When a low-income patient seeks to obtain legally-mandated financial assistance from a nonprofit hospital, the onus of responsibility lies with the patient. The convalescent, the chronically ill, even the grieving widow is responsible for successfully completing an application for financial assistance (often called charity care) on her own. This is no mean task. Hospitals ask for earnings receipts, tax returns, bank statements, and utility bills. After amassing dozens of pages of documents and forms to prove income and assets, patients are often made to submit their applications by snail mail or fax machine. This is not the end of the patient’s work, though, as often this triggers a long series of back-and-forth interactions wherein the patient is made to answer additional questions, decipher confusing communications, and try to get someone to answer the phone in understaffed offices. As a result of this onerous process, patients who should have qualified for charity care instead regularly have the debts placed on their credit reports or sold to aggressive collectors.
This present configuration would not seem to follow logically from the letter of the law. The Patient Protection and Affordable Care Act (ACA) of 2010 states that a tax-exempt hospital cannot “engage in extraordinary collection actions before the organization has made reasonable efforts to determine whether the individual is eligible for assistance under the financial assistance policy.” Though the law does not specify what such “reasonable efforts” entail, hospitals can easily determine whether a patient is likely to qualify for charity care. They can, for instance, grant presumptive eligibility to patients who are already enrolled in other means-tested state benefits, including food stamps, WIC benefits, heating assistance, or free- or reduced-cost school lunches. (The median nonprofit hospital sets the income cutoff for free care at 200 percent of the federal poverty level; because these state programs often have even stricter income limits, qualifying for these benefits would usually indicate eligibility for free hospital care). Some hospitals also use proprietary software sold by credit agencies and other companies to estimate a patient’s income using a soft credit pull and other consumer data. Though such software has been available for decades, few hospitals use it to determine eligibility before sending patients bills.
Given the tools available to determine eligibility, one might think that their use would be required to meet the “reasonable effort” condition. Unfortunately, this is presently not the case. A 2010 report by the Joint Committee on Taxation deemed that “‘reasonable efforts’ include notification by the hospital of its financial assistance policy upon admission and in written and oral communications with the patient regarding the patient’s bill… before collection action or reporting to credit rating agencies is initiated.” In public comments on the subsequent regulations, hospitals and debt collectors were united in arguing that even these minimalist requirements were too much. They argued (ultimately unsuccessfully) that hospitals should not have to take even these efforts before selling patient debt to a third party or reporting to a credit bureau.
Thus, to satisfy the law, a hospital merely needs to include mention of the financial assistance policy in communications with the patient. All the work of demonstrating eligibility rests with the patient and can be made as onerous as the hospital would like. While some states have passed laws that require hospitals to do more to grant presumptive eligibility to patients for financial assistance, in most of the country hospitals only have to meet the minimalist requirements of federal regulations.
In at least some prominent cases, hospital administrators have been clear that the administrative hurdles to qualifying for charity care are deliberate. In 2022, the New York Times reported on practices at Providence, a nonprofit system with 51 hospitals across the Pacific Northwest. Providence paid McKinsey $45 million in 2019 to advise on how best increase patient revenues. The consulting firm developed training materials for hospital employees, in which they were told to inform all patients, no matter how poor, that “payment is expected.” They were also taught not to even mention the possibility of financial assistance until after asking for payment multiple times, and then offering to set up a payment plan. Thanks to vigorous enforcement of Washington State’s charity care law, which requires not only notifying patients about the availability of financial aid but screening of patients to check eligibility before seeking to collect payment, Providence settled a lawsuit filed by the attorney general and agreed to cancel or refund $158 million in medical bills to low-income patients.
Though Providence’s practices were not exceptional, these consequences were. Few hospitals have been reprimanded in any meaningful way for making it difficult for patients to access legally mandated charity care. While IRS auditors at mid-century frequently recommended revoking a hospital’s tax exemption when its charity-care program accounted for less than 5 percent of a hospital’s gross revenues, today such revocations almost never occur, and the average nonprofit hospital spends just 1.3 percent of total expenses on charity care. Administrative barriers remain an effective cost-cutting strategy for hospitals seeking to limit spending on financial assistance of low-income patients.
For hospital executives, limiting such spending remains an important piece of the larger strategy to improve the “payer mix,” that is, to maximize the share of patients seeking care for highly reimbursed kinds of care (such as cancer chemotherapy, orthopedic surgery, and cardiac procedures) and from private health insurance plans, which pay higher prices than public payers and far more than the uninsured. Low-income patients, particularly those without insurance, are the least desirable patients to treat in the political economy of health care established by our tiered system of reimbursements.
To mitigate the problem of hospitals denying financial assistance to those who qualify, there are some relatively straightforward solutions: the IRS should clarify that “reasonable efforts” require proactively screening all patients for presumptive eligibility before any bill is issued; and the IRS and state attorneys general should pursue stronger enforcement, in the vein of Washington State’s recent action against Providence. However, the truth is that so long as impoverished patients are second-class citizens in American medicine, hospitals will try to shirk their legal obligations. The ultimate fix is a single-payer system, free at the point of care, in which all patients are equally worthy and equally remunerative.
