Fair Hospital Prices are Not Charity: Decoupling Hospital Pricing and Collection Rules from Tax Status

Abstract

The Patient Protection and Affordable Care Act created a new set of rules for nonprofit hospitals to maintain their federal tax-exemption, codified at Section 501(r) of the Internal Revenue Code. The 501(r) rules attempt to address the problem of hospitals’ excessive prices and onerous debt collection actions against self-pay patients by imposing fair pricing and debt collection requirements for patients eligible for financial assistance. Nevertheless, the 501(r) rules leave many financially vulnerable patients unprotected: those who receive care at for-profit hospitals and those who find themselves ineligible under a hospital’s self-defined criteria for financial assistance. Protection by the 501(r) rules is not only uneven, it is also opaque, based on circumstances and information the patient cannot easily discover or control, creating a kind of fairness roulette. The ramifications of losing the fairness roulette for the patient can mean the difference between a manageable medical bill and financial ruin. There is no good reason to limit fair pricing and collection requirements to tax-exempt hospitals. Fairness is not charity because requiring a hospital to charge a fair price does not require it to give services away for free or at a loss. This article proposes to decouple the fair pricing and collection rules from a hospital’s tax status, and instead make compliance with these rules a condition of participation in Medicare. Under this proposal, all hospitals that participate in Medicare would have to limit charges and collection activities for uninsured and underinsured self-pay patients who fall within certain income limits or whose medical bills exceed a defined percentage of income. Because fair hospital pricing and collection requirements are not charity, we should be treated fairly by any hospital regardless of its tax status.