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The Access Project's Congressional testimony, 2004
Mark Rukavina, Executive Director of The Access Project, testified on July 17, 2007 at the hearing "Working Families in Financial Crisis: Medical Debt and Bankruptcy" of the House Committee on the Judiciary Subcommittee on Commercial and Administrative Law. The hearing focused on medical debt as a contributor to personal bankruptcy. In his testimony, Mr. Rukavina described how the financial burden of health care costs sometimes results in medical debt. He presented information on the prevalence of medical debt, conveyed how it serves as a barrier to health care and explained how it tarnished people's credit He urged regulators to prevent involuntary medical debt from ruining people's credit reports and scores by prohibiting medical providers, and their agents, from reporting such debt to credit agencies.

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HHS guidance on hospital discounting for uninsured patients
On February 19th, Department of Health and Human Services (HHS) Secretary Tommy Thompson released a letter and Q-and-A sheet on how hospitals can bill the uninsured for their care. The HHS’ Office of the Inspector General (OIG) also released a guidance clarifying how federal fraud and abuse statutes relate to providing hospital discounts to the uninsured. All of these materials are available on the Web.

HHS letter: www.hhs.gov/news/press/2004pres/20040219.html
Q-and-A: http://www.cms.hhs.gov/center/hospital.asp
OIG guidance:www.oig.hhs.gov

The HHS letter unambiguously states “hospitals can provide discounts to uninsured and underinsured patients who cannot afford their hospital bills and to Medicare beneficiaries who cannot afford their Medicare cost-sharing obligations. Nothing in the Medicare program rules or regulations prohibit such discounts.” Secretary Thompson goes on to say “I strongly encourage [the AHA] to work with AHA member hospitals to take action to assist the uninsured and underinsured and end the situation where…uninsured Americans and others of limited means are often billed and required to pay higher charges.”

This should provide significant support for those of you who have been advocating with hospitals for fairer billing and collections practices for low-income patients. To assist in your advocacy, we are summarizing some of the key points of the guidances.

1. Nothing in Medicare regulations prohibits hospitals from waiving collection of charges to any patients, including low-income uninsured or medically indigent individuals, if it is done as part of hospitals’ indigency policies. (Indigency policies are policies “developed and utilized by a hospital to determine patients’ financial ability to pay for services.” Medically indigent patients are those “whose health insurance coverage, if any, does not provide full coverage for all of their medical expenses and [whose] medical expenses, in relation to their income, would make them indigent if they were forced to pay full charges....”)

Similarly, nothing in the Federal anti-kickback statute prohibits discounts to uninsured patients who are unable to pay their hospital bills. In addition, such discounts will not violate requirements in the Social Security Act that providers not submit bills for payment to Medicare or Medicaid for “amounts substantially more than the provider’s…usual charges.” Until and unless a new rule is finalized, the OIG will not include free or substantially reduced charges for uninsured patients (or underinsured patients who must pay for certain services out-of-pocket) when calculating a provider’s usual charges.

2. Hospitals have flexibility in determining their indigency policies – they can use their own “business judgment” in setting eligibility levels for both low-income and medically indigent patients. However hospitals must apply the same criteria to Medicare and non-Medicare patients. While Medicare rules specify certain requirements for documenting indigency for Medicare beneficiaries, they do not prescribe specific documentation requirements for non-Medicare patients.

3. Neither Medicare rules nor federal statutes prescribe any specific level of debt collection effort, so nothing in the regulations requires hospitals to seize patients’ homes, take them to court, or use a collection agency to try to collect unpaid medical bills. The decision to take aggressive collection actions is a hospital decision, not one required by Medicare regulations or federal statute.

It should be noted that if hospitals want to be reimbursed for Medicare bad debt (unpaid Medicare deductibles or coinsurance), they must bill Medicare beneficiaries and make a “reasonable effort” to collect the debt. In addition, they must pursue the same level of collection efforts for Medicare beneficiaries as they do for non-Medicare patients.

The requirement to use the same debt collections procedures across patient categories points to the importance, for advocates, of encouraging hospitals to establish fair collections practices for all patients and ensure that all patients who are eligible for charity care are screened and enrolled, so they do not become subject to collections actions.

4. Hospitals can also waive cost-sharing amounts (e.g. deductibles and coinsurance) for financially needy Medicare beneficiaries as long as such waivers are not offered “routinely,” but are based on a case-by-case determination of financial need, and as long as they are not advertised or used to solicit business.

The OIG allows hospitals flexibility in determining a beneficiary’s financial need, but requires that the criteria be applied uniformly. Eligibility criteria can take into account factors such as the local cost-of-living; a patient’s income, assets, expenses, and family size; and the size of a patient’s bill. The patient’s eligibility should be rechecked at “reasonable intervals sufficient to ensure that the patient remains in financial need.” In addition, while hospitals should document need, in cases where patients are reluctant or unable to provide documentation, hospitals can use other “reasonable methods,” such as documented patient interviews or questionnaires.

While the Q-and-A specifies that hospitals must apply the same indigency criteria to Medicare and non-Medicare patients, OIG’s guidance says “under the fraud and abuse laws, the ‘financial need’ criterion is not limited to ‘indigence,’ but can include any reasonable measures of financial hardship.” However, since the Q-and-A states that hospitals have great flexibility in setting their indigency guidelines, and that indigency programs can include both the indigent and the medically needy, hospitals should be able to set common eligibility criteria for Medicare and non-Medicare patients that realistically assess people’s ability to pay their hospital bills.

5. Hospitals do not need prior approval from the Centers for Medicare and Medicaid Services (CMS) or its fiscal intermediaries before offering discounts.

