Politicians, economists, auto industry analysts and main street business owners are closely watching the UAW strike that began at midnight last Thursday. Healthcare should also pay attention, especially hospitals. medical groups and facility operators where workforce issues are mounting.
Auto manufacturing accounts for 3% of America’s GDP and employs 2.2 million including 923,000 in frontline production. It’s high-profile sector industry in the U.S. with its most prominent operators aka “the Big Three” operating globally. Some stats:
The US automakers sold an estimated 13.75 million new and 36.2 million used vehicles in 2022.
The total value of the US car and automobile manufacturing market is $104.1 billion in 2023:
9.2 million US vehicles were produced in 2021–a 4.5% increase from 2020 and 11.8% of the global total ranking only behind China in total vehicle production.
As of 2020, 91.5% of households report having access to at least one vehicle.
There were 290.8 million registered vehicles in the United States in 2022—21% of the global market.
Americans spend $698 billion annually on the combination of automobile loans and insurance.
By comparison, the healthcare services industry in the U.S.—those that operate facilities and services serving patients—employs 9 times more workers, is 29 times bigger ($104 Billion vs. $2.99 trillion/65% of total spend) and 6 times more integral in the overall economy (3% vs. 18.3% of GDP).
Surprisingly, average hourly wages are similar ($31.07 in auto manufacturing vs. $33.12 in healthcare per BLS) though the range is wider in healthcare since it encompasses licensed professionals to unskilled support roles. There are other similarities:
Each industry enjoys ubiquitous presence in American household’ discretionary. spending.
Each faces workforce issues focused on pay parity and job security.
Each is threatened by unwelcome competitors, disruptive technologies and shifting demand complicating growth strategies.
Each is dependent on capital to remain competitive.
And each faces heightened media scrutiny and vulnerability to misinformation/disinformation as special interests seek redress or non-traditional competitors seek advantage.
Ironically, the genesis of the UAW dispute is not about wages; it is about job security as electric-powered vehicles that require fewer parts and fewer laborers become the mainstay of the sector. CEO compensation and the corporate profits of the Big Three are talking points used by union leaders to galvanize sympathizer antipathy of “corporate greed” and unfair treatment of frontline workers.
But the real issue is uncertainty about the future: will auto workers have jobs and health benefits in their new normal?
In healthcare services sectors—hospitals, medical groups, post-acute care facilities, home-care et al—the scenario is similar: workers face an uncertain future but significantly more complicated. Corporate greed, CEO compensation and workforce discontent are popular targets in healthcare services media coverage but the prominence of not-for-profit organizations in healthcare services obfuscates direct comparisons to for-profit organizations which represents less than a third of the services economy. For example, CEO compensation in NFPs—a prominent target of worker attention—is accounted differently for CEOs in investor-owned operations in which stock ownership is not treated as income until in options are exercised or shares sold. Annual 990 filings by NFPs tell an incomplete story nonetheless fodder for misinformation.
The competitive landscape and regulatory scrutiny for healthcare services are also more complicated for healthcare services. Unlike auto manufacturing where electric vehicles are forcing incumbents to change, there’s no consensus about what the new normal in U.S. healthcare services will be nor a meaningful industry-wide effort to define it. Each sector is defining its own “future state” based on questionable assumptions about competitors, demand, affordability, workforce requirements and more. Imagine an environmental scan in automakers strategy that’s mute on Tesla, or mass transit, Zoom, pandemic lock-downs or energy costs?
While the outlook for U.S. automakers is guardedly favorable, per Moody’s and Fitch, for not-for-profit health services operators it’s “unsustainable” and “deteriorating.”
Nonetheless, the parallels between the current state of worker sentiment in the U.S. auto manufacturing and healthcare services sectors are instructive. Auto and healthcare workers want job security and higher pay, believing their company executives and boards but corporate profit above their interests and all else. And polls suggest the public’s increasingly sympathetic to worker issues and strikes like the UAW more frequent.
Ultimately, the UAW dispute with the Big Three will be settled. Ultimately, both sides will make concessions. Ultimately, the automakers will pass on their concession costs to their customers while continuing their transitions to electric vehicles.
In health services, operators are unable to pass thru concession costs due to reimbursement constraints that, along with supply chain cost inflation, wipe out earnings and heighten labor tension.
So, the immediate imperatives for healthcare services organizations seem clear as labor issues mount and economics erode:
Educate workers—all workers—is a priority. That includes industry trends and issues in sectors outside the organization’s current focus.
Define the future. In healthcare services, innovators will leverage technology and data to re-define including how health is defined, where it’s delivered and by whom. Investments in future-state scenario planning is urgently needed.
Address issues head-on: Forthrightness about issues like access, prices, executive compensation, affordability and more is essential to trustworthiness.
Stay tuned to the UAW strike and consider fresh approaches to labor issues. It’s not a matter of if, but when.
PS: I drive an electric car—my step into the auto industry future state. It took me 9 hours last Thursday to drive 275 miles to my son’s wedding because the infrastructure to support timely battery charges in route was non-existent. Ironically, after one of three self-charges for which I paid more than equivalent gas, I was prompted to “add a tip”. So, the transition to electric vehicles seems certain, but it will be bumpy and workers will be impacted.
The future state for healthcare is equally frought with inadequate charging stations aka “systemness” but it’s inevitable those issues will be settled. And worker job security and labor costs will be significantly impacted in the process.
