• Proposed Regulations on Hospital Debt Collection
  • July 16, 2012 | Author: Marsha Makel
  • Law Firm: Weltman, Weinberg & Reis Co., L.P.A. - Columbus Office
  • The United States Treasury Department and the IRS released details on proposed regulations[1] regarding a hospital facility’s debt collections based on the hospital’s financial assistance policy (FAP) and emergency medical care policy.  The proposed regulations require each facility to establish written FAPs, as well as emergency medical care policies, to engage in the collection of debt.

    A hospital facility’s FAP must include the following:

    1. Eligibility criteria for financial assistance, and whether such assistance includes free or discounted care;
    2. The basis for calculating amounts charged to patients;
    3. The method for applying for financial assistance;
    4. In the case of an organization that does not have a separate billing and collections policy, the actions the organization may take in the event of nonpayment; and
    5. Measures to widely publicize the FAP within the community served by the hospital facility.

    Once the hospital has a FAP that is compliant with the above, the proposed regulation identifies certain actions that may be taken in the event of non-payment.  It actually defines the term “actions a hospital organization may take in the event of nonpayment” to include any extraordinary collection action (ECA).  However, ECAs may only be taken after the hospital has made reasonable efforts to determine whether an individual is FAP-eligible.

    A hospital facility’s reasonable efforts to determine FAP-eligibility include the following:

    1. The hospital facility notified the individual about the FAP;
    2. In the case of an individual who submits an incomplete FAP application, the hospital facility must provide the individual with information relevant to completing the FAP application; and
    3. In the case of an individual who submits a complete FAP application, the hospital facility makes and documents a determination as to whether the individual is FAP eligible.

    There are two distinct periods of time that are used to determine if the requirements were met by the hospital facility.  The first is the Notification Period.  This is the period during which the hospital facility must notify an individual about the FAP.  This period begins on the date care is provided and ends on the 120th day after date of the first billing statement.  Accordingly, the hospital may engage in ECAs against the individual if the individual has not submitted an FAP application by the end of the notification period. 

    The second period is the Application period.  This period extends the time frame of when a hospital facility must accept and process FAP applications.  The application period ends on the 240th day after the hospital facility provides the individual with the first billing statement.  Although the hospital may start ECAs after the 120th day, we would caution the hospital from taking any action with regard to ECAs until after the 240th day since the individual can still submit their FAP application during that time period. 

    According to the proposed regulation, ECAs are actions that require a legal or judicial process.  The following is a non-exclusive list of ECAs and each are subject to state law:

    • Commencing a civil action against an individual;
    • 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;
    • Garnishing an individual’s wages;
    • Causing an individual’s arrest; and
    • Causing an individual to be subject to a writ of body attachment.

    The proposed regulations also include reporting to credit agencies as an ECA.   However, it should be noted that some state laws restrict reporting debt collection by hospitals to credit agencies altogether.  Additionally, the Fair Credit Reporting Act applies in all circumstances of credit reporting, and must be strictly followed.

    The proposed regulation puts an additional burden on hospitals to not only inform individuals on how they may apply for financial assistance but to extend the time the hospital can take action to recover nonpayment through the use of extraordinary collection actions.

    The United States Treasury Department and the IRS are still looking for comments on these proposed regulations and have opened the comment period until September 24, 2012.  Comments can be sent electronically via the Federal eRulemaking Portal at http://www.regulations.gov (IRS REG-130266-11) or mailed to:

    CC:PA:LPD:RR (REG-130266-11), Room 5203
    Internal Revenue Service
    PO Box 7604
    Ben Franklin Station
    Washington, DC 20044

    1Federal Register, Vol. 77, No. 123 (Tuesday, June 26, 2012)