Many Nonprofit Hospitals Fail to Notify Patients Who Qualify for Charity Care

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Many nonprofit hospitals have "far from perfect" performance on a requirement of the Affordable Care Act to notify patients who qualify for charity care.

Nonprofit hospitals must let patients know if they qualify for free or reduced-price care if they don’t have health insurance or their insurance leaves them with gaps causing large bills, according to the Affordable Care Act (ACA)’s new Section 501(r) rules. Nonprofit hospitals that fail to let patients know they qualify for financial assistance can lose their tax-free nonprofit status.

This same section in the ACA also requires these hospitals to charge patients fairly even if they don’t qualify for free or reduced-price care.

However, a new study published in the New England Journal of Medicine from the University of Michigan Ann Arbor’s Institute for Healthcare Policy and Innovation found that many nonprofit hospitals have “far from perfect” performance ratings on this requirement 1 year after the rule was implemented.


Sayeh S. Nikpay, PhD, MPH, and John Z. Ayanian, MD, MPP, wrote that their review of Internal Revenue Service (IRS) forms submitted by more than 1800 nonprofit hospitals nationwide for 2012 (the first year hospitals had to comply with the ACA’s requirement and the most recent year for which data are available) found much room for improvement.

Although 94% of the hospitals reported having written charity care and emergency care policies to guide decision-making on which patients qualified for free or reduced-price care (a requirement of the ACA), only 29% of the hospitals reported they had begun charging uninsured and underinsured patients the same rate that they charged private insurers or Medicare (rates that are often much lower than the “chargemaster” rates hospitals set as the starting point for negotiating with insurers about how much they will actually accept).

In addition:

  • Only 42% of the hospitals were notifying patients about their potential eligibility for charity care before attempting to collect unpaid medical bills.
  • 1 in 5 hospitals had not yet stopped using extraordinary debt-collection steps when patients failed to pay their medical bills. The ACA bans such debt-collection steps as reporting patients to credit agencies in ways that can damage their credit scores, and placing liens on their property or garnishing wages.
  • Only 21% of hospitals charged uninsured patients and insurance companies the same amount.
  • Hospitals in states that haven’t expanded Medicaid reported having less generous charity care policies and were less likely to have a policy notifying patients of charity care options prior to discharge from the hospital.
  • Only 11% of hospitals reported having conducted a community health needs assessment in the past 3 years as of 2012, which are needed to identify important health issues in the population served.

“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,” said Dr Ayanian, adding that this is particularly important for patients living in states that have not expanded Medicaid to cover people with lower incomes.

Drs Nikpay and Ayanian are continuing to study the issue as new IRS data become available. They are already working on 2013 data.