Ready for prime time? Make your financial assistance policy a class act: hospitals should feel free to offer uninsured patients discounts or financial assistance to pay for healthcare services; but they also should make sure their financial assistance policies are ready for the bright light of regulatory scrutiny

Healthcare Financial Management, March, 2005 by Dennis Barry, Christopher L. Keough

Nonetheless, it is reasonably clear that extending discounts to uninsured patients would not have this effect. Charges and the cost-to-charge ratio are statistical proxies used to estimate costs in the computation of outlier and new technology payments. To maintain the integrity of these proxies, there must be consistency across the current charges listed on a claim (from the chargemaster) and the cost to-charge ratio. Because the cost to charge ratio is computed from cost report data, and providers are required to record full charges in their cost reports, it would be inappropriate to require hospitals to use discounted charges to compute the estimated cost of an outlier case or new technology.

Indeed, in its answers to frequently asked questions about the uninsured, CMS confirmed earlier this year that discounts to uninsured patients will not affect Medicare payment for outliers. This guidance states that outlier payments will be unaffected even if discounts as framed in the question-"are not based on individualized determinations of need, but, rather, are offered solely on the basis of the patient's uninsured status."

Bad debts. If certain requirements are met, Medicare pays hospitals for 7o percent of debts incurred but not paid by Medicare patients for deductible or coinsuranee amounts. In brief, the provider must undertake reasonable collection efforts and the debt must be actually uncollectible when written off.

Among the answers to frequently asked questions posted on its web site. CMS notes that discounts to uninsured patients should not affect payment for Medicare bad debts. Medicare does not pay hospitals at all for "charity allowances" or other uncollected amounts owed by non Medicare patients.

With respect to Medicare patients, the regulations require a reasonable effort to collect deductibles and coinsurance before those amounts may be written off and paid as bad debt. To be deemed reasonable, a hospital's effort to collect Medicare coinsurance and deductibles must be "genuine" and "similar" to its collection effort to collect on non-Medicare accounts. Thus, a hospital is not required to file collection suits or place liens on patients' property, unless these types of collection efforts are undertaken for non-Medicare patients.

Medicare regulations also provide that a hospital is not obligated to undertake collection efforts on copayments and deductibles owed by Medicare patients who are determined to be indigent. Program guidelines state that a hospital should apply its "customary methods" for determining indigence, instructions in the Provider Reimbursement Manual also state that hospitals must apply both an income and an asset test in determining indigence for bad-debt purposes. Nevertheless, at a June 4, 2004, Open Door Forum, CMS officials indicated that a hospital would not lose payment for Medicare bad debts if it does not use an asset test: for determining indigence, so long as the same income criteria are applied both to Medicare and non Medicare patients.