Hospital billing practices and the uninsured: an emerging legislative response: bad debt and the costs of charity care pose financial challenges that often place not-for-profit hospitals in a "catch-22" situation

Healthcare Financial Management, Nov, 2004 by Andrew McKinley

Few hospitals enjoy a wide enough profit margin to provide substantial charity care and then simply write off all of their bad debt, without regard for whether patients can actually pay. Yet focused efforts to avoid bad debt can undermine a hospital's image in its community. For example, the policy of asking patients who seek nonemergency care to pay a percentage of their bills before they leave or receive treatment exposes a hospital to criticism for placing an undue financial burden upon low or middle income individuals who elect to forgo health insurance or cannot afford it.

A Double-Edged Sword

The image of hospitals has not been helped by widespread reports of a difference between the amount hospitals charge uninsured patients and what they charge private insurers, Medicare, and Medicaid for medical care. According to these reports, only the uninsured pay the full price. Critics of the hospital industry also observe that, should uninsured patients fail to pay their bills, hospitals initiate abusive debt collection practices. Such perceptions have fueled the filing or at least 40 class action lawsuits against more than 400 not-for-profit hospitals nationwide, challenging the hospitals' charity care policies and billing practices toward uninsured patients.

The industry's defenders argue that these perceptions do not consider the reality that uninsured patients rarely pay the full amounts they are charged, and many hospitals' collection efforts focus on patients who probably could pay but have actively evaded the hospital's good-faith efforts to discuss payment options.

The States Step In

Given all of the publicity surrounding this issue, it's no surprise it has attracted the attention of state legislators, although no legislation has been enacted. Lawmakers in Alabama, California, Georgia, and Illinois, in particular, considered legislation in the 2004 legislative sessions to cap the amount healthcare providers may charge uninsured patients for medical procedures and limit debt collection procedures.

Alabama HB 805 would have prohibited hospitals from charging uninsured individuals more than the amount Medicare would pay for the same service. And Illinois SB 2579 would have required hospitals to develop "assistance to the uninsured" policies and would have set limits on debt collection activities.

California Governor Arnold Schwarzenegger vetoed legislation, SB 379, that would have required hospitals to provide discounted care to low income individuals and prohibited some aggressive collection tactics. In his veto message, Schwarzenegger expressed empathy for uninsured patients who struggle with expensive hospital bills. But he said he preferred to allow the hospital industry's voluntary charity care and collection procedures more time to work before imposing state mandates. The California Healthcare Association pledged to ensure that every hospital in the state would be in compliance with the voluntary guidelines by the end of 2004.

The Georgia General Assembly considered two bills--HB 1533 and HB 1573--that would prohibit hospitals from charging an uninsured patient an amount greater than the average rate charged to managed care plans. In an interview with the Health Policy Tracking Service, Georgia State Representative Austin Scott, sponsor of the bills, cited legislative opposition to state requirements for hospitals as a reason for their defeat.

Hospital officials noted the voluntary discount programs for medical procedures offered to uninsured patients by many hospitals; however, Representative Scott asserted that state action was necessary to ensure that all hospitals do not charge the uninsured inflated prices. In fact, his inspiration for introducing the bill came from a discussion with a member of the hospital industry who voluntarily instituted a discount policy.

Representative Scott acknowledged his legislation would not solve all of the underlying problems of the healthcare system cited by the American Hospital Association, including the growing number of indigent patients seeking care in the emergency department, the record number of Americans lacking insurance, and the failure of Medicaid and Medicare payment to keep pace with hospital costs. Nonetheless, Representative Scott notes that providing equitable care to the uninsured is an important policy objective, and he intends to introduce the legislation in the 2005 legislative session. He also expects a livelier debate due to the lawsuits. Indeed, the prospect of an increasing number of lawsuits may make this issue a top healthcare priority for states nationwide.