Across the board

Af­ford­able Care Act prompt­ing hos­pi­tal trus­tees to pay closer at­ten­tion to poli­cies on pa­tient billing, col­lec­tion and bad debt

Modern Healthcare - - SPECIAL REPORT - Me­lanie Evans

Most U.S. hos­pi­tals will face new rules for how hos­pi­tals col­lect money from pa­tients un­der health re­form, prompt­ing some hos­pi­tal gov­ern­ing boards to re­con­sider how their fa­cil­i­ties iden­tify and help those who can­not af­ford to pay.

The Pa­tient Pro­tec­tion and Af­ford­able Care Act laid out new billing, col­lec­tion and fi­nan­cial aid re­quire­ments for pri­vate, not-for-profit hos­pi­tals, which ac­count for six of ev­ery 10 hos­pi­tals across the coun­try. The new rules—which are in ef­fect but have yet to be fi­nal­ized—would re­quire gov­ern­ing boards to ap­prove manda­tory fi­nan­cial aid and debt col­lec­tion poli­cies and set new lim­its on col­lec­tion ef­forts. Col­lec­tion prac­tices at some hos­pi­tals have pro­voked pub­lic out­rage and reg­u­la­tory scru­tiny, such as liens or other le­gal ac­tions.

Un­der the ACA, hos­pi­tals must make rea­son­able ef­forts to iden­tify low-in­come pa­tients el­i­gi­ble for fi­nan­cial aid be­fore us­ing le­gal ac­tion to col­lect debt. The same re­stric­tions ap­ply for re­port­ing debt to con­sumer credit bu­reaus or sell­ing un­paid bills to debt-col­lec­tion com­pa­nies.

The stakes are high for hos­pi­tals that fail to com­ply. Un­der pro­posed rules, the In­ter­nal Rev­enue Ser­vice may strip tax breaks from not­for-profit hos­pi­tals if vi­o­la­tions are will­ful and egre­gious. Not-for-profit hos­pi­tals also would lose ac­cess to tax-ex­empt bond mar­kets, where the cost of bor­row­ing has been his­tor­i­cally cheaper than tax­able debt.

“You’ve got to be even more sure that some­one doesn’t qual­ify for char­ity be­fore they end up in bad debt or the col­lec­tion process,” says Keith Hearle, pres­i­dent of Verite Health­care Con­sult­ing in Alexan­dria, Va.

The new rules un­der­score the height­ened ex­pec­ta­tion from pol­i­cy­mak­ers and the pub­lic that not-for-profit hos­pi­tals do more to iden­tify and ad­dress com­mu­nity needs in ex­change for their tax breaks. That pres­sure fol­lows sev­eral in­quiries in re­cent years by Congress, reg­u­la­tors and state at­tor­neys gen­eral into how hos­pi­tals bill and col­lect, par­tic­u­larly from vul­ner­a­ble pa­tients and those least able to pay.

The scru­tiny has not stopped scan­dals. Last year, an in­quiry into ef­forts to col­lect from emer­gency room pa­tients prompted Min­nesota’s at­tor­ney gen­eral to tem­po­rar­ily ban one col­lec­tion com­pany from the state.

Most low-in­come pa­tients will sig­nif­i­cantly ben­e­fit from the ACA rules, says Jessica Cur­tis, di­rec­tor of the hos­pi­tal ac­count­abil­ity pro­ject for Com­mu­nity Cat­a­lyst, a con­sumer ad­vo­cacy group. The onus pre­vi­ously fell on pa­tients to be aware of fi­nan­cial aid and ne­go­ti­ate bills they could af­ford. The health re­form law shifts the re­spon­si­bil­ity to hos­pi­tals to pro­mote fi­nan­cial aid and help pa­tients to en­roll, she said.

