As a result of the enactment of the Patient Protection and Affordable Care Act, every charitable hospital must adopt a written financial assistance policy that identifies the specific eligibility criteria used by that hospital for providing free or discounted medical services to qualifying patients. In addition, a charitable hospital is prohibited from engaging in extraordinary collection actions before reasonable efforts have been made to determine whether a patient is eligible for assistance under the organization’s financial assistance policy. The Joint Committee on Taxation Technical Explanation indicates that “extraordinary” collection actions include “lawsuits, liens on residences, arrests, body attachments, or other similar collection practices.” The Technical Explanation indicates that “reasonable efforts” will include “notification by the hospital of its financial assistance policy upon admission and in written and oral communications with regard to the patient’s bill, including invoices and telephone calls, before collection action or reporting to credit agencies is initiated.”
Most charitable hospitals define eligibility for charity care by referencing the Federal Poverty Guidelines (FPG) established by the Department of Health and Human Services. For example, a patient whose income is at or below 200% of FPG may be entitled to receive emergency medical care without charge. Discounted care is usually calculated using a sliding FPG scale. Many hospitals also provide for partial discounts when the costs of medical care exceed a defined percentage of patient income or assets even if the patient would not qualify using an FPG scale.
Using prudent business principles, hospitals insist upon documentation for eligibility to receive charity care. This documentation includes such items as wage statements, income tax returns, credit reports and inquiries to financial institutions. The documentation protects the hospital from inappropriately providing free care to those who do not qualify. Without demanding proof of eligibility, a hospital can be overwhelmed financially by patients seeking free medical services. Protecting the financial viability of the hospital ensures that it will be there to serve future generations.
Many patients do not readily provide the needed documentation, for a variety of reasons. Some are embarrassed and may not want to be identified as receiving or qualifying for charity. Others, having gotten past the immediate need for medical care, do not want to be bothered with gathering the information the hospital has to have in order to make a determination. We have all heard anecdotal evidence of hospitals attempting to collect accounts due from qualifying indigent patients. Most hospitals will readily comply with any new indigent care requirements to prevent such occurrences. Patients seeking such care must share this responsibility.
When an otherwise eligible patient does not cooperate in providing the necessary documentation, the patient account is written-off as a bad debt. The difference between a bad debt write-off and charity care from a financial perspective is the same – the hospital collects nothing for the services provided. However, Congress and the IRS justifiably have placed tremendous importance on the provision of charity care as justification for tax-exemption. Better efforts by all are required to distinguish true charity care from bad debts.