HD2 - Indigent and Charity Care Provided by Hospitals (HJR 27, 2010)

Executive Summary:

House Joint Resolution 27 introduced by Delegate Harry R. Purkey (2010) requested that the Joint Commission on Health Care determine the volume and cost of indigent health care provided by hospitals in the Commonwealth as well as analyze incentives to encourage the provision of health care to indigent individuals.

In 2008, Virginia hospitals provided the equivalent in $400 million in charity care; generally, not-for-profit hospitals provided more charity care than for-profit hospitals as a percentage of revenues. Charity care policies are set by each hospital and there is no state standard defining the calculation of charity care. Recent federal changes will provide for greater federal oversight of tax-exempt hospitals: the Internal Revenue Service (IRS) revised Form 990 to standardize how hospitals report charity care expenses and the U.S. Treasury was mandated to review hospitals’ tax-exempt status every three years. In addition, new federal law requires not-for-profit hospitals to:

• Establish a written financial assistance policy, including criteria for eligibility for financial assistance and the basis for calculating amounts charged to patients.

• Limit the amounts charged to patients eligible for financial assistance similar to the lowest amounts charged to insured patients.

• Refrain from engaging in extraordinary billing and collection actions until after reasonable efforts have been made to determine whether a patient is eligible for financial assistance.

Furthermore in 2014, the Patient Protection and Affordable Care Act (PPACA) requirement for individual insurance coverage, if enacted, is expected to decrease significantly the number of uninsured Virginians and concomitantly decrease the need for hospital-provided charity care. Federal health reform changes could impact the need for and provision of charity care by hospitals in Virginia. However, before considering new policies regarding hospital charity care, additional review of the actual impact of federal health reform should be undertaken. By 2016, specific assessments of PPACA’s impact on charity care could be gauged and multiple years of hospital charity care data from the revised IRS Form 990 will be available.

If PPACA changes decreases the need for charity care, there may be justification for lowering Virginia’s Certificate of Public Need charity care conditions. Based on the study findings, the Joint Commission on Health Care approved two policy options:

• By letter of the Chairman, request that the Virginia Department of Health report to JCHC by August 30, 2012 regarding the impact of federal health reform on existing COPN charity care conditions and recommendations to address any program, regulatory or statutory changes that may be needed.

• Include in the JCHC 2011 work plan, a staff review of ways to define hospital-offered charity care to include determining the availability of data to support any charity-care definitions being considered. The purpose of the review would be to further future State-level charity care discussions and analyses.

On behalf of the Joint Commission and staff, I would like to thank the numerous individuals who assisted in this study, including representatives from the Department of Medical Assistance Services, Virginia Department of Health, Virginia Department of Taxation, and Virginia Hospital and Healthcare Association and its member hospitals.

Kim Snead
Executive Director
January 2011