Problems Getting Nonprofit Hospitals to Comply Fully with the ACA

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October 28, 2015; Modern Healthcare

Because of strident Republican opposition to the legislation and lackluster moderate Democratic support, the Affordable Care Act is a somewhat rickety bus for driving healthcare reform. If there were a functioning Congress, the ACA would be submitted for technical corrections, but Republicans in Congress would take the opportunity to try for the umpteenth time to repeal the act entirely. They would fail, they know it, but to screw up the operations of government is no cause for concern for the likes of Ted Cruz and other diehard ACA opponents.

So, despite needed legislative repairs, the ACA bus trundles down the road, hopefully getting loving care from its federal government overseers. But the federal mechanics had better pay attention to some of the repairs that they should be able to spot and fix on the fly, lest their end-of-the-Obama-administration inattention leave the next White House occupant with a new set of health insurance crises.

First, take a look at the nonprofit hospitals. The ACA established as Section 501(r) of the Internal Revenue Code a requirement for nonprofit hospitals that they make sure that they provide charity care to patients who need it. The requirement mandates that the hospitals make their charity care policies clear and well communicated, charge reasonable rates to charity care patients, and refrain from extraordinary (and frequently abusive) debt collection practices.

Since the legislation was passed in 2010, the hospitals were aware well in advance of this new requirement. It didn’t hit them by surprise, especially since the hospital sector was an active policy participant in trying to minimize this requirement beforehand. Moreover, ACA or not, charity care has been a primary issue for nonprofit hospitals for several years, so they had plenty of opportunity to craft policies that could meet the minimal requirements of the ACA.

But by 2012, when the ACA started in almost full force, but certainly fully for the nonprofit hospitals, they seem to have dragged their feet. Writing for Modern Healthcare, Beth Kutscher draws on a study published in the October 26th issue of the New England Journal of Medicine that says the charity care provisions of 501(r) may not have had their intended effect regarding nonprofit hospitals’ policies and practices.

Kutscher reports that even with a two-year lead time, many nonprofit hospitals simply weren’t ready to comply:

What [the study’s authors] found is that many hospitals weren’t ready to meet the new rules. While as many as 94 percent of hospitals had written charity- and emergency-care policies, only 29 percent were charging charity-care patients the same as insured patients. Similarly, while 80 percent of hospitals did not report unpaid medical debt to credit agencies or pursue extraordinary collection practices, only 44 percent regularly informed patients of their potential eligibility for charity care before beginning the debt collection process.

Kutscher adds a perspective about the inequitable adoption of charity care rules:

The communities with the worst health outcomes also tend to be those that haven’t expanded their Medicaid rosters and have the least generous charity-care policies. The study found, for instance, that hospitals in states that did not expand eligibility for Medicaid had less generous charity-care policies and a lower average income ceiling to qualify for free care, or 179 percent of the federal poverty level compared with 202 percent in hospitals in expansion states.

This study does not suffer from the usual nonprofit survey results that so often rely on incredibly small samples (if they are samples at all) and low return rates. This study, conducted by researchers at the University of Michigan Institute for Healthcare Policy and Innovation, examined the 501(r) compliance forms of 1,800 nonprofit hospitals for 2012, the first year that the data on 501(r) compliance was available. The importance is obvious: In the wake of the enactment of the ACA, the provision requiring charity care for underinsured and uninsured patients is one of the critical elements by which hospitals can keep their tax exempt status. Like the criticisms of nonprofit hospitals over the year, the study findings suggest that many nonprofit hospitals still haven’t caught on to the importance of charity care policies as necessary to their nonprofit provenance.

As devastating as the 501(r) charity care noncompliance might be, there is another section of 501(r) that also yielded troubling findings in the University of Michigan study. They found that only 11 percent of the hospitals had conducted a “community health needs assessment” during the previous three years. CHNAs too are requirements of Section 501(r).

In their defense, nonprofit hospitals might say that the federal government was slow in rolling out the 501(r) regulations, thus they might have chosen, for inexplicable reasons, to sit on their hands rather than to get going ahead of time. However, regarding charity care, the rules are pretty flexible, allowing hospitals some latitude in compliance had they decided to get started. For the CHNAs, too, the requirements are flexible and hardly onerous—and it doesn’t take two or three years to complete a community health needs assessment if the hospitals in question had been as attentive to community needs as they long averred.

So what shape is the ACA bus in? The federal health insurance mechanics seem to have been a little lackluster in calling out the nonprofit hospitals for their inadequate preparation for and implementation of the 501(r) rules. For the hospitals, who knows? Did they think that behaving like ostriches would make 501(r) disappear like magic? For Congress, it would be incumbent on all members, whether they are for or against national health insurance reform, to be pressing the nonprofit hospitals serving their congressional districts to see whether they are providing substantive charity care along the broad parameters of the ACA and press them when they aren’t—though it would also be good if they pressed their home state governors and legislatures to expand Medicaid eligibility as well.

For nonprofits outside of the hospital arena, the charity care gaps and the undone community health needs assessments indicate flaws in the healthcare delivery system. If this were a program in the arena of housing, nonprofit community activists would be poring over municipal and state government Consolidated Plans covering the use of Community Development Block Grants, HOME Partnership program funds, and other HUD programs, examining the communities’ measured needs and established priorities for comparison to the specific actions proposed in the plans themselves. For healthcare, it seems to be nearing the point for nonprofit community advocacy organizations to be knocking on nonprofit hospital doors to look for evidence of their 501(r) compliance and calling them out publicly when they fail to do so. If nonprofit community-based advocates are not putting the performance of local and regional hospitals on their advocacy agendas, they will have undermined their ability to be effective vehicles for articulating the needs of local residents and ultimately hampered the potential progress of the ACA.—Rick Cohen

  • I think your article understates the scope of the problem. I have worked with @mercysaintlouis for 2 yrs with regards to lack of compliance with the ACA law, 501c3 requirements & the outright lies that are making to the IRS on their 990 with regards to their charity practices. Their staff has no idea what a 990 is or that their practices don’t support what they report to the IRS. My hope is that the IRS actually step up and start enforcing the law.