Why Should Delaware Care?
Delaware ranks among one of the costliest states in the country for healthcare. In recent months, Spotlight Delaware reported that the state’s largest hospital had provided miniscule amounts of free care to patients, despite having a tax-exempt status and hundreds of millions of dollars in excess revenue each year.
Delaware lawmakers introduced a bill Tuesday that would greatly increase the number of patients eligible to receive free treatment, often called charity care, from the state’s nonprofit hospitals.
The legislation, Senate Bill 13, comes months after a Spotlight Delaware investigation called into question the charity care practices at the state’s largest healthcare system, ChristianaCare.
The new legislative push also follows a separate effort last summer in which the state paid off medical debts for thousands of Delawareans, despite hospital charity care policies that could have made that treatment free.
Nonprofit hospitals, like ChristianaCare, are required by the Internal Revenue Service to provide a “community benefit” to earn their tax-exempt status. Historically, that benefit has been charity care.
But changes in recent decades to federal and state guidelines have allowed nonprofit hospitals to set charity care policies at their own discretion, removing any requirement of providing it in order to receive a tax break.
And Spotlight Delaware’s investigation found ChristianaCare had reported massive excess revenues to the IRS while its free care remained stagnant for more than a decade.
Now, it appears lawmakers are hoping to open the door for more patients to receive free treatment through SB 13. The bill would raise the income cutoff level for receiving discounted or fully covered care.
“We collectively can be doing a lot better in terms of executing on the promise of charity care and making sure that more working Delawareans can afford the care that they’re entitled to,” Meyer said.
Meyer said his office reached out to Delaware hospital systems after discovering that many patients who received debt relief from the state should have already qualified for free care under existing hospital charity care policies. This new legislation ensures hospital charity care policies are “making an impact,” he said.
At the time, Spotlight Delaware reported the state earmarked half a million dollars to pay off medical debts for nearly 18,000 residents. State leaders argued costs were too high in the state, and patients had been unfairly burdened by often crippling medical debt.
But as taxpayers footed the bill for that initiative, which ultimately erased $50 million in unpaid medical debt, ChristianaCare had often set aside a miniscule fraction of its multi-billion-dollar budget each year to ease those medical bills for Delawareans in the first place.
What’s in the bill?
Senate Bill 13 would dramatically increase the level at which patients can receive charity care.
In October, Spotlight Delaware reported hospitals had to provide free or discounted care to patients living at or below 350% of the Federal Poverty Line, or $55,860.
Under the new proposal, all of the state’s nonprofit hospitals would be required to provide free care to patients living below 300% of the Federal Poverty Line, with large discounts for patients in higher percentage brackets.
- Below 300% of the FPL ($46,950 a year) – Full discount
- 300-350% of the FPL ($46,950 to $54,775 a year) – 75% discount
- 350-400% of the FPL ($54,775 to $62,600 a year) – 50% discount
Separately, the legislation allows people living at 500% of the Federal Poverty Line — $78,250 a year — to seek out a 50% discount if the billed expenses are greater than 10% of their income.
Senate Bill 13 keeps sections of the previous code that places enforcement of charity care requirements on the Delaware Department of Health and Social Services. It also maintains that nonprofit hospitals seeking out a Certificate Public Review, a government approval for hospital expansion, must provide charity care.
The bill exempts psychiatric, rehabilitative and long-term acute facilities from charity care requirements.
But SB 13 does leave a door open for hospitals to receive compensation from patients who otherwise would have been eligible for free care. One provision of the bill says it would not prohibit hospitals from assisting patients to enroll in Medicaid or Medicare, which pays hospitals, but at a lower reimbursement rate than private insurers.
The bill also implements strengthened enforcement levers for the state to intervene when hospitals are not in compliance, allowing state regulators to impose fines or sanction a hospital’s license. It also allows the Delaware Attorney General’s office to open civil or class-action lawsuits on the behalf of improperly billed patients.
The bill’s sponsor, State Sen. Marie Pinkney (D-Bear), said SB 13 would protect patients from “aggressive” medical debt collection practices, expand notification and screening requirements for hospitals to determine if patients are eligible for financial assistance.
According to the bill, patients can’t have their outstanding medical debt sent to collection agencies while they have pending financial assistance claims. And if those hospitals do send patients to collections, the proposal would require them to invalidate that debt.
Hospitals must also “prominently” post their charity care policies in admission and registration areas in addition to on patient bills.
“This bill recognizes something very simple,” Pinkney said. “Healthcare is not truly accessible if people are afraid that getting care will financially ruin them.”
What is charity care?
Before 1967, federal regulations surrounding charity care were clear: Hospitals received their tax-exemption in exchange for providing relief for the poor.
But following the creation of federal subsidies like Medicare and Medicaid, which were also meant to subsidize health costs, those regulations changed from offering relief for the poor to offering community benefits.
With that change, providing free care to disadvantaged patients was no longer required. However, the IRS still considers it a “significant factor” in determining a hospital’s tax-free exemption.
According to the IRS, a community benefit could mean providing charity care, using surplus funds to improve facilities or spending money to increase access to medical training.
Guy David, a professor of health care management at the University of Pennsylvania, told Spotlight Delaware in October that providing free care is not the only way to determine whether a hospital is charitable.
He also said there are two types of charity care. One is a hospital providing care with no expectation of payment. The second is a provider’s “bad debt.”
Bad debt is when a hospital issues a bill to a patient hoping to get paid, but for one reason or another, that payment never comes. David said a key indicator of a hospital’s charitability is if that hospital decides to send that debt off to a collection agency, or simply write it off as a loss.
He said it is important to look at all of the uncompensated care a hospital provides, which represents both of those figures.
In an email on Monday, David called the bill a “relatively strong intervention” meant to standardize charity care policy and prevent medical debt collections. He also said he believes the bill would improve access for patients that may have otherwise put off care because of the cost.
Still, he said the bill does not do much to address the underlying cost-drivers of healthcare, such as workforce, technology and market power. He added that hospitals with more market power would have the ability to cost-shift — or charge commercially insured patients more — to make up for fewer paying patients, while smaller hospitals may face higher losses.
“In that sense, this is a redistributional reform rather than a productivity-enhancing one,” David said. “As a result, it should be viewed as an effective equity and patient protection policy, but a limited tool for controlling overall healthcare spending.”
Senate Bill 13 is awaiting a hearing in the Senate Health and Social Services Committee.
