In addition to attempts to curb abuses by healthcare provider executives, states are targeting hospitals with regard to their charity-care policies. The latest was Illinois' attorney general, who last week fired the latest in a series of legislative volleys aimed at tightening tax-exempt hospitals' charity-care obligations and curbing aggressive hospital debt-collection practices.
Speaking before dozens of state legislators, union leaders, uninsured patients and community activists, Attorney General Lisa Madigan proposed two bills: one that would require tax-exempt hospitals to spend at least 8% of their operating costs on charity care, defined to include Medicaid shortfalls, bad debt and care provided at their clinics; and a second to restrict hospital debt-collection practices.
Madigan's announcement comes amid growing scrutiny of tax-exempt hospitals by Congress, the Internal Revenue Service, state legislatures and attorneys general. Several class-action lawsuits have been filed by uninsured patients, as well.
Since 2004, legislators in at least 20 states have proposed legislation demanding that hospitals stop hardball debt collection practices and offer more charity care or face restrictions on valuable tax exemptions.
At a Jan. 23 news conference in Chicago, Madigan assailed not-for-profit hospitals in Illinois for "not living up to their end of the (tax-exempt) bargain" of dispensing charity care to all who need it and apply for it in exchange for millions of dollars in tax exemptions. She said Illinois' not-for-profit hospitals provided charity care amounting to less than a 1% average of their total charges in 2003.
Under the proposed Tax-Exempt Hospital Responsibility Act, hospitals would have to offer free care to uninsured patients earning up to 150% of the federal poverty level and sliding-scale discounts to patients earning between 150% and 250% of the poverty level. The Hospital Fair Billing and Collection Practices Act would require hospitals to give patients itemized bills in "clearly understandable language," establish a toll-free hotline for questions and allow patients to pay bills in installments.
Hospitals found in violation of the act would face fines of up to $10,000. Failure to comply with the law could cost not-for-profit hospitals their tax exemptions, she said.
Critical-access hospitals, though, would be exempt from the requirement.
Madigan and the state legislators introducing the bills into both chambers predicted passage and said the proposed legislation would "dramatically change the way hospitals do business" in Illinois. Madigan, a Democrat, is the daughter of powerful Illinois Speaker of the House Michael Madigan. Both chambers and the governor's office are controlled by Democrats.
The local hospital association was not receptive. Illinois Hospital Association President Kenneth Robbins said in a statement: "The hospital community has serious concerns and many questions" about the proposals. "In their present form, the proposals could be a real threat to the well-being of many hospitals, which are already facing serious financial challenges," Robbins said. He said Illinois hospitals provide more than $1.2 billion in free care annually. In 2003, the IHA and the Metropolitan Chicago Healthcare Council adopted voluntary guidelines to provide free care to patients earning no more than the federal poverty level and discounted care to patients earning 100% to 200% of the poverty level, he said.
"The guidelines also call for reasonable, fair and consumer friendly billing and collection practices," pointing out that "nearly all Illinois hospitals meet or exceed the guidelines." He said free care alone should not be the measure of a hospital's community benefits and should include emergency, trauma, burn and neonatal care, home health, mobile units, health classes and drug-rehabilitation programs.
James Unland, a healthcare financial consultant and president of Health Capital Group, said Madigan's proposal differs from those in other states for its sensitivity to hospital financial challenges. "One very dramatic departure from other state legislative efforts is Madigan's willingness to count the shortfall on Medicaid towards the mandated 8%," Unland said.
"That gesture makes a huge difference," he said. "Because of it I think the hospitals most hurt by those won't be the high Medicaid hospitals, but those who have little Medicaid business, but are poorly managed with low market share. But there is nothing unreasonable about this."