The hospital industry, particularly the not-for-profit sector, appears to have dodged a legislative bullet last week as some of the industry's high-profile executives went to Capitol Hill to defend their organizations' business practices. At a series of three hearings-two in the House and one in the Senate-lawmakers grilled the heads of leading healthcare systems and other tax-exempt organizations on topics ranging from what not-for-profits do to deserve their tax-exempt status to executive compensation to how hospitals bill and collect money from poor patients.
But despite hours spent in the congressional hot seat, legislative remedies aimed at curing perceived ills seemed unlikely to be introduced by year's end. Still, industry officials said they expect tax exemptions and billing practices will get serious attention from Congress next year. They said hospitals must continue to defend their tax exemptions, publicize prices and modernize their billing practices.
And then there's still those pesky class-action lawsuits to deal with. Last week, class-action lawyers filed a second round of lawsuits against not-for-profit hospitals and the American Hospital Association, bringing to 18 the total number of hospitals and systems that are facing patient lawsuits accusing them of using tax exemptions to benefit board members and doctors while charging unfairly high prices to the uninsured.
A hearing held by the House Ways and Means Committee's oversight subcommittee looked at the tax-exempt status of hospitals and featured testimony by hospital executives, academics and policy analysts. Another hearing held by the Senate Finance Committee looked at ways to prevent fraud committed by charities. A third hearing held by the House Energy and Commerce Committee's subcommittee on oversight and investigations featured consumer advocates, hospital executives and government officials testifying about hospital billing and collection practices pertaining to the uninsured.
In the House Ways and Means Committee hearing, Chairman Bill Thomas (R-Calif.) pressed hospitals and industry analysts to show that not-for-profits provide more community benefits than for-profit hospitals to compensate for their tax exemptions. He said hospitals represent 41% of tax-exempt 501(c)(3) organizations.
"If in fact there are as many for-profits that can be shown to give a break to low-income (patients) as not-for-profits, then that's not really a difference for receiving (the) tax benefit," Thomas said.
Regarding how much community benefit hospitals provide, "Lack of reporting, information (and) transparency makes it difficult to answer such a question," said one of the witnesses, Nancy Kane, professor of health policy and management at the Harvard School of Public Health. Still, she added, "Most not-for-profits do not earn the value of their tax exemptions with charity care."
David Bernd, who chairs the American Hospital Association's board of trustees and serves as president and chief executive officer of Sentara Healthcare in Norfolk, Va., told Thomas that "The not-for-profit mission is much wider than just providing indigent care," a view echoed by others including the Rev. Michael Place, who heads the Catholic Health Association.
Bernd objected when Thomas asked if the federal government should revoke the tax exemptions of 501(c)(3) hospitals and use the resulting funds to cover the uninsured.
House aides and healthcare lobbyists said last week that the Ways and Means Committee, which has jurisdiction over Medicare and tax policy, had not yet decided whether to introduce legislation that would address hospital tax exemptions. Thomas plans first to hold more hearings on exemptions, said his spokeswoman, Christin Tinsworth.
Some lawmakers who participated in the Ways and Means hearing expressed confusion about the purpose and goal of the session, which was publicized as a "hearing on the pricing practices of hospitals" even though it was also part of Thomas' tax-exemption examination. "I'm not entirely sure why were taking this trip," Rep. Earl Pomeroy (D-N.D.) said more than an hour into the hearing, which touched on everything from Medicare payment rates to the cost of new technology.
In the Energy and Commerce Committee hearing, legislators were deciding how much further they need to look into the billing and collection practices of hospitals and whether legislation will need to be mandated to regulate the industry. But these are complex issues. Larry Goldberg, a director in the Washington office of Deloitte & Touche, said, "Many of today's charges are the outgrowth of years and years of cost-based reimbursement issues which are basically no longer relevant."
Meanwhile, hospitals are gearing up to fight a possible attempt by Congress to rescind or make it harder to earn a tax exemption. One nascent group, the Tax-Exempt Leadership Coalition, last week said it had assembled at least a few interested parties representing hospitals, GPOs and foundations to monitor the issue. While legislation to clamp down on tax exemptions may not be coming this year, it may come next year and not-for-profit hospitals have good reason to be concerned, according to spokeswomen for the coalition. The coalition has no official members and declined to name involved parties.
Some hospital leaders expressed confidence that their tax-exempt status was secure. Catholic and not-for-profit hospitals provide a broader range of services, including those that are less profitable, to meet community need, Place told Modern Healthcare. "I see no imminent threat to the tax-exempt aspect of not-for-profit healthcare," Place said.
"Congress has a right to inquire into any subject, so they have a right to ask (about tax exemptions), but there are probably more productive areas for their attention, such as solving the underlying problem of the 44 million un-insured," said Bonnie Ross, senior vice president of strategic initiatives at Thompson Health, a 113-bed hospital in Canandaigua, N.Y., that Rep. Amory Houghton Jr. (R-N.Y.) said is an example of how hospitals can provide sliding-scale discounts to low-income patients.
