Amid national outrage over the treatment of uninsured patients, hospitals are under pressure to do something many have long resisted: disclose exactly how much free care they give to people who can't afford to pay.
While hospitals track the amount of charity care they provide and report it to their national trade association, not all release it to the public. Those that do don't always say whether the figures are based on the actual costs to provide care or on their much higher list prices for services.
Further clouding the issue, often no distinction is drawn between charity care, which is provided without expectation of payment, and bad debt, in which charges are billed and not paid. In reporting community benefits, some hospitals lump in shortfalls generated by services to Medicaid and Medicare patients, volunteers' time, medical-education costs, discounts to third-party payers and the costs of operating health fairs and screenings.
The federal government wields no control. An informal survey conducted this month by Modern Healthcare found that most hospitals didn't report charity care in their most recent annual public disclosures despite an Internal Revenue Service directive that tax-exempt organizations give "complete" descriptions of charitable services.
Right now, charity care data are "all over the map," complained Susan Sherry, deputy director of Community Catalyst, a national consumer advocacy group. Having clearer data is "fundamental to accountability and to understanding what's being done for un-insured people who can't afford to pay."
Some financial advisers are concerned that charity-care standards are so lax that hospitals won't be able to defend their tax exemptions in court.
"There are incentives to gross (charity care) up to the highest figures possible," said Stephen Weyl, a lawyer who heads the healthcare practice at Sheehan Phinney Bass & Green. "Everybody agrees that when a poor person comes in and is given a write-down for free care, that's charity care. But that's where the agreement ends."
With hospitals under pressure to explain what they are doing for the nation's growing uninsured population, consumer groups spy an opportunity to trumpet the lack of charity-care standards. As part of Community Catalyst's Patient Financial Assistance Principles, which it plans to release this week, the group is recommending that states require hospitals to annually report their actual costs of providing charity care, exclusive from bad debt and shortfalls from third-party payers.
The principles, which were provided exclusively to Modern Healthcare, call for hospitals to waive charges for uninsured people with incomes of up to 200% of the federal poverty level and to discount care for patients who make up to 400% of the poverty level and for those whose medical expenses would deplete their resources. They also advocate that states require hospitals to provide free care for nonemergency services, publicize the availability of financial assistance, create a simple application process and limit interest rates to 3%.
The standards are being released just prior to two scheduled hearings this week on Capitol Hill-a review of hospital billing and collection practices for the uninsured in the House Energy and Commerce Committee, and a House Ways and Means Committee examination of tax exemptions for hospitals and other organizations.
The lack of charity-care data was raised in a wave of class-action lawsuits filed last week on behalf of uninsured patients against 13 not-for-profits, charging they use abusive billing and collection tactics (See story, this page). The lawsuits follow tax-exemption challenges of Yale-New Haven (Conn.) Hospital, which faced a class-action lawsuit alleging that it failed to inform patients that they were entitled to charity care, and Provena Health in Mokena, Ill., which was levied more than $1 million when one of its hospitals lost its property tax exemption after patient complaints about aggressive collection tactics.
Charity-care lawsuits
Concerned that heightened legal activity could hurt hospital's borrowing ability, Weyl said this summer his firm is beginning to require its hospital and health system clients to address potential lawsuits over charity care in bond prospectuses, including an accurate assessment of charity care. Likewise, James Unland, president of the Health Capital Group, a valuation firm, told Modern Healthcare his firm will stop issuing valuation and creditworthiness opinions and validating bond ratings for hospitals that fail to demonstrate that they are taking "reasonable steps" to determine whether patients qualify for charity or discounted care and monitor their collections practices.
Weyl said investors want to make sure there is no risk that a hospital could lose its tax exemption, which would create tax liabilities and dampen charitable contributions, or incur patient lawsuits similar to those filed last week. "Investors want to make sure there is no risk-that the hospital is a bona fide charity," Weyl said.
At least two federal bills were introduced in the early 1990s that would have set standards for hospitals to qualify for federal tax exemptions, including benchmarks for charity care, but they never became law. Sherry said there may finally be enough public understanding of the issues to force hospitals to release better data. "Policymakers as well as consumer groups have gotten much smarter about the numbers that hospitals have been throwing around," she said.
The Community Catalyst guidelines, which serve as a basis for model state legislation that the group plans to recommend this summer, far surpass existing state laws as well as guidelines on charges, charity care, billing and debt collection put forth by the American Hospital Association last year. The AHA guidelines call for hospitals to "assist patients who cannot pay" but don't lay out the extent of assistance that hospitals should provide. As of late last week, 2,336 of 5,545 hospitals nationally had signed a "confirmation of commitment" stating that they meet the AHA guidelines or are working to do so.
The AHA said uniform standards for charity care would be unfair. How much charity care to provide "is a decision that a hospital reaches based on the financial characteristics of the community and the financial wherewithal of the hospital," said Carmela Coyle, the AHA's senior vice president for pol-icy. "The appropriate level in New York City may look very different than that of rural Iowa."
Hospitals' defense
Variation among hospitals' charity-care policies has served as an industry defense for keeping aggregate data a secret. The AHA collects charity-care data in its annual hospital survey but does not report the total. Instead, it reports uncompensated care, which includes bad debt as well as charity care. For 2002, the total was 5.4% of total hospital expenses.
Coyle said not only do hospitals use different percentages of the federal poverty level to determine who qualifies for free care, but there are judgment calls in how to interpret patient financial data. "It's sometimes very difficult if not impossible to separate a patient that might be considered a charity-care patient from one who doesn't pay their bill," Coyle said.
Healthcare Financial Management Association President Richard Clarke said he expects charity-care volumes to increase as a result of hospitals' efforts to qualify more patients for charity care, while their uncollected charges decline. But he says that accounting shift won't make a dent in the overall amount that hospitals collect. "Whether it's charity care or bad debt, you're not going to get the cash," Clarke said.
But some hospitals obfuscate even those figures in their public disclosures.
On its Web site, Spectrum Health in Grand Rapids, Mich., reports $70 million of community benefits for 2003. More than half of that was what the system considered to be underpayments from the state Medicaid program.
Spokesman Bruce Rossman said Spectrum provided just $3 million of traditional charity care, but reporting only that figure would be "extremely narrow." "Because you end up ignoring the biggest charity care of all, the uncompensated care provided to a large Medicaid population. That's why we focus on community benefit or uncompensated care, to make sure these facts aren't ignored."
Many hospitals and systems, Spectrum included, told Modern Healthcare they don't report charity care on their IRS Form 990s because there is no specific line item for it. Others said charity-care data are available from other sources, such as their Web sites. The most detailed reports were submitted by facilities that operate in the handful of states with charity-care reporting requirements, such as California, Florida and Texas. IRS spokesman Tim Harms said the agency reviews Form 990s but "wouldn't take action" against a tax-exempt hospital simply because it fails to provide a complete description of its community benefits.
One health system said it recently changed its reporting practices. Appalachian Regional Healthcare, Lexington, Ky., included a total for "uncompensated care" in its most recent 990, which was filed in May and not included in the survey. "The way the 990 is used by folks more than anything now, we feel it was an important part of getting information about ARH out," said Chris Ellington, the system's chief financial officer.
Ellington said the system previously didn't mention charity care because it is "not a required line item. It's not that we are unwilling to provide it. We're more than happy to."
Meanwhile, the industry remains on the defensive. While the HFMA launched an initiative four years ago to make hospital bills easier to read, it only recently formed a task force to help hospitals revamp their billing and collections for the uninsured. Since starting work in April, Clarke said the task force has been stalled because the issue has been "a moving target," but it hopes to produce some recommendations by fall.
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