Associations representing healthcare providers and debt collectors expressed their collective protest about proposed IRS regulations limiting medical bill collections to as much as 240 days.

In June the US Treasury Department released the the proposed rules that clarify IRS regulations regarding how a hospital manages its financial assistance policy (FAP) and emergency medical care policy, and how it collects debts from patients who may qualify for financial assistance or charity care. The comment period for those proposed rules expired Monday, and among those heard from were the Healthcare Financial Management Association (HFMA), representing 39,000 healthcare financial professionals, and the Association of Credit and Collection Professionals (ACA International), with 5,000 member collection agencies.

The proposed regulations will impose significant burdens on not-for-profit hospitals, HFMA said, because of “duplicative or conflicting procedures and requirements, burdensome processes and record keeping,” and “inconsistent standards and unintended consequences.”

Just to implement the new regulations will require non-profit hospitals to spend between 250 and 2,700 hours annually to implement the new requirements, the organization said. “The rules will require hospital organizations to execute numerous actions that will easily exceed this estimate,” the HFMA letter said. “The rule will be far more costly for organizations to comply than what IRS may have contemplated.”

ACA International questioned the Treasury Department’s jurisdiction for some of the proposed regulations. ”Under the Fair Debt Collection Practices Act, Congress expressly prohibited the promulgation of regulations ’with respect to the collection of debts’ with limited exceptions that do not apply here,” wrote ACA International. “The proposed regulations will regulate the manner and method of collection healthcare debts. Although unclear from the notice of proposed rulemaking, the Agencies may intend to limit the application of the Proposed Regulations to the internal billing and collection operations of charitable hospitals, as opposed to independent third-party collection agencies servicing healthcare debts for charitable hospitals.”

ACA International also “believes that the proposed regulations would be strengthened by several clarifications and modifications,” the collection agency organization wrote. “These changes aim not only to improve patients’ experiences in eligibility determinations and reduce the risk of confusion between inconsistent and duplicative federal, state, and local charity care requirements with profound implications for continued non-profit status, but they also recognize the shared responsibility of healthcare providers, payers, and patients in making timely financial assistance eligibility determinations.”

The proposed regulations clarify IRS regulations regarding how a hospital manages its financial assistance policy (FAP) and emergency medical care policy, and how it collects debts from patients who may qualify for financial assistance or charity care.

Overall, ACA International found that the proposed regulations “conflict with state and local charitable care and financial assistance laws … The solution to this problem is for the final rule to clarify that the federal standards preempt state law.”

The 240-Day Debt Collection Window

The section of the proposed regulations generating the most comments are those related to debt collection. Under the current IRS regulations nonprofit hospitals are required to make a “reasonable effort” to determine if a patient qualifies for financial assistance. The proposed regulations define what “reasonable” means. A hospital must provide any patient who might qualify for charity care with a 120-day “notification period” that commences with the first bill during which the hospital must communicate its financial assistance policy. This must be followed with another 120-day “application period” during which the patient is allowed to submit a financial assistance application. Only after these two periods have expired can a hospital engage in “extraordinary collection actions.”

“To add a second 120-day application period during which a hospital’s ability to engage in any collection actions that require a legal or judicial process may be suspended is extremely detrimental to a facility’s ability to recover from patients with resources available to pay the amounts due,” HFMA wrote. “In addition, the Fair Debt Collection Practices Act (FDCPA) already allows 30 days after a person has been notified of a debt to respond and dispute that the debt is valid. Therefore, we strongly urge that the application period be removed from the regulations, allowing hospitals to commence ECAs without further delay following expiration of the 120-day notification period. We also recommend that the FDCPA’s 30-day notice for validation of debt be applied after the provider turns an account over to a third-party collection agency. Additional periods are unnecessary.”

ACA International concurred. “The 120-day notification and 240-day application periods are too long, conflict with state requirements, and unreasonably interfere with the ability of charitable hospitals to recover payments from patients who are ineligible for financial assistance,” the association wrote. “This result finds no support in the Affordable Care Act and it was not the intent of Congress.”

HFMA wrote that this regulation will mean putting a 120-day timer on all bills, which will have to be implemented only a great cost.

If the Treasury imposes a waiting period on collections, ACA International has requested that it be considered a tolling period. Tolling periods are those where the statute of limitations on a debt stops running. “The proposed regulations should state that the notification and application periods toll the applicable statutes of limitations to credit report and commence a lawsuit to recover the debts from patients ultimately determined to be ineligible for any financial assistance,” wrote ACA International.

Extraordinary Collection Actions

The proposed regulations also define what actions are considered ‘‘extraordinary collection actions’’ and the ‘‘reasonable efforts’’ a hospital facility must make to determine FAP-eligibility before engaging in such actions.

“The focus of the regulation is on the patient completing an application for financial assistance,” wrote HFMA. “In reality, this is an area that consumes considerable resources and produces significant frustration for hospitals because of patients’ reluctance or unwillingness to provide complete and timely information.”

