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IRS Rules are Only the First Step to Ending Unfair Hospital Billing and Collections Practices

Hospital bill collection practices are often aggressive, resulting in lawsuits against patients, financial distress, damage to credit, and bankruptcies. A sample of financial assistance policies from 140 hospitals across 14 states captured in the August edition of AMA Journal of Ethics demonstrates that new IRS rules for not-for-profit hospitals will not fully protect patients from unfair billing and collection practices.

The new IRS rules, which were finalized in December 2014, require nonprofit hospitals to:

  • Establish financial assistance and emergency medical care policies;
  • Limit the amounts charged to patients who are eligible under those policies; and
  • Attempt to determine if patients are eligible for financial assistance before engaging in collections actions against them.

While these rules are a step in the right direction, the survey of hospitals shows that the rules are too vague to ensure that patients are fully protected. Hospitals have too much flexibility to determine which consumers qualify for financial assistance and are protected from aggressive billing. With no standard provided by the IRS rules, hospital eligibility guidelines for financial assistance range from 100% to 600% of federal poverty levels. Some hospitals provide free care for patients under 100-200% of FPL, while others only provide small discounts. Often patients with insurance are excluded from financial assistance, even those with high deductibles and copays or coinsurance. And thus, these individuals won’t get the benefit of the rules. Of particular concern is the fact that these excluded patients will not benefit from one of the most important protections in the rules, which prevent hospitals from billing those who qualify for financial assistance the full “sticker” price, but rather must stick to what they would bill an insured person, where discounts are negotiated.

Since these rules only apply to not-for-profit hospitals, for-profit hospitals have no incentive to adopt procedures that limit aggressive billing practices, although a few states have passed laws that hold all hospitals, both for-profit and not-for-profit, to similar rules preventing aggressive collections.

We need further consumer protections to prevent aggressive billing practices and ensure that hospitals stays don’t result in devastating financial consequences.