Wednesday, October 23, 2013

Does Obamacare Really Punish Nonprofit Hospitals for Helping the Poor?

No, this is not a post in favor of or opposing the ACA ("Obamacare") – there's plenty of those elsewhere already.  It is an attempt to clarify a misconception about ACA and its effect on nonprofit hospitals.  Starting with a story in the Daily Caller, and since spreading to other sources (examples here and here), many have stated that ACA includes a provision to punish nonprofit hospitals for providing free or discounted services to those without the ability to pay.  Even the staunchest opponents of the law must admit that this claim seems pretty far fetched.  So, what is the reality?
Actually, the new provision in the ACA that covers nonprofit (501(c)(3)) hospitals is the addition of Section 501(r) to the tax code.  Full details are here, but the gist of it is the following added requirements:
  • Nonprofit hospitals must develop and publicize a policy for identifying financial need and providing financial assistance to those with limited ability to pay.
  • Nonprofit hospitals must follow that policy and inform patients of the potential for financial assistance.
  • Nonprofit hospitals must make efforts to ensure that patients have sufficient ability to pay prior to taking extraordinary collection measures for unpaid bills.
  • Nonprofit hospitals must conduct routine community health needs assessments (CHNA) that include input from community leaders in order to determine if and how they can help their communities.

It is worth noting that failure to comply with the rules can lead to imposition of an excise tax, so, yes, nonprofit hospitals may be fined.  However, the fine doesn't come from helping the poor too much, it comes from inadequate documentation of helping the poor, i.e., quite the opposite.  Rules like those in Section 501(r) have been promoted for some time now, and are rooted in the frustration expressed by some that nonprofit hospitals are hard to distinguish from their for-profit counterparts.  Examples of nonprofits paying large executive salaries and aggressively trying to collect from the poor years after their treatment have brought these issues to the forefront.  By solidifying requirements that nonprofit hospitals document their community benefit and by limiting aggressive debt collection efforts, the ACA regulations seek to ensure the nonprofit nature of nonprofit hospitals.

Are the regulations worthwhile?  Will they work?  Do they impose too much on nonprofits?  These are all valid questions, and fair game for criticizing the provisions in the ACA.  Accusing the law of punishing hospitals for helping the poor is not.

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