Earlier this week there was an article in North Carolina about a patient who was unemployed and had mounting medical bills that the hospital allegedly would not negotiate a discount or payment plan. The hospital is a non-profit tax-exempt organization as permitted under the Internal Revenue Code Section 501(c)(3). Therefore, the hospital is not required to pay taxes. However, the hospital must provide services to the community to support its charitable purposes. Over the last several years there has been an increased scrutiny on tax exempt hospitals to determine whether the facility is acting “for profit” or if it is in fact satisfying the charitable objectives and purposes which afford it the tax exemption. In fact, several hospitals lost their tax exempt status as a result of this increased scrutiny.
In order to address the tax exempt objectives of ensuring hospitals provide care to all patients and meet the needs of the community, the Patient Protection and Affordable Care Act (“Healthcare Reform”) specifically requires for tax exempt hospitals approved under Section 501(c)(3)to engage in specific activities or the hospital may be fined $50,000.00 and potential loss of its tax exempt status. Losing tax exempt status may cost some larger hospitals millions of dollars and may cripple the ability of the hospital to provide any service to the community. Therefore, it is imperative for the tax exempt hospitals to review and satisfy the Healthcare Reform Act obligations.
First and foremost, each tax exempt hospital must engage in a community needs assessment. The requirements for a community needs assessment is broad and lacks very specific direction. The community needs assessment should include the input of the community members and individuals with expertise in public health. Each hospital must maintain a copy of the community needs assessment an it must be performed every three (3) years. Upon completion of the assessment, the hospital must adopt a strategic plan to address the community needs.
Hospitals must also maintain a financial policy to provide discounts to individuals who satisfy specific criteria. In order to create the proper financial policy, the hospital must identify what types of patients will be eligible for discounted or free care. For example, patients who have an annual income below 150% of the federal poverty level may be eligible for a 60% discount off of charges. In addition to identifying the patient population, the basis for the charges and the process for calculating a discount should be described in the policy. The policy should be applied to all patients and the discount and modified charge calculation would only apply to the eligible patients.
Once the financial policy is established, the hospital should publicize the policy and ensure the public is aware of the program. In order to satisfy this requirement, hospitals should include information about its financial policy on its website, in its financial policy packet for patients and readily available for patients at the time of admission. Hospitals cannot create a financial assistance policy, but hide the policy so that it is not used. The financial assistance policy should be applied and publicized widely.
Likewise, when collecting the bills from the patients, the hospital should not engage in abusive collection activities. In addition, collection activities should not occur until it is determined if a patient is eligible for the financial assistance. If the patient is eligible for the discount under the financial policy, the policy should be applied to assist prior to engaging in collection activities. At a minimum, the patient should be informed of the financial assistance program and offered an opportunity to apply to determine his or her eligibility. Many hospital contract collection activities to third parties. Therefore, it is important to ensure that the collection agency conforms with the hospital’s billing and collection guidelines.
In addition to offering financial assistance to patients, hospitals must offer emergency services to all members of the community without regard for their ability to pay. In order to ensure that patients, who are eligible to receive financial assistance, are not charged the hospital’s gross charges, the hospital must limit its charges. The charges to patients who are eligible under the financial assistance policy cannot be charged more than the amount charged to patients with insurance and gross charges cannot be charged. Therefore, hospitals must evaluate the amounts that are charged to patients under third-party payer agreements and federal programs and this discount must be offered to eligible “financial assistance” patients.
This process of modifying charges will be a difficult operational change for hospitals. Specifically, in order to determine if a patient is eligible for the financial assistance, the patient normally completes a financial assistance application and provide detailed financial information. In order to obtain this information, it normally takes some time and it is possible that a hospital may submit a claim to the patient before the hospital has knowledge that the patient is eligible for the limitation on charges and the financial assistance policy. Therefore, the additional administrative burden of pulling back a bill, adjusting the charges and resubmitting the bill will increase the hospitals costs. In addition, because hospital contracts with third party payers change from year to year, the hospital will also be required to engage in additional administrative processes of calculating the proper charges and ensuring that the limitation on charges provision is addressed.
Notwithstanding the administrative burden, in order for the tax exempt hospitals to maintain the tax exemption, it is imperative for hospitals to establish its financial assistance policies and educate patients on this benefit. In addition, the limitation on charges must be implemented as a standard process in the billing cycle for hospitals. Complying with the financial and emergency access to care requirements is critical in today’s environment where the uninsured and unemployed are at high levels and the government needs to recover and generate revenues to pay its debts. The community needs obligations cannot be overlooked.