IRC Section 501(r): The Secret to Hospital Financial Assistance

One of the most powerful but underutilized tools in the fight against medical debt is IRC Section 501(r). This section of the Internal Revenue Code applies specifically to tax-exempt, non-profit hospitals, which constitute approximately 56% of all community hospitals in the United States. To maintain their federal tax-exempt status, these hospitals are legally mandated to provide financial assistance to patients who meet certain income criteria.

### Mandatory Compliance Requirements for Non-Profits Under Section 501(r), every non-profit hospital must establish and widely publicize a written Financial Assistance Policy (FAP). This is not a "suggestion" but a statutory requirement for 501(c)(3) recognition. FAP Publicity:* Must be "widely available" in ER/Admissions and translated. You have a right to a free, plain-language summary of the aid policy. Limitation on Charges:* FAP-eligible patients cannot be charged more than Amounts Generally Billed (AGB). You cannot be charged the "sticker price" if you qualify for aid. ECA Restrictions:* No Extraordinary Collection Actions for 120 days. The hospital cannot sue or ruin your credit without checking your eligibility first. Application Window:* 240-day window to apply for financial assistance. You can apply for aid even months after you have been discharged.

### Defining "Amounts Generally Billed" (AGB) The most significant protection under Section 501(r)(5) is the AGB limitation. A hospital is prohibited from charging a FAP-eligible individual the full "gross charge" (the Chargemaster price). They must use a formula—often based on the "look-back method"—to calculate what they typically receive from Medicare and private insurers. AGB is defined as the average amount a hospital receives from insurance and Medicare for a specific service.

### Extraordinary Collection Actions (ECAs) Prohibited Before a non-profit hospital can engage in an Extraordinary Collection Action (ECA), such as reporting to credit bureaus or garnishing wages, they must make "reasonable efforts" to determine if the patient is eligible for financial aid.