The Illinois Tax-Exempt Hospital Responsibility Act: Is it Coming to a Legislature Near You?

Transcription

1 teleconference The Illinois Tax-Exempt Hospital Responsibility Act: Is it Coming to a Legislature Near You? Friday, March 10, 2006 Sponsored by the Sarbanes-Oxley Act (SOA) Task Force, a joint endeavor of the HMOs and Health Plans; Hospitals and Health Systems; Tax and Finance; In-House Counsel; and Teaching Hospitals and Academic Medical Centers Practice Groups of the American Health Lawyers Association. Moderator and Presenters: Bernadette M. Broccolo, Moderator McDermott Will & Emery LLP Chicago, IL Theresa Hoban, Presenter Northwest Community Hospital Arlington Heights, IL Anne M. Murphy, Presenter Senior Counsel to the Attorney General Office of the Attorney General State of Illinois Chicago, IL David S. Rosenbloom, Presenter McDermott Will & Emery LLP Chicago, IL 2005 American Health Lawyers Association, All Rights Reserved

2 SPONSORED BY THE SARBANES-OXLEY ACT TASK FORCE; HMOS AND HEALTH PLANS; HOSPITALS AND HEALTH SYSTEMS; TAX AND FINANCE; IN-HOUSE COUNSEL; AND TEACHING HOSPITALS AND ACADEMIC MEDICAL CENTERS PRACTICE GROUPS Current Charity Care and Community Benefit Bernadette M. Broccolo, McDermott Will & Emery LLP, Chicago, IL, (312) , Slide 1 The Illinois Tax-Exempt Hospital Responsibility Act: Is it Coming to a Legislature Near You American Health Lawyers Association Teleconference - March 10, The Current Charity Care and Community Benefit Reform Debate: Evolution and Overview Bernadette M. Broccolo McDermott Will & Emery LLP bbroccolo@mwe.com Boston Brussels Chicago Düsseldorf London Los Angeles Miami Milan Munich New York Orange County Rome San Diego Silicon Valley Washington, D.C McDermott Will & Emery McDermott operates its practice through separate legal entities in each of the countries where it has offices. Slide 2 Who are the Catalysts and the Debaters? Plaintiff Lawyers Labor Unions Press and Public Auditors Bond Rating Agencies IRS U.S. Congress (House and Senate) State and Local Taxing Authorities State Legislatures State Attorneys General 2 1

3 SPONSORED BY THE SARBANES-OXLEY ACT TASK FORCE; HMOS AND HEALTH PLANS; HOSPITALS AND HEALTH SYSTEMS; TAX AND FINANCE; IN-HOUSE COUNSEL; AND TEACHING HOSPITALS AND ACADEMIC MEDICAL CENTERS PRACTICE GROUPS Current Charity Care and Community Benefit Bernadette M. Broccolo, McDermott Will & Emery LLP, Chicago, IL, (312) , Slide 3 Charity Care Class Actions Major Themes and Specific Allegations Insufficient charity care to the uninsured in light of tax exempt status You are charging the most to those who can least afford to Pay. Highly inflated unreasonable rates that bear no connection to actual costs of service Virtually all insured get steep discounts, and those rates reflect reasonable, usual, and customary rates Virtually all uninsured are charged full sticker price, which greatly exceeds rates enjoyed by majority of patients No disclosure of differences to uninsured patients Poor disclosure of assistance programs Questionable collections practices. 3 Slide 4 Charity Care Class Action Lawsuits Status as of December 2005 Federal Cases Effectively all federal claims dismissed Appeals filed on 10 of the federal dismissals 5 of them dismissed State Cases Approximately 112 filed 11 full dismissals 6 partial dismissals 1 stay 4 unfavorable outcomes on motions to dismiss Mississippi Hospital Reneged on Settlement Agreement Providence Settlement (Oregon) 4 2

