Financial assistance policies help hospitals trim bad debt

For many hospitals, a sound financial assistance policy is the only way to bridge the gap between giving life-saving treatment to the patients who need it, while protecting their balance sheets from bad debt.

For instance, Tamara Sperry-Roberts, executive director of revenue cycle at Hill Country Memorial Hospital, often tells a single patient story to explain why her Fredericksburg, Texas facility established its financial assistance policy almost 45 years ago.

"A young lady came into our office to discuss her medical bills. She had been diagnosed with cancer and struggled with the bills from the hospital, physicians and specialist. Our patient account representative discussed our financial assistance policy and suggested she apply. The patient was approved for 100 percent assistance," said Sperry-Roberts. "I will never forget this story and am humbled to share it."

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Sandra J. Wolfskill, director of healthcare finance policy and revenue cycle MAP at the Healthcare Financial Management Association, said a good policy should be geared to the patient's ability to pay.

"That's the difference between financial assistance and bad debt, an unwillingness to pay even though the patient has the means to pay."

She said that while FAPs don't directly impact federal reimbursement schedules, "there are established rules within the Medicare program for uncollectible bad debt, but only if specific rules, pursuit of collections, are followed. Both Medicare and Medicaid programs have reimbursement special considerations for hospitals who treat a disproportionate share of (these) patients," said Wolfskill who adds that "FAPs should be based on the needs of the provider's service area.

That means hospitals should conduct a community-needs assessment to look at many factors of the community, including its socio-economic makeup.

"Providers should consider abrupt changes in the economy, such as a major employer leaving the area. Also to be considered, historic trends of individuals, unable to pay their hospital bills."

Hill Country uses Federal Poverty Guidelines from the U.S. Dept. of Health and Human Services, Washington, to set FAP eligibility, which also reflects the hospital's mission. "As part of our commitment, HCMH acknowledges the financial needs of patients and families, unable to afford the charges associated with the cost of medical care and offer financial assistance to those who have an established need to receive medically necessary services," said Sperry-Roberts.

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Wolfskill says that while for-profit providers may base their FAPs on "their mission and values," nonprofit providers, granted 501(c)3 tax-exempt status by the Internal Revenue Service must comply with Section 501(r) of the Affordable Care Act "related to provision of financial assistance or their tax exempt status will be revoked. She advises nonprofits to "make sure you've worked with legal counsel to ensure you are compliant with IRS 501(r) regulations.

Providers also should also adopt best practices that "emphasize the importance of having a conversation with all patients to explain options available to resolve financial responsibility for services provided. By doing this, providers identify assistance eligibility early in the encounter and provide appropriate financial and clinical care," she said.

Sperry-Roberts recommends CFOs and financial executives of nonprofit health organizations assess the needs of their community.

"For HCMH, establishing a policy that supported our mission and community was critical to the development of our policy. Our community is the cornerstone of our organization. In keeping with our purpose and strategy to support our community, our FAP must be aligned," she said.

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