This year, the public will have unprecedented access to critical new information about how hospitals in their communities fulfill their obligations to the people they serve.

For the past several years, there’s been a need for a well-defined standard by which to judge how well local hospitals support, engage, and invest in the broader health of their communities. Because so many people lack adequate health insurance coverage, this debate has primarily centered on the lack of transparency in how hospitals provide charity care, their methods for billing and collecting on past-due accounts, and the impact of both on access to care in their communities. Many states require minimal reporting on charity care or billing, and often those reports aren’t public.

That is slowly changing, thanks in large part to the Internal Revenue Service (IRS). As the federal agency charged with overseeing federal tax-exempt status, it has a particular interest in understanding whether non-profit hospital behavior on billing, charity care, and related activities is up to snuff. In 2008, it introduced a new mandatory reporting form, Schedule H, that asks non-profit hospitals a series of pertinent questions such as: Did Hospital X have a charity care policy? If so, how did it determine who was eligible, and how did it let patients know such programs were available? How did its billing and collections policies — if it had them — apply to patients who qualified for financial help?

These hospitals have to publicly report not just how they’re spending on community benefit and charity care, but also how much with regard to their total expenses. And that’s where things have gotten interesting.

Short of the Mark: Investigation Shows a Wide Range in Practices
Schedule H data is just becoming available this year, and it’s already being evaluated by industry insiders. A recent survey by Modern Healthcare Magazine found that nine out of 10 hospitals devote less than five percent of their total expenses to charity care — the average amount reported is just 2.5 percent of all hospital expenses. The findings, which are the result of the magazine’s analysis of Schedule H tax reporting of 156 hospitals from 20 large health systems, are detailed in the article Short of the Mark.

The study also draws attention to how hospitals reported the amounts of bad debt they attributed to patients who are unable to pay and fall within the hospital’s charity care guidelines. For community groups and advocates, this data is telling. A high number can signal that hospitals’ processes for identifying and qualifying patients for charity care are lacking, or that hospitals’ standards for eligibility in charity care programs don’t match the demographics of their communities.

So how did hospitals in the sample stack up? Eighty-three of the 156 hospitals reported that none of their bad debt could be traced back to patients eligible for charity care — a good outcome that indicates hospitals made efforts to ensure qualifying patients received charity care. By contrast, 12 hospitals said that at least half of their bad debt costs are made up of bills sent to consumers who would be considered eligible for charity care; some hospitals, like BJC Healthcare, reported that 81 percent of its bad debt could be attributed to patients qualifying for charity care.

Why this matters in a Post-ACA World
Why should people care how much charity care their local hospital is providing? With the Affordable Care Act law of the land, isn’t this an issue for a pre-health reform world?

On the contrary. For one thing, most of the coverage protections in the ACA don’t get phased in until 2014, leaving the approximately 50 million uninsured Americans vulnerable to medical debt. A study released this week by the Department of Health & Human Services showed that most uninsured families can’t pay hospital bills: On average, they can only afford to foot the entire bill of approximately 12 percent of hospital stays. Furthermore, while the ACA makes great progress in covering millions of currently uninsured Americans, not everyone will be covered. Affordability exemptions, immigration status, and enrollment considerations will all play a role in a continued uninsurance rate, even after full implementation. Even then, some newly insured may find it difficult to afford their health care-related costs, making them technically under-insured. This can lead to hospital bills and other kinds of medical debt that can follow a person for years. These populations will still rely on some form of charity care, so it’s critical hospitals get it right.

Second, Schedule H interfaces with the ACA in several key ways. We’ve written before that the law draws a new line in the sand for non-profit hospitals. To qualify for tax-exempt status, hospitals must provide a range of benefits to patients including charity care (now called “financial assistance”) policies and community benefit plans that engage their communities. Schedule H, though new, has already been adjusted to account for the new rules for Tax Year 2010. This time next year, a hospital will also have to report the steps it’s taken to qualify patients for charity care before it sends them to collections. That’s new, courtesy of the ACA, and it’s a powerful starting point for community members who may want to work with the hospital on improving its practice.

Third, non-profit hospitals benefit considerably from community investment. The Joint Committee on Taxation estimates that non-profit hospitals receive $12.6 billion per year in local, state, and federal tax exemptions. In return for this transfer of revenues from taxpayers, non-profit hospitals are expected to provide some benefit to their communities, including charity care. By making more information publicly available, Schedule H gives hospitals opportunities to broadcast what they are doing to “repay” that investment. It also gives communities unprecedented insight into hospital budgeting, prioritization and policies on debt collection, billing, and financial assistance, seeding questions and informing community partners’ conversations with their local hospitals.

What can advocates do?
The results of the Modern Healthcare survey, combined with new data from HHS about what the uninsured can afford to pay, are troubling. These reports demonstrate that there are critical gaps between what some communities need and what hospitals provide. However, the hospitals that are doing the right things are to be commended, and their practices should stand as a model for others.

Whichever end of the spectrum a community’s hospitals are on, the Schedule H provides advocates with unprecedented access to information and, therefore, critical opportunities to engage. Hospitals that are leaders in this area should be open to hearing from the community about ways that their programs can be tailored and enhanced — especially now that the ACA requires hospitals to regularly assess their communities’ health needs and to seek input from community members and public health experts in the process. Hospitals that have some work to do in this area may benefit from the same consumer input.

Consumer advocates are uniquely positioned to facilitate hospital-community discussions, to help identify areas of common ground and negotiate areas of disagreement, and to play a watchdog role where necessary. Over the next few months, Community Catalyst will offer more information and resources for groups who are interested in working more directly on community benefit issues.

In the meantime, though, we want to hear from you: Have you looked at your local hospitals’ Schedule H? What have you found, and what information would be most helpful to your work in the near future? Please feel free to email Hospital Accountability Project Director Jessica Curtis with responses (jcurtis@communitycatalyst.org).

– Jennifer Lemmerman, Field Coordinator