Rising U.S. healthcare costs, along with the steady growth of consumer-driven healthcare, make it unlikely that not-for-profit hospitals will escape continuing debate over their charity-care, billing and collection policies. As employers push a greater share of medical bills—some of them staggeringly large—onto individual consumers, the percentage of patients unable to pay all or some of their bills is expected to rise, a trend some hospitals are already witnessing.
The controversy over whether not-for-profits earn their tax-exempt status by providing charity care or other benefits basically boils down to hospitals' idiosyncratic policies for tallying and publicly reporting such expenses. Industry efforts to set a voluntary standard for what to count as charity expenses recently stalled after the American Hospital Association and the Catholic Health Association offered competing proposals. The AHA argues unpaid bills, or bad debt, and costs not covered by Medicare should count toward hospitals' charity total. The CHA disagrees. Bad debt is considered the cost of care for patients who don't pay their bills. Charity care is typically the cost of free or discounted care for low-income patients who often can't pay their bills.
Rumblings from Congress and the Internal Revenue Service suggest voluntary efforts may be too late. The IRS earlier this year mailed out letters containing so-called soft audits seeking details on how and how much hospitals spend on charity care. The move follows congressional inquiries and an ongoing probe into not-for-profit oversight by Sen. Chuck Grassley (R-Iowa) (See related story, p. 42).