Di­rec­tors and trus­tees should—and in some cases al­ready are—closely ex­am­in­ing or re­vis­ing poli­cies to meet the new re­quire­ments, ac­cord­ing to ex­perts in tax-ex­empt health­care. Pro­posed reg­u­la­tions for the ACA’s new not-for-profit hos­pi­tal rules would re­quire gov­ern­ing boards to adopt writ­ten billing, col­lec­tion and fi­nan­cial aid poli­cies. It’s un­likely, how­ever, that hos­pi­tal board mem­bers will be held legally li­able for fail­ure to com­ply with the ACA rules, le­gal ex­perts say.

In­dus­try fi­nan­cial guid­ance also un­der­scores the need for board over­sight on poli­cies re­lated to un­paid bills. Guid­ance on dis­clo­sure of hos­pi­tals’ char­ity care and bad debt from the Health­care Fi­nan­cial Man­age­ment As­so­ci­a­tion calls for gov­ern­ing boards to ap­prove poli­cies for both.

“Ul­ti­mately, the buck stops with the board,” says Michael Fine, a health­care and tax at­tor­ney with McDer­mott, Will and Emery who jointly

chairs the firm’s tax ex­emp­tion group.

In­creas­ingly, hos­pi­tals are us­ing new screen­ing tools or pub­lic records to en­roll pa­tients in fi­nan­cial aid with­out wait­ing for pa­tients to ap­ply for re­lief. Hearle says the prac­tice has grown more wide­spread and also noted a push by states to re­quire so-called pre­sump­tive en­roll­ment.

But pub­lic re­port­ing by hos­pi­tals to the IRS in re­cent years shows some have con­tin­ued to bill pa­tients who likely can­not af­ford to pay.

Since 2009, not-for-profit hos­pi­tals’ yearly tax records have dis­closed the to­tal amount of un­paid med­i­cal bills, known as bad debt. Such bills may go un­paid be­cause pa­tients can­not af­ford care but fail to en­roll for fi­nan­cial aid, or be­cause pa­tients who are able to pay choose not to.

Bad debt is dis­tinct from the cost of med­i­cal care that hos­pi­tals write off for pa­tients who re­ceived fi­nan­cial aid, also called char­ity care. Hos­pi­tals re­port that amount sep­a­rately.

Yet the tax forms also ask hos­pi­tals to es­ti­mate the amount of bad debt that prob­a­bly was at­trib­ut­able to pa­tients who could have re­ceived fi­nan­cial aid but did not. The IRS did not is­sue guide­lines for how hos­pi­tals should es­ti­mate the fig­ure. Amounts re­ported by hos­pi­tals vary sig­nif­i­cantly. Some hos­pi­tals re­port no po­ten­tially needy pa­tients among their un­col­lected med­i­cal bills, which ex­perts say is un­likely.

But oth­ers say nearly all the un­paid bills are re­lated to pa­tients who could re­ceive free care but do not. That should be a warn­ing, par­tic­u­larly un­der the new ACA rules, ex­perts say. “For me, that is a sys­tem fail­ure,” Fine says. “It’s time to re­vamp the way you go about ad­dress­ing fi­nan­cial as­sis­tance.”

That likely means adopt­ing new poli­cies, which is the re­spon­si­bil­ity of the board of di­rec­tors, he says. “The same old boiler-plate, cook­iecut­ter poli­cies won’t work” un­der new rules.

Hos­pi­tals have a self in­ter­est in im­prov­ing and tout­ing their fi­nan­cial aid pro­grams, be­cause that can im­prove their stand­ing and mar­ket po­si­tion in their com­mu­ni­ties. Those that don’t are “miss­ing an op­por­tu­nity to tell their story in a more ben­e­fi­cial way,” Fine says.

The Amer­i­can Hos­pi­tal As­so­ci­a­tion lob­bied the IRS to in­clude bad debt on tax re­port­ing forms as an un­rec­og­nized source of sub­si­dized care and com­mu­nity ben­e­fit. Tax of­fi­cials agreed to re­port­ing re­quire­ments, but ex­cluded bad debt from a list of sub­si­dized ser­vices that pro­vide a ben­e­fit to com­mu­ni­ties.