Learn about the 10 major trends impacting health systems this year — from financial pressures to workforce stability to generative AI. Download these ready-to-use slides to get up to speed on what health system leaders should be watching this year.
OVERVIEW
We’ve updated our ready-to-use slides depicting the most important market forces affecting health systems in 2023. Whether you’re speaking to your board, C-suite, or community, you’ll have access to the latest data and insights, pre-formatted and ready to present for your next presentation.
The 10 major trends:
Health systems bend but do not break in the wake of the worst financial year in recent memory.
Stakeholders align on urgency to rationalize services for long-term sustainability.
Quality suffers as organizations look for workforce stability.
Virtual hospitals rise in popularity to accelerate care model transformation.
Beware vaporware! The hype and reality of generative AI comes into focus.
Mega-corporations make further inroads into care delivery.
Health systems lose the narrative in the public’s eye.
Value-based care hype is tempered by market realities.
Health systems look for new growth pastures to compensate for tepid inpatient surgery growth.
Unlikely alliances take form to counteract common pressures across the health system community.
Health plan and health system CFOs point to the current economic situation when asked to identify their top concern, according to a Sept. 14 survey from Deloitte.
The consulting firm surveyed 60 finance chiefs at American health plans and health systems about their priorities and paths forward and shared their findings with Becker’s.
Inflationary pressures have created a cost-heavy operating model for many organizations, CFOs told Deloitte. Coupled with higher care delivery, labor and supply costs — and slowed revenue growth
— financial viability weighs heavily on leaders.
More than 40 percent of health system CFOs believe their health systems may need more than two years to reach the profit levels they generated before the COVID-19 pandemic.
Seventy percent of CFOs identified the current economic situation as a greater concern than it was last year. Meanwhile, 57 percent pointed to new regulatory requirements as a growing concern, and 51 percent said the same of the current operating model and structure.
Across the hospital industry, heavy reliance on contract labor in 2021 and 2022 caused a significant challenge for profitability.
However, a chief financial officer recently posited that his system’s large contract labor load has had unexpected benefits.
“Other hospitals [in our market] thought we were crazy to keep staffing with high contract rates until recently,” he shared. “But by keeping the agency nurses around a little longer, we were able to avert raising base salaries quite as much, and are in a better place today now that the labor market has softened.” It’s a story we’ve heard several times now.
While market rates for nursing and other clinical labor have undoubtedly been rebased, salary increases are sticky—it’s hard to adjust wages downward when the labor market loosens.
Systems who were able to avert large wage increases by increasing bonuses and other non-salary benefits, or forestalled permanent hiring at higher salaries by extending contract labor, now find themselves with more flexibility and potentially lower staffing costs in the long-term.
On Tuesday, CMS announced the States Advancing All-Payer Health Equity Approaches and Development (AHEAD) Model, a new payment model that will give up to eight states or sub-state regions the ability to test global hospital budgets across an 11-year period.
Participating states will assume responsibility for managing healthcare costs for traditional Medicare and Medicaid populations, while encouraging private payers to pay hospitals under a similar relationship.
Primary care practices will have the option to participate in a primary care component of the model, called Primary Care AHEAD, in which they will receive a Medicare care management fee and be required to engage in state-led Medicaid transformation initiatives.
CMS is hoping that the AHEAD model will reduce healthcare cost growth, improve population health, and reduce health outcome disparities. It builds upon existing Innovation Center state-based models, including the Maryland Total Cost of Care Model, the Vermont All-Payer Accountable Care Organization Model, and the Pennsylvania Rural Health Model, which have all shown promise in lowering Medicare spending while improving patient outcomes.
Program applications will open late this year, and the first states selected would begin a pre-implementation period in summer 2024.
The Gist:
Shifting to a total-cost-of-care model will be a difficult undertaking for even the most motivated states.
Though a stable annual budget may be a welcome prospect to struggling hospitals, large regional systems may balk at the idea, especially as the Maryland Hospital Association has claimed that their state’s regulated rates have lagged hospital cost inflation by 1.3 percent per year.
With the Medicare Shared Savings Program (MSSP)saving only one quarter of one percent of Medicare’s total spending in 2022, CMS has good reason to explore other ways to reduce Medicare cost growth
—but these Innovation Center models will only achieve their goals if they can first induce sufficient participation.
Studies show healthcare affordability is an issue to voters as medical debt soars (KFF) and public disaffection for the “medical system” (per Gallup, Pew) plummets. But does it really matter to the hospitals, insurers, physicians, drug and device manufacturers and army of advisors and trade groups that control the health system?
Each sector talks about affordability blaming inflation, growing demand, oppressive regulation and each other for higher costs and unwanted attention to the issue.
Each play their victim cards in well-orchestrated ad campaigns targeted to state and federal lawmakers whose votes they hope to buy.
Each considers aggregate health spending—projected to increase at 5.4%/year through 2031 vs. 4.6% GDP growth—a value relative to the health and wellbeing of the population. And each thinks its strategies to address affordability are adequate and the public’s concern understandable but ill-informed.
As the House reconvenes this week joining the Senate in negotiating a resolution to the potential federal budget default October 1, the question facing national and state lawmakers is simple: is the juice worth the squeeze?
Is the US health system deserving of its significance as the fastest-growing component of the total US economy (18.3% of total GDP today projected to be 19.6% in 2031), its largest private sector employer and mainstay for private investors?