4 SPONSORED BY THE SARBANES-OXLEY ACT TASK FORCE; HMOS AND HEALTH PLANS; HOSPITALS AND HEALTH SYSTEMS; TAX AND FINANCE; IN-HOUSE COUNSEL; AND TEACHING HOSPITALS AND ACADEMIC MEDICAL CENTERS PRACTICE GROUPS Current Charity Care and Community Benefit Bernadette M. Broccolo, McDermott Will & Emery LLP, Chicago, IL, (312) , Slide 5 House Ways and Means Hearing May 26, 2005 Issues covered at the hearings: Evolution of standards for hospital tax-exempt status Criteria used to assess hospital tax-exempt status Whether hospitals are charities or principally businesses selling services in a competitive market. Questions Posed: What is the difference between nonprofit and for-profit hospitals? Charity care Nature of services provided (profitable v. unprofitable) What does the taxpayer get in return for tax-subsidies derived from exempt status? Should exemption standards be strengthened and tied more to charity care? Why is the focus on exempt hospitals and not other exempt organizations? 5 Slide 6 Senate Finance Committee Grassley Letter to Hospitals Late May Page Letter Sent to 10 Hospitals/Health Systems Cleveland Clinic (OH) New York Presbyterian Hospital System (NY) Advocate Health Care (IL) Resurrection Health Care (IL) Banner Health (AZ) Fairview Health Systems (MN) North Mississippi Health Systems (MS) Phoebe Putney Health Systems (GA) Sutter Health (CA) William Beaumont Hospital (MI) Tax-exempt status is a privilege By gathering the information, I hope to learn whether the benefits [charities] provide justify the taxbreaks they receive

5 SPONSORED BY THE SARBANES-OXLEY ACT TASK FORCE; HMOS AND HEALTH PLANS; HOSPITALS AND HEALTH SYSTEMS; TAX AND FINANCE; IN-HOUSE COUNSEL; AND TEACHING HOSPITALS AND ACADEMIC MEDICAL CENTERS PRACTICE GROUPS Current Charity Care and Community Benefit Bernadette M. Broccolo, McDermott Will & Emery LLP, Chicago, IL, (312) , Slide 7 Senate Finance Committee Grassley Letter to Hospitals Late May Questions Detailed information for multiple years For all entities in the system Remarkably similar to discovery requests in charity care litigation Examples of information requested Definition and amount of charity care provided Discounts to the uninsured Payor mix Joint ventures with other exempts to provide charity care Joint ventures for unrelated business activities Research and teaching Fundraising Physician compensation 7 Slide 8 Senate Finance Committee Grassley Letter to Hospitals Late May 2005 Examples of information requested (continued) Costs per patient and length of stay Internal cost allocation systems Variations in charity care among departments/programs Infant and childhood programs Pricing practices Mark-up of charges over costs Private pay contractual allowances Use of charge master for the uninsured Employee training and awareness regarding policies on treatment of and payment by the uninsured Various questions regarding interpretation of Medicare rules affecting ability to offer discounts to the uninsured 8 4

6 SPONSORED BY THE SARBANES-OXLEY ACT TASK FORCE; HMOS AND HEALTH PLANS; HOSPITALS AND HEALTH SYSTEMS; TAX AND FINANCE; IN-HOUSE COUNSEL; AND TEACHING HOSPITALS AND ACADEMIC MEDICAL CENTERS PRACTICE GROUPS Current Charity Care and Community Benefit Bernadette M. Broccolo, McDermott Will & Emery LLP, Chicago, IL, (312) , Slide 9 Senate Finance Committee Grassley Letter to Hospitals Late May 2005 Examples of information requested (continued) Charity care and community needs assessments and reporting Collections practices Contracts with collections agencies Number of lawsuits filed against the uninsured Sale of receivables Off-shore investment accounts Policies on Elective Procedures Executive Compensation Salaries and benefits Reimbursed travel expenses (including receipts) Reimbursed country club expenses 9 Slide 10 SFC Mark-Up of Tax Relief Act of 2005 Chairman s Modification to the provisions of the Tax Relief Act of Released November 14, Marked Up by Senate Finance Committee November 15, 2005; approved by 14-6 vote. Contains many of the charitable reforms described by SFC Staff last year and expands on several more. See and

