Charity Care Spotlight: Third Way’s Proposed National Charity Care Bill

Early this month, Third Way (a policy think-tank of rising popularity) published a report in which they laid out a blueprint for a national charity care law. Their proposal aims to: 1) set a national standard and threshold for hospital charity care and community benefit; 2) simplify the processes for patients to receive charity care; and 3) expand the Affordable Care Act’s (ACA) restrictions on health care debt collection practices. The recommendations, likely to be considered by federal and state policymakers, demonstrate the continued interest to reform existing laws pertaining to nonprofit hospitals.

Charity Care Standard and Threshold

Third Way advocates for a national version of two different state-level standards for hospital charity care. The primary option is a sliding scale approach akin to Washington state’s standard. Third Way proposes that patients earning less than the Federal Poverty Line (FPL) should receive care entirely free of cost; patients earning between 100% and 200% of the FPL would receive a 50% discount on their cost share. An alternative policy option they provide pulls from a portion of the current Texas charity care standard requiring nonprofit hospitals to provide charity care at an amount equal to their estimated total federal and state tax exemptions. Texas law provides other options for meeting their minimum charity care requirements, such as having a combined charity care and community benefit of at least 5% of total net patient revenue (with at least 4% of the total community investments being charity care). This feature of the Texas law was not highlighted by Third Way in their report.

Patient Protection and Education Requirements

Third Way argues that there are insufficient regulations governing how hospitals educate patients on financial assistance policies and that the administrative burden associated with applying deters patients from seeking financial assistance. They call for a federal requirement that hospitals educate patients on financial assistance policies verbally and in writing before they are discharged, and that financial assistance information is provided with every bill. Current law already requires hospitals to notify and inform patients about financial assistance policies by providing a summary of the policies upon intake or discharge, including written statements on billing statements directing patients to a website where they can find the application forms, and by displaying in public locations in the hospital where they can find more information on financial assistance policies. Third Way also advocates for hospitals to be granted access to patients’ federal income data – with patient consent – to streamline the eligibility verification process. This would relieve hospitals from needing to collect financial information and documentation from patients for verification processes and would also make it easier for patients to apply for assistance.

Restrictions on Debt Collection Practices

The report argues that current requirements for hospitals to make reasonable efforts to inform patients of financial assistance before being sent to debt collections are “inadequate and ambiguous.” Third Way believes that hospitals must first meet their charity care thresholds before being able to send patients to collections. They advocate for a total ban on nonprofit hospitals engaging in extraordinary debt-collection practices such as lawsuits and wage garnishments, and that no patients earning less than 200% of the FPL should be sent to collections.

While they applaud the actions by the Biden Administration and the Consumer Financial Protection Bureau of working with credit agencies to remove some medical debt from appearing on consumer credit reports, they also urge Congress to pass the bipartisan Strengthening Consumer Protections and Medical Debt Transparency Act to cap interest rates on medical debt. Third Way also wants Congress to direct the Department of Health and Human Services (HHS) to create a “public database with information from health care entities on their debt collection practices.”

The Third Way report relies heavily on two other, heavily-contested recent reports. One report, from the KFF Health News, which states that nonprofit hospitals saved over $28 billion in federal, state and local taxes in 2020 while providing $16 billion in charity care. Another report published by Health Affairs found that nonprofit hospitals provided 2.3% of their total expenditures on charity care whilst for-profit hospitals spent 3.8% and government hospitals spent 4.1%. These findings have long been questioned by the American Hospital Association (AHA) and others, since these reports focus on just a single portion of hospital community benefits required by law. A report released by the AHA in October 2023 found that in 2020, nonprofit hospitals in the U.S. spent 6.9% of total expenses on charity care, Medicaid shortfalls, and shortfalls from other means-tested government programs. When combined with other community benefits, nonprofit hospitals spent 11.3% of total expenses on community benefits.