Sweet Charity--How the state's bad debt pool for hospitals doesn't work

I came across a piece in Schizophrenia Journal recently that blasted the way NY State's bad debt and charity care pool is used to bail out hospitals that don't get paid by their patients. It also accuses the hospitals of failure to use the monies properly and to take account of the money received, some $847 million in 2003.

People in the Schenectady mental health system have felt the sting of the hospitals' aggressive collection practices when someone can't pay the full amount of their hospital care. Bill collectors start dunning them on the phone, sitting on the doorstep and threatening and insisting on back payment from patients who simply don't have the means to pay.

You'd think $847 million would solve the hospitals' problems. But it doesn't. Instead they and the state have connived to fashion a secret bailout system that doesn't benefit anybody individually who has run up a bad debt with the hospital.

The journal article (Feb 2008) is based on a study by attorneys for the Legal Aid Society of New York that led to stories in the NY Times. It is damning because it says the hospitals really get a huge belt of public money each year to pay bills of the uninsured while their advocates call for more government spending to cover the same debts of some of the 3 million New Yorkers without health insurance.

It was an eye opener because I've often wondered how any stiff without insurance can pay those huge hospital bills after a costly operation or just a stay to see what's wrong that's causing pain or discomfort. It must be even worse now as the bills pile up and more people are out of work and don't have the luxury of health insurance to cover these expenses.

The article is called “The Case for Reform: How New York State's Secret Hospital Charity Care Pool Funds Fail to Help Uninsured and Underinsured New Yorkers”. It's just a rollicking good ride—about how the hospitals don't bother to account for the money they get from the state every year and don't apply it to individual cases. They just sock it away in the general fund, don't keep records, and don't consider it as money to help individual patients pay their bills, as other states do. Instead, one hospital, Our Lady of Mercy in the Bronx, which gets $6 million a year from the state for its charity pool, refused to pay the bill when a patient applied for the funds. And the state doesn't even require an accounting while forking over this largesse year to year to our bleeding hospitals.

Nor are the hospitals gracious about the charity care fund and the way they go about collecting bills from those who don't pay. “Advocates are confronted with increased demands for help from patients who face overwhelming medical bills, aggressive collection agencies and limited awareness of relief,” the authors state.

This hits especially hard on mental patients whose illness typically waxes and wanes and causes some rehospitalization now and then. Some have no coverage while others depend on subsidized insurance like Medicaid or Fidelis Care, not private insurance unless it's on their parents' account. But these don't pay for everything—there are copays and deductibles and some patients are disallowed. There simply isn't a way for a chronically ill or disabled person to pay a back bill in the tens of thousands of dollars--unless the hospital applies its losses to that patient with the charity care money.

And in New York they don't do this, evidently in contradiction of the law. The bad debt pool is paid into by third party payers (insurance companies but not Medicare) and the money is collected by the hospitals on the basis of size and location in the state. Hospitals get their allocations under the current version of the Health Care Reform Act (HCRA law). There is also Public Health law section 2807-k that sets out the rates for an indigent care pool for the hospitals which limits their charges to non-paying patients to their actual cost for services.

Instead, the report finds, “hospitals in NY have been artificially inflating the rates to these patients, the least likely to afford them. Because there is virtually no government monitoring of the hospitals' reported bad debt pool submissions, it is unknown whether the hospitals follow state guidelines and reduce their charge rate to cost.”

And what the hospitals do is charge the full rate for individual patients who don't have insurance. As the report indicates, “unlike some neighboring states, New York requires virtually no accountability for the millions of dollars allocated for bad debt and charity care funds, ignores the need for a standardized application and eligibility system and notification to low income New Yorkers on how to access this money; and fails to regulate hospital charge rates for uninsured and underinsured low income families or to set reasonable standards for billing and collection practices.”

The persistent mystique of the charity fund in New York is baffling. The authors recommend an overhaul to see that there is a standard application and reporting by the hospitals, annual monitoring and audits by the state, and an end to the overcharging and denial of benefits to individual patients. Too many patients have found themselves in a quandary over their debt, dunned by bill collectors and denied credit by loan agencies because of the way the system works now. (Roy Neville)