Hos­pi­tals and health sys­tems re­port­ing a high per­cent­age of bad debt that was at­trib­ut­able to low-in­come pa­tients ranged from solo hos­pi­tals in ma­jor metropoli­tan ar­eas to sub­sidiaries of large U.S. health sys­tems, ac­cord­ing to a re­view of 2010 data, the most re­cent pub­licly avail­able for all not-for-prof­its.

Loy­ola Univer­sity Med­i­cal Cen­ter, May­wood, Ill., ranked among those that said low-in­come pa­tients ac­counted for nearly all—95%—the hos­pi­tal’s bad debt. The 535-bed hos­pi­tal es­ti­mated $16.7 mil­lion of its $17.7 mil­lion in bad debt was at­trib­ut­able to bills charged to pa­tients who prob­a­bly were el­i­gi­ble for free or dis­counted care for the fis­cal year ended June 30, 2011. The med­i­cal cen­ter de­clined re­quests for in­ter­views with board mem­bers. It was ac­quired in 2011 by Novi, Mich.-based Trin­ity Health, and there was turnover on the board af­ter the ac­qui­si­tion.

In a state­ment in re­sponse to Mod­ern Health-

“Ul­ti­mately, the buck stops with the board.”

—Michael Fine McDer­mott, Will and Emery

care’s in­quiry, the med­i­cal cen­ter said the 2011 es­ti­mate “may be too high and we are in the process of cor­rect­ing it.” Dur­ing 2012, the med­i­cal cen­ter said pa­tients el­i­gi­ble for fi­nan­cial aid ac­counted for $4.3 mil­lion of the hos­pi­tal’s $14.3 mil­lion in bad debt, a sig­nif­i­cantly lower 30% of to­tal bad debt.

St. Louis-based BJC Health­Care, which op­er­ates 13 hos­pi­tals in Illi­nois and Mis­souri, re­ported that pa­tients who likely would have qual­i­fied for fi­nan­cial aid ac­counted for $82.7 mil­lion of the health sys­tem’s $88.1 mil­lion in bad debt for the year that ended in De­cem­ber 2010. That’s 94% of the BJC’s un­paid bills. In 2011, the fig­ure was 93%.

“Pa­tients do not al­ways par­tic­i­pate in this fi­nan­cial-as­sis­tance process for a va­ri­ety of rea­sons, and we have an ad­di­tional safety net in place for them through our pre­sump­tive char­i­ty­care process,” says Kim Kit­son, a BJC spokes­woman. “This process is based on a for­mula and im­ple­mented through a third-party provider to screen for pa­tients who have a fi­nan­cial need but were not iden­ti­fied dur­ing the ini­tial en­counter.”

Un­der the ACA, hos­pi­tals must wait at least four months af­ter send­ing the first bill to be­gin more ag­gres­sive col­lec­tion ef­forts for pa­tients who don’t ap­ply for fi­nan­cial aid. The law de­scribes th­ese ef­forts as “ex­tra­or­di­nary.” Ex­tra­or­di­nary col­lec­tion ac­tions in­clude le­gal ef­forts to col­lect a debt, sale of debt to col­lec­tion ven­dors and re­port­ing to credit bu­reaus, un­der pro­posed rules. The law also re­quires hos­pi­tals to ac­cept fi­nan­cial aid ap­pli­ca­tions for roughly eight months af­ter pa­tients re­ceive their first bill.

Verite’s Hearle says the law has spurred hos­pi­tals to de­velop “pre­sump­tive el­i­gi­bil­ity” strate­gies to iden­tify and en­roll pa­tients in fi­nan­cial aid with­out their hav­ing to ap­ply.

