The Changing Face of Charity Care Determinations

Emily A. Boyd
Senior Editor
Loyola University Chicago School of Law, JD 2019

Since the enactment of the Affordable Care Act, hospitals have faced strict and substantial regulations regarding the provision of financial assistance to patients in the form of “charity care.” An essential element in a hospital’s ability to maintain tax-exempt status and financial solvency, charity care has worked to serve uninsured and indigent patients while helping charitable hospitals serve their mission and retain the benefits that come with it. The state of Pennsylvania recently passed legislation requiring more explicit and affirmative acts to provide charity care to more eligible patients. The change is unprecedented, and other states look to be slowly responding in their own ways. Compliance with these changes is most beneficial with proactive measures and risk assessments even before change comes through the doors.

Charity Care as Mandated by the Affordable Care Act

In 2013, Becker’s reported on the charity care requirements for hospitals put in place by the Affordable Care Act (ACA). The ACA introduced several new requirements within hospital financial assistance programs and created a new area of compliance regulations to be met. “[M]uch of the established way of dealing with uninsured patients changed with the enactment of the [ACA]. [It] created a new provision in section 501 of the Internal Revenue Code, subsection (r). That subsection, which applies to facilities licensed as hospitals under state law, contains new requirements for uncompensated care. The law also imposed new reporting requirements on hospitals.” Hospitals are now met with four stringent regulations subject to a penalty of $50,000 in annual excise tax:

  1. The community health needs assessment,
  2. Financial assistance policy,
  3. Limitations on charges, and
  4. Billing and collections practices.

In the years since the ACA’s enactment, hospitals have made the necessary changes, and any quick internet search will lead to a given hospital’s financial assistance policy and application for charity care. Northwestern Hospital’s financial assistance page can be found here, while Thorek Hospital, a much smaller enterprise, provides the same through a similar direct link at the top of its home page.

Unclear Guidelines and the Threat of Impending Litigation

Five years ago, the concern was that “the proposed regulations do not provide helpful guidance on who should be eligible for financial assistance.” Hospitals explicitly identified to have a charitable mission are to make their own eligibility criteria and hope to fall within the limits needed to retain tax-exempt status and adherence to the organization mission. “If a hospital set the standard too low so that many of those without insurance do not qualify for financial assistance, the hospital’s status as a charity will be questioned. On the other hand, setting the standard too high will cause hospitals to limit their charges to those who may be able to pay the gross charges, and will disincentive those individuals from obtaining insurance.” In 2018, guidance is still consistently being published to help direct hospital compliance with the law given uncertainty as to the limitations of the regulation and the necessary steps to comply. The uncertainty is compounded by cases like Provena Covenant Medical Center v. Department of Revenue in which the charitable hospital was stripped of its tax-exempt status, in part, for “not clearly [demonstrating] that it ‘dispensed charity to all who needed it and applied for it’.” The hospital chairman reported that it had provided nearly $40 million in free care and community benefits in 2008 alone. In September 2018, the Illinois Supreme Court upheld the state’s tax-exemption statute for charitable use hospitals, but skeptics argue hospitals are no better situated after the decision: “While the court made it clear that the new state law was an addition — not a replacement — for constitutional requirements . . . the justices didn’t spell out what a nonprofit hospital has to do to meet the test of exclusive charitable use.”

Perhaps in reaction to the continued uncertainty and want for explicit guidelines, states have begun to interject requirements about how hospitals notify patients of their eligibility for, and pre-determined acceptance under, its financial assistance programs.

Change Begins in The Keystone State

In January 2018, the Pittsburgh Post-Gazette reported that the state of Pennsylvania had enacted “a new state definition of charity care [that] now requires hospitals to notify patients of their charity care eligibility, even if the hospital determined it without the patient’s cooperation.” This change takes the ACA provisions a step further. Hospitals are already required to conspicuously post notices regarding the availability of financial assistance, but now, in Pennsylvania at least, they must make affirmative steps to determine charity care eligibility and notify patients of their eligibility. Compliance is determinative to whether the hospital will receive money from the state’s Tobacco Settlement program. While many hospitals were providing patients with this type of information through advanced presumptive eligibility tools, there was no previous requirement to inform patients of their eligibility, even if they did qualify.

Just one month later, a handful of California hospitals called on the state’s Attorney General to reduce charity care requirements. However, more restrictive changes to the Washington state charity care laws took effect on October 1, 2018. All of this comes after some hospitals scaled back their charity care programs in response to Medicaid expansion and the ACA generally. Becker’s reported in 2014 that hospital charity care might be coming to an end. However, they concluded their evaluation in light of shifting numbers of uninsured and indigent patients with retained confidence in the practice: “While several healthcare organizations have decided to scale back the financial assistance they offer, a great deal of hospitals and health systems are choosing to leave their charity care programs in place and unaltered for the time being, which will help ensure low-income individuals are able to afford the medical services they need.”

Proactive Compliance

As with all new regulations and compliance requirements, the healthcare industry is best served when providers can anticipate the change and begin complying before it officially “hits the books.” A number of states will likely follow in Pennsylvania’s footsteps introducing mandatory notification and expansion of presumptive eligibility procedures for charity care in hospitals. Technology for presumptive eligibility may need to be upgraded or updated – necessitating training and education through intake, billing, and patient services departments. Compliance leaders in hospitals should research throughout current and changing laws inter- and intrastate to make informed recommendations to hospital leadership and governing boards in order to best anticipate this at high risk for significant penalties given non-compliance.

Hospital leadership may decide to alter and/or expand its charity care procedures and policy to reflect the more restrictive and “charitable” approach without the force of law behind it. Whether motivated by the threat of litigation or a truly charitable conscious, perhaps patients in need of financial assistance will still come out ahead.