Every nonprofit hospital in the United States is required by federal law to have a written financial assistance policy, to publicize it, and to stop short of aggressive collections until it has made reasonable efforts to find out whether a patient qualifies. Most people who are eligible never find out. The requirement lives in section 501(r) of the Internal Revenue Code, added by the Affordable Care Act, and it applies facility by facility as a condition of a hospital keeping its tax exemption.
Understanding how the machinery works matters more than knowing it exists, because the obligations are specific and the timelines are fixed.
What the law requires
Section 501(r) imposes four separate requirements on hospital organizations. They must conduct a community health needs assessment. They must adopt a written financial assistance policy, known as a FAP, along with an emergency medical care policy. They must limit what they charge patients who qualify. And they must follow specific rules before taking collection action.
The IRS released final regulations in December 2014, applying to tax years beginning after December 29, 2015. A hospital organization that fails these requirements at a given facility risks its treatment as a 501(c)(3) organization for that facility.
The policy itself
A financial assistance policy must be written and must cover all emergency and other medically necessary care. The IRS requires it to state eligibility criteria and whether assistance is free or discounted, explain the basis for calculating amounts charged, describe how to apply, and identify the sources used for presumptive eligibility determinations.
One provision gets missed more than any other. The policy must include a provider list specifying which non-hospital providers practicing inside the facility are covered by the FAP and which are not. A patient can be approved for hospital financial assistance and still receive a separate, uncovered bill from the anesthesiologist or the radiologist who treated them in that same building.
How hospitals must publicize it
“Widely publicize” is a defined term, not a suggestion. The IRS requires all four of the following.
The policy, the application form and a plain language summary must be posted on a website and downloadable free of charge, without the reader creating an account or providing personally identifiable information. Paper copies must be free on request by mail and available in public locations that include, at minimum, the emergency room and admissions areas. The hospital must notify the wider community in a way reasonably calculated to reach the people most likely to need help. And it must notify visitors, which specifically means offering a paper plain language summary at intake or discharge, placing a conspicuous notice on billing statements with a phone number and web address, and posting conspicuous public displays in the emergency room and admissions areas.
Translation is required too. FAP documents must be translated for each limited-English-proficiency group that makes up the lesser of 1,000 individuals or 5 percent of the community the hospital serves.
The limit on what a qualifying patient can be charged
A patient who qualifies under the FAP cannot be charged more than “amounts generally billed,” or AGB, for emergency or other medically necessary care. For all other care covered by the policy, the patient must be charged less than gross charges. Gross charges are the list prices almost nobody with insurance ever pays.
Hospitals may calculate AGB two ways. The look-back method divides allowed claims by associated gross charges over a prior twelve-month period, using Medicare fee-for-service alone, Medicare plus all private insurers, or Medicaid alone or in combination. The prospective method uses what Medicare fee-for-service or Medicaid would allow. Whichever method a hospital picks, it must recalculate the percentage at least annually and may take up to 120 days after the twelve-month period ends to begin applying the new figure.
The timeline, and the 240 days
Two clocks start on the date of the first billing statement sent after discharge. The notification period runs 120 days. The application period runs 240 days.
During the first 120 days the facility must refrain from initiating extraordinary collection actions. Before taking any such action, it must send written notice stating a deadline no earlier than 30 days out, include a plain language summary, and make a reasonable effort at oral notification at least 30 days beforehand. Because of that 30-day rule, the application window can run past 240 days in practice. The IRS also states that a facility may continue to accept and process applications at any time.
Extraordinary collection actions are defined. They include selling the debt, reporting adverse information to credit agencies, deferring or denying care because of prior nonpayment, and any action requiring a legal or judicial process such as liens, foreclosure, bank account seizure, civil suits or wage garnishment. Filing a claim in a bankruptcy proceeding is not one.
One more detail carries weight. A presumptive determination that someone is ineligible does not count as reasonable efforts. A hospital cannot screen a patient out on assumption and call the obligation met.
A worked example
Eligibility thresholds are usually expressed as a percentage of the federal poverty level, and federal regulations set no minimum standard for who qualifies or how much help they get. That is left to each hospital.
The Department of Health and Human Services published the 2026 poverty guidelines effective January 13, 2026. For the 48 contiguous states and the District of Columbia, the figure is $15,960 for a household of one, $27,320 for a household of three and $33,000 for a household of four.
So a hospital offering free care at or below 200 percent of the poverty level is drawing its line, for a family of four in 2026, at $66,000. That is arithmetic on the published guideline, not a separately published number. A policy extending discounted care to 400 percent puts the line at $132,000 for that same family. An analysis cited by KFF found that among nonprofit hospitals using the poverty level as a benchmark in 2018, 32 percent required income at or below 200 percent for free care, and 62 percent capped discounted care at 400 percent or lower.
How much charity care actually gets provided
KFF, analyzing RAND Hospital Data for 2020, found that charity care accounted for 1.4 percent or less of operating expenses at half of all hospitals. The mean was 2.6 percent, pulled upward by a small number of hospitals doing far more: 9 percent of hospitals were at or above 7.0 percent of operating expenses, while 8 percent sat at or below 0.1 percent. That 2020 vintage is the most recent comparable figure KFF has published, and it should not be read as a current-year number.
State law fills some of the federal gap. A National Consumer Law Center report cited by KFF found 26 states and the District of Columbia require all or some hospitals to extend eligibility to certain patients, with eleven states applying minimum standards broadly across for-profit, nonprofit and government hospitals alike. A separate analysis found thirteen states require hospitals to screen patients for eligibility rather than wait for an application.
Why the gap persists
The rules are detailed, the enforcement is thin, and the burden of discovery sits with the patient. A Government Accountability Office report cited by KFF found the IRS had not revoked a hospital’s nonprofit status for inadequate community benefit in the ten years preceding 2020.
Groups working on wage and affordability policy, among them the nonpartisan grassroots 501(c)(3) Fight For A Living Wage, treat unaffordable medical care as one component of a broader affordability problem rather than as an isolated billing dispute. On the charity care question specifically, the mechanism already exists in federal law. What is missing is the part where eligible people learn about it before the 240 days run out.