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Member Research and Reports

Member Research and Reports

Are Hospitals Telling Patients About Charity Care Options? New Michigan Study Finds Room for Improvement

If you don’t have health insurance, or your insurance coverage still leaves you with big bills, hospitals are supposed to let you know if you qualify for free or reduced-price care, and to charge you fairly even if you don’t.

That is, if they want to keep their tax-free nonprofit status under the Affordable Care Act’s new Section 501(r) rules.

But a new study from the University of Michigan School of Public Health finds many nonprofit hospitals have room to improve.

Writing in the October 29 issue of the New England Journal of Medicine, the researchers report results from their review of Internal Revenue Service forms submitted by more than 1,800 nonprofit hospitals nationally. They looked at records for 2012, the first year hospitals had to comply with the ACA’s requirements and the most recent year for which data were available.

A mixed bag of findings

Michigan postdoctoral fellow Dr. Sayeh Nikpay and Dr. John Z. Ayanian, Michigan professor of health management and policy, call hospitals’ performance “far from perfect”. Their key findings:

Playing by the rules? 

Nonprofit hospitals are exempt from paying most taxes, which was valued at $24.6 billion in 2011. In return, they must justify their nonprofit status to the IRS each year by showing how much care they write off for those who cannot pay.

When Congress wrote the ACA, they sought to use the tax tools available to them to reduce hospitals’ use of aggressive methods to pursue payment, and perhaps to prevent individual bankruptcies or credit score damage caused by medical bills.

Though hospitals had to report for tax year 2012, the federal government did not issue final language about exactly how to comply and penalties for non-compliance until 2014. Dr. Nikpay and Dr. Ayanian will continue to study the issue as new IRS data become available. They are already working on 2013 data.

“Hospitals are generally complying with the part of the rules that require they establish charity care policies and publicize them, but this may not impact the amount of charity care they provide,” says Dr. Nikpay, who is also a visiting scholar at the University of California, Berkeley School of Public Health. “So far, it appears many aren’t complying with the part of the rules that could increase their charity care.”

Dr. Ayanian, a professor with joint appointments in the medical school, public policy and public health, says physicians and patients should familiarize themselves with policies at their hospitals.

“Financial protection for patients is an under-recognized component of the ACA, and it’s important that hospitals are required to have policies, that they disclose these policies, and that they enable people to apply for help in a timely way,” he says. “This will be most important for patients living in states that have not expanded Medicaid to cover people with lower incomes. Hospitals in those states will likely experience additional demand for charity care because they now need to publicize their charity care policies and comply with other IRS provisions.”

With these added requirements, hospitals may start to pull back on how generous they make their charity care policies – and Section 501(r) of the ACA does not set standards for that, Dr. Nikpay notes.

As more Americans enroll in insurance plans that have high deductibles, they may find they need to ask for financial relief after a hospital stay. Even a single person earning $40,000 a year, or a family of four with an income of around $80,000, might qualify for discounts from many hospitals.

Ayanian nikpay

[Photo: Dr. John Z. Ayanian (left) and Dr. Sayeh Nikpay]

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