HHS Outlines Policy on Discounted Hospital Billing

The Department of Health and Human Services (HHS) and the Office of Inspector General (OIG) advised hospitals that they can reduce charges for patients who are uninsured or underinsured without facing penalties. In response to requests from the American Hospital Association (AHA), both agencies explained policies for discounting procedures.

A letter, OIG guidance and a Q & A document from the Centers for Medicare & Medicaid Services (CMS) answered AHA's December 2003 plea for direction on billing the more than 70 million uninsured or underinsured Americans for healthcare services. Discounts, in appropriate cases, should be given without hesitation, according to HHS.

"This guidance shows that hospitals can provide discounts to uninsured and underinsured patients who cannot afford their hospital bills and to Medicare beneficiaries who cannot afford their Medicare cost-sharing obligations," wrote HHS Secretary Tommy G. Thompson in his response.

AHA President Richard Davidson, in a written statement, thanked Thompson for information "that would help hospitals better address the needs of patients."

The AHA requested clarifications on behalf of its 4,800 members after Congress opened an investigation into hospital billing practices in July 2003. While acknowledging that some practices created hardships for patients, Davidson said hospitals were following the federal government's strict and complicated regulations and asked the government "to clarify and reduce barriers that make it more difficult to assist patients in need."

"There are opportunities for action by both the hospital field and the federal government to assure the public that we are doing all we can to help those of limited means," Davidson said in his letter to Thompson.

Thompson responded by saying the government's position, suggested by the AHA's letter, was "not correct" and pointed out that Medicare and Medicaid give hospitals roughly $22 billion annually through disproportionate share payments to help offset costs associated with treating the poor and uninsured. In addition, the CMS document says hospitals can forgo collecting payment from patients unable to pay if it is done through an "indigency policy," a program developed for patients who, if required to pay, would become indigent as a result of their bills.

Each hospital is allowed, under the CMS and OIG guidelines, to establish its own policy. But the institution must apply the same criteria to all Medicare and non-Medicare patients. The OIG, however, says indigence is not the only criterion that can denote financial need. Hospitals can "include any reasonable measures of financial hardship," such as cost of living, family size or the extent of the medical bills.

The AHA requested a safe harbor determination to protect hospitals offering a discount from the OIG's anti-kickback statute. HHS did not address this request, but the OIG allayed concerns about the statute. While cautioning hospitals to avoid the perception they are providing free health care in exchange for something of value, the OIG said, "the federal anti-kickback statute does not prohibit discounts to uninsured patients who are unable to pay their hospital bills." This problem would only arise if hospitals were providing discounts linked to the generation of business payable by Medicare or any other federal healthcare program.

Hospitals are not required to receive permission from CMS or their fiscal intermediary before offering discounts, according to HHS. They must still report full charges on their cost report to maintain a proper cost-to-charge ratio. In addition, the Medicare program will not reimburse hospitals for bad debt incurred from discounts given to non-Medicare patients.

Although permission is not required, hospitals must submit documentation to CMS to recoup bad debt reimbursement for Medicare patients. A patient's billing record should include total resources, including "an analysis of assets, liabilities, income and expenses and any extenuating circumstances that would affect the determination," according to HHS. Hospitals must also state how they determined whether a patient is indigent and provide information supporting the claim.

In addition, a hospital must give CMS any documentation showing it made collection efforts, including copies of bills, follow-up letters and reports of telephone and personal contacts. If a patient is eligible for Medicare and Medicaid, CMS requires that the patient's record include a denial of the bad debt claim from the state.

Hospitals are not limited to waiving or reducing healthcare costs for patients who cannot pay. In some cases, if a hospital decides to forgive payment, it can do so as "charity care" or "courtesy allowance." Medicare allows this practice but will not reimburse hospitals for charges incurred during these cases.

Under no circumstances is a hospital required to pursue a patient in the legal system, according to HHS. There are no Medicare instructions prompting hospitals to seize a patient's possessions, take him to court or employ a collection agency.

-Whitney L.J. Howell

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