Witnesses told the Senate Finance Committee that all charitable organizations should be audited more often and there should be greater regulatory oversight of their governing boards. A document circulated among committee staff for discussion last week included a proposal that would have the government review a tax-exempt organization's status every five years to ensure that it "continues to be organized and operated exclusively for an exempt purpose."
The draft proposal also would bring the federal government into hospital boardrooms by making breaches of fiduciary duty a federal violation, said Michael Peregrine, a healthcare lawyer at McDermott Will & Emery in Chicago, who argued current state laws are enough to meet the level of abuse.
The Finance Committee's proposal, Peregrine said, "is far more disconcerting than what Thomas is doing" in the Ways and Means Committee.
Hospital lobbyists said it was unclear in which direction the Finance Committee is going and that it would be premature to speculate about potential new regulations or laws. And while the industry is paying close attention to how the Energy and Commerce Committee will proceed, at this point, the focus is on self-repair.
In testimony before the Energy and Commerce Committee, leaders of five healthcare systems said that in recent months their facilities have taken major steps in publicizing their prices in hospitals, developing guidelines on ensuring people who qualify for public or charity programs are directed toward them and easing their collection efforts to prevent overly aggressive pursuit of debts.
Among those testifying were officials from five of 20 hospitals systems ordered by the committee to produce thousands of records on their billing and collections practices last summer. (July 21, 2003, p. 8) The panel requested 51/2 years of data in 20 different areas including bad debt, charity care, collection practices, pricing methods, screening for financial assistance eligibility and revenue sources.
Hospitals said the information request constituted a major burden, as the systems spent thousands of dollars to collect and transport the data to Washington, although at the time the AHA said it welcomed the congressional probe as a way of exposing the complex underlying causes of cost-shifting, including the growing uninsured population.
No mention was made at the hearing of what the committee might have learned from the documents.
Changing their approach
Trevor Fetter, president and CEO of Tenet Healthcare Corp., the nation's second-largest for-profit hospital chain, told the committee that its 99 hospitals treat more than 500,000 uninsured patients each year, at a monthly cost of $20 million. In addition, Tenet provides $15 million in charity care each month.
In 2002, in reaction to complaints about its billing and collection practices, Tenet set about changing its approach. It now does not sue uninsured patients if the patient is unemployed or lacks significant income, Fetter said. It also will not impose liens on a patient's home if it is the patient's only significant asset.
"These two changes in our collection practices have reduced by 90% our patient litigation and lien activity since 2002," he said.
In addition to individual initiatives, the AHA has created a set of principles on discounting for the uninsured that includes providing financial counseling to patients who need it; disseminating information about public and charity programs to help patients with their medical bills; educating staff about their written policies on billing issues; and defining standards and scope of practices to be used by outside collection agencies. The AHA said 2,600 hospitals have pledged to support the principles.
But not everyone is convinced that hospitals will do the right thing if left to their own devices. "How can we be sure hospitals will adopt these guidelines if we don't have legislation?" asked Rep. Henry Waxman (D-Calif.).
Referring to media reports that some uninsured patients who may be eligible for charity care in HCA hospitals are not told about it (See sidebar, p. 7), Rep. James Greenwood (R-Pa.) said it remains to be seen how seriously hospitals are taking the issue.
"They offered this admission, unfortunately, only after being confronted with a report by an advocacy group," Greenwood said, referring to Consejo de Latinos Unidos, an advocacy group that has criticized hospitals for charging uninsured patients higher prices than health plans.
Officials from Ascension Health, Catholic Health Initiatives, HCA and New York-Presbyterian Hospital also testified.
Rep. Cliff Stearns (R-Fla.), pointing to a chart showing a sharp uptick in the prices charged to uninsured patients from 2000 to 2002, told a panel of hospital executives, "If you want to prevent Congress from coming in with the Hefley bill or any price control," they will have to police themselves more diligently. He referred to legislation introduced in March by Rep. Joel Hefley (R-Colo.) that would cap the prices hospitals can charge uninsured patients at 125% of Medicare rates. The bill is in the Energy and Commerce Committee.
Pressure on hospitals to change their billing and collection practices for uninsured patients has been mounting in recent weeks, particularly for the majority of hospitals that are tax-exempt. Last week, a group of class-action lawyers added five more health systems to a round of 13 lawsuits filed against not-for-profit hospitals and health systems the week before. The lawsuits, which also name the AHA, allege that the hospitals and systems breached their obligations to provide charity care by overcharging uninsured patients and engaging in abusive collection practices.
"This has been a bad couple of weeks for nonprofit healthcare," Peregrine said.
Some observers agree that the chances of legislative action regulating the billing and collection practices of hospitals is unlikely in the near-term. Mark Rukavina, executive director of the Access Project, a resource center for consumer advocates, said the hearings may be a way for Congress to tackle the uninsured issue in a way that won't cost the government any money. "I wonder if in this important election year, when we are dealing with tight budgets, whether this is a call from Congress for hospitals to provide some relief to the uninsured," he said.
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