Medical Debt and Non-Profit Hospital Billing Practices

Medical debt continues to burden millions of consumers, and the CFPB has made addressing this issue a central focus of our work. We have examined the various factors driving problematic medical debt collection and credit reporting practices. A key concern that has emerged from this research involves the policies and practices of non-profit hospitals.

These institutions are required to have financial assistance policies (sometimes called “charity care”) to help patients in need in exchange for the hospital’s non-profit tax status. However, the CFPB continues to hear complaints from consumers about medical bills from non-profit hospitals that raise questions about whether these financial assistance programs are working as intended. Law enforcement officials have also found that some hospitals fail to make this assistance available. As a result, patients may end up on the hook for expensive medical bills that they should not owe.

In the U.S., 58% of the more than 5,000 community hospitals are classified as non-profits. These hospitals receive significant financial benefits, including exemptions from federal income tax. To receive and maintain tax-exempt status, non-profit hospitals must follow a set of IRS requirements . Some of the key requirements include providing financial assistance to patients who cannot afford to pay for medical care, publicizing the availability of this assistance widely in plain language, and refraining from certain debt collection activity before patients have been evaluated for financial assistance.

The federal regulations for financial assistance policies currently do not specify eligibility or spending standards. Non-profit hospitals are required to have financial assistance policies, but which patients qualify, and how much assistance they receive, is largely left to the hospitals’ discretion. This leads to significant variation in policies by state and by hospital. Some hospitals are generous in their provision of charity care, while others offer more limited assistance.

• Onerous eligibility requirements: The CFPB has reported on how some non-profit hospitals don’t make assistance available to patients if they don’t have a big enough medical bill, if they have insurance, if they have already paid, if they have signed up for a medical credit card, or if they’re not a resident of the area where they happen to get emergency care.
• Financial incentives: The tax benefits that hospitals receive are not tied to the amount of financial assistance they provide. As a result, hospitals with the least generous financial assistance policies may receive the same tax benefit as hospitals with the most generous policies.

Even eligible patients may not receive hospital financial assistance

Evidence suggests that many patients who are eligible for financial assistance under existing hospital policies don’t receive it. An analysis of non-profit hospitals found at least $2.7 billion in medical bills that were eligible for financial assistance but were still billed to patients. This analysis likely underestimates the actual gap between the financial assistance patients are eligible for and what they receive, as it uses self-reported data from hospitals and includes only a portion of non-profit hospitals. Other estimates suggest the actual figure could be significantly higher.

Many hospitals require patients to complete complex and time-consuming applications to receive financial assistance. The burdensome application process often results in few patients completing the application and receiving assistance. Some hospitals use third-party software to make initial decisions about whether patients are eligible for financial assistance. In theory, this could replace the onerous application process, while still giving those initially denied the option to apply. However, in practice, this software often employs third-party data that may be inaccurate and software that is optimized to increase revenue . This means eligible patients may not be offered financial assistance if a black-box algorithm predicts they’re likely to pay, shifting the burden back onto the patient to prove their eligibility.

Debt collectors are pursuing hospital bills that consumers do not owe

As the CFPB has previously described, patients who manage to navigate the complex financial assistance process and have their bills reduced or waived may still find themselves pursued by debt collectors for those bills, even though they no longer owe them. Breakdowns in this system can have a significant impact on patients. For instance, one person whose hospital bill had been waived but was incorrectly sent to collections reported that both the debt collector and hospital refused to communicate, forcing the patient to mediate between the two. Another consumer recounted how a medical bill covered by financial assistance was wrongly reported to credit agencies, causing their credit score to drop. In an example of even more extreme cases, an individual reported receiving threats of a lawsuit over a medical bill that was eligible for financial assistance.

When medical debt collectors pursue payment for bills that are covered or should have been covered by financial assistance, patients often need to invest time correcting these mistakes and may also face reduced credit access and added psychological stress.

State-level policies provide important standards and guardrails for financial assistance

Many states have enacted additional policies to ensure that non-profit hospitals provide financial assistance programs that are more generous and easily accessible to patients. For instance, some states supplement IRS requirements by setting minimum income standards for financial assistance at non-profit hospitals. Florida requires that financial assistance be provided to households that fall under 100% of the federal poverty level and California requires assistance for uninsured households that are under 400%.

Additionally, some states have put protections in place that ensure that hospitals screen patients properly for eligibility. Illinois , for instance, requires hospitals to screen patients for financial assistance at the “earliest reasonable moment” to ensure that eligible patients are evaluated for financial assistance before being billed and sent to collections. Other states, such as Maryland and Colorado , developed uniform, plain-language financial assistance applications that all non-profit hospitals must use. A simpler financial assistance process provides clarity to hospitals and benefits patients that are eligible for financial assistance by making the process more streamlined. States have also combined action on financial assistance for future patients with actions to address existing medical debt. For example, North Carolina recently gave incentives to hospitals to both increase the generosity of their financial assistance programs and automatically relieve unpaid medical debt dating back to 2014 for individuals enrolled in Medicaid.

CFPB is taking action on medical debt

The CFPB continues to take action to address the broader issue of medical debt, from rulemaking to public engagements. For instance, the CFPB proposed a rule that would, in many cases, ban medical debt from credit reports. This action comes after the three nationwide credit reporting companies removed some medical debts from credit reports in 2022. CFPB Director Rohit Chopra hosted both a virtual public forum and a Reddit AMA to discuss this proposed rule and other medical debt topics with consumers. This rule could benefit the 15 million consumers that have medical debt on their credit reports.