That strat­egy has won en­dorse­ment from fi­nance ex­perts with the Health­care Fi­nan­cial Man­age­ment As­so­ci­a­tion. Since 2006, HFMA guide­lines have urged hos­pi­tals to adopt im­proved poli­cies on in­com­plete fi­nan­cial aid ap­pli­ca­tions. That can in­clude use of credit re­ports to de­ter­mine pa­tients’ fi­nan­cial sta­tus. Four years ago, the HFMA re­leased a model fi­nan­cial aid pol­icy for hos­pi­tals that in­cluded cri­te­ria to iden­tify pa­tients in need of fi­nan­cial aid, such as those al­ready en­rolled in Med­i­caid and safety net pro­grams for food or hous­ing.

At least one state will re­quire hos­pi­tals to es­tab­lish pre­sump­tive el­i­gi­bil­ity poli­cies for fi­nan­cial aid. Illi­nois soon will man­date hos­pi­tals to try to en­roll pa­tients for fi­nan­cial aid us­ing pub­lic data when pos­si­ble. Later this month, state of­fi­cials will re­lease fi­nal rules on what types of records may be used to iden­tify low­in­come pa­tients. Cri­te­ria pro­posed in March in­cluded pa­tients who re­ceive rental, heat­ing or food as­sis­tance, and home­less or men­tally ill pa­tients who have no ad­vo­cate.

Th­ese short­cuts have sup­port from the state’s hos­pi­tals. Sandy Kraiss, a se­nior di­rec­tor at the Illi­nois Hos­pi­tal As­so­ci­a­tion, says the new rule and oth­ers en­acted last year will sim­plify and stan­dard­ize pa­tient ac­cess to fi­nan­cial as­sis­tance. That in­cludes manda­tory free care for the unin­sured with in­comes of less than 200% of the fed­eral poverty guide­line for ur­ban hos­pi­tals. The thresh­old for ru­ral or crit­i­cal-ac­cess hos­pi­tals is 125% of the poverty guide­lines.

Hos­pi­tals in other states have vol­un­tar­ily moved to iden­tify and en­roll pa­tients for fi­nan­cial aid and free med­i­cal care. Froedtert Health in Mil­wau­kee saw its char­ity-care spend­ing jump nearly 60% in one year, to $34.6 mil­lion from $21.7 mil­lion, af­ter the health sys­tem waived the re­quire­ment for pa­tients to present tax re­turns or other sup­port­ing doc­u­ments as part of fi­nan­cial aid ap­pli­ca­tions.

Miss­ing doc­u­ments were the main rea­son the sys­tem’s low-in­come pa­tients failed to qual­ify for sub­si­dized care, says Jon Neikirk, Froedtert’s as­sis­tant vice pres­i­dent for rev­enue cy­cle. Pa­tients still must file an ap­pli­ca­tion, but now it can be done over the phone.

In an­other change, Froedtert, which in­cludes three hos­pi­tals and a med­i­cal group, now re­lies on com­mer­cial credit-re­port­ing soft­ware to ver­ify pa­tients are el­i­gi­ble for fi­nan­cial aid. One of the sys­tem’s hos­pi­tals be­gan screen­ing and au­to­matic en­roll­ment be­gan in 2009, Neikirk says.

Froedtert Health di­rec­tors were not in­volved in ap­prov­ing the change be­cause man­age­ment sim­ply adopted a new op­er­a­tional strat­egy for en­roll­ment; it did not change pol­icy. None­the­less, the board was in­formed of the new strat­egy, he says.

For pa­tients who clearly couldn’t af­ford to pay their hos­pi­tal bills, he says, “we’ve helped to in­crease pa­tient sat­is­fac­tion.”

Froedtert Health’s safety net ser­vices in­clude a clinic in Menomonee Falls, Wis., for pa­tients with limited or no in­sur­ance. About three years ago, the Mil­wau­kee-based sys­tem also be­gan to use new screen­ing tools to iden­tify pa­tients who may be el­i­gi­ble for free or sub­si­dized care.

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