PwC report: Hospital charity care is increasing

The community benefit provided by hospitals may be underestimated because of the challenges hospital face in determining who is eligible for charity care. That's the conclusion reached by PricewaterhouseCoopers Research Institute in a report, "Acts of Charity: Charity Care Strategies for Hospitals in a Changing Landscape."

The report said the amount of free health care provided by U.S. hospitals to poor and uninsured Americans rose to $27 billion last year, up 30% from the $20.7 billion in 1999. But, it said, hospitals have been on the receiving end of bad publicity over discrepancies in charity care policies, aggressive bill collection practices, and a broken health care pricing system.

"There are 45 million Americans with no health insurance in this country, and the hardest hit are the working uninsured who are not covered by government programs but who make too much money to qualify for hospital charity care," said PricewaterhouseCoopers Health Industry Advisory practice partner Reathah Clark. "The latter includes a growing population of 'underinsured' families who are covered by employer health insurance but can't afford the increased copayments and deductibles that employers are shifting to individuals. Much of the negative press against hospitals has focused on hospitals' reportedly aggressive attempt to collect on their debts and criticism that the uninsured are charged higher prices for services than the discounted prices negotiated by managed care plans or what Medicaid and Medicare pay. Few hospitals have the profit margin to provide substantial charity care and write off bad debt without regard for whether patients actually can pay. Complicating the matter is that while hospitals apply discounts to the uninsured, hospital charges bear little resemblance to actual costs. At issue for our nation's health leaders and policy-makers is how to make health care pricing transparent and understandable to consumers."

Ms. Clark said hospitals are responding to criticisms from lawmakers and the news media by changing or clarifying their pricing, billing, and collection policies to expand coverage for uninsured Americans and to protect their goodwill reputation.

A PwC survey of 100 hospital executives found that 70% said their hospitals provide the uninsured with discounts off standard charges and 15% charge the uninsured their average managed care rate.

Some 76% of hospital executives surveyed by PwC report charity care in terms of charges rather than costs, and an additional 9% use a combination of charges and costs. PwC said all those approaches are appropriate under generally accepted accounting principles, but the lack of consistent reporting make it nearly impossible to evaluate community benefits.

Many more people eligible

The report also suggests that many more uninsured Americans are eligible to receive charity care from hospitals, but because of personal disclosures required to determine financial eligibility, candidates are reluctant to complete the necessary paperwork. Also, a lack of regulatory guidance regarding patients' qualification has resulted in a patchwork of policies and practices that have led to patient frustration and public outcry.

The PwC survey showed that hospitals report providing charity care equivalent to an average of 5% of their net operating income, but 85% said part of their bad debt could be classified as charity care. Bad-debt expense is the write-off hospitals take when patients who haven't qualified for charity care are unable or unwilling to pay for services they receive. While charity care is considered a community benefit, bad debt is not.

"Not-for-profit hospitals need to be able to respond to challenges to their eligibility for state and local income tax exemptions, as well as federal income tax exemption, which, among other privileges, allows for access to tax-exempt financing," said PwC Washington National Tax Service partner Robert Friz. "If the tax exemption for not-for-profit hospitals were modified or eliminated because hospitals fail to demonstrate their community benefit, the increased tax costs could significantly deplete the resources hospitals need to fulfill their charitable missions, including providing charity care.

"There is much that hospitals can do on their own to improve their charity care policies, but they also need to be proactive in demonstrating the amount of charity care and community benefit they provide. In this regard, the lack of uniform standards for quantification and disclosure of charity care can make it difficult for hospitals to defend themselves from such challenges. Further, they alone likely cannot solve the bigger pricing transparency problem without a major overhaul of the system, which will involve the public and private sectors working together."

The PwC report outlines these charity care strategies for hospitals to consider:

  • aligning patient charges to the uninsured with payer reimbursement rates;
  • simplifying eligibility procedures for financial assistance and charity care;
  • clearly communicating charity care policies and being sensitive to cultural barriers toward applying for charity care;
  • providing complete and accurate information, with details about charity care and other community benefits on IRS Form 990;
  • reporting to the community and local leaders through an annual community benefit report.

Download the report from www.pwchealth.com/pdf/charitycare.pdf.