State adopts mandatory hospital fair pricing policies.

Starting January 1, 2007, California hospitals will be required to have written policies on charity care and discounts and to offer discounts to eligible patients. The new law, entitled "Hospital Fair Pricing Policies" (Assembly Bill 774, authored by Assemblywoman Wilma Chan, and now part of the Health & Safety Code), was signed into law by the governor in September. It also imposes limits on hospital billing and collection activities, and limits the amount that may be charged to "low income" uninsured and underinsured patients.

In an effort to deal with the problem of uninsured low-income patients, in February, 2004, the California Hospital Association (CHA) adopted Voluntary Principles and Guidelines. These were not mandatory and were either not adopted or not promoted by many hospitals. The new law, however, is mandatory and imposes standards which are more stringent than the CHA Voluntary Principles and Guidelines.

Under AB 774, hospitals must now adopt a written discount payment and charity care policy for patients whose family income is below 350% of the federal poverty level and who are uninsured, or are insured but family medical expenses exceed 10 percent of family annual income. Under the 2006 federal Poverty Guidelines, the poverty level for a family of four is $20,000, so 350% is $70,000. For a family of two, the poverty level is $13,200, so eligibility begins at $46,200; for a family of six, it's $26,800, so eligibility begins at $93,800. "Family" includes the patient, his or her spouse or domestic partner, and dependent children under age 21, whether living at home or not. For patients under age 18, "family" also includes parents, caretaker relatives, and other children of the parents or caretaker relative under age 21. The higher the number of family members, the greater the 350% of the federal poverty level which triggers eligibility under AB 774.

For patients who have medical insurance, hospitals usually charge a discounted rate negotiated with the insurer. These are often an agreed percentage of "retail" charges, or at fixed rates for services or days. The patient also gets the benefit of these discounted rates through lower co-payments. Many other patients are HMO members, for whom the hospital has been paid a portion of the patient's monthly premiums. For Medi-Cal patients, charges to Medi-Cal are generally at substantially discounted contract rates. For Medicare patients, hospital reimbursement is generally under a fixed formula based upon the patient's diagnosis,. All of these arrangements result in substantial discounts.

For uninsured "self-pay" patients, however, there is no agreed discount, so the hospital often bills at the full "retail" rate. Although many hospitals give discounts to low income uninsured patients, whether as part of "charity" care or a discount program, there is no consistent policy among all hospitals. Under AB 774, for eligible patients, the hospital now must limit its charges to the amount which the hospital receives for the same services from public programs such as Medicare, Medi-Cal, Health Families, or other government programs in which the hospital participates, whichever is greater.

A hospital's charity care and discount policy must clearly state the hospital's eligibility criteria. Hospitals must provide patients with a written notice. The policy must also be conspicuously posted in the emergency department, the billing office, the admissions office, and in other outpatient areas. Only income and monetary assets may be considered, and may not include assets in retirement or deferred compensation plans. Also, the first $10,000 plus 50% of monetary assets over $10,000 must be excluded in determining eligibility. Documentation which the hospital may require to verify income is limited to pay stubs and tax returns. The hospital must make "all reasonable efforts" to advise patients of their rights and to obtain sufficient information to make a determination of eligibility. Likewise, patients or their legal representatives who request assistance must make "every reasonable effort" to provide documentation of income and health benefits coverage. The hospital may take failure to cooperate into account in determining eligibility.

The new law also limits billing and collection activities. Unpaid bills can't be sent to a collection agency if there is a pending insurance appeal or if the patient is making good faith efforts to make payments. Hospitals or affiliated collection agencies may not use wage garnishments or liens on primary residences at all. Unaffiliated collection agencies must also comply with the new guidelines, limit reporting to credit reporting agencies, not use wage garnishments without court approval, and not sell a patient's home to satisfy a judgment during the life of the patient or dependents.

Hospitals must file their new policies with a state agency, commencing January 1, 2008. If hospitals fail to comply with the new law, patients may be entitled to refunds, and there are licensure and monetary penalties. Hospitals are now working hard to implement the new required policies prior to the January 1 effective date.

John Marshall is a shareholder and chair of the Health Care and Real Estate Departments at Lewitt, Hackman, Shapiro, Marshall & Harlan law firm in Encino