New Protection from Medical Debt

August 1, 2006

Author: Trilby de Jung

New York State took a major step to combat medical debt this session when the Legislature and Governor Pataki agreed upon the terms of comprehensive charity care legislation.  The new law, which was passed as part of the 2006-2007 Budget, requires hospitals that receive funding from the state’s bad debt and charity care pool to implement uniform policies and procedures for providing financial aid to those without adequate insurance coverage who cannot afford to pay their hospital bills.  The new law also prohibits abusive debt collection practices. 

Advocates have much to celebrate in the new law.  Our clients should finally have the opportunity to apply for help with medical bills before facing collection agencies and the threat of medical bankruptcy.  The new law does not provide a defense to a legal action to collect on unpaid bills, however.  Ongoing advocacy with state agencies will be important to assure that hospitals comply with the law so that patients are able to access charity care in time to avoid judgments for unpaid bills. 

A Brief History:  A charity care law has been a long time coming in New York.  Hospitals have been receiving reimbursement for providing charity care since 1983, when the Legislature created the bad debt and charity care funding pool under the Health Care Reform Act.  New York State currently distributes approximately $850 million annually from the pool, which has been renamed the indigent care pool. 

Advocacy groups across New York have issued reports criticizing hospital performance on charity care, and protesting the lack of accountability for indigent care funding.  In 2003 the Wall Street Journal published a series of articles chronicling the experiences of low-income New Yorkers hopelessly mired in hospital debt and aggressively pursued by collection agencies.  Congressional and legislative hearings followed, and in 2004, the American Hospital Association and the Hospital Association of New York issued voluntary guidelines for their members.  Although the voluntary guidelines led to some improvements, implementation was uneven.  Advocacy efforts for uniform policies intensified, culminating in passage of the new law this year.     

What Does the New Law Require?  The legislation adds a new subsection, 9-a, to New York Public Health Law §2807-k.  Subsection 9-a requires general hospitals to have financial aid policies in place and effective as of January 1, 2007,  as a condition of receiving distributions from the State’s indigent care pool. 

The policies must operate to reduce charges for low-income patients who a) have inadequate or non-existent insurance benefits, and b) can demonstrate an inability to pay the hospital’s full charges. Hospitals also have the discretion to reduce or discount collection of co-payments and deductibles from insured individuals who can demonstrate an inability to pay. The hospital’s policy must include clear, objective criteria for determining a patient’s ability to pay.

The major provisions of the new law are outlined below.

Reduced Charges According To Income

Importantly, the new law links the fees that can be charged to poor and low income patients to the fees paid by the hospitals’ highest volume payor which, because of their volume, is generally the payor that is able to negotiate the most favorable rates. 

• Patients with income at or below 100% of the Federal Poverty Level (FPL) can be charged no more than a “nominal payment,” to be defined in guidelines to be issued by the Commissioner of Health.
• Patients with income between 100% and 150% of FPL must be billed according to a proportional sliding fee scale, on which the maximum payment is no more than 20% of what the hospital would have been paid by its highest volume payor, or Medicare or Medicaid, whichever payment is highest.
• Patients with income between 150% and 250% of the FPL must be billed according to a proportional sliding fee scale, on which the minimum payment is the 20% level and the maximum payment is what the hospital would have been paid by its highest volume payor, or Medicare or Medicaid, whichever payment is highest.
• Patients with income between 250% and 300% of the FPL must be billed no more than what the hospital would have been paid by its highest volume payor, or Medicare or Medicaid, whichever payment is highest.
• Patients with incomes below 300% of FPL are deemed “presumptively eligible” for one of the above payment reductions.
• In addition to the sliding scale payment reductions, a hospital’s policy must provide for the use of installment plans for paying outstanding balances.  
• Generally, monthly payments cannot exceed 10% of the patient’s gross monthly income. 
• However, if assets are considered in eligibility, pursuant to the guidelines below, they can be taken into account in setting the level of payment.
• The interest rate cannot exceed the 90-day security rate, and
  Accelerator clauses, under which a missed payment triggers higher interest, are prohibited.

Consideration of Assets

Hospitals are permitted to make exceptions on a case by case basis and deny rate adjustments if the patient has significant assets that should be taken into account in determining the appropriate payment amount. 

However, these exceptions must be set forth in written policies and procedures that are subject to the prior review and approval of the Commissioner of Health.  The maximum amount collected from such individuals still cannot exceed that collected from the hospital’s highest volume payor, or Medicare or Medicaid, whichever is highest.

The following assets are exempt from consideration:

• The patient’s primary residence
• Retirement accounts such as IRAs,
• College Savings accounts
• Cars in regular use by the patient or a family member.

Notification Requirements

Hospitals are required to notify patients that financial aid may be available, and how to obtain further information, in a timely manner.  The law specifically requires hospitals with 24 hour emergency departments to provide this information through the following actions:

• Notifying patients during intake and registration
• Conspicuous postings of language appropriate materials
• Notifying patients on bills and statements
• Providing a summary of the financial aid policies upon request, including income eligibility levels, primary service area, and the process for applying.

Specialty hospitals without 24 hour emergency departments are also required to provide clear and timely information on financial aid, but can do so by providing the information during admission and through information on bills and statements.

