The federal government just took aim at hospitals aggressively billing low and middle-income patients.
The Department of the Treasury has issued final regulations for the Affordable Care Act’s consumer financial protections at nonprofit hospitals — with a warning that an institution’s tax-exempt status can be revoked if they abuse the rules.
The regulations require charitable hospitals to limit charges for financial assistance-eligible patients and the uninsured to general rates for private insurance, Medicare or Medicaid. Hospitals must also create and publicize financial assistance criteria and ways to apply, and abide by reasonable billing and collection requirements.
“Charitable hospitals are prohibited from engaging in certain collection methods (for example, reporting a debt to a credit agency or garnishing wages) until they make reasonable efforts to determine whether an individual is eligible for assistance under the hospital’s financial assistance policy,” wrote deputy assistant secretary for tax policy Emily McMahon in a summary.
Under the regulations, charitable hospitals have to perform a community health needs assessment at least once every three years, and disclose the programs addressing those needs in annual tax forms with the IRS.
The final regulations adopt most of the same framework from proposed regulations “but simplify the compliance process for charitable hospitals,” McMahon said.
The regulations also require that financial assistance policies be translated into languages used by 5 percent of the community’s population or at least 1,000 individuals, whichever is less. An earlier proposal called for translations of languages used by at least 10 percent of the population.
The regulations revise financial assistance notification standards, requiring that a hospital’s assistance policies appear on bills and throughout the facilities, while only requiring written and oral notifications when aggresive collections actions are used, such as reporting debt or trying to garnish wages.
In general, the rules should not be difficult to adhere to, McMahon said. “While charitable hospitals must continue to make a good-faith effort to comply, the rules provide charitable hospitals with adequate time to fully update their policies and programming to implement the changes.”
Charitable hospitals that fail to properly take a community health needs assessment or adopt an implementation strategy will have to pay an excise tax.
However, “If a charitable hospital fails to meet the consumer protection provisions required by the law, the hospital could have its tax-exempt status revoked,” McMahon said.
Nonprofit, charitable hospitals represent more than half of America’s hospitals, and “play a key role in improving the health of the communities they serve,” said McMahon, a former tax partner at Sullivan & Cromwell.
“But reports that some charitable hospitals have used aggressive debt collection practices, including allowing debt collectors to pursue collections in emergency rooms, have highlighted the need for clear rules to protect patients. For hospitals to be tax-exempt, they should be held to a higher standard.”
Uncompensated care and bad debt have been problems for hospitals, patients, payers and state and federal governments for decades — shifting costs around the system and at times shutting people out of access to healthcare.
For years, patient advocates have criticized billing and collections tactics by some hospitals that have left uninsured and low-income patients with huge debts for healthcare services. The rise of high deductible health plans in the 2000s caused more middle-income patients to fight three- and four figure bills, or not pay them at all.
After the Great Recession, the trend has only grown, with an American public increasingly in-tune to their healthcare’s arcane and opaque pricing rituals, while paying more and more out-of-pocket for health plans.
Hospitals and health systems, meanwhile, still have to get paid — and like other businesses are turning to debt collection. In 2013,10 percent of all U.S. workers paid some of their earnings to debt through wage garnishment, according to a new ADP payroll survey conducted for NPR and ProPublica.
An investigation by NPR and and ProPublica found that hospitals’ use of wage garnishment is “widespread,” in Alabama, Kansas, Missouri, Nebraska and Oklahoma.
While an individual's garnishment collection is generally limited to 25 percent of income, wage garnishment by healthcare providers are increasingly under scrutiny by the public, regulators and hospital leaders, including, boards of directors. In Alabama, one large public hospital is under fire for suing low-income patients to recoup unpaid bills.