7 SPONSORED BY THE SARBANES-OXLEY ACT TASK FORCE; HMOS AND HEALTH PLANS; HOSPITALS AND HEALTH SYSTEMS; TAX AND FINANCE; IN-HOUSE COUNSEL; AND TEACHING HOSPITALS AND ACADEMIC MEDICAL CENTERS PRACTICE GROUPS Current Charity Care and Community Benefit Bernadette M. Broccolo, McDermott Will & Emery LLP, Chicago, IL, (312) , Slide 11 SFC Mark-Up of Tax Relief Act of 2005 Extends public inspection and disclosure requirements and penalties to Form 990-T. Auditor Form 990 and Form 990-T Certification Charities with gross revenues or gross assets of at least $10 million Include with Form 990 and Form 990-T filings a certification by an independent auditor or counsel that organization s filings accurately reflect the UBIT liability of organization. Certification must attest that independent auditor or counsel has reviewed activities and expense allocations and has not provided opinions with regard to organization s treatment of activity. Increase in Intermediate Sanction Excise Taxes Doubles the dollar limitation for organization managers of public charities and social welfare organizations to $20,000 per excess benefit transaction. Notable Omission: Proposals addressing governance of EOs 11 Slide 12 IRS Business Plan for FY 2006 Issued in October 2005 Potential formation of EO Compliance Unit Focused on how hospitals comply with Community Benefit Plans Plan to send letters to at least 600 hospitals requesting that they answer certain questions regarding satisfaction of community benefit standard

8 SPONSORED BY THE SARBANES-OXLEY ACT TASK FORCE; HMOS AND HEALTH PLANS; HOSPITALS AND HEALTH SYSTEMS; TAX AND FINANCE; IN-HOUSE COUNSEL; AND TEACHING HOSPITALS AND ACADEMIC MEDICAL CENTERS PRACTICE GROUPS Current Charity Care and Community Benefit Bernadette M. Broccolo, McDermott Will & Emery LLP, Chicago, IL, (312) , Slide 13 IRS and Congressional Hospital Exemption Scrutiny and Reform Summary Community benefit reporting Periodic review of exempt status Executive Compensation Conflicts of Interest Increased enforcement tools Empower states to enforce federal tax-exemption laws Empower individuals to file complaints about exempt organizations Improved Form 990 Reporting Certain testimony calling for consistent and accurate disclosure of charity care New Form 1023 focus on process and conflicts 13 Slide 14 State Charity Care and Community Benefit Reporting Statutes and Standards New York (1990/1996) Prepare and file community benefit service plans Report on implementation of the Plan California, Indiana and Idaho are similar to New York Texas (1993) - Meet 1 of the following: Charity care level is reasonable relative to community need based on: Community need assessment Available resources of hospital Tax-exemption benefits received by the hospital Charity care or government-sponsored indigent care at 100% of the economic value of the benefit of state and local exemptions Charity care and community benefit together at 5% of net patient revenue of which 4% must be charity care and government-sponsored indigent care

9 SPONSORED BY THE SARBANES-OXLEY ACT TASK FORCE; HMOS AND HEALTH PLANS; HOSPITALS AND HEALTH SYSTEMS; TAX AND FINANCE; IN-HOUSE COUNSEL; AND TEACHING HOSPITALS AND ACADEMIC MEDICAL CENTERS PRACTICE GROUPS Current Charity Care and Community Benefit Bernadette M. Broccolo, McDermott Will & Emery LLP, Chicago, IL, (312) , Slide 15 State Charity Care and Community Benefit Reporting Statutes and Standards Pennsylvania Serve without regard to ability to pay, or One of the following: Provide services free in an amount equal to 75% of net operating income but not less than 3% of total operating expense, or Negotiate a payment in lieu of taxes Utah Howell v. Utah Board of Cache County, 881 P.2d 88O (1994) articulate free care standard: free care equal to the property tax that would otherwise apply to the entity. Another exemption criteria articulated in the same case was informing the public of its open access policy and of the avaiability of services for the indigent Slide 16 PricewaterhouseCoopers 2005 Charity Care Survey State Legislative Initiatives 31 states have introduced or passed legislation related to charity care in 2004 and in 2004, with legislation adopted in 9 15 in 2005, as of late May 2005 Topics addressed: Prices charged and discounts offered to self pay Policy and procedure requirements relating to patients ability to pay Communication of charity care policies Funding to assist hospitals is providing care to insured and underinsured Collection practices Reporting of number of insured and uninsured treated