Does it deserve the legal concessions made to its incumbents vis a vis patent approvals, tax exemptions for hospitals and employers, authorized monopolies and oligopolies that enable its strongest to survive and weaker to disappear?
Does it merit its oversized role, given competing priorities emerging in our society—AI and technology, climate changes, income, public health erosion, education system failure, racial inequity, crime and global tension with China, Russia and others.
In the last 2 weeks, influential Republicans leaders (Burgess, Cassidy) announced plans to tackle health costs and the role AI will play in the future of the system. Last Tuesday, CMS announced its latest pilot program to tackle spending: the States Advancing All-Payer Health Equity Approaches and Development Model (AHEAD Model) is a total cost of care budgeting program to roll out in 8 states starting in 2026. The Presidential campaigns are voicing frustration with the system and the spotlight on its business practices intensifying.
So, is affordability to the federal government likely to get more attention?
Yes. Is affordability on state radars as legislatures juggle funding for Medicaid, public health and other programs?
Yes, but on a program by program, non-system basis.
Is affordability front and center in CMS value agenda including the new models like its AHEAD model announced last week? Not really.
CMS has focused more on pushing hospitals and physicians to participate than engaging consumers. Is affordability for those most threatened—low and middle income households with high deductible insurance, the uninsured and under-insured, those with an expensive medical condition—front of mind? Every minute of every day.
Per CMS, out-of-pocket spending increased 4.3% in 2022 (down from 10.4% in 2021) and “is expected to accelerate to 5.2%, in part related to faster health care price growth. During 2025–31, average out-of-pocket spending growth is projected to be 4.1% per year.” But these data are misleading. It’s dramatically higher for certain populations and even those with attractive employer-sponsored health benefits worry about unexpected household medical bills.
So, affordability is a tricky issue that’s front of mind to 40% of the population today and more tomorrow.
Legislation that limits surprise medical bills, requires drug, hospital and insurer price transparency, expands scope of practice opportunities for mid-level professionals, avails consumers of telehealth services, restricts aggressive patient debt collection policies and others has done little to assuage affordability issues for consumers.
Ditto CMS’ value agenda which is more about reducing Medicare spending through shared savings programs with hospitals and physicians than improving affordability for consumers. That’s why outsiders like Walmart, Best Buy and others see opportunity: they think patients (aka members, enrollees, end users) deserve affordability solutions more than lip service.
Affordability to consumers is the most formidable challenge facing the US healthcare industry–more than burnout, operating margins, reimbursement or alternative payment models. Today, it is not taken seriously by insiders. If it was, evidence would be readily available and compelling. But it’s not.
Issue: Medical debt negatively affects many Americans, especially people of color, women, and low-income families. Federal and state governments have set some standards to protect patients from medical debt.
Goal: To evaluate the current landscape of medical debt protections at the federal and state levels and identify where they fall short.
Methods: Analysis of federal and state laws, as well as discussions with state experts in medical debt law and policy. We focus on laws and regulations governing hospitals and debt collectors.
Key Findings and Conclusion: Federal medical debt protection standards are vague and rarely enforced. Patient protections at the state level help address key gaps in federal protections. Twenty states have their own financial assistance standards, and 27 have community benefit standards. However, the strength of these standards varies widely. Relatively few states regulate billing and collections practices or limit the legal remedies available to creditors. Only five states have reporting requirements that are robust enough to identify noncompliance with state law and trends of discriminatory practices. Future patient protections could improve access to financial assistance, ensure that nonprofit hospitals are earning their tax exemption, and limit aggressive billing and collections practices.
Introduction
Medical debt, or personal debt incurred from unpaid medical bills, is a leading cause of bankruptcy in the United States. As many as 40 percent of U.S. adults, or about 100 million people, are currently in debt because of medical or dental bills. This debt can take many forms, including:
past-due payments directly owed to a health care provider
ongoing payment plans
money owed to a bank or collections agency that has been assigned or sold the medical debt
credit card debt from medical bills
money borrowed from family or friends to pay for medical bills.
This report discusses findings from our review of federal and state laws that regulate hospitals and debt collectors to protect patients from medical debt and its negative consequences. First, we briefly discuss the impact and causes of medical debt. Then, we present federal medical debt protections and discuss gaps in standards as well as enforcement. Then, we provide an overview of what states are doing to:
strengthen requirements for financial assistance and community benefits
regulate hospitals’ and debt collectors’ billing and collections activities
limit home liens, foreclosures, and wage garnishment
develop reporting systems to ensure all hospitals are adhering to standards and not disproportionately targeting people of color and low-income communities.
(See the appendix for an overview of medical debt protections in all 50 states and the District of Columbia.)
Impact of Medical Debt
More than half of people in medical and dental debt owe less than $2,500, but because most Americans cannot cover even minor emergency expenses, this debt disrupts their lives in serious ways. Fear of incurring medical debt also deters many Americans from seeking medical care. About 60 percent of adults who have incurred medical debt say they have had to cut back on basic necessities like food or clothing, and more than half the adults from low-income households (less than $40,000) report that they have used up their savings to pay for their medical debt.
A significant amount of medical debt is either sold or assigned to third-party debt-collecting agencies, who often engage in aggressive efforts to collect on the debt, creating stress for patients. Both hospitals and debt collectors have won judgments against patients, allowing them to take money directly from a patient’s paycheck or place liens on a patient’s home. In some cases, patients have also lost their homes. Medical debt can also have a negative impact on a patient’s credit score.
