SO, what is it...
Charity Care or Bad Debt?
I attend HFMA and AAHAM events ALL the time. One particular presentation I’ve seen quite a few times has stuck out to me because my company does both large and small self-pay receivable collections (patient responsibility after insurance) and bad debt collections. The woman who does the presentation is a friend of mine from a hospital in Philadelphia. She always does SO great at this presentation, I took notes and decided to make a spin-off to her presentation to share with those of you unable to get the chance to hear her speak.
No matter what the business, it's a given that sometimes customers don't pay their bills on time. The difference with customers purchasing medical services, who we call patients, is that when these people purchase goods and services they often don't have a choice or ability to save up money for urgent medical needs. Since people can be buying a service when they don't actually want to be getting that service, all sorts of issues can come up in the billing process. Add to this the fact that insurance information can be slow, incorrect, or non-existent and collecting payment gets even more complicated. Learn about the ins and outs of the billing process as unpaid accounts can be classified as compassionate service charity care or delinquent debt.
What is Charity Care?
It's medical service provided to a patient, regardless of the ability to pay. If a patient demonstrates the inability to pay through either direct payment or insurance then the medical bills are considered a different case from financially solvent patients with unpaid bills. Hospitals are required to establish written financial assistance policies 501(c)(3) hospitals under Affordable Care Act sections 501(r). In addition to a written protocol for emergency medical conditions, plans must include eligibility criteria, a basis for calculating charges, a method for applying financial assistance, and measures to publicize this policy.
Due to these new laws, hospitals must regulate not only the amount charged to patients but also the efforts to collect payment. Medical providers must engage in extraordinary collections efforts for debt before making a reasonable effort to determine if a person is first eligible for charity service. Extraordinary collections consist of lawsuits, liens, arrests, foreclosures, wage garnishments, or similar processes. Hospitals are now required to give patients up to 120 days to decide if they wish to apply for financial assistance. While extraordinary collections are prohibited, this does not prevent not-for-profit hospitals to engage in 3rd party standard debt collection. I won’t EVEN get started on the TCPA and FDCPA rules and regulations, Foti’s Law, etc… I’ll save THAT for another blog!
Separating Bad Debt from Charity Care
The difference results when a patient is unwilling to settle a healthcare claim, even though it has been determined he or she has the financial capacity to pay. While similar in the fact that both accounts are delinquent, the patient's financial status is the determining factor. New IRS Form 990 Schedule H requires that hospitals estimate the amount of debt which could be attributed to patients eligible for financial aid. Due to these estimates and the required waiting periods, it is more important than ever to track all of your billing and response. Optimize collections with a multi-step process that includes:
With the collection process taking on more and more complexity, it is important to understand all the rules involved in both collecting and assigning delinquent debt.
Obamacare and Unpaid Insurance
Before deciding whether an account should be sent to collections, it’s important to learn whether collection is even an option. Due to a strange loophole in the latest Obamacare implementation, a 90 day window where doctors can be liable for unpaid medical bills. If a patient is delinquent on their insurance, the insurance carrier is obligated to pay, but only for a certain period of time. During the next 60 days, bills are still going to the insurer, but are allowed to remain unpaid, with the insurer option of canceling the policy after 90 days. Still following me? Medical providers are then left attempting to re-bill and collect from the delinquent patient. If you are unsure on whether you can pursue a patient for unpaid bills, consult an expert to help understand Obamacare and the details of the Affordable Care Act.
Whether simply trying to help a patient in need pay for services, or file your organization's taxes, it is important to understand the differences between charity care and bad debt. Charity applies to patients with a demonstrated inability to pay for necessary services. It does not apply universally to unpaid bills or insurance issues. Bad debt refers to patients that could pay without assistance, but for some reason are unwilling to do so. New government regulations from the IRS and the Affordable Care Act require the tracking of both, whether the patient applies for assistance or not. There are also new regulations involving insurance coverage, which limit the classification of debt and payment. Optimize your collection process for the most streamlined way to handle all of your collection needs and understand each new regulation.
Starting December 29, 2015, new 501(r) IRS regulations for 501(c)(3) hospitals will impose one more revenue cycle challenge for your team, and ICD10 implementation is just moments away. It's more important that ever to keep up-to-date on the constantly changing rules and regulations to make sure you are following correct protocol – if you don't have the time or desire to manage this information, you can give to a reputable collection agency that will keep on top of the laws for you!
Editor's note: This blog was originally published in April 2014 - given the increasing attention and emphasis on 501(r) and ICD10, we think this post is timely and the education within warrants another read (or a first-time read for all our new subscribers!)
Regulatory changes in the age of The Affordable Care Act are certain to fundamentally change your role and the way you do your job. Confront those changes confidently- download our free guide on exactly what changes you can expect in 2015.