Charitable hospitals: complying with the letter or the spirit of the ACA?

Charitable hospitals are required to comply with section 9007 of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) if they wish to maintain their status as tax-exempt 501(c)(3) organizations under the Internal Revenue Code.  Section 9007 requires charitable hospitals to conduct community health needs assessments (CHNAs) and implement policies in response to those results; establish a written financial assistance policy (FAP) outlining the parameters for offering financial assistance to patients and that they will offer emergency services to patients, regardless of FAP provisions; limit charges for emergency and medically necessary services to FAP-eligible patients to the lowest amount charged to patients with insurance; and not engage in extraordinary collection actions before making reasonable efforts to determine whether the patient is FAP-eligible. The IRS issued Final regulations governing the FAP as part of section 501(r) of the Internal Revenue Code on December 31, 2014 (79 FR 79854, December 31, 2014). A study from researchers at the University of Michigan Institute for Healthcare Policy and Innovation suggests that, while hospitals are establishing the FAPs in accordance with the law, they might not be discussing those policies with patients.

Results

The researchers reviewed hospital data from 2012, the first year that section 9007 was effective.  They found that 94 percent of charitable hospitals and implemented written FAPs and emergency care policies. However, only 42 percent notified patients of their eligibility for charity care before attempting to collect medical bills and only 29 percent had begun charging uninsured and under-insured patients rates equivalent to private insurance and Medicare rather than standard, higher chargemaster rates.  Twenty percent were still using now-banned extraordinary debt-collection measures, such as garnishing wages and making negative reports to credit agencies, and only 11 percent had conducted community health needs assessments.

Medicaid non-expansion

Hospitals in states that did not expand Medicaid under the ACA generally required patients to be poorer to be eligible for charity care and were less likely than hospitals in expansion states to notify patients of eligibility for charity care before they left the hospital. John Z. Ayanian, M.D., MPP, one of the study’s authors, noted that hospitals in non-expansion states, “will likely experience additional demand for charity care because they now need to publicize their charity care policies and comply with other IRS provisions.” Co-author Sayeh Nikpay, Ph.D., MPH, noted that this may cause these hospitals to become less generous in the offering charity care, something that is not controlled by the ACA.

Looking forward

“So far,” Nikpay said, “it appears many aren’t complying with the part of the rules that could increase their charity care.”  Hospitals may be beginning to meet the requirements on paper, but they do not seem to be offering more charity care to patients and helping them escape from the dire financial consequences of medical debt.  The researchers indicated that the 2012 data did reflect regulations governing compliance and penalties for noncompliance, which could impact hospitals’ actions.  Whether the 2014 regulations change charitable hospitals’ actions remains to be seen.