Key Terms Related to Medical Debt
Financial assistance policy: A hospital’s policy to provide free or discounted care to certain eligible patients. Eligibility for financial assistance can depend on income, insurance status, and/or residency status. A hospital may be required by law to have a financial assistance policy, or it may choose to implement one voluntarily. Financial assistance is frequently referred to as “charity care.”
Bad debt: Patient bills that a hospital has tried to collect on and failed. Typically, hospitals are not supposed to pursue collections for bills that qualify for financial assistance or charity care, so bad debt refers to debt owed by patients ineligible for financial assistance.
Community benefit requirements: Nonprofit hospitals are required by federal law and some state laws to provide community benefits, such as financial assistance and other investments targeting community need, in exchange for a tax exemption.
Debt collectors or collections agencies: Entities whose business model primarily relies on collecting unpaid debt. They can either collect on behalf of a hospital (while the hospital still technically holds the debt) or buy the debt from a hospital.
Sale of medical debt: Hospitals sometimes sell the debt patients owe them to third-party debt buyers, who can be aggressive in seeking repayment of the debt.
Creditor: A party that is owed the medical debt and often wants to collect on the medical debt. This can be a hospital, a debt collector acting on behalf of a hospital, or a third-party debt buyer.
Debtor: A patient who owes medical debt over unpaid medical bills.
Wage garnishment: The ability of a creditor to get a court order that would allow them to deduct a portion of a debtor-patient’s paycheck before it reaches the patient. Federal law limits how much can be withheld from a debtor’s paycheck, and some states exceed this federal protection.
Placing a lien: A legal claim that a creditor can place on a patient’s home, prohibiting the patient from selling, transferring, or refinancing their home without first paying off the creditor. Most states require creditors to get a court order before placing a lien on a home.
Foreclosure or forced sale: A creditor can repossess and sell a patient’s home to pay off their medical debt. Often, creditors are required to obtain a court order to do so.
Perhaps what is most troubling is that the burden of medical debt is not borne equally: Black and Hispanic/Latino adults and women are much more likely to incur medical debt. Black adults also tend to be sued more often as a result. Uninsured patients, those from low-income households, adults with disabilities, and young families with children are all at a heightened risk of being saddled with medical debt.
Causes of Medical Debt
Most people — 72 percent, according to one estimate — attribute their medical debt to bills from acute care, such as a single hospital stay or treatment for an accident. Nearly 30 percent of adults who owe medical debt owe it entirely for hospital bills.
Although uninsured patients are more likely to owe medical debt than insured patients, having insurance does not fully shield patients from medical debt and all its consequences. More than 40 percent of insured adults report incurring medical debt, likely because they either had a gap in their coverage or were enrolled in insurance with inadequate coverage. High deductibles and cost sharing can leave many exposed to unexpected medical expenses.
The problem of medical debt is further exacerbated by hospitals charging increasingly high prices for medical care and failing to provide adequate financial assistance to uninsured and underinsured patients with low income.
Key Findings
Federal Medical Debt Protections Have Many Gaps
At the federal level, the tax code, enforced by the Internal Revenue Service (IRS), requires nonprofit hospitals to broadly address medical debt. However, these requirements do not extend to for-profit hospitals (which make up about a quarter of U.S. hospitals) and have other limitations.
Further, the IRS does not have a strong track record of enforcing these requirements. In the past 10 years, the IRS has not revoked any hospital’s nonprofit status for noncompliance with these standards.
The Consumer Financial Protection Bureau and the Federal Trade Commission have additional oversight authority over credit reporting and debt collectors. The Fair Credit Reporting Act regulates credit reporting agencies and those that provide information to them (debt collectors and hospitals). Consumers have the right to dispute any incomplete or inaccurate information and remove any outdated, negative information. In some cases, patients can directly sue hospitals or debt collectors for inaccurately reporting medical debt to credit reporting agencies. In addition, the Federal Debt Collection Practices Act limits how aggressive debt collectors can be by restricting the ways and times in which they can contact debtors, requiring certain disclosures and notifications, and prohibiting unfair or deceptive practices. Patients can directly sue debt collectors in violation of the law. This law, however, does not limit or prohibit the use of certain legal remedies, like wage garnishment or foreclosure, to collect on a debt.
Many states have taken steps to fill the gaps in federal standards. Within a state, several agencies may play a role in enforcing medical debt protections. Generally speaking:
state departments of health are the primary regulators of hospitals and set standards for them
state departments of taxation are responsible for ensuring nonprofit hospitals are earning their exemption from state taxes
state attorneys general protect consumers from unfair and deceptive business practices by hospitals and debt collectors.
Fewer Than Half of States Exceed Federal Requirements for Financial Assistance, Protections Vary Widely
Federal law requires nonprofit hospitals to establish and publicize a written financial assistance policy, but these standards leave out for-profit hospitals and lack any minimum eligibility requirements. As the primary regulators of hospitals, states have the ability to fill these gaps and require hospitals to provide financial assistance to low-income residents. Twenty states require hospitals to provide financial assistance and set certain minimum standards that exceed the federal standard.
All but three of these 20 states extend their financial assistance requirements to for-profit hospitals. Of these 20 states, four states — Connecticut, Georgia, Nevada, and New York — apply their financial assistance requirements only to certain types of hospitals.
