United States: Changing Financial Landscape For Medical Debts Of The Uninsured

The implementation of the Affordable Care Act (ACA) has afforded many with the opportunity to obtain insurance coverage. Despite the opportunity, a large number of individuals have either chosen not to enroll in a health plan or have been unable to obtain insurance coverage for a variety of reasons. As a result, many hospitals must continue to provide significant amounts of unreimbursed care. Hospitals, however, are beginning to reconsider their charitable care policies and, in many cases, have scaled back the financial assistance they provide for insurance-eligible patients in order to encourage these patients to sign up for insurance coverage under the Exchanges. In revamping charitable care policies, providers must consider the ACA's impact on funding for charity care, state charitable care laws and regulations covering medical debt collection practices. Hospitals also should be mindful that many patients may be unaware of their coverage options under the Exchanges or may have elected not to enroll in a health plan because the options were simply too expensive, even with the federal subsidies. Additionally, undocumented immigrants are ineligible to purchase Exchange coverage under the ACA.

Historically, to help offset the cost of uncompensated care, many hospitals received supplemental payments from the Medicare and Medicaid Disproportionate Share Hospital (DSH) programs. The ACA assumed that the number of uninsured and underinsured will fall precipitously as a result of higher coverage levels and, as a result, Congress dramatically reduced the DSH payments. This assumption, however, reflected the thinking in place before the Supreme Court's decision that made state Medicaid program expansion voluntary. In states that have opted out of Medicaid expansion, hospitals will struggle to provide uncompensated care at historical levels based upon the combined impact of reduced federal DSH funding and no Medicaid expansion.

Contributing to hospitals' burdens is Section 501(r) of the Internal Revenue Code, also enacted as part of the ACA, and the regulations proposed thereunder. Section 501(r) imposes significant charitable care and billing and collection limitations that must be met by each nonprofit tax-exempt hospital. Section 501(r)(4), for example, requires hospitals to adopt a comprehensive financial assistance policy. We anticipate that the financial assistance plan, under the final regulations, will require adoption by each hospital's governing body and comprehensively set forth: (1) the financial assistance that is available, (2) the qualifying criteria for financial assistance to assure consistent application and (3) limitations on charges to financial assistance-eligible individuals to no more than amounts billed to certain third party payers for emergency or medically necessary care and to not more than gross charges for other care. Under Section 501(r)'s proposed regulations, the financial assistance policy is required to set forth the basis of calculating the charges applicable to financial assistance-eligible individuals. The proposed regulations also provide that patients who qualify on a presumptive basis (e.g., criteria that provide indicia of assistance qualification in the absence of complete financial assistance application information) receive the benefits otherwise available for their presumed financial status. Hence, care must be utilized in establishing presumptive eligibility criteria. The governing body also will be required to establish and implement a policy regarding emergency treatment without regard to a patient's ability to pay.

A nonprofit's financial assistance plan also must be disseminated to the community. Under the proposed regulations, hospitals must (1) publish the financial assistance plan on-line in English and in the languages of the hospital's significant non-English speaking populations, (2) provide copies of the policy upon request, (3) post conspicuous notices about the policy and (4) engage in community outreach efforts.

In addition, billings and collection activities are limited significantly under Section 501(r)(6). For example, Section 501(r)(6) forbids nonprofit hospitals from engaging in "extraordinary collection actions" before making "reasonable efforts" to ascertain whether a patient was eligible for the hospital's various financial assistance programs. Extraordinary collection actions may include many collection activities that are considered to be "normal," including reporting a debt to a credit reporting agency, selling the debt to a third party or pursuing litigation. The IRS's proposed rule sets forth many detailed steps a nonprofit hospital must take before implementing any extraordinary collection actions. For example, the billings and collection policy must describe the hospitals' debt collection activities, a timetable for the activities and describe who within a hospital has final authority to decide on a collection action. In addition, hospitals will be required to make efforts to evaluate patients' eligibility for financial assistance based on their medical bills and financial circumstances, prior to reporting the debt to a credit bureau.

We anticipate that the final Section 501(r) regulations will be published in the very near future. Consequently, this is an area to be closely monitored.

Secondly, the hospital's uncompensated care and collection burdens have been impacted by changes in state laws, based in many cases upon medical debt collection stories publicized in the media. Many states have enacted or are considering enactment of medical debt collection consumer protection laws that include many different types of protections. For example, the provisions include:

  • Limitations on charges to certain uninsured populations meeting income and asset limits;
  • Mandatory state charitable care requirements;
  • Limitations on interest rate charges;
  • Requirements for notification and/or posting of charitable care policies and provision of notices to patients of their financial options and consumer rights;
  • Required notices regarding billing dispute rights, including the right to dispute amounts prior to the amount being reported to a credit reporting agency;
  • Requiring a provider to actively oversee its debt collector's practices and methods;
  • Limitations on the ability of a provider to sell medical debts to a debt collector;
  • Prelitigation confirmation requirements to assure all third party payers have been billed; and
  • Limitations on garnishment and other actions.

In addition, over the last few years, Congress has introduced legislation, generally known as the Medical Debt Responsibility Act, to change how medical debts are reported in consumer credit files. To date this legislation has not advanced in the House Committee on Financial Services. However, as the IRS regulations are advanced and implemented, there may be more traction to make similar provisions applicable to other healthcare providers.

To address the shifting ground, the Healthcare Financial Management Association (HFMA) in January, published its Medical Debt Task Force's report, "Best Practices for Resolution of Medical Accounts" which sets forth proposed standards for medical debt collections. The report represents the work of a task force comprised of representatives from HFMA, providers, debt collectors, credit agencies, credit bureaus and patient advocates. While the proposed practices are not mandatory, they will help facilities remain compliant in many cases.

Finally, the Consumer Financial Protection Bureau (CFPB) has put hospitals on notice that the agency has identified medical debt as a major area of concern. While the CFPB cannot directly regulate hospital debt collection practices, it has authority to prohibit "unfair, deceptive, or abuse acts or practices" in connection with a "consumer financial product or service." The American Hospital Association has published a legal advisory on this matter, and believes that the key factor for determining whether hospital activity falls under CFPB authority is whether the hospital imposes a finance charge on patients to whom it extends credit. The CFPB has clarified that a hospital is not providing a "consumer financial product or service" when the hospital is engaged in collecting on past-due bills for services rendered or selling delinquent debt from medical bills to a debt buyer. However, if a patient's debt is from an extension of credit, for instance a payment plan with the imposition of a finance charge, such as an interest rate, there may be a "consumer financial product or service" being provided. Based on the legislative history, the CFPB is unlikely to subject hospitals to their authority for charging a late fee on delinquent payments.

The CFPB also has recently released a study that found consumers' credit scores may be overly penalized for medical debt that goes into collections and shows up on their credit report. The study is just part of the CFPB's medical debt collection focus. The CFPB issued a notice of proposed rule-making on November 12, 2013, indicating that it is actively looking at practices related to debt collection, including medical debt collection. Consequently, it is likely that medical debt collection will face additional regulatory oversight from the CFPB.

Given the changing financial landscape for medical debts of the uninsured, hospitals should carefully review their approach to charity care and medical debt collection and monitor federal and state bodies for continuing changes in the area.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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