Hospitals facing stricter charity care oversight

By Alex Kacik / August 23, 2023

States are increasing their oversight of nonprofit hospitals’ financial assistance policies, seeking to ensure hospitals are earning their tax exemptions by doing enough to help the poor. 

Oregon Gov. Tina Kotek (D) signed a bill in July that looks to increase access to free or discounted healthcare by requiring hospitals to proactively screen patients and streamline the signup process. The law represents a growing effort among states to bolster accountability and increase scrutiny of nonprofit hospitals’ charity care contributions.

“The onus has been on the patient to figure out if charity care was a possible benefit for them. But patients have been told misinformation about what their responsibilities were and have been misled on the availability of charity care benefit programs,” said Oregon Rep. Lisa Reynolds (D), lead sponsor of the bill. “We’re hoping the bill makes it more clear-cut for patients and puts the onus on hospitals, which need to hold up their end of this deal.”

The Oregon law, which took effect immediately, requires hospitals to make any potenital charity care deductions before sending patients a bill. Hospitals must make all financial assistance information accessible to patients online via a single click and limit the amount of information required on applications. If a patient successfully appeals a charity care denial, hospitals must stop any collections activity, pay any related interest, legal expenses and fees incurred by the patient and notify collection agencies that the debt is invalid. In addition, hospitals would have to pay a penalty if they don’t report data on financial assistance programs, including the number of applications, approvals and accounts referred to a debt collector.

Reynolds said she hopes other states follow suit.

The law builds upon legislation enacted in 2020, which sets charity care spending minimums based on Oregon nonprofit hospitals’ annual income, community benefit spending and the needs of their surrounding communities.

Despite the 2020 law, the process for patients to receive financial assistance is still obscured, said Matt Swanson, a political strategist at the SEIU State Council, which coordinates the political efforts of Oregon unions that act on behalf of workers in healthcare and other industries. 

“We saw patients realize that some of our health systems are not living up to their missions. We knew we could do a lot better,” Swanson said. 

Oregon is one several states, including Minnesota and Washington, that have crafted charity care legislation to cover enforcement holes in related federal laws. A Minnesota law that will take effect Nov. 1 requires hospitals to screen certain patients for charity care eligibility. Washington enacted a bill in 2022 that established mandatory discounts for patients with incomes below 200% of the federal poverty level.

The legislation followed a lawsuit filed by the Washington state attorney general against Renton, Washington-based Providence for allegedly failing to notify patients who qualified for financial aid. The lawsuit is pending.

States are enacting charity care laws because federal laws, generally, are qualitative and conceptual, said Ge Bai, an accounting and health policy professor at Johns Hopkins University, who studies hospitals’ charity care spending. There is no minimum requirement on a federal level for charity care spending, she noted.

“I think Oregon’s law has some bite," Bai said.

The Affordable Care Act added requirements for hospitals to make a reasonable effort to determine whether a patient is eligible for financial assistance before taking “extraordinary collection actions” and boosted hospitals’ reporting requirements on community benefit spending.

But enforcement has lagged, said Gary Young, director of the Center for Health Policy and Healthcare Research at Northeastern University, who has tracked nonprofit hospitals' community benefit spending.

“This is something state policymakers have been frustrated with because they feel that, at the federal level, not a lot has been done to enforce community benefit standards," he said. “I haven’t seen any real effort by the IRS to use [Schedule H Form 990] data to hone in on hospitals that may not be doing enough. There are no quantitative standards on the federal level.”

California could be a potential candidate to follow Oregon’s lead in crafting similar legislation, Bai said. It has a law mandating that hospitals provide charity care to patients whose income is below 400% of the federal poverty level. Santa Clara Valley Medical Center in Northern California settled a lawsuit in June that alleged the hospital billed low-income patients for charges they shouldn't have paid. The hospital plans to start informing 43,000 former patients that they may be eligible for refunds, according to the Santa Clara County Office of Communications and Public Affairs. 

Federal lawmakers looking to bolster regulations around hospitals’ charity care spending have run into stiff opposition from hospital lobbying groups, which argue that nonprofit hospitals' public benefit vastly exceeds the value of their tax exemptions. Generally, the conversation was put aside as the COVID-19 pandemic strained hospitals. Congress may be less likely to pursue stricter charity care standards as hospitals grapple with labor shortages, higher supply costs, rising interest rates and other economic headwinds.

Still, some members of Congress continue to draw attention to the issue. Earlier this month, Sens. Elizabeth Warren (D-Mass.), Raphael Warnock (D-Ga.) Dr. Bill Cassidy (R-La.) and Charles Grassley (R-Iowa), sent a letter to the Internal Revenue Service that argued that federal community benefit standards are insufficient.

The senators cited a 2020 Government Accountability Office report, concluding that IRS oversight is challenged by “lack of clarity” around what constitutes community benefits. They also noted a recent KFF report that found nonprofit hospitals received $28 billion in taxpayer subsidies in 2020 but only provided $16 billion in charity care.

The lawmakers asked the IRS to provide a list of the most commonly reported community benefit activities and to identify hospitals most likely to not comply with the federal law, among other stipulations.

Charity care and community benefit spending reform, on a federal level, has been slow. Change to both federal and state laws likely hinges on whether politicians have the leverage to overcome hospital lobbying efforts.

“Whether other states will follow [Oregon] remains to be seen, but at least there is a precedent for other states to follow,” Bai said.