Policies also vary among the 31 states that do not have statutory or regulatory financial assistance requirements for hospitals. For example, the Minnesota attorney general has an agreement in place with nearly every hospital in the state to adhere to certain patient protections, though it falls short of requiring hospitals to provide financial assistance. Massachusetts operates a state-run financial assistance program partly funded through hospital assessments. Other states use far less prescriptive mechanisms to try to ensure that patients have access to financial assistance, such as placing the onus of treating low-income patients on individual counties or requiring hospitals to have a plan for treating low-income and/or uninsured patients without setting any specific requirements.
Enforcement of state financial assistance standards.
The only way to enforce the federal financial assistance requirement is to threaten a hospital’s nonprofit status, and the IRS has been reluctant to use this authority. Among the 20 states that have their own state financial assistance standards, 10 require compliance as a condition of licensure or as a legal mandate. These mandates are often coupled with administrative penalties, but some states have established additional consequences. For example, Maine allows patients to sue noncompliant hospitals.
Six states make compliance with their financial assistance standards a condition of receiving funding from the state. Two other states use their certificate-of-need process (which requires hospitals to seek the state’s approval before establishing new facilities or expanding an existing facility’s services) to impose their financial assistance mandates.
Setting eligibility requirements for financial assistance.
The federal financial assistance standard sets no minimum eligibility requirements for hospitals to follow. However, the 20 states with financial assistance standards define which residents are eligible for aid.
One way for states to ensure that financial assistance is available to those most in need is to prevent hospitals from discriminating against undocumented immigrants. Four states explicitly prohibit such discrimination in statute and regulation. Most states, however, are less explicit. Thirteen states define eligibility broadly, basing it most frequently on income, insurance status, and state residency. However, it is unclear how hospitals are interpreting this requirement when it comes to patients’ immigration status. In contrast, three states explicitly exclude undocumented immigrants from eligibility.
States also vary widely in terms of which income brackets are eligible for financial assistance and how much financial assistance they may receive.
At least three of the 20 states with financial assistance standards allow certain patients with heavy out-of-pocket medical expenses from catastrophic illness or prior medical debt to access financial assistance. Many states also require hospitals to consider a patient’s insurance status when making financial assistance determinations. At least six states make financial assistance available for uninsured patients only, while at least eight others also make financial assistance available to underinsured patients.
Standardizing the application process.
Cumbersome applications can discourage many patients from applying for financial assistance. Five states have developed a uniform application form, while three others have set minimum standards for financial assistance applications. Eleven states require hospitals to give patients the right to appeal a denial of financial assistance.
States Split in Requiring Nonprofit Hospitals to Invest in Community Benefits
Federal and state policymakers also can require nonprofit hospitals to invest in community benefits in return for tax exemptions. Federal law requires nonprofit hospitals to produce a community health needs assessment every three years and have an implementation strategy. Almost all states exempt nonprofit hospitals from a host of state taxes, including income, property, and/or sales taxes. However, only 27 impose community benefit requirements on nonprofit hospitals.
Community benefits frequently include financial assistance but also investments that address issues like lack of access to food and housing. In the long run, these investments can reduce medical debt burden by improving population health and the financial stability of a community. Most states that require nonprofit hospitals to provide community benefits allow nonprofit hospitals to choose how they invest their community benefit dollars. This hands-off approach has given rise to concerns about the lack of transparency in community benefit spending as well as questions about whether hospitals are investing this money in ways that are most helpful to the community, such as in providing financial assistance.
Applicability of community benefit standards.
Nineteen states impose community benefit requirements on all nonprofit hospitals in the state, but three states further limit these requirements to hospitals of a certain size. At least six states have extended these requirements to for-profit hospitals as well. Of these six, the District of Columbia, South Carolina, and Virginia have incorporated community benefit requirements into their certificate-of-need laws instead of their tax laws. As a result, any hospital seeking to expand in these states becomes subject to their community benefit requirement.
Interaction between financial assistance and community benefits.
The federal standard allows nonprofit hospitals to report financial assistance as part of their community benefit spending. Most states with community benefit requirements also allow hospitals to do this. However, only seven states require hospitals to provide financial assistance to satisfy their community benefit obligations.
Setting quantitative standards for community benefit spending.
Only seven states set minimum spending thresholds that hospitals must meet or exceed to satisfy state community benefit standards. For example, Illinois and Utah require nonprofit hospitals’ community benefit contributions to equal what their property tax liability would have been. Unique among states, Pennsylvania gives taxing districts the right to sue nonprofit hospitals for not holding up their end of the bargain, which has proven to be a strong enforcement mechanism.
Fewer Than Half the States Exceed Federal Standards for Billing and Collections
Hospital billing and collections practices can significantly increase the burden of medical debt on patients. However, the current federal standard does not regulate these practices beyond imposing waiting periods and prior notification requirements for certain extraordinary collections actions (ECAs), such as garnishing wages or selling the debt to a third party.
Requiring hospitals to provide payment plans.
Federal standards do not require hospitals to make payment plans available. However, a few states do require hospitals to offer payment plans, particularly for low-income and/or uninsured patients. For example, Colorado requires hospitals to provide a payment plan and limit monthly payments to 4 percent of a patient’s monthly gross income and to discharge the debt once the patient has made 36 payments.
Limiting interest on medical debt.
Federal law does not limit the amount of interest that can be charged on medical debt. However, eight states have laws prohibiting or limiting interest for medical debt. Some states like Arizona have set a ceiling for interest on all medical debt. Others like Connecticut further prohibit charging interest to patients who are at or below 250 percent of the federal poverty level and are ineligible for public insurance programs.