The organization argued that “if hospitals can document that they have taken the required steps to verify eligibility but have not had the cooperation of the patient in providing the information requested in a timely manner, or are unable to establish presumptive charity from other records, they should be deemed to have satisfied the requirement of ‘seeking to determine whether an individual is financial assistance policy (FAP)- eligible.’”  HFMA listed several methods, such as public record searches, to establish this.

The IRS could also help in this, according to HFMA, which recommended agency streamline the process for obtaining a patient’s adjusted gross income by making it online and automated, rather than the current method of faxing a request.

ACA International recommends the Treasury require patients to cooperate with eligibility determinations. “ACA International suggests that the proposed regulations acknowledge that a patient seeking eligibility for financial assistance has an affirmative duty to cooperate in the process.”

Reporting to Credit Bureaus 

Under the proposed refinement of the regulations, reporting a patient’s delinquent debt to a credit bureau would now be considered an “extraordinary collection action.”

“Credit reporting of a healthcare debt is not “extraordinary” and equating it on par with lawsuits, garnishment of wages, causing an arrest, and foreclosure actions is an arbitrary and capricious interpretation of the intent of Congress,” wrote ACA International.

In addition, the new regulations would also include a prohibition of selling a patient’s debt to a third party as an extraordinary collection action. While a not-for-profit hospital can contract with a third-party to collect a debt, the proposed regulations forbid it from selling that debt until it has determined definitively that the debtor does not qualify for financial assistance.

The list of extraordinary collection actions also includes, but is not limited to:

  • Placing a lien on an individual’s property;
  • Foreclosing on an individual’s real property;
  • Attaching or seizing an individual’s bank account or any other personal property; Commencing a civil action against an individual;
  • Causing an individual’s arrest;
  • Causing an individual to be subject to a writ of body attachment; and?
  • Garnishing an individual’s wages.

HFMA argues that not-for-profit hospitals are being singled out regarding the proposed regulations concerning “extraordinary collection actions.” “Unless the federal government plans to consider such methods extraordinary for all not-for-profit organizations (e.g., universities, FQHCs, etc.), we believe that these methods, which are all routine and normal actions, should be excluded from the definition of ECAs,” HFMA wrote. “Defining one set of requirements for not-for-profit hospitals and a different set for other not-for-profit organizations creates inconsistency within the standards to which organizations are held accountable under section 501(c)(3) of the Code. ”

Financial Assistance Policies

The proposed regulations also specify what information a hospital  must include in its financial assistance policy and emergency medical care policy, as well as the methods a hospital facility must use to publicize these policies.

HFMA wrote that these regulations will be burdensome and duplicative because it would mean in many cases completely rewriting a financial assistance policy or policies that member organizations have already invested tremendous time and resources to put into place. “Rather than requiring a rewrite of these policies, the regulations should give hospital organizations the flexibility to incorporate these policies by reference into a consolidating policy,” HFMA suggests.

“Multihospital organizations, for example, should be able to adopt system-level policies meeting section 501(r) requirements that qualify as compliant policies for the individual hospitals within the organization,” writes HFMA.

In addition, the proposed emergency medical care policiy requirements both duplicate and conflict with federal Emergency Medical Treatment and Labor Act (EMTALA) requirements, HFMA wrote. “When EMTALA obligations have been met and a patient is being discharged, it is customary to discuss financial responsibility and financial assistance, including responsibility for co-pays or deductibles. As written, the proposed rule could prohibit this interaction from occurring. This interaction is a key opportunity for hospitals to interact with their patients in regard to guidelines of their FAP as well as eligibility and application,” HFMA wrote.

Also, FAP policies can be several pages long and much of it in language that would only confuse a patient. HFMA suggests that hospitals be allowed to condense it into a single, easy-to-understand page.

How a hospital facility determines the maximum amounts (that is, the amounts generally billed – AGB — to individuals who have insurance coverage) it can charge FAP-eligible individuals for emergency and other medically necessary care. In the case of an individual who is FAP-eligible but has not applied for financial assistance at the time charges are made, the proposed regulations provide that a hospital facility will not fail to satisfy section 501(r)(5) if it charges the individual more than AGB, provided the hospital facility is complying with all the requirements regarding notifying individuals about the FAP and responding to applications submitted, including correcting the amount charged and seeking to reverse any extraordinary collection actions previously initiated if an individual is later found to be FAP-eligible.

“That requirement is very burdensome for hospitals to perform,” wrote HFMA. “Calculated discounts will not vary materially for medically necessary versus elective or non-medically necessary care. It would thus be preferable to base the calculations on all claims and all charges.

“The final regulations should confirm that hospitals may continue to offer assistance to the insured, at their discretion, through their financial assistance policies and clarify that the AGB does not apply to assistance for the insured,” HFMA wrote.