10 SPONSORED BY THE SARBANES-OXLEY ACT TASK FORCE; HMOS AND HEALTH PLANS; HOSPITALS AND HEALTH SYSTEMS; TAX AND FINANCE; IN-HOUSE COUNSEL; AND TEACHING HOSPITALS AND ACADEMIC MEDICAL CENTERS PRACTICE GROUPS Current Charity Care and Community Benefit Bernadette M. Broccolo, McDermott Will & Emery LLP, Chicago, IL, (312) , Slide 17 Recent Property Tax Assaults Resurrection (Illinois) Provena (Illinois) Carle Foundation Hospital (Illinois) Eden Retirement Center (Illinois) Cleveland Clinic (Ohio) McLaren (Michigan) Sturdy Memorial Foundation (Massachusetts) Various Predecessors from Prior Cycle of Challenges in Pennsylvania, Texas, Utah, etc. Court cases Enactment of specific charity care obligation statutes 17 Slide 18 Property Tax Context Failure of Charity Theory Evolving interpretations and requirements of charitable standard Shift in focus from charitable use of the property to charitable nature of the organization Increasing focus on charity care programs and quantifications Unclear how much community benefit is enough

11 SPONSORED BY THE SARBANES-OXLEY ACT TASK FORCE; HMOS AND HEALTH PLANS; HOSPITALS AND HEALTH SYSTEMS; TAX AND FINANCE; IN-HOUSE COUNSEL; AND TEACHING HOSPITALS AND ACADEMIC MEDICAL CENTERS PRACTICE GROUPS Current Charity Care and Community Benefit Bernadette M. Broccolo, McDermott Will & Emery LLP, Chicago, IL, (312) , Slide 19 State Attorneys General Minnesota Legal settlement with 83% of MN Hospitals, who promise to: Charge uninsured with household income less than $125,000 the same amount the largest insurance company pays for the treatment Go to great lengths to contact patients with information about availability of charity care Go through all possible sources of third party payment before initiating collection actions Avoid improper garnishment of wages of the poor Adopt collections reforms that prohibit patient harassment and arrest 19 Slide 20 State Attorneys General Ohio and Wisconsin Ohio Congresswoman (Rep. Sykes) vowed to follow this lead with Ohio AG Wisconsin AG Lautenschlager November 2005 announcement of unfair trade practices actions against St. Joseph s Regional Medical Center and Wisconsin Heart Hospital Alleges overcharging uninsured patients

12 SPONSORED BY THE SARBANES-OXLEY ACT TASK FORCE; HMOS AND HEALTH PLANS; HOSPITALS AND HEALTH SYSTEMS; TAX AND FINANCE; IN-HOUSE COUNSEL; AND TEACHING HOSPITALS AND ACADEMIC MEDICAL CENTERS PRACTICE GROUPS Current Charity Care and Community Benefit Bernadette M. Broccolo, McDermott Will & Emery LLP, Chicago, IL, (312) , Slide 21 State Attorneys General Massachusetts Community Benefit Guidelines for Hospitals Plan Reporting Role of the Governing Board AG Community Benefits Task Force AG Website Access to: Hospital Community Benefit Reports Statewide database of all reported hospital community benefits programs Links to Other resources, including community benefits initiative in other states History of community benefits in Massachusetts 21 Slide 22 State Attorneys General Illinois Illinois community benefit reporting statute and corresponding forms Amicus Curiae brief in property tax challenges Intervening in private lawsuits Legislation introduced January 2006 Tax Exemption (HB 5000) Fair Collections Practices (HB 4999) Tax-Exempt Financing (HB 5242)

13 SPONSORED BY THE SARBANES-OXLEY ACT TASK FORCE; HMOS AND HEALTH PLANS; HOSPITALS AND HEALTH SYSTEMS; TAX AND FINANCE; IN-HOUSE COUNSEL; AND TEACHING HOSPITALS AND ACADEMIC MEDICAL CENTERS PRACTICE GROUPS Current Charity Care and Community Benefit Bernadette M. Broccolo, McDermott Will & Emery LLP, Chicago, IL, (312) , Slide 23 State Attorneys General Illinois Illinois Community Benefit Reporting Statute File with the AG A copy of mission statement Community benefit plan Community benefit report Audited financials Illinois AG s Community Benefit Reporting Form Charity Care = with no expectation of payment Charity care NOT equal to: Bad debt, or Unreimbursed cost of Medicare/Medicaid and other government payors Charity Care Reporting must include: Actual cost of services based on: Total cost to charge ration derived from Medicare cost report NOT on actual charges Attach a copy of charity care policy 23 Slide 24 Illinois Proposed Statutory Hospital Charity Care Requirements Tax-Exempt Hospital Responsibility Act (HB5000) Introduced Illinois AG Madigan on January 23, 2006 Compliance by NFP Hospital is a condition for: Property tax exemption Income tax exemption Sales, use and service tax exemptions Tax-exempt financing through the Illinois Health Facilities authority (see companion Bill HB5242 introduced on January 24, 2006) Codifies many of the requirements emerging from charity care litigation settlements, AG reform initiative, etc. Amendment proposed by Rep. George Scully, Jr., on March 2, 2006 Amends property tax law to add spceific exemption for property used for hospital purposes Borrows from current Illinois case law standards Balance of power issue: legislative v. judiciary