Though many states do not have specific laws prohibiting or limiting interest that hospitals or debt collectors can charge on medical debt, all states do have usury laws, which limit the amount of interest than can be charged on any oral or written agreement. Usury limits are set state-by-state and can range anywhere from 5 percent to more than 20 percent, but most limits fall well below the average interest rate for a credit card (around 24%). At least one state, Minnesota, has sued a health system for charging interest rates on medical debt that exceeded the allowed limit in the state’s usury laws.
Interactions between hospitals, third-party debt collectors, and patients.
Unlike hospitals, debt collectors do not have a relationship with patients and can be more aggressive when collecting on the debt. Federal law neither limits when a hospital can send a bill to collections, nor does it require hospitals to oversee the debt collectors it uses. Most states (37) also do not regulate when a hospital can send a bill to collections, although some states have developed more protective approaches.
For example, Connecticut prohibits hospitals from sending the bills of certain low-income patients to collections, and Illinois requires hospitals to offer a reasonable payment plan first. Additionally, five states require hospitals to oversee their debt collectors.
Sale of medical debt to third-party debt buyers.
Hospitals sometimes sell old unpaid debt to third-party debt buyers for pennies on the dollar. Debt buyers can be aggressive in their efforts to collect, and sometimes even try to collect on debt that was never owed. Federal law considers the sale of medical debt an ECA and requires nonprofit hospitals to follow certain notice and waiting requirements before initiating the sale. Most states (44) do not exceed this federal standard.
Only three states prohibit the sale of medical debt. Two other states — California and Colorado — regulate debt buyers instead. For example, California prohibits debt buyers from charging interest or fees, and Colorado prohibits them from foreclosing on a patient’s home.
Reporting medical debt to credit reporting agencies.
Federal law considers reporting medical debt to a credit reporting agency to be an ECA and requires nonprofit hospitals to follow certain notice and waiting requirements beforehand. Most states (41) do not exceed this federal standard.
Of the 10 states that do go beyond the federal standard, a few like Minnesota fully prohibit hospitals from reporting medical debt. Most others require hospitals, debt collectors, and/or debt buyers to wait a certain amount of time before reporting the debt to credit agencies (Exhibit 8). Two states directly regulate credit agencies: Colorado prohibits them from reporting on any medical debt under $726,200, while Maine requires them to wait at least 180 days from the date of first delinquency before reporting that debt.
States Vary Widely on Patient Protections from Medical Debt Lawsuits
Federal law considers initiating legal action to collect on unpaid medical bills to be an extraordinary collections action and also limits how much of a debtor’s paycheck can be garnished to pay a debt.
In most states, hospitals and debt buyers can sue patients to collect on unpaid medical bills. Three states limit when hospitals and/or collections agencies can initiate legal action. Illinois prohibits lawsuits against uninsured patients who demonstrate an inability to pay. Minnesota prohibits hospitals from giving “blanket approval” to collections agencies to pursue legal action, and Idaho prohibits the initiation of lawsuits until 90 days after the insurer adjudicates the claim, all appeals are exhausted, and the patient receives notice of the outstanding balance.
Liens and foreclosures.
Most states (32) do not limit hospitals, collections agencies, or debt buyers from placing a lien or foreclosing on a patient’s home to recover on unpaid medical bills. However, almost all states provide a homestead exemption, which protects some equity in a debtor’s home from being seized by creditors during bankruptcy. The amount of homestead exemption available to debtors varies from state to state, ranging from just $5,000 to the entire value of the home. Seven states have unlimited homestead exemptions, allowing debtors to fully shield their primary homes from creditors during bankruptcy. Additionally, Louisiana offers an unlimited homestead exemption for certain uninsured, low-income patients with at least $10,000 in medical bills.
Ten states prohibit or set limits on liens or foreclosures for medical debt. For example, New York and Maryland fully prohibit both liens and foreclosures because of medical debt, while California and New Mexico only prohibit them for certain low-income populations.
Wage garnishment.
Under federal law, the amount of wages garnished weekly may not exceed the lesser of: 25 percent of the employee’s disposable earnings, or the amount by which an employee’s disposable earnings are greater than 30 times the federal minimum wage. Twenty-one states exceed the federal ceiling for wage garnishment. Only a few states go further to prohibit wage garnishment for all or some patients. For example, New York fully prohibits wage garnishment to recover on medical debt for all patients, yet California only extends this protection for certain low-income populations. While New Hampshire does not prohibit wage garnishment, it requires the creditor to keep going back to court every pay period to garnish wages, which significantly limits creditors’ ability to garnish wages in practice.
Many States Have Hospital Reporting Requirements, But Few Are Robust
Federal law requires all nonprofit hospitals to submit an annual tax form including total dollar amounts spent on financial assistance and written off as bad debt. However, these reporting requirements do not extend to for-profit hospitals and lack granularity. States, as the primary regulators of hospitals, would likely benefit from more robust data collection processes to better understand the impact of medical debt and guide their oversight and enforcement efforts.
Currently, 32 states collect some of the following:
financial data, including the total dollar amounts spent on financial assistance and/or bad debt
financial assistance program data, including the numbers of applications received, approved, denied, and appealed
demographic data on the populations most affected by medical debt
information on the number of lawsuits and types of judgments sought by hospitals against patients.
