Compliance Trends with Hospital Charity Care Requirements

Aaron Vandervelde and Alexander Oliphant write about a study they conducted that expands on a recent New England Journal of Medicine study, with the objectives of measuring and comparing 340B and non-340B hospitals along the same measures as reported in the NEJM study, and assessing whether hospitals improved compliance with these requirements between 2012 and 2013.

Study Background: The Affordable Care Act (ACA) established new requirements for 501(c)(3) hospitals pertaining to their charity care policies. Hospitals self-report data related to these requirements on Internal Revenue Service (IRS) Form 990, which is submitted on an annual basis. Researchers from the University of Michigan, Ann Arbor, and the University of California, Berkeley, recently published a study on hospitals’ compliance with these requirements in the New England Journal of Medicine (the “NEJM Study”) based on their analysis of IRS Form 990 data from 2012. The NEJM Study authors concluded that compliance with these requirements is mixed. Specifically, they observed that “[o]nly 44% of hospitals regularly notified patients of their potential eligibility for charity care before initiating debt collection, and just 29% reported charging patients who were eligible for charity care the amounts generally billed to insured patients.”

Focus on 340B Hospitals: Given that most 340B hospitals qualify for the program in part based on the number of Medicaid and low-income Medicare patients they serve, there is a presumption that these hospitals also provide relatively high levels of charity care, such as free or discounted care to low-income uninsured or under-insured patients. However, studies on the amount of charity care provided by 340B hospitals suggest that many of these hospitals are providing relatively low levels of charity or uncompensated care, including recent analyses by Avalere Health and the Medicare Payment Advisory Commission (MedPAC). Avalere found that fewer than one-third of 340B hospitals provide charity care that exceeds the national average, and MedPAC concluded that 40 percent of 340B hospitals provide less than the median level (3.6 percent) of uncompensated care. In a separate study, the Government Accountability Office (GAO) found that, on average, 340B Disproportionate Share Hospitals (DSH) hospitals provide greater levels of charity care than non-340B DSH hospitals. However, that analysis also found that some 340B hospitals provide relatively low levels of charity care.