Post PPACA Patient Billing: What Does a Nonprofit Hospital Need To Know Now?

Spring Issue 2010Newsletters Staying Well Within the Law

Although portions of the PPACA governing health insurance coverage and rating requirements are familiar to carriers, health care providers and patients in the context of individual health coverage and small employer health benefits plans, and other portions are reminiscent of or similar to laws affecting the provision or payment of health care services, there are key differences that affect nonprofit acute care hospitals.

Section 9007 of the PPACA looks innocuous enough, titled simply "Additional Requirements for Charitable Hospitals." However, this section revokes a charitable hospital's tax-exempt status under Section 501(c)(3) of the Internal Revenue Code of 1986 if the hospital fails to meet any of the following requirements:

  • Community health needs assessment requirements;
  • Financial assistance policy requirements;
  • Limitations on charges requirements; and
  • Billing and collection requirements.

Community Health Needs Assessment

Section 9007 does not include a great deal of detail on how these requirements are to be met, but does state that the community health needs assessment must actually be conducted once every three years (in the taxable year or in either or the two years preceding the taxable year), and the hospital must adopt an "implementation strategy to meet the community health needs identified" by the assessment. The assessment must take into account input from "persons who represent the broad interests of the community served" by the hospital, including those with a knowledge of or expertise in public health, and must be made widely available to the public.

Financial Assistance Policy

The hospital's financial assistance policy must be a written policy that includes:

  • Eligibility criteria for financial assistance and whether the assistance includes free or discounted care;
  • The basis for calculating amounts charged to patients;
  • The method for applying for financial assistance;
  • If the hospital does not have a separate billing and collections policy, the actions the hospital may take in the event of non-payment, including collections actions and reporting to credit agencies; and
  • Measures to widely publicize the policy within the community to be served by the hospital.

Limitations on Charges

Hospitals must have a limitation on charges policy that limits amounts charged for emergency or other medically necessary care provided to individuals eligible for assistance under the financial assistance policy to amounts that are not more than those charged to individuals who have insurance covering such care. In addition, hospitals are prohibited from "the use of gross charges. "The "Technical Explanation of the Revenue Provisions of the 'Reconciliation Act of 2010,' as Amended, in Combination With the 'Patient Protection and Affordable Care Act'" prepared by the Staff of the Joint Committee on Taxation dated March 21, 2010 (JCT Report), explains this requirement as follows:

Each hospital facility is permitted to bill for emergency or other medically necessary care provided to individuals who qualify for financial assistance under the facility's financial assistance policy no more than the amounts generally billed to individuals who have insurance covering such care.A hospital facility may not use gross charges (i.e., "chargemaster" rates) when billing individuals who qualify for financial assistance. It is intended that amounts billed to those who qualify for financial assistance may be based on either the best, or an average of the three best, negotiated commercial rates, or Medicare rates. [JCT Report, p. 82]

Other portions of the PPACA may work to prevent insured patients from facing unexpectedly high (and potentially unaffordable) bills, but it remains to be seen how the various parts of the PPACA will be interpreted by the responsible agencies and how these various parts may ultimately correlate to one another. For example, Section 2719A of PPACA, "Patient Protections," provides that emergency services must be covered by health plans and health insurers in a manner that does not discriminate against a patient having accessed the services at a hospital that is not participating in the carrier's network—the carrier may not require prior authorization or limitations in coverage related to the patient's having received emergency services at a nonnetwork hospital. In addition, the patient's "cost-sharing requirement (expressed as a copayment amount or coinsurance rate) … [must be] the same requirement that would apply if such services were provided in-network." These provisions may be interpreted in a manner that would, at least for emergency services, effectively eliminate the need (or perhaps, ability) for the hospital to bill even insured patients high amounts, regardless of the patient's eligibility under the hospital's financial assistance policy.

Billing and Collection

The requirements related specifically to billing and collection prohibit the hospital from engaging in "extraordinary" collection actions before the hospital has made "reasonable efforts" to determine whether the patient is eligible for assistance under the financial assistance policy.

A charitable hospital might be tempted to roll through these requirements and assume that the hospital's charity care eligibility policy satisfies these new PPACA requirements or that its current financial assistance policy will satisfy these new requirements for continuation of the hospital's tax-exempt status. However, even a hospital with a well-publicized and routinely implemented financial assistance policy may fail to meet the requirement that it cap charges to qualified patients to Medicare rates (or to the best, or an average of the three best, negotiated rate(s)) paid for the service or supply. Worse, a hospital that merely determines whether a patient qualifies for charity care may be overlooking a large portion of its patient population that is underinsured or whose individual financial circumstances warrant a determination of eligibility for financial assistance, despite the existence of in-force health insurance coverage.

If, for example, a hospital finds that an insured patient is liable for a high deductible or coinsurance amount, it must determine whether the patient qualifies for financial assistance before it bills the patient, as eligibility for financial assistance impacts the amount permitted to be billed.The hospital also may not use a collection agency to collect unpaid amounts from a patient until the hospital makes "reasonable efforts" to determine whether the patient qualifies for financial assistance. Regulations adopted by the Internal Revenue Service are likely to provide additional guidance on issues such as whether insured patients who may have high out-of-pocket liability despite their insurance coverage must be screened for financial assistance eligibility or the manner in which the hospital must "widely publicize" its financial assistance policy to its community.

Penalties for Noncompliance

Penalty for noncompliance is high: loss of tax-exempt status, compounded by a penalty (or "excise tax") of $50,000 per year for failure to satisfy the community health needs assessment requirements. As more fully explained in the JTC Report:

Failure to complete a community health needs assessment in any applicable three-year period results in a penalty on the organization of up to $50,000. For example, if a facility does not complete a community health needs assessment in taxable years one, two or three, it is subject to the penalty in year three. If it then fails to complete a community health needs assessment in year four, it is subject to another penalty in year four (for failing to satisfy the requirement during the three-year period beginning with taxable year two and ending with taxable year four). An organization that fails to disclose how it is meeting needs identified in the assessment is subject to existing incomplete return penalties…*

PPACA Section 4959 requires a taxexempt hospital to report to the IRS not only information regarding its community health needs assessment ("a description of how the organization is addressing the needs identified in each community health needs assessment conducted … and a description of any such needs that are not being addressed together with the reasons why such needs are not being addressed") but also to provide the IRS with its audited financial statements or, if applicable, audited consolidated financial statements.

In short, what may appear at first glance to be a relatively innocuous portion of the PPACA is worth a close and careful analysis by nonprofit hospitals seeking to preserve tax-exempt status and avoid costly penalties.

For more information about this topic, contact Elizabeth G. Litten at 609.895.3320 or [email protected].

*[Footnote regarding effective date and imposition of penalties] For example, assume the date of enactment is April 1, 2010. A calendar year taxpayer would test whether it meets the community health needs assessment requirement in the taxable year ending December 31, 2013. To avoid the penalty, the taxpayer must have satisfied the community health needs assessment requirements in 2011, 2012 or 2013.] [JTC Report, p. 81; 83]