Third Way Pushes For Charity Care Law Amid Hospital Extender Turmoil

Inside Health Policy

February 15, 2024 4:03 pm


Third Way is calling on Congress to pass a national charity care law that would rein in hospitals’ debt collection practices, establish minimum requirements for charity care, and simplify how charity care is provided as part of a new report released Tuesday (Feb. 13). The center-left think tank points to data showing non-profit hospitals’ tax breaks have outpaced their charity care, echoing findings by the Senate health committee in late 2023 that hospitals call misleading.

Health committee Chair Bernie Sanders (I-VT) in mid-October recommended Congress and the IRS take several steps to crack down on non-profit hospitals’ charity care practices after a committee report indicated several of the largest tax-exempt hospital systems were only putting a fraction of their revenues back into charity care. But the American Hospital Association and America’s Essential Hospitals each pushed back in their own reports, raising questions about how Congress will handle transparency and oversight for non-profit hospitals moving forward.

Sanders in October said he planned to hold a hearing on non-profit hospitals in the coming months, though his office did not respond by press time on whether there are any further plans in the works.

The Third Way report comes amid a tumultuous time for hospitals, which are grappling with how to keep site-neutral provisions included in the House-passed Lower Costs, More Transparency Act out of a compromise package in the countdown to the end of the continuing resolution in early March. Tied to that issue is the matter of Disproportionate Share Hospital (DSH) cuts, which haven’t yet been averted by lawmakers as questions about payfors remain unresolved.

For its part, Third Way is calling on Congress to improve its oversight of non-profit hospitals by passing legislation with three components: modernize the requirements for charity care, simplify how patients receive charity care, and expand restrictions on aggressive debt collection tactics.

Third Way recommends establishing a standard for charity care, a recommendation that was included in a 2023 report from the Senate health committee. As part of the standard, nonprofit hospitals would offer charity care to individuals at a sliding scale based on income up to 400% of the federal poverty line.

Third Way’s recommendation is based on a similar requirement in Washington state, but a future policy could also be modeled after a Texas-based version requiring nonprofit hospitals to provide minimally the total amount of their tax exclusions in charity care.

Hospitals should also be required to streamline how patients apply for and receive financial aid, with more onus on the hospitals to help patients with their eligibility, Third Way says.

Hospitals should outline financial assistance policies to patients in writing and verbally before being discharged, and provide that information on every bill, the group adds, and should also be responsible for notifying patients of their eligibility for charity care based on federal income data the government should make available to hospitals with patients’ permission.

Policymakers should also block nonprofit hospitals from “engaging in extraordinary collection practices, specifically lawsuits and wage garnishment,” the report says.

Third Way says that non-profit hospitals received $28.1 billion in tax breaks — around $14.4 billion in federal exemptions and $13.7 billion in state and local breaks — in 2020. Around half of the nation’s 6,000 hospitals are private nonprofits, the report says.

But non-profit hospitals provided less charity care than for-profit hospitals and government hospitals in the last several years, Third Way’s report says.

“While charity care is not the only type of community benefit nonprofit hospitals may provide, it is the most effective method for ensuring patients have access to affordable care,” Third Way says. “Over time, the tax benefits for these hospitals have grown from $19.4 billion in 2011 to $28.1 billion in 2020, a 45% increase. Despite this trend, a study shows no accompanying growth in charity care. The vast majority (86%) of nonprofit hospitals did not provide more charity care than the value of their tax exemption.”

Third Way raised concerns that a lack of oversight from the Internal Revenue Service means hospitals aren’t required to hit a minimum level of charity care provided to maintain their tax-exempt status, and a convoluted application process for aid often deters patients from seeking financial assistance.

As a result, a higher number of patients grapple with medical debt where they’d otherwise be eligible for aid. Third Way says around half of nonprofit hospital systems billed low-income patients that should’ve qualified for charity care in 2019, and around 40% of patients had medical debt in 2023.

“With inadequate accountability for serving their community, nonprofit hospitals need a clear standard for the tax benefits they receive,” Third Way says in its report.

The American Hospital Association and the Federation of American Hospitals issued their own responses to the Senate’s October report, and Melinda Hatton, AHA’s general counsel and secretary, said in a late November blog post that hospitals’ charity care increased over the last three years, along with their expenses.

Median charity care spending for all hospitals grew by 13% between 2021 and 2022 alone, in line with a 17.5% cost growth during the same time period, Hatton said.

“It’s basic math: When the denominator (expenses) increases as much as it has over the past three years, but the numerator (charity care) does not increase as much, then of course the overall proportion will look different,” Hatton writes. — Bridget Early (