In 2003, Community Catalyst compiled an overview of state Free Care Laws to help advocates and policymakers understand the array of state approaches to free care. Five years later, free care still matters. Research, discussions with advocates and policymakers, and stories of medical crisis and mounting debt show that free care is an integral component of the safety net on which millions of Americans rely. In fact, access to free or reduced-cost care may be the only thing standing between a family and financial ruin.
In hospital rooms and medical offices around the nation, more families are being forced to choose between placing loved ones’ lives or the family’s financial future at risk. Lack of consistent government oversight and extreme variations in hospital free care policies and practice have hurt consumers who already feel the strain of paying more for insurance that covers less. To solve the medical debt crisis, all interests—providers, policymakers and the public—must collaborate to address the factors that feed the medical debt epidemic: inadequate insurance coverage, lack of accountability for egregious practices, and the lack of strong government oversight and standard-setting for free care.
The Rising Tide of Medical Debt: Cause and Effect
Medical debt has a lasting impact on the financial stability of individual Americans and their families, even those with private insurance coverage and middle-class incomes. A 2006 survey conducted by the Commonwealth Fund revealed that 20 percent of adults ages 19 to 64 were paying off a medical debt, with 30 percent reporting they had either struggled to pay a medical bill in the past year or were currently paying off accrued debt. Just one year later, a similar survey revealed that nearly two-thirds of adults were struggling with medical bills, even avoiding care to reduce health care costs. In an October 2008 survey by the Employee Benefit Research Institute (EBRI), insured adults who reported increased health care costs over the past year decreased contributions to retirement accounts (29 percent) or other savings (54 percent), and 27 percent used all their savings. Others increased credit card debt or borrowed money to cover medical costs. And over 25 percent struggled to pay for basic needs like food or housing. In many states, medical debt and collection practices are linked to ruined credit ratings; wage garnishment and bank account seizures; and liens on private property, including patients’ homes.
The Role of Free Care: Fairness and Accountability
What is free care?
The Internal Revenue Service has defined free care as “free or discounted health services provided to persons who meet the organization’s criteria for financial assistance and are thereby deemed unable to pay for all or a portion of services.” Ideally, the provider makes an upfront decision that the patient is eligible for free care in accordance with an institutional policy, state law or regulation. Free care should not be an ad hoc decision but a systematic practice of rendering care equitably based on ability to pay. When a provider decides a patient qualifies for free care, there is no expectation of patient payment. The hospital recognizes the patient is unable to pay for care and forgives the debt, in whole or in part. In contrast, classifying the money a patient owes for care as bad debt typically involves placing a patient in collections—or, creating medical debt.
In 2006, hospitals reported spending $31.2 billion dollars in uncompensated care—a staggering figure, but one that actually represents a decrease in hospital spending on uncompensated care as a percentage of total expenses (from 6.2 percent in 1999 to 5.7 percent in 2006). But as overall hospital spending for uncompensated care decreased, hospital profits increased. This raises the question of whether hospitals use profits to boost their competitive positions rather than reinvest in their ultimate mission: making sure all patients, regardless of insurance or ability to pay, have access to affordable health care services.
Why should hospitals provide free care?
The expectation that hospitals will provide some level of free care arises from several but equally important sources:
- Nonprofit hospitals often base their organizational missions on core values that articulate a community-focused approach, irrespective of a patient’s ability to pay.
- Nonprofit hospitals agree to provide free care and other community benefits in exchange for the highly valuable federal, state, and local tax breaks and other benefits resulting from their tax-exempt status.
- Many hospitals receive public funds that indirectly subsidize a significant portion of their uncompensated care, often administered without accountability for the hospitals’ free care policies.
- Nonprofit and for-profit hospitals have a social responsibility to provide some financial assistance since health care is an essential service—particularly in areas with few acute care providers.
- Streamlined, consumer-friendly hospital billing and debt collection practices, and transparent free care and community benefit policies make good fiscal sense. Financial analyst Fitch Ratings suggested a correlation between stability in hospitals’ median operating margins and such practices.
All Hands on Deck: Current Practice and the Need for Reform
Research shows that, in the absence of clear and consistent state or federal guidelines, some hospitals’ practices are directly responsible for pushing people who have inadequate coverage into serious debt. Some of these practices include:
- Failing to screen patients for eligibility for public programs or the hospital’s financial assistance policy;
- Failing to notify patients of the availability of these programs, and even denying that they offer free care;
- Charging self-pay patients, on average, three times more for services than the amounts charged to patients with private insurance or covered by public programs;
- Requiring significant up-front payments before providing treatment;
- Mounting extremely aggressive collection practices, including placing liens on patients’ property or garnishing their wages; and
- Selling patient accounts to third party lenders that charge exorbitant interest rates.
Not all hospitals engage in these egregious practices, but it is alarming they are permitted at all. Hospitals that make a practice of healing patients while bankrupting them fall short of their obligations and compromise individual and public health; erode individual, community, and national economic security; and risk their own financial well-being by ignoring industry best practices. Communities and consumer advocates can work with hospitals and policymakers to ensure hospital financial assistance policies are implemented effectively and fairly. Together, they can target hospitals’ community benefit programs to identified health needs, including free care.
Federal guidelines for the provision of free care are vague and outdated, and, as Community Catalyst’s free care compendium demonstrates, state laws and regulations vary tremendously. Some states have introduced legislation that sets mandatory free care eligibility requirements, requires hospitals to report their free care policies and expenses, and/or establishes standards that limit what hospitals can charge the uninsured or bill patients who are unable to pay. However, many states still lack firm free care requirements. Policymakers should implement consistent standards that achieve the following:
- Establish eligibility criteria and public notice requirements for free care programs
- Require the use of fair billing and collection practices
- End hospital overcharging of uninsured and underinsured patients
- Prohibit assignment of medical bills to financial institutions that charge interest
- Require hospital community benefit programs meet community health needs identified through a process of community engagement
- Impose sanctions on hospitals that fail to meet their obligations
The growing problem of medical debt illustrates how America’s health care system, archaic and riddled with inefficiencies, fails people when they need it most. As the economy worsens, more Americans will rely on free care and other safety net services. We need to ensure greater accountability for these services. But, we must also recognize that exclusive reliance on free care and other safety net services is neither financially sustainable over time nor a replacement for comprehensive health benefits. However, by holding hospitals accountable for the provision of free care, we will draw greater attention to the inadequacies in coverage options so many families face, thereby helping to create the political will necessary to achieve lasting reforms that give quality, affordable health care coverage for everyone.