Revised charity guidelines put focus on the front end
Calculate with costs, not charges
Revised guidelines from the Healthcare Financial Management Association (HFMA) on how hospitals should measure and report bad debt and charity care put the spotlight squarely on patient access staff, says Rick Gundling, FHFMA, CMA, vice president for the Westchester, IL-based organization.
Costs, not charges, should be the primary reporting unit for valuing charity care, the guidance states.
"The biggest change is really trying to figure out what the actual payment is upfront," Gundling points out. "That will affect how the bad debt is accounted for."
Right now, if the charge for a hospital service is $100 and the patient doesn't pay, the hospital writes off $100, he says. "What the [guidance] is saying is if a patient comes in with limited means of payment and the hospital has no expectation of getting $100, but thinks it can get $50 or $25, then it should recognize that as the revenue and write off that amount."
The guidelines change the valuation of the bill and how the provider accounts for it if the person subsequently doesn't pay, Gundling adds.
The close attention being paid to the issue by the community, the news media, and the government underscores "the extreme importance of the front end being able to distinguish between charity care and bad debt and having better processes upfront to capture the amount of charity care."
"A lot of times, if the patient didn't qualify for charity care and [staff] didn't get the information, by default it became bad debt," Gundling says.
Providers should look at different means of qualifying patients for charity care, he suggests. "Some hospitals have high portals — things like the last pay stub — that are very difficult in the real world. You may never see the patient again."
Instead, use credit reports and other electronic methods, Gundling says. "Use what stores use [to determine financial status]."
The new guidelines are about holding hospitals accountable, he notes. "[Charity care] is one of the reasons hospitals are tax exempt. We get the tax exemption, we should be providing the care."
Another reason for the "costs vs. charges" distinction, Gundling adds, is illustrated by one hospital charging $100 for a particular lab test while the facility down the street charges $200 for the same test.
Based on "charges," then, the second hospital is providing $200 worth of care, compared to $100 provided by the first one, he says. "We're saying, 'Convert it to costs.' That tends to be more reliable, much more similar."
Hospitals have available different methods for estimating costs, or ratio of costs to charges, Gundling notes. "Use the best estimate you have," he advises, "and in your financial statement, disclose how you got it."
In addition to the recording and disclosure of charity care and bad debt, the HFMA guidelines address the criteria for charity care policies and the classification of receipts related to charity care.
The guidance also says that each hospital should decide, based on circumstances, whether Medicare shortfalls should be part of its community benefit disclosure.
"In all cases where Medicare shortfalls are disclosed," it continues, "the disclosure should be separate from charity care and accompanied by sufficient detail and context to help readers understand each reported cost calculation."
Revised guidelines from the Healthcare Financial Management Association (HFMA) on how hospitals should measure and report bad debt and charity care put the spotlight squarely on patient access staff.You have reached your article limit for the month. Subscribe now to access this article plus other member-only content.
- Award-winning Medical Content
- Latest Advances & Development in Medicine
- Unbiased Content