Fifteen states explicitly require hospitals to report total dollar amounts spent on financial assistance and/or bad debt, while 11 states also require hospitals to report certain data related to their financial assistance programs. Most of these 11 states limit the data they collect to the numbers of applications received, approved, denied, and appealed. However, a handful of them go further and ask hospitals to report on the amount of financial assistance provided per patient, number of financial assistance applicants approved and denied by zip code, number of payment plans created and completed, and number of accounts sent to collections.
Five states require hospitals to further break down their financial assistance data by race, ethnicity, gender, and/or preferred or primary language. For example, Maryland requires hospitals to break down the following data by race, ethnicity, and gender: the bills hospitals write off as bad debt and the number of patients against whom the hospital or the debt collector has filed a lawsuit.
Only Oregon asks hospitals to report on the number of patient accounts they refer for collections and extraordinary collections actions.
Discussion and Policy Implications
In 2022, the federal government announced administrative measures targeting the medical debt problem, which included launching a study of hospital billing practices and prohibiting federal government lenders from considering medical debt when making decisions on loan and mortgage applications. Although these measures will help some, only federal legislation and enhanced oversight will likely address current gaps in federal standards.
States can also fill the gaps in federal patient protections by improving access to financial assistance, ensuring that nonprofit hospitals are earning their tax exemption, and protecting patients against aggressive billing and collections practices. States also can leverage underutilized usury laws to protect their residents from medical debt.
Finding the most effective ways to enforce these standards at the state level could also protect patients. Absent oversight and enforcement, patients from underserved communities continue to face harm from medical debt, even when states require hospitals to provide financial assistance and prohibit them from engaging in aggressive collections practices. Bolstering reporting requirements alone would not likely ensure compliance, but states could protect patients by strengthening their penalties, providing patients with the right to sue noncompliant hospitals, and devoting funding to increase oversight by state agency officials.
To develop a comprehensive medical debt protection framework, states could also bring together state agencies like their departments of health, insurance, and taxation, as well as their state attorney general’s office. Creating an interagency office dedicated to medical debt protection would allow for greater efficiency and help the state build expertise to take on the well-resourced debt collection and hospital industries.
Still, these measures only address the symptoms of the bigger problem: the unaffordability of health care in the United States. Federal and state policymakers who want to have a meaningful impact on the medical debt problem could consider the protections discussed in this report as part of a broader plan to reduce health care costs and improve coverage.
Over the past 20 years, we’ve seen an evolution in payor contracts from fee-for-service to value-based care (VBC). This evolution is occurring across payor types: Commercial, Medicare, and Medicaid. In recent years, many providers have signed VBC contracts, which often provide better reimbursement rates as a reward for improvements in care delivery and care outcomes.
Specifically, a significant number of providers signed incentive-laden 5-10-year VBC contracts in 2020 moving away from traditional fee-for-service models, which helped improve their financial positioning throughout the pandemic. However, recent economic shifts have changed the landscape in which these contracts exist. Current contracts fail to take into account the rate of inflation and heightened financial distress we are seeing in the industry today. They also do not take into consideration the fact that many COVID-19-era government relief options — such as the CARES Act, Provider Relief Fund, and American Rescue Plan of 2021 — are sunsetting.
Simply stated, VBC contracts negotiated pre-pandemic are not only obsolete but likely contain pricing provisions that do not consider either unprecedented cost increases or difficulty in meeting performance incentives due to changes in patient behaviors. The result is an urgent need to reassess payor contracts of all types across all payor types.
However, before you renegotiate your contracts, you need to carefully consider your organization’s structure and business model so that you can ensure you’re working toward the best possible outcome.
To begin, take some time to examine the following considerations:
· Market Position: Having greater market share often leads to better-negotiated rates. Your organization should understand its market position before renegotiating its VBC contracts to understand what advantages you may have.
· Total Reimbursement & Total Value: Assess your total reimbursement rates, base reimbursement, and incentive reimbursement opportunity.
· Current Yield: Determine the percentage of total cost and the value of your denials and write-offs.
· Fee-for-service vs. Risk-based Models: Fee-for-service-based models should assess their steerage. Risk-based models should identify actuarily sound allocations, percentage of premium reconciliations, and risk adjustments/risk scores.
· IT Infrastructure: Evaluate your IT infrastructure. For example, is your EHR system set up for data analysis and able to benchmark KPIs? It’s important that your systems are designed to provide this information for negotiations and to ensure you have a complete picture of your patient population.
· Business Structure: Some provider organizations benefit from VBC models more than others. For example, a primary care provider (PCP) is more likely to coordinate along the continuum of care than a specialist. This enables the PCP to potentially have more control over the cost of care and revenue streams than specialists, making them a better candidate for a risk-based contract.
Carefully considering these six factors is a crucial first step to renegotiating your value-based contracts. Once you’ve made these considerations, you’re ready to move forward.
Ready to get started renegotiating your value-based contracts? Read our insight to get five tips for negotiation success.
Healthcare expenses declined in July, but not by enough to offset revenue losses, Kaufman Hall said in its latest National Hospital Flash Report.
Key Takeaways
Hospital performance declined on a month-over-month basis in July. All volume indicators registered declines this month. However, when compared to 2022, there is some slight improvement in operating margins.
Outpatient volumes decreased slightly more than inpatient. Some of this decline may be attributed to less patients seeking elective procedures in summer.
Expenses declined, but not enough to offset revenue losses. Labor continues to be the biggest share of hospital expenses, and expenses will likely continue to fluctuate due to inflation.
