The sheer number of Americans saddled with hospital debt proves that charity care as it was contemplated in the ACA is not working. The only question is how big of a role charity care could play in relieving the medical debt problem in the United States. These are recommendations for hospitals and policymakers to address this issue.
Global Recommendation
Remove the burden to access charity care from the patient
It may seem reasonable to ask patients to fill out a short application and provide “routine and accessible” financial documents for discounted or free care. However, charity care needs to be viewed in the broader context of healthcare and social benefits. Charity care is just one of many complicated and siloed benefits programs with different and specific eligibility criteria, application processes, and deadlines. These include applying for Medicaid, insurance premium subsidies, pharmaceutical rebates, disease specific funds, county or tribal programs, and more.
The current system obligates patients to know about all these programs, decipher or guess which ones they might be eligible for, and navigate the application processes. This problem is highlighted by the fact that nearly 20 million people have recently lost Medicaid. It has been reported that 70% were for procedural reasons instead of being determined ineligible.
We envision a future where, upon entering a hospital, individuals are automatically or presumptively screened for charity care. This transformative process could allow patients to walk into a hospital for care, answer basic questions about their income and household size, agree to some basic financial background checks, and be seamlessly given a charity care eligibility determination. We believe that the tools to execute this solution already exist and that – once proven in this context – will eliminate complicated application systems, ensure a straightforward process to save patients from needless bills, and save money on the hospital’s bottom line by preventing “bad debt” and decreasing administrative costs.
Recommendation for Hospitals
Prioritize identifying charity care-eligible patients over billing, collections, and bad debt
The HSCRC study in Maryland found that hospitals are likely less effective at screening for charity care than they think. In a tightly regulated state for charity care, Maryland hospitals estimated that only a small amount of its bad debt was charity care-eligible compared to reality. Further, the study confirmed that few low-income patients who were billed were actually able to pay. It is possible, if not likely, that Maryland hospitals spent more in administrative costs to bill and pursue payment from patients under 200% FPL than they actually collected.
If Maryland hospitals had identified charity care-eligible patients early in the process, it’s likely that both the hospital and the patient would have been financially better off. The hospital would not have wasted resources to pursue monies that would never be paid, and the patients would not have suffered incalculable social and financial devastation from those bills.
If automatic screening is not available, make charity care programs more visible and accessible
If hospitals cannot automatically screen patients for charity care, they should do everything they can to inform patients about charity care programs and should remove as many barriers to access as possible. In addition to notices in emergency room lobbies and bills, hospitals should train all staff to discuss charity care with patients. They should post plain language program descriptions on their website homepages. They could also build online application portals that guide patients through the process and remove friction from the existing, fax, mail, or hand-delivery methods employed by most programs.
Recommendations for Federal and State Regulators
Design guidance for consistent reporting of hospital charity care utilization
Inconsistent methodologies for reporting charity care and bad debt make it very challenging for hospitals, advocates, and governments to accurately measure and compare charity care utilization nationally or across states. Leaving hospitals to define their own methodology is unfair to hospitals and the public. For hospitals, the current policy adds an administrative burden to create a model from scratch. As a result, the wide array of methodologies leads to quite different interpretations from hospital to hospital. For the tax-paying public, we are left comparing apples to oranges when evaluating hospitals’ ability to screen for charity care.
The IRS could help address this problem by providing hospitals with guidance on standard methodologies for calculating and reporting charity care-eligible bad debt.
Further, to Dollar For’s knowledge, the 2020 Maryland Health Services Cost Review Commission study was the first and only of its kind to audit charity care utilization and bad debt reporting in a state. No other study has matched actual patient billing records with reliable patient income records, at least not to a similar scale. Other states and agencies should create similar hospital charity care performance audits.
Enforce existing regulations regarding charity care
Approximately half of nonprofit hospitals leave blank the required field on the Schedule H regarding how much bad debt is eligible for charity care. The IRS should, at a bare minimum, require nonprofit hospitals to complete their tax documents.
The IRS and state regulators should also ensure that hospitals meet their obligation to inform patients about charity care programs. The federal law requires hospitals to widely publicize their charity care policies. At a minimum hospitals must make their policy and plain language summary widely available on its website, inform the community in the hospital’s service area about charity care in a way that is reasonably calculated to reach them, offer patients a copy of their charity care plain language summary at intake or discharge, have a conspicuous statement about charity care on every bill, have a conspicuous public display about charity care, and more. The IRS should create enforcement mechanisms to ensure that hospitals are meeting their notice requirements.
Help hospitals identify eligible patients using existing income verification systems
Charity care discounts operate on a sliding scale based on the patient’s income. In practice, identifying eligible patients and verifying their income is a large barrier to charity care.
The IRS has a database of income information for nearly every U.S. household. The IRS commonly makes these data available, with the taxpayer’s consent, to government and private entities to verify a person’s income to confirm eligibility for a program. For example, with the taxpayer’s consent, health insurance providers may obtain a person’s tax return to verify their eligibility for insurance subsidies. Loan applicants already authorize their mortgage broker or lending institution to access tax returns using the IRS Income Verification Express System. The IRS should create a program allowing taxpayers to authorize hospitals to verify income directly with IRS data using these same processes.
Further, most states require their residents to file income taxes and process filings – and practically all have data on which citizens receive means-tested benefits, such as food stamps or housing assistance. States could also offer this same service by creating or expanding hospital access to processes that allow patients to others to access income verification data.
Government-supported income verification would remove almost all friction between the patient and hospital in the charity care process. Removing the patient’s responsibility to learn about and apply for charity care would significantly increase its utilization, decrease the burden on state courts, and give much-needed relief to residents in need. This one slight process improvement could eradicate the billions in charity care-eligible bad debt.