizations such as research institutes, nursing homes, and skilled nursing facilities to be licensed, registered or otherwise recognized as a hospital.  For example, in at least one state, acute care organizations and nursing facilities are licensed as hospitals.  Also, in at least one state, school clinics are licensed as hospitals.  These organizations are not what is commonly considered a hospital.”

Therefore, the AICPA requested that guidance be provided that would allow for a facts and circumstances test to determine whether an organization is a true hospital.  “This test should place the burden on the organization to substantiate that, despite state licensing requirements, a hospital is not the organization’s principal function,” the letter stated.  “If these facts and circumstances are established, then section 501(r) should not apply to the organization.”




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