Bad debt and charity care rose month-over-month. Medicaid eligibility redetermination continues to affect hospitals and patients, with more than 30 states disenrolling people in June and July.
Action Steps
In an environment where hospitals continue to feel the effects of Medicaid disenrollment and labor expenses, those that have been more successful have made care transition a priority.
Hospitals should consider:
Starting off right by obtaining the necessary pre-certifications and payer authorizations before the patient comes in the door, as well as planning for discharge as soon as they are admitted.
Collecting data and using it to inform process improvement. Hospitals need to quantify lengths-of-stay and related data, and more importantly, use this data to make change.
Establishing relationships with post-acute care settings and having a clear pathway for patients’ post-discharge transition.
Last Monday, four U.S. Senators took aim at the tax exemption enjoyed by not-for-profit (NFP) hospitals in a letter to the IRS demanding detailed accounting for community benefits and increased agency oversight of NFP hospitals that fall short.
Last Tuesday, the Elevance Health Policy Institute released a study concluding that the consolidation of hospitals into multi-hospital systems (for-profit/not-for-profit) results in higher prices without commensurate improvement in patient care quality. “
Friday, Kaiser Health News Editor in Chief Elizabeth Rosenthal took aim at Ballad Health which operates in TN and VA “…which has generously contributed to performing arts and athletic centers as well as school bands. But…skimped on health care — closing intensive care units and reducing the number of nurses per ward — and demanded higher prices from insurers and patients.”
And also last week, the Pharmaceuticals’ Manufacturers Association released its annual study of hospital mark-ups for the top 20 prescription drugs used on hospitals asserting a direct connection between hospital mark-ups (which ranged from 234% to 724%) and increasing medical debt hitting households.
(Excerpts from these are included in the “Quotables” section that follows).
It was not a good week for hospitals, especially not-for-profit hospitals.
In reality, the storm cloud that has gathered over not-for-profit health hospitals in recent months has been buoyed in large measure by well-funded critiques by Arnold Ventures,Lown Institute, West Health, Patient Rights Advocate and others. Providence, Ascension, Bon Secours and now Ballad have been criticized for inadequate community benefits, excessive CEO compensation, aggressive patient debt collection policies and price gauging attributed to hospital consolidation.
This cloud has drawn attention from lawmakers: in NC, the State Treasurer Dale Folwell has called out the state’s 8 major NFP systems for inadequate community benefit and excess CEO compensation.
In Indiana, State Senator Travis Holdman is accusing the state’s NFP hospitals of “hoarding cash” and threatening that “if not-for-profit hospitals aren’t willing to use their tax-exempt status for the benefit of our communities, public policy on this matter can always be changed.” And now an influential quartet of U.S. Senators is pledging action to complement with anti-hospital consolidation efforts in the FTC leveraging its a team of 40 hospital deal investigators.
In response last week, the American Hospital Association called out health insurer consolidation as a major contributor to high prices and,
in a US News and World Report Op Ed August 8, challenged that “Health insurance should be a bridge to medical care, not a barrier.
Yet too many commercial health insurance policies often delay, disrupt and deny medically necessary care to patients,” noting that consumer medical debt is directly linked to insurer’ benefits that increase consumer exposure to out of pocket costs.
My take:
It’s clear that not-for-profit hospitals pose a unique target for detractors: they operate more than half of all U.S. hospitals and directly employ more than a third of U.S. physicians.
But ownership status (private not-for-profit, for-profit investor owned or government-owned) per se seems to matter less than the availability of facilities and services when they’re needed.
And the public’s opinion about the business of running hospitals is relatively uninformed beyond their anecdotal use experiences that shape their perceptions. Thus, claims by not-for-profit hospital officials that their finances are teetering on insolvency fall on deaf ears, especially in communities where cranes hover above their patient towers and their brands are ubiquitous.
Demand for hospital services is increasing and shifting, wage and supply costs (including prescription drugs) are soaring, and resources are limited for most.
The size, scale and CEO compensation for the biggest not-for-profit health systems pale in comparison to their counterparts in health insurance and prescription drug manufacturing or even the biggest investor-owned health system, HCA…but that’s not the point.
NFPs are being challenged to demonstrate they merit the tax-exempt treatment they enjoy unlike their investor-owned and public hospital competitors and that’s been a moving target.
Thus, the methodology for consistently defining and accounting for community benefits needs attention. That would be a good start but alone it will not solve the more fundamental issue: what’s the future for the U.S. health system, what role do players including hospitals and others need to play, and how should it be structured and funded?
The issues facing the U.S. health industry are complex. The role hospitals will play is also uncertain. If, as polls indicate, the majority of Americans prefer a private health system that features competition, transparency, affordability and equitable access, the remedy will require input from every major healthcare sector including employers, public health, private capital and regulators alongside others.
It will require less from DC policy wonks and sanctimonious talking heads and more from frontline efforts and privately-backed innovators in communities, companies and in not-for-profit health systems that take community benefit seriously.
No sector owns the franchise for certainty about the future of U.S. healthcare nor its moral high ground. That includes not-for-profit hospitals.
The darkening cloud that hovers over not-for-profit health systems needs attention, but not alone, despite efforts to suggest otherwise.
Clarifying the community-benefit standard is a start, but not enough.
Are NFP hospitals a problem? Some are, most aren’t but all are impacted by the darkening cloud.
HENRY KOTULA 