6. Hospitals can assist the uninsured and underinsured by having written policies for assisting low-income patients and applying them consistently. They can also review their current charge structures to ensure they are “reasonably related to both the cost of the service and to meeting all of the community’s health care needs.” In addition, they can implement written policies governing when and who can advance bills for collection.

As this summary indicates, hospitals can no longer claim that Medicare rules force them to expect payment of full charges from patients of limited means or use aggressive collections actions against them. However, it also does not require hospitals to set specific eligibility levels or to cease aggressive debt collection measures. Since hospitals have great latitude in creating and implementing their charity care and billing and collections policies, all of you clearly have an important role to play in advocating that these policies be fair and humane.

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Senate finance committee recommendations on non-profit hospital's provision of uncompensated care for low-income, un- and underinsured people
The U.S. Senate Finance Committee has been investigating non-profit (tax-exempt) hospitals’ provision of charity care to determine whether they are providing uncompensated care commensurate with the value of their tax exemptions. The Committee has requested detailed information from non-profit hospitals about this issue and recently held public hearings. In a report based on an analysis of the submitted information, The Internal Revenue Service found that nonprofit hospitals did not use consistent definitions of uncompensated care and varied widely in the amount of uncompensated care they provided. According to ranking Committee member Senator Charles Grassley (R-IA), “While many non-profit hospitals do good work, too many non-profit hospitals get big tax breaks but provide small benefits to those in need.”

On July 19, Senator Grassley released a discussion draft, prepared by his staff, with recommendations for reform. The draft recommends that quantitative legal standards be established regarding non-profit hospitals’ provision of uncompensated care. Senator Grassley has asked for public comments on the recommendations.

In 2003, the American Hospital Association called for hospitals to voluntarily adopt guidelines on hospital billing and collections practices for the un- and underinsured, including the provision of charity care. The IRS report makes clear that voluntary guidelines have not been effective. Setting legally-defined standards for the provision and reporting of uncompensated care would represent a significant step toward protecting lower-income uninsured and underinsured people in need of health care from experiencing catastrophic financial consequences. The Access Project urges advocates who are concerned about these issues to review the recommendations and provide the Committee with comments on their content. 

In its recommendations, the staff expressed concern that:

• The amounts of charity care provided by non-profit hospitals may not differ significantly from the amounts provided by for-profit hospitals;
• The provision of charity care among non-profit hospitals varies widely, with some hospitals providing a great deal of charity care and others providing almost none;
• Current Internal Revenue Service (IRS) standards that define what hospitals must do to receive tax-exemptions are extremely vague and do not hold hospitals to any quantifiable standards.

The staff then proposed standards for non-profit hospitals’ provision of charity care. 

(Note: There are slightly different recommendations for hospitals that are classified as §501(c)(3) and §501(c)(4) institutions. In addition, some standards also apply to public hospitals. However, as §501(c)(3) organizations are the most common form of non-profit hospitals, the following is a summary of we the most important recommendations that apply to them.)

Summary of Key Recommendations

Charity Care Policies

• Non-profit hospitals must develop charity care policies and make them widely available on hospital websites, in emergency rooms, in admissions office, in a manner that is easily understandable by the general public. They should make written copies available to all members of the public upon request.
• Non-profit hospitals should provide medically necessary inpatient and outpatient hospital services free of charge to all patients below the Federal Poverty Level (FPL).
• In addition, nonprofit hospitals should provide discounts to low-income uninsured or medically indigent underinsured individuals. (Underinsured patients are those who spend ten percent or more of their income on medical expenses (or five percent for lower-income patients), or whose deductibles equal five percent or more of their income.) Charges for these individuals should not be higher than the amount paid by the government or the actual hospital cost of care, whichever is lower.  At a minimum, these rates should be offered to individuals with incomes between 100 and 200 percent of FPL.
• Charity care would also include medical care provided through free clinics or other institutions to vulnerable populations.

Quantity of Charity Care

• Non-profit hospitals should dedicate a minimum of five percent of their annual patient operating expenses or revenues to charity care, whichever is greater.
• The value of the uncompensated care will be based not on full charges, but rather on a rate that equals the lowest rate that would be paid by Medicare or Medicaid or the actual cost of the care, whichever is lower. This prevents hospitals from grossly inflating the amount they claim to devote to uncompensated care.
• Bad debt will not count as charity care. This recommendation recognizes that it is inappropriate for a hospital to characterize unpaid bills as charity care, since patients may still face serious financial consequences if the bills appear on their credit records.

Billing and Collection Policies

• The Federal Debt Collection Practices Act, which protects those with debt from unfair or abusive debt collection practices, should be expanded to apply not only to external debt collection agencies, but also to internal hospital billing and collection departments.
• Staff is also considering whether specific aggressive collection practices against uninsured or medically indigent underinsured patients should be banned or restricted.

Reporting of Information

• All non-profit and government hospitals should report annually to the IRS and the public a range of information, such as total patient operating expenses and revenues; total amount of charity care provided, the number of people who applied for care, and the number of people who received such care; the total amount of community benefits provided; amounts reimbursed by private and governmental insurers, and amounts paid to the hospital from special indigent funds, such as charitable care pools.
• These hospitals should also make publicly available the surveys they use to establish executive salaries.

Sanctions for Non-Compliance

• Non-profit hospitals that fail to provide the required aggregate amounts of charity care will be subject to a tax equal to at least twice the amount of the shortfall.
• The IRS could revoke the tax exempt status of a non-profit hospital that fails to meet any applicable requirements.

The document also includes recommendations related to the governing boards of non-profit hospitals, joint ventures between non-profit hospitals and for-profit entities, and conversion of non-profit hospitals to for-profit status.