Fletcher Allen Health Care has revised its charity care policy to comply with new IRS rules with the result that some uninsured or underinsured patients will have to pay more for care they receive at the state’s largest hospital.
The policy change comes in response to new IRS requirements under the Affordable Care Act (ACA) for hospitals to keep their nonprofit status, according to Shannon Lonergan, Fletcher Allen’s director of registration and customer service.
A recent New York Times story on reductions in charity care, which mentioned Fletcher Allen, said the policy changes are meant to encourage people to purchase insurance through the ACA-mandated exchanges.
A hospital spokesman initially said the changes were motivated by reductions in federal reimbursements for treating the uninsured – another component of the ACA – however, it does not appear cuts specific to the federal health reform law have begun to impact Vermont providers.
Lonergan said the new IRS rules are more prescriptive in how discounts can be calculated, and Fletcher Allen’s old policy, despite being more generous than required, did not comply.
Fletcher Allen will provide discounts to the uninsured and underinsured based on income. Hospital charges are already reduced for the uninsured, but hospital charges often do not reflect the cost of services and are significantly higher than what commercial insurers pay for the same services.
Fletcher Allen typically provides $7.9 million in charity care annually, according to figures from the hospital. It reported more than $900 million in revenue on its 2012 tax filing.
The change, implemented April 1, will not affect people below 200 percent of the federal poverty line, that is those earning $47,700 or less for a family of four or $23,340 or less for an individual. Services for people with those incomes are free.
People earning between 201 and 400 percent of the federal poverty line will pay a percentage of their bill, rather than a fixed fee of up to $1,000. The discounts range from 55 to 85 percent depending on income, with lower income people getting steeper discounts.
The hospital modeled what people who received charity care in the year prior to the new policy’s implementation would pay now and found that 70 percent would be unaffected.
“For some people the change in this structure actually results in them paying less and for some it will be a little bit more,” Lonergan said.
If the cost still imposes a financial hardship, patients can appeal to the hospital for further reductions to their bill. Lonergan did not have figures for how often those appeals are successful, but said it happens more often than not.
Patients with income that makes them ineligible for charity care can also apply for financial assistance if they face catastrophic medical bills that can result from expensive cancer treatments, severe bodily injuries or other serious illnesses. If a person’s medical bills amount to 30 percent of their household income they can apply for assistance, Lonergan said.
Fletcher Allen’s charity care policy is comparable to or more generous than other large nonprofit academic medical centers, said Mike Noble, the hospital’s director of communications.
Dartmouth-Hitchcock Medical Center in West Lebanon, N.H., which treats a significant number of Vermont patients, begins its income-based sliding scale at 225 percent of the federal poverty line. Albany Medical Center in New York caps free care at 100 percent of the federal poverty line, beginning its sliding income scale there.
According to the New York Times story, some hospitals in other states are no longer offering charity care to people who could purchase health insurance through the ACA exchanges.
Lonergan said that it’s possible that Fletcher Allen could need to revisit its charity care policy again when federal cuts to reimbursements for treating the uninsured begin to impact Vermont providers.
The feds have already begun reducing so-called Disproportionate Share Hospital (DSH) payments through Medicaid. Those payments are meant to compensate hospitals that treat large numbers of poor and uninsured people.
Based on the expectation that the ACA will expand coverage, and therefore lead to less uncompensated care, the feds have begun to reduce Medicaid DSH payments last year and are expected to continue to do so through fiscal year ‘22.
The aggregate in FY ‘14 was $500 million and that will continue to grow, pending federal rule writing, to a high of $3 billion in FY ‘20, according to an analysis by the Kaiser Family Foundation.
However, Vermont has not had to make cuts because it allocates less than the maximum amount that can be made in Medicaid DSH payments, said Kara Suter, director of payment reform for the Department of Vermont Health Access, which administers the state’s Medicaid program.
The federal cuts are made to the maximum amount a state can allocate, and last year Vermont allocated 89 percent of the allowable amount, according Suter. In FY ‘15 it has allocated 99 percent of allowable maximum.
All 14 Vermont hospitals receive Medicaid DSH payments, in part because of the state’s low number of uninsured residents, and in part because poverty isn’t centered in large urban areas serviced by a particular hospital. The amount a hospital receives is based on a formula and can change from year to year.
In FY ’14 Fletcher Allen will receive $16 million of the total $37.5 million in Medicaid DSH payments. Rutland Regional Medical Center is the next largest recipient at $5.4 million. Fletcher Allen accounted for 43 percent of hospital spending in 2012, so the payments are roughly proportional.
The federal methodology for the next round of cuts in FY ‘16 has not been released, Suter said, but it’s likely to impact the state. The current rules don’t allow for more than a 10 percent reduction to any one state in a given year, she added.
But according to the Kaiser analysis, states with lower uninsured populations will be targeted for larger cuts, which makes continued reduction to Vermont’s Medicaid DSH budget likely.
That could cause more hospitals in the state to revisit their charity care policies.