Good actors in a bad movie: given the current swirl of activity surrounding charging, discounting, and collection activities by hospitals related to the uninsured, many healthcare executives feel like good actors in a bad movie

Healthcare Financial Management, August, 2004 by Richard L. Clarke

That is, they are trying to play their roles as best they can within a script of illogical, contradictory, and byzantine regulations and payment systems. It is no wonder that most are bewildered by the latest onslaught--more than two dozen lawsuits filed against tax-exempt hospitals by Richard Scruggs and other class-action lawyers. In the press release announcing the lawsuits, Scruggs et al. state that hospitals are "hoarding billions while dispensing pennies" and tax-exempt hospitals are guilty of "excessive profits and overcharging." Scruggs and his colleagues are best known for their successful lawsuits against the tobacco industry on behalf of individuals and state governments. Now Scruggs is after hospitals. The script is getting worse.

Every day, providers see cases in which patients with no insurance or inadequate insurance are stuck with hospital bills that they have limited ability to pay. The familiarity of the situation does not reduce its impact: such cases are heartbreaking. Hospital executives have attempted to play their role and deal with this situation as best they can. But they have had to navigate through a virtual minefield of regulations, payment concerns, and conflicting interests. For example, federal requirements for a uniform charge structure have been interpreted by many hospitals, lawyers, and federal bureaucrats to mean that uninsured patients could not be granted across-the-board discounts, while commercial payers could in fact enjoy negotiated discounts based on volume and cost benefits. In fact, letters from CMS and proposed regulations from the Office of Inspector General (OIG) just nine months ago continued to suggest this interpretation. Not only that, many hospital executives believed they had to show a good faith effort to pursue patients whose ability to pay may be slim or none, or face formidable red tape to demonstrate indigence. Again, this understanding came from often confusing federal regulations, memorandums, and pronouncements. But as this issue heated up, the script started to change, with CMS and the OIG beginning to suggest that hospitals are not restricted by federal regulations and are relatively free to set discounts and pursue collections.

It is hard to know your role when the script keeps changing. But blaming doesn't get at the problem. In fact, concerted efforts by many groups to work with policymakers have resulted in some much-needed clarification of hospitals' ability to discount charges for self-pay patients. CMS representatives recently said, during a June 1 CMS Open Door Forum (a teleconference attended by more than 1,600 callers), that providers have flexibility in applying discounts for reasons other than indigence and can give prompt-pay discounts (regardless of the patient's ability to pay) and courtesy discounts in accordance with the Stark rules issued in March. CMS also clarified that if an indigent patient is not a Medicare beneficiary, an asset test is not necessary. If an indigent patient is a Medicare beneficiary, hospitals can abide by section 312(c) of the provider reimbursement manual and note the allowance for extenuating circumstances. CMS and OIG staff agreed that some situations fall outside of written policies, but the regulations permit providers to offer help for those "extenuating circumstances." Of course we want to see these script changes in writing.

At the time of this writing, providers are eagerly (or perhaps anxiously) awaiting the results of hearings of the House Ways and Means Committee's Subcommittee on Oversight and the Energy and Commerce Committee's Subcommittee on Oversight and Investigations. The former is concerned with the general issue of tax exemption, with its first hearing to focus on pricing practices of tax-exempt and other hospitals. The latter continues an investigation kicked off last year on hospitals' billing and collection practices related to the uninsured. This committee is targeting both for-profit and tax-exempt hospitals. It is unclear what the policy ramifications of these hearings will be perhaps the script will change yet again.

In the meantime, hospitals are reviewing their pricing policies to ensure they are systematic and defensible. More hospitals are taking the step or reviewing their charity-care and debt-collection policies and practices--albeit within a still uncertain regulatory environment.

And hospitals are focusing more attention on how they communicate with patients about financial matters. Hospitals can mitigate some (although certainly not all) of the problems associated with charges and collections by ensuring that they have processes to identify patients who either do not have insurance or do not have the wherewithal to pay their portions of charges, to explain the hospital's policy to those patients, and to provide payment options. This effort requires training, particularly for front-line patient-access staff, on the intricacies of collecting and verifying patient financial information and the specific vocabulary necessary for talking with patients about payment issues. This type of initiative fits into the whole range of activities of the PATIENT FRIENDLY BILLING[R] project, which is designed to make financial communication clear, concise, and correct. This project is led by HFMA in partnership with the American Hospital Association, the Medical Group Management Association, and leading professional-service and technology companies.