14 SPONSORED BY THE SARBANES-OXLEY ACT TASK FORCE; HMOS AND HEALTH PLANS; HOSPITALS AND HEALTH SYSTEMS; TAX AND FINANCE; IN-HOUSE COUNSEL; AND TEACHING HOSPITALS AND ACADEMIC MEDICAL CENTERS PRACTICE GROUPS Current Charity Care and Community Benefit Bernadette M. Broccolo, McDermott Will & Emery LLP, Chicago, IL, (312) , Slide 25 Illinois Proposed Statutory Hospital Charity Care Requirements Tax-Exempt Hospital Responsibility Act (HB5000) Startling charity care obligation: 8 % of a hospital s total annual operating costs (as reported on the most recent Medicare cost report) Free care to uninsured who apply for charity care with family income less than or equal to 150% of FPL Care at hospitals, community clinics, other settings approved by AG, uncovered crime victim care, Medicaid shortfalls Discounts to the uninsured Sliding scale from 20 35% of cost between 150% and 150% of FPL Free care for costs exceeding $10,000 annual cap Reasonable payment plan, with no interest, for inability to make a single payment (requesting reasonable verification is permitted Reporting Requirements 25 Slide 26 Illinois Proposed Statutory Hospital Charity Care Requirements Tax-Exempt Hospital Responsibility Act (HB5000) Sanctions Civil money penalties (per day/per violation) Investigation Injunction Bar to tax-exempt financing Referral to IDR for possible Exemption Revocation Removal of directors, officers, agents or employees Referral to Department of Public Health for adverse licensure action

15 SPONSORED BY THE SARBANES-OXLEY ACT TASK FORCE; HMOS AND HEALTH PLANS; HOSPITALS AND HEALTH SYSTEMS; TAX AND FINANCE; IN-HOUSE COUNSEL; AND TEACHING HOSPITALS AND ACADEMIC MEDICAL CENTERS PRACTICE GROUPS Current Charity Care and Community Benefit Bernadette M. Broccolo, McDermott Will & Emery LLP, Chicago, IL, (312) , Slide 27 Illinois Proposed Hospital Billing and Collection Practices Statute Hospital Fair Billing and Collection Practices Act (HB4999) Introduced by Illinois AG Madigan on January 23, 2006 Imposes uniform standards and procedures for key components of the billing and collection process: Generating bills Handling billing inquiries Handling billing disputes Sending bills to collection Initiating collection actions Imposes specific obligations on hospital s governing board relating to developing of billing and collection policies and procedures Sanctions Civil money penalties Amendment in early March, resulting from direct interaction between AG and Illinois Hospital Association

16 SPONSORED BY THE SARBANES-OXLEY ACT TASK FORCE; HMOS AND HEALTH PLANS; HOSPITALS AND HEALTH SYSTEMS; TAX AND FINANCE; IN-HOUSE COUNSEL; AND TEACHING HOSPITALS AND ACADEMIC MEDICAL CENTERS PRACTICE GROUPS Current Charity Care and Community Benefit Bernadette M. Broccolo, McDermott Will & Emery LLP, Chicago, IL, (312) , Slide 28 The Illinois Tax-Exempt Hospital Responsibility Act: Is it Coming to a Legislature Near You American Health Lawyers Association Teleconference - March 10, The Current Charity Care and Community Benefit Reform Debate: Evolution and Overview Bernadette M. Broccolo McDermott Will & Emery LLP bbroccolo@mwe.com Boston Brussels Chicago Düsseldorf London Los Angeles Miami Milan Munich New York Orange County Rome San Diego Silicon Valley Washington, D.C McDermott Will & Emery McDermott operates its practice through separate legal entities in each of the countries where it has offices is published by the American Health Lawyers Association. All rights reserved. No part of this publication may be reproduced in any form except by prior written permission from the publisher. Printed in the United State of America. Any views or advice offered in this publication are those of its authors and should not be construed as the position of the American Health Lawyers Association. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided with the understanding that the publisher is not engaged in rendering legal or other professional services. If legal advice or other expert assistance is required, the services of a competent professional person should be sought from a declaration of the American Bar Association 15

