Charity Care at U.S. Hospitals on the Rise as Americans With No Health Insurance Grows

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PricewaterhouseCoopers Health Research Institute reports that the community benefit hospitals provide may be underestimated because of the challenges hospitals face in determining who is eligible for charity care.

The latter includes a growing population of 'underinsured' families who are covered by employer health insurance but can't afford the increased co-payments and deductibles that employers are shifting to the individuals.

Washington, DC, March 6, 2006 -- The amount of free health care provided by U.S. hospitals to poor and uninsured Americans rose to $27 billion last year, up 30 percent from $20.7 billion in 1999, but hospitals are getting a black eye over discrepancies in charity care policies, aggressive bill collection practices and a broken health care pricing system, according to PricewaterhouseCoopers.

In a report titled Acts of Charity: Charity Care Strategies for Hospitals in a Changing Landscape by PricewaterhouseCoopers Health Research Institute, PwC asserts that the community benefit hospitals provide may be underestimated because of the challenges hospitals face in determining who is eligible for charity care. Further, the lack of clarity about the community benefit standard makes it difficult for hospitals to defend themselves amid growing public criticism over prices charged to individuals with no health insurance.

“There are 45 million Americans with no health insurance in this country, and the hardest hit are the working uninsured who are not covered by government programs but who make too much money to qualify for hospital charity care,” said Reatha Clark, partner, PricewaterhouseCoopers Health Industries Advisory practice. “The latter includes a growing population of 'underinsured' families who are covered by employer health insurance but can't afford the increased co-payments and deductibles that employers are shifting to the individuals.”

“Much of the negative press against hospitals has focused on hospitals’ reportedly aggressive attempt to collect on their debts and criticism that the uninsured are charged higher prices for services than the discounted prices negotiated by managed care plans or what Medicaid and Medicare pay,” added Clark. “Few hospitals have the profit margin to provide substantial charity care and write off bad debt without regard for whether patients can actually pay. Complicating the matter is that while hospitals apply discounts to the uninsured, hospital charges bear little resemblance to actual costs. At issue for our nation’s health leaders and policy makers is how to make health care pricing transparent and understandable to consumers.”

Under fire from the media and federal and state lawmakers, hospitals are proactively changing or clarifying their pricing, billing and collection policies to expand coverage for uninsured Americans and to protect their goodwill reputation.

  • In a PwC survey of 100 hospital executives, approximately 70 percent said their hospitals provide the uninsured with discounts off standard charges and 15 percent charge the uninsured their averaged managed care rate.
  • Seventy-six percent of hospitals surveyed by PwC report charity care in terms of charges, rather than costs, and an additional 9 percent use a combination of charges and costs. All of these approaches are appropriate under generally accepted accounting principles, according to PwC. However the inconsistent reporting makes evaluating community benefits nearly impossible.
  • The PwC report also suggests that many more uninsured Americans are eligible to receive charity care from hospitals, but because of personal disclosures required to determine financial eligibility, candidates are reluctant to complete the necessary paper work. Furthermore, the lack of regulatory guidance regarding patients' qualification has resulted in a patchwork of policies and practices that have led to patient frustration and public outcry
  • The PwC survey showed that hospitals report providing charity care equivalent to an average of 5 percent of their net operating income, but 85 percent said part of their bad debt could be classified as charity care. Bad debt expense is the write-off hospitals take when patients who haven’t qualified for charity care are unable or unwilling to pay for services they receive. While charity care is considered a community benefit, bad debt is not.

“Not-for-profit hospitals need to be able to respond to challenges to their eligibility for state and local income tax, property tax and sales tax exemptions, as well as federal income tax exemption, which, among other privileges, allows for access to tax exempt financing,” said Robert Friz, Tax Partner, PricewaterhouseCoopers, Washington National Tax Service. “If the tax exemption for not-for-profit hospitals were modified or eliminated because hospitals fail to demonstrate their community benefit, the increased tax costs could significantly deplete the resources hospitals need to fulfill their charitable missions, including providing charity care.”

“There is much that hospitals can do on their own to improve their charity care policies, but they also need to be proactive in demonstrating the amount of charity care and community benefit they provide,” commented Friz. “In this regard, the lack of uniform standards for quantification and disclosure of charity care can make it difficult for hospitals to defend themselves from such challenges. Further, they alone likely cannot solve the bigger pricing transparency problem without a major overhaul of the system, which will involve the public and private sectors working together.”

The PricewaterhouseCoopers report outlines proactive charity care strategies for hospitals to consider taking. These strategies include:

  • Align patient charges to the uninsured with payer reimbursement rates.
  • Simplify eligibility procedures for financial assistance and charity care.
  • Clearly communicate charity care policies to patients so they understand what to expect and how to access it.
  • Rigorously train staff to communicate charity care policies and to be sensitive to cultural barriers toward applying for charity care.
  • Provide complete and accurate information, with details about charity care and other community benefits on IRS Form 990.
  • Proactively report to the community and local leaders through an annual community benefit report.

A full copy of the report can be downloaded at http://www.pwchealth.com/pdf/charitycare.pdf.

About PricewaterhouseCoopers Health Research Institute

PricewaterhouseCoopers Health Research Institute provides new intelligence, perspective, and analysis on trends affecting all health-related industries, including healthcare providers, pharmaceuticals, health and life sciences and payers. The Institute is part of PricewaterhouseCoopers larger initiative for the health-related industries that brings together expertise and allows collaboration across all sectors in the health continuum.

About PricewaterhouseCoopers:

PricewaterhouseCoopers (http://www.pwc.com) provides industry-focused assurance, tax and advisory services to build public trust and enhance value for its clients and their stakeholders. More than 130,000 people in 148 countries work collaboratively using Connected Thinking to develop fresh perspectives and practical advice.

"PricewaterhouseCoopers" refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.

Contacts:

Todd Hall

PricewaterhouseCoopers

617-530-4185

Lisa Stearns                    

The Hubbell Group, Inc. for PricewaterhouseCoopers

781-878-8882

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