The Application Process

The new law provides that although hospitals can require financial documentation in support of applications, the application process cannot be “unduly burdensome or complex.”  More specifically, the law requires that:

• Upon request, patients be given assistance with interpreting the policies and procedures and with submitting applications for assistance.
• Patients be allowed to apply for assistance at least 90 days after the date of service or discharge, and be given at least 20 days to complete and submit an application.
• Decisions on applications must be made within 30 days of receipt.
• Denials and approvals must be in writing
• Hospitals must establish a process for appeals, which must be set forth in the text of written denials.
• Applications must be printed in the primary languages of the hospital’s patients.  Primary language is defined as a language used during at least 5% of patient visits per year, or spoken by more than 1% of the population in the hospital’s primary service area.

Hospitals are allowed to make the financial aid contingent upon the patient applying for Medicaid or another public program, if the hospital determines that the patient is likely to be eligible.

Protecting Community Access To Hospital Services

Subsection 9-a  requires hospitals to provide financial aid for emergency services for all New York residents, and for medically necessary services for residents of the hospital’s primary service area (PSA).  In order to prevent hospitals from avoiding charity care obligations by shifting their PSAs away from low-income and/or under-insured communities, the new law provides that PSAs are to be determined according to criteria established by the Commissioner of Health in consultation with the hospital industry, health care consumer advocates, and local public health officials. 

The criteria for PSAs shall include, at a minimum:

• That a hospital cannot alter or develop its PSA in order to avoid medically underserved or uninsured communities.
• That every geographic area of the state is included in at least one general hospital’s PSA.
  That a hospital must notify the Commissioner of Health of any changes to its PSA, and include a description of its PSA in the annual implementation report required by the new law (see Reporting Requirements, below).
  That a hospital cannot limit financial aid based on the medical condition of the applicant, except where medical necessity or clinical/therapeutic considerations dictate limitations on recipients of the service.

Limits On Collection Practices

The new law places strict limits on collection activities by hospitals as follows: 

• Hospitals cannot seek foreclosure or forced sale on a patient’s primary residence in order to collect an outstanding medical bill.
• Hospitals are prohibited from sending an account to collection if the patient has submitted an application for financial aid and an eligibility determination is pending.  Note:  the submitted application must be complete, including required financial documentation.
• No collection actions are permitted against patients who are found to be eligible for Medicaid at the time services were provided, for services that are covered by Medicaid.
• Hospitals must provide patients with a 30-day notice prior to referring an account for collection.
• Collection agencies operating on behalf of a hospital must follow the hospital’s financial assistance policies and procedures, including providing information to patients on how to apply for financial assistance where appropriate.
• Collection agencies must obtain the hospital’s written consent prior to commencing a legal action.

Reporting Requirements

Hospitals are required to submit a written report on their policies and procedures for financial assistance to the Department of Health within 90 days of January 1, 2007.  The report must include the materials the hospital plans to distribute to patients, a copy of the policies and procedures, and a description of the policies that covers eligibility rules (including any service area used in determining eligibility), the amount of aid patients receive, and the means of calculating such aid.

Hospitals are also required to include the following information in hospital reports submitted for pool distributions (with accuracy certified by an independent certified or licensed public account or senior hospital official):

• The number of patients who applied to the hospital for financial assistance, the number whose applications were approved, and the number whose applications were denied, organized by zip code;
• The number of liens placed on the primary residences of patients through a hospital’s collection practices;
• The number of applications for Medicaid that the hospital assisted patients in submitting, as well as the number of these applications that were approved or denied;
• The amount of losses incurred by the hospital in servicing Medicaid patients;
• Costs incurred and uncollected amounts for providing services to uninsured patients;
• Costs incurred and uncollected amounts for deductibles and coinsurance for patients with insurance or other third-party coverage such as Medicare;
• The reimbursement received by the hospital for indigent care from the state’s indigent care pool; and
• The amount of funds spent on charity care from private charitable bequests or trusts.

Enforcement

The law requires that all staff who interact with patients or have responsibility for billing and collections be trained in the hospital’s financial aid policies.  Hospitals are also required to measure internal compliance with the financial aid policies and procedures they develop.  Nonetheless, without a means for aggrieved patients to enforce the new law, or even raise non-compliance with the law as a defense in a court action to collect on unpaid bills, there are reasons to be concerned about enforcement.

Rene Reixach, an attorney with Woods Oviatt Gilman LLP, former executive director of the Finger Lakes Health Systems Agency and a Board member at Empire Justice points out in an editorial published in the Rochester Business Journal on June 2, 2006, that we need only look to the history of similar programs on the federal level to get an idea of how hospitals are likely to behave.  In the 1940s, Congress created the Hill-Burton program to fund hospital construction as a means of addressing the shortage of hospital beds.  Although the grants were conditioned on hospitals having a program to provide free care to poor patients, many didn’t.  The federal government started requiring reports of free care and auditing those reports for accuracy only after advocacy groups brought litigation.  Even then, some hospitals in arrears for their obligations on charity care simply fell further into arrears with no effective sanction, just an obligation mounting on paper. 

As advocates for low-income people at risk for medical debt, it is crucial that we make a report to the New York State Department of Health and the Attorney General’s Office every time we learn a hospital has failed to satisfy its obligations under the new law.  If you have a client that has difficulty accessing a hospital’s charity care

program, please call Trilby de Jung in the Rochester Office of the Empire Justice Center, at 1-800-724-0490.  Let’s make sure New York actively monitors compliance with the new law and takes prompt action when hospitals ignore their new responsibilities for notifying patients and making charity care available to those who need it.

Releated Materials:

To read Empire Justice Center’s 2006 report on Medical Debt, “In Sickness and In Debt: A Review of Medical Debt in Upstate New York,” and the Legal Aid Society’s Handbook, “How to Fix and Avoid Medical Debt,” visit:  www.empirejustice.org/publications/reports/reports.html