17 Health January 31, 2006 Proposed Tax-Exempt Hospital Responsibility Act Creates Charity Care Requirements On January 23, 2006, the Illinois Attorney General (AG) proposed two pieces of legislation, that, if passed, will have a significant impact on all hospitals in Illinois, particularly tax-exempt, nonprofit hospitals. The bills also may have broader implications for tax-exempt hospitals nationwide. The first of these, the Tax-Exempt Hospital Responsibility Act (the act), sets forth charity care requirements for Illinois tax-exempt, nonprofit hospitals and exempts only critical access hospitals. Nonprofit hospitals are required to comply with the act in order to maintain their tax-exempt status under the Illinois Income Tax Act, the Use Tax Act, the Service Use Tax Act, the Service Occupation Tax Act, the Retailers Occupation Tax Act and the Property Tax Code. The act also prohibits the Illinois Finance Authority from exercising any of its powers for the benefit of any hospital that is out of compliance. The second bill, the Hospital Fair Billing and Collection Practices Act, establishes a set of detailed procedural standards for hospital billing and collections and will be discussed in a subsequent On the Subject. The Tax-Exempt Hospital Responsibility Act mandates that Illinois tax-exempt, nonprofit hospitals provide charity care in an amount equal to 8 percent of the hospital s total annual operating costs (as reported each year in the hospital s most recently settled Medicare cost report). Charity care is defined as medically necessary services provided at a reduced charge or no charge to patients who meet eligibility criteria no more restrictive than the following: free care (full charity care) must be provided to uninsured Illinois residents 1 below 150 percent of the federal poverty level (FPL), and discounted care must be provided to those between 150 percent and 250 percent of the FPL. Discounts are defined as discounts from costs, not charges, and the amount charged to financially eligible families cannot exceed 35 percent of the costs of care. For example, if a patient in a family of four with income of $45,000 to $50,000 (falling between 225 percent and 250 percent of the FPL) incurs hospital charges of $5,000 representing $3,000 in cost (depending on the hospital s Medicare cost-to-charge ratio), the patient s bill cannot exceed 35 percent of cost or $1,050. In addition, if the cost of care exceeds $10,000 in a 12-month period, the patient is eligible for full charity care for the remainder of the 12-month period. The proposed charity care requirements provide a fairly tight safety net for financially eligible families. However, families above 250 percent of the FPL are not required to be protected, and it is not clear from the bill that hospitals receive credit toward their 8 percent obligation for charity care provided to such patients. In order to make their 8 percent annual target, hospitals can count free or discounted charity care for eligible patients when care is provided within the hospital, at one or more community health centers or free clinics operated by the hospital, or in other settings as approved in advance by the AG. In addition, hospitals can include uncompensated care or payment shortfalls below cost for services rendered to Medicaid patients or those reimbursed through the Crime Victims Compensation Act. Although the act acknowledges charity care is just one subset of a hospital s community benefit commitment, subsidized health care services as defined in the Community Benefits Reporting Act (CBRA) will not count toward the 8 percent annual target. In addition to the mandate to reach the 8 percent threshold, hospitals must: screen all uninsured patients before discharge from an outpatient service or inpatient stay; offer financially eligible patients reasonable payment plans without interest; and 1 Resident means a person living in Illinois regardless of U.S. citizenship status, with the intention of remaining in Illinois indefinitely. However, a resident is not required to maintain a fixed address. implement standard patient and community awareness strategies. Boston Brussels Chicago Düsseldorf London Los Angeles Miami Munich New York Orange County Rome San Diego Silicon Valley Washington, D.C.

18 Hospitals are prohibited from billing an uninsured Illinois resident until at least 60 days after the effective date of service or discharge, sending a bill to a patient who qualifies for full charity care, and denying or delaying patient care while a patient s application is pending. For purposes of patient and community awareness, hospitals face mandates to: distribute to every patient, on or prior to the date of service or discharge, a written statement regarding charity care; post signage; use standard forms and income verification/documentation developed by the AG; provide notice to applicants within 14 days after receipt of a completed charity care application; implement procedures in accordance with the Language Assistance Services Act; provide notice of the availability of charity care in any patient bill, invoice statement or collection action issued by the hospital or by an agent, assignee or account purchaser; post notice in a prominent place on the hospital website; and publish notice on a quarterly basis in a newspaper of general circulation in the hospital s service area indicating that charity care is available, and provide similar notice to all community medical centers located in the service area. Patients have the right to apply for charity care within 60 days after the date of service or discharge and to register a complaint with the AG if any provision of the act is violated. Patients are obligated to cooperate by providing information of any significant change in financial status, engaging in reasonable payment plans, and applying to other public or private health insurance or benefit programs for which they may be eligible. Records of charity care applications and terminations are exempt from inspection and copying under the Freedom of Information Act. The AG has broad enforcement powers under the proposed legislation and may bring an action against a hospital to obtain injunctive relief. The AG also may seek the removal and replacement of any director, officer, agent or employee who has directly or indirectly acquiesced, approved or authorized a violation of the act. In the event a circuit court grants relief against a hospital for a violation, the AG must refer the hospital to the Illinois Department of Revenue for possible revocation of the hospital s tax-exempt status. The AG may also assess civil monetary penalties for failures to post notice or implement patient notification procedures ($1,000 per day for each day of failed notice) or for failure to provide information to the public ($1,000 per violation). Other violations can result in penalties of $10,000 each, and a circuit court can order patient reimbursement for money paid contrary to the provisions of the act. If a hospital does not meet its annual charity care obligation, it is subject to a civil penalty equal to the amount of its unpaid obligation plus interest. The required annual allocation of 8 percent of total hospital operating costs to charity care and the defined expenditures that can be counted to reach this commitment are most certainly the hallmarks of the proposed legislation. Moreover, although the CBRA has required hospitals to report charity care as the actual cost of services provided, the proposed act definitively moves away from viewing charity care as discounts from charges. Hospitals likely will advocate for changes in the legislation as currently proposed, and they may advocate for broadening the definition of charity care so other substantive commitments in direct support of caring for the uninsured can be counted. Additionally, we expect future analysis of whether the act will have equitable effects across hospitals. For more information, please contact your regular McDermott lawyer, or: Michael F. Anthony: manthony@mwe.com Leatrice Berman Sandler: lbermansandler@mwe.com Bernadette M. Broccolo: bbroccolo@mwe.com Elizabeth M. Mills: emills@mwe.com Joan Polacheck: jpolacheck@mwe.com For more information about McDermott Will & Emery visit: The material in this publication may not be reproduced, in whole or part without acknowledgement of its source and copyright. On the Subject is intended to provide information of general interest in a summary manner and should not be construed as individual legal advice. Readers should consult with their McDermott Will & Emery lawyer or other professional counsel before acting on the information contained in this publication McDermott Will & Emery. The following legal entities are collectively referred to as "McDermott Will & Emery," "McDermott" or "the Firm": McDermott Will & Emery LLP, McDermott Will & Emery/Stanbrook LLP, McDermott Will & Emery Rechtsanwälte Steuerberater LLP, MWE Steuerberatungsgesellschaft mbh, McDermott Will & Emery Studio Legale Associato and McDermott Will & Emery UK LLP. 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19 Health February 2, 2006 Hospital Fair Billing and Collection Practices Act Proposed for Illinois Hospitals On January 23, 2006, the Illinois Attorney General (the AG) proposed the Hospital Fair Billing and Collection Practices Act (the act) to set standards for billing and collection practices in Illinois hospitals. The bill was introduced with a companion piece of legislation, the Tax-Exempt Hospital Responsibility Act (see January 31, 2006 On the Subject). This legislative package has generated nationwide interest and ultimately may have broader implications for hospitals in other jurisdictions. The act would impose uniform standards and procedures for the several components of the billing and collection process: generating hospital bills (section 10-5 to 10-15); handling billing disputes between patients and hospitals (section to 10-30); sending bills to collection (section 15-5 to 15-25); and initiating legal action against patients for payment (section 20-5 to 20-15). The act places specific requirements on a hospital s governing board related to the development of policy and practice in regard to billing and collections. A hospital s governing body must adopt policies consistent with the act to prohibit abusive, harassing, oppressive, false, deceptive, or misleading language or collection conduct by the hospital or any of its collection agents. Governing boards have responsibility to approve policies for the advancement of bills to collection and must approve legal action related to collection efforts. Highlights of the Billing and Collection Process Although the act presents a rather straightforward set of procedures, it is highly regimented. With respect to billing