Tracking Charity Is More Important Now Than Ever
The tax-exempt status of hospitals has been under attack for decades. But the public's awareness of the way not-for-profit hospitals operate intensified as the result of some high profile court cases in Illinois and Minnesota.
More recently, Time magazine published a blistering attack on the not-for-profit hospital industry. Court cases and magazine articles have eroded the confidence the public has in their community hospitals, especially when their neighborhood hospital has become part of a healthcare delivery system with out-of-town corporate offices. The "cherry" on top of this toxic cake is the newly enhanced charity care requirements and penalties for noncompliance in the ACA.
Most not-for-profit hospital executives have sought to do the right thing and offer financial assistance to patients who are unable to pay for all or most of the care they receive. Decades ago, the federal government required hospitals who received construction funding under the Hill Burton program to provide free care and to advise their patients about their policy. Many state governments have required hospitals to have financial assistance programs for patients and the federal government has required hospitals to provide free care for decades under EMTALA.
The Affordable Care Act takes aim at hospital collection activities and how hospitals identify and quantify charity care. This is the first time that Congress has sought to regulate this aspect of the healthcare industry and has established serious consequences for healthcare executives who don't make meaningful compliance a priority.
Hospitals had several years to get ready for this new regulatory environment since the IRS modified the Form 990 to include section H. Now, a top priority for hospitals needs to be focusing on how to interact with their self-pay patients in order to maintain their tax-exempt status and avoid the significant penalties associated with being out of compliance.
Tax-Exempt Status On the Line
Outside of charity care, the government is, for the first time, regulating how hospitals manage their self-pay population. The new 501(r) section requirements establish limitations on charges and what kind of billing and collection practices are acceptable. In addition to these regulations, the ACA requires hospitals to start conducting regular (every three years) community health needs assessments and to have well publicized meaningful financial assistance policies.
While most not-for-profit hospitals have embraced charity care as part of their mission, many have been unable or unwilling to commit the resources to proactively identify and quantify charity care on a consistent basis. Many hospitals still require patients to complete lengthy forms and supply tax returns and other documentation to qualify. However, these new regulations are pushing healthcare providers to look for new ways to update their charity care practices. Failure to comply could mean significant penalties or, in some states, loss of their tax-exempt status.
Starting the Conversation
Tracking charity care is just one part of the ultimate goal, which is to provide patients with the best overall healthcare experience across the board. A satisfying patient experience doesn't just consist of providing exceptional healthcare, but engaging patients in respectful conversations about their financial relationship with the hospital based on their ability to pay. These conversations need to happen often and consistently and the hospital needs to start them.
Hospitals cannot expect patients to take the first steps to learn about their financial options simply because they left the hospital alive and have received a bill. Patients need to be engaged throughout the entire process, including after they leave, and it is the hospital's responsibility to start that conversation.
This is especially important when a patient with a large hospital bill has not received financial counseling while in-house. Patients with large bills typically do not call the hospital's business office (unless they have insurance) and it's these large unpaid bills that will have the greatest impact on meeting charity care requirements. However, since many hospitals are not following up with patients after they leave, tracking the payment status of larger bills - and if the bills ultimately turn into charity care - does not happen. Not only is the revenue lost, but the ability to count that loss as proof of charity care.
While the ACA promises to eliminate a great portion of this challenge, hospitals still need to embrace a new relationship with their self-pay (and self-pay balance) patients. These new charity care regulations present a new opportunity for hospitals to engage in a meaningful and respectful dialogue with their patients while maintaining their tax-exempt status.
Hal Stern is the founder and CEO of Financial Health and blogs regularly at Financial Health News.
