By Felicia Sze and Tahvia Jenkins
This summer, the California Legislature enacted yet new changes to the requirements imposed on hospitals for their financial assistance policies, effective January 1, 2025. This comes on the heels of significant new requirements imposed by the Legislature on January 1, 2022, through the enactment of Assembly Bill 1020 and Senate Bill 531, and by new regulations adopted by the Department of Health Care Affordability and Information (“HCAI”) in November 2023, effective January 1, 2025. Even though HCAI still continues to wade through hospital policies, complicated by their last minute policy changes, the California Legislature has proceeded with this new set of requirements, which will require most if not all hospitals to revise their financial assistance policies. Moreover, the changes imposed by Senate Bill 1061 to medical debt apply to any healthcare provider who collects monies from patients that may become medical debt.
Together, Assembly Bill 2297 and Senate Bill 1061 impose significant new burdensome requirements on hospitals without considering the impact on other laws, such as the federal rules against beneficiary inducements or how the Medicaid program considers income for determining share of cost and eligibility. All healthcare providers should consider amending their patient agreements and collection policies to comply with Senate Bill 1061’s terms regarding medical debt to avoid patient liabilities becoming void and unenforceable. Hospitals should also review their financial assistance policies to comply with the requirements outlined below.
Changes to Hospital Financial Assistance Policies
Nonetheless, starting January 1, 2025, hospital financial assistance policies will be subject to the following:
Hospitals will be required to grant charity care or discounts for all uninsured patients or patients with high medical costs with incomes under 400% of the federal poverty level. While hospitals could previously consider assets for determining eligibility for charity care, consideration of assets is now impermissible for both charity care and discounts.
Hospitals will be prohibited from requiring a patient to apply for Medicare, Medi-Cal or other coverage before the patient is screened for, or provided, discount payment. Given that Medi-Cal enrollment is often retroactive, this means that the hospital must offer charity care or discount care before knowing whether the patient is eligible to be insured.
Hospitals will be prohibited from imposing time limits on applications for charity care or discounted payments. We have worked with hospitals where a patient did not qualify for charity care or discounted care at the time of service, but agreed to an installment plan. When the patient’s financial situation changed, the patient has essentially demanded a return of all the payments made when the patient had been able to afford to pay for the services rendered by the hospital. The prohibition on application periods significantly impairs the ability of hospitals to determine the certainty of its collectibles.
Hospitals are expressly permitted to utilize presumptive eligibility for charity care or discounted payment if the patient does not submit an application or documentation of income. However, in implementing this state-level flexibility, hospitals keep in mind compliance with federal beneficiary inducement rules and Medicare bad debt rules.
State law will allow hospitals to waive Medi-Cal and Medicare cost sharing amounts as part of its charity care program or discount program. In so doing, a hospital may consider the patient’s monetary assets in waiving or reducing Medicare cost-sharing amounts to the extent necessary for the hospital to be reimbursed under for Medicare bad debt. This can still create risk to a hospital under both beneficiary inducement rules and beneficiary compliance with rules governing Medi-Cal income counting and share of cost.
Hospitals must include expenses that are not covered by insurance or health coverage program, such as Medicare copays and Medi-Cal cost sharing, when determining whether a patient is a patient with high medical costs.
Hospitals will have to update their financial assistance policy definitions of family members.
Hospitals will be permitted to require that a patient or guarantor (as defined in the legislation) pay the hospital: (1) the amount of any reimbursement sent directly to the patient or guarantor by a third-party payor for the hospital’s services or (2) the amounts reasonably awarded in a legal settlement, judgment, or award under a liable third party action that includes payment for health care services or medical care.
In negotiating an extended payment plan, the hospital may take into consideration a patient’s health savings account. However, if the hospital and the patient do not agree to an extended payment plan, the law only permits the hospital to take into account the patient’s income, excluding essential living expenses, in establishing a reasonable payment plan.
With regard to enforcement, AB 2297 makes technical clarifications that HCAI and CDPH cannot both assess penalties for the same violations. HCAI actions do not abate by reason of a sale or transfer of ownership of the hospital unless the director’s consent. Finally, hospitals must maintain records relating to money owed to the hospital by a patient or a patient’s guarantor for five years.
Changes to Medical Debt Requirements
In addition to these changes, SB 1061 significantly changes the requirements governing the collection of “medical debt,” i.e., debt owed by a consumer to a healthcare provider or the provider’s agent for the provision of medical services, products or devices, including medical bills that are not past due or that have been paid. This broad definition essentially covers all monies owed by a patient to a healthcare provider.
Effective January 1, 2025, all reporting of medical debt to a consumer credit reporting agency will cause it to become void and unenforceable.
In addition, SB 1061 requires that all new contracts creating medical debt, e.g., admission agreements, to include the following language to be enforceable:
A holder of this medical debt contract is prohibited by Section 1785.27 of the Civil Code from furnishing any information related to this debt to a consumer credit reporting agency. In addition to any other penalties allowed by law, if a person knowingly violates that section by furnishing information regarding this debt to a consumer credit reporting agency, the debt shall be void and unenforceable.
It as as of yet unclear how this will impact collections, particularly in an emergency setting where it is not feasible to enter into a written contract creating medical debt at or before the time of service.
Final Thoughts
Since the enactment of the Affordable Care Act, the federal and state governments have sought to shift the cost of healthcare to patients in the hope that patients would be more mindful of healthcare choices if they were subject to the costs of those choices. As a result, many health plans, particularly those marketed on the Exchanges, have offered high deductible health plans. For many Americans, these are the only health plans that are affordable.
However, when consumers face a situation where they must incur the costs that trigger these high deductibles, many cannot afford the costs. This is a direct product of over a decade of healthcare policy seeking to shift financial liability from payors to individual consumers. This is a primary cause of much of the medical debt that is the professed reason for these new laws.
The recent changes by the California (and other State) Legislatures to require healthcare providers ignore the cause of the medical debt, instead imposing further strains on an already financially impacted healthcare delivery system. Unlike the Exchanges, where the federal government provides financial subsidies to ensure that health plans are made whole for offering products to those with limited financial means, these new financial assistance and debt collection laws impose new financial obligations on hospitals and other healthcare providers without providing alternative funding sources or subsidies to offset these costs. Nor has the State of California properly considered the cost to hospitals and other healthcare providers of compliance (like the cost of reproduction, redesigning websites or reprogramming electronic health records systems). In the absence of legal challenges or a significant change in approach, healthcare providers continue to face a constantly evolving regulatory environment with respect the collection of patient liabilities.
Athene Law, LLP counsels its clients on the ever-changing rules governing financial assistance policies and debt collection. For more information on Assembly Bill 2297 and Senate Bill 1061 and their impact on providers, please contact Felicia Sze, Kimberly Robinson, or Tahvia Jenkins.