Healthcare News & Insights

How nonprofit hospitals measure up with charity care

Under healthcare reform rules, nonprofit hospitals must be up front with patients about their eligibility for charity care if they wish to keep their tax-exempt status. But according to a new study, some facilities aren’t fully living up to their end of the bargain, which could cause big problems. 

ThinkstockPhotos-137305698Data from the University of Michigan Institute for Healthcare Policy and Innovation show that, while most hospitals are letting patients know about their charity care policies, fewer are taking other required steps before starting the collections process.

The University looked at IRS data from 2012, the most recent year information was available.

Compliance with regs

According to requirements set by the Affordable Care Act (ACA), nonprofit hospitals must have written charity care and emergency care policies. Nearly all of them (94%) comply with that regulation.

However, only 42% of facilities said they were notifying patients they could be eligible for charity care before starting the collections process for unpaid medical bills.

Hospitals are also supposed to be charging under-insured or uninsured patients the same rates they charge Medicare and other payors, instead of the chargemaster rates. Just 29% of hospitals said they’ve adopted this practice.

Providing charity care

Facilities in states that haven’t expanded Medicaid under healthcare reform have less generous charity care policies than other hospitals. Patients must be poorer to qualify for any form of assistance than they’d need to be in other states. These hospitals were also less likely to directly inform patients about their existing charity care policy before their hospital stay ended.

As reported in an article last winter in ProPublica, many nonprofit hospitals didn’t inform patients they may be eligible for charity care, and some even brought lawsuits against patients who couldn’t pay without letting them know they might qualify for assistance.

These tactics have been discouraged by the feds, though – and 80% of hospitals have stopped using extraordinary tactics when patients don’t pay their bills, such as lawsuits, liens and wage garnishment, according to the University of Michigan study.

While certain facilities printed general details about their charity care policies on billing statements and their websites, per the ProPublica article, few hospitals sent patients direct correspondence saying they may be able to apply.

Assessing needs

And there’s one big detail that, while not directly related to charity care, falls through the cracks with nonprofit hospitals and their obligations toward disadvantaged patients: performing a community health needs assessment (CHNA) and adopting a strategy for addressing the community’s health needs.

Only 11% of hospitals reported they performed the required CHNA, according to the University of Michigan’s analysis.

Ignoring this requirement comes with hefty penalties. The IRS recently finalized its financial policy for nonprofit hospitals. Those who don’t perform a CHNA at least once every three years are subject to an excise tax.

Preventing problems

Avoiding this extra tax – and the loss of nonprofit tax status entirely – is as simple as following the regs set by the ACA to the letter. Even if no one’s checking up on your hospital now, that doesn’t mean that it won’t happen down the line.

And going the extra mile to make sure your patients are all aware of their charity care options before starting any collection efforts works in your hospital’s favor. It proves your facility is on the up and up, and it shows you have each patient’s best interest in mind.

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