If registrars are not already well aware of the need to comply with charity care regulations, a recent announcement will get the point across. Hospitals in Washington state were required to pay $2.2 million in refunds, forgive as much as $20 million in medical debt, and work to repair the credit of thousands of low-income patients who did not receive charity care to resolve multiple lawsuits.
When it comes to 501(r) compliance, “there are a lot of hoops to jump through and all sorts of foot faults you can run into,” says Daniel J. Hennessey, Esq., a shareholder at Stevens & Lee in King of Prussia, PA. Hennessey has developed policies and procedures on behalf of multiple tax-exempt hospitals. It is important to include registrars in this process. “Sometimes, it looks good on paper, but it’s not feasible in real life,” Hennessey notes.
The IRS is required to conduct a “desk” review of every tax-exempt hospital at least once every three years. “Some of those ‘soft’ audits have resulted in real audits,” Hennessey says. There are some common issues that cause problems:
• Sometimes, the IRS notifies hospitals that one of the dozens of required elements is missing. For example, policies must specify the maximum amount the hospital can charge patients who qualify for financial assistance. “If that’s not handled with care, that can result in a full IRS audit,” Hennessey warns.
• Billing and collection procedures, and the types of actions the hospital can take in cases of nonpayment, are not always included in the hospital’s financial assistance policy as required. It also is acceptable for it to be within a separate billing and collection policy, which investigators will want to see. “Oftentimes, that requirement slips through the cracks,” Hennessey says.
• Financial assistance policies must indicate which providers in the hospital are covered by the policy. “That is the requirement we get the most pushback on from clients who ask, ‘Do we really need to do this?’” Hennessey reports.
Many providers are not covered because they are independent medical staff physicians, not hospital employees. However, the status of individual providers can change continually. “Keeping that up to date and accurate is kind of a nightmare. Some hospitals have neglected to do that,” Hennessey says.
Recently, the IRS clarified that hospitals can list departments or groups as opposed to listing every single individual provider separately. Quarterly updates are acceptable, too. “They’ve provided some leeway to the requirement, which was pretty stringent as it was originally written. But it’s still an onerous requirement, to say the least,” Hennessey says.
• Debt collection practices are noncompliant sometimes. “This is another area where hospitals could get into trouble,” Hennessey cautions. Before undertaking aggressive debt collection, hospitals must make a reasonable effort to determine if patients are eligible for financial assistance. Hospitals have to wait 120 days after that point.
“But it’s not enough to just let the time pass,” Hennessey says. During this waiting period, there is much work for hospitals. Staff must send notices on the availability of charity care and document all efforts to contact the patient. “It’s a balance between compliance and public relations and, also, cost/benefit,” Hennessey says. At some point, hospitals might conclude that aggressive debt collection or litigation is simply not worth the cost.
Hospitals are responsible for what debt collectors do on their behalf. If the agency staff do something impermissible, says Hennessey, “It’s the hospital that’s held accountable.”
Hospitals are ensuring their compliance with 501(r) in two ways, says Laurice Rutledge Lambert, JD, an associate in the Atlanta office of BakerHostetler:
• By using automated programs to determine a patient’s ability to pay for services. If it indicates a patient has a low likelihood of being able to pay, the hospital will flag the individual as someone who may need financial assistance. “Usually, the hospital’s financial assistance team will then reach out to the individual, either in person or by phone,” Lambert says.
• By creating multiple touch points to ensure patients are aware of their financial assistance programs. Some hospitals leave no stone unturned spreading the word. Patient admission packets, signage in ED and outpatient waiting rooms, and billing statements all include it. “Doctors and nurses discuss financial options during the discharge process,” Lambert adds.
Charity screening often is not performed or not handled correctly. According to Lambert, this happens for one major reason: lack of resources. Revenue cycle staff must determine if a patient is eligible for financial assistance or even just encourage patients to apply for it. Many hospitals simply do not have the resources. “As a result, eligible patients are not aware of the program or do not apply for assistance,” Lambert says.
The 501(r) regulations do not stipulate a certain dollar amount of charity care, or that patients with any specific income level must be given charity care. That is up to the hospital.
“But once the hospital determines the parameters, it must fall into line with all procedural requirements,” Hennessey says.
That said, to qualify as a charitable institution, hospitals must maintain a reasonably generous charity care policy. “If it’s drawn too narrowly, it could jeopardize your status as a charitable institution,” Hennessey cautions.
There has been a long-standing debate on what is sufficient when it comes to charity care. “The federal government has not promulgated a bright line requirement,” Hennessey says.
Some states require specified amounts of charity care for hospitals to qualify for tax exemptions. Certain local taxing authorities, school districts, municipalities, and other parties have challenged hospitals’ state tax exemptions on these grounds. “In some cases, exemptions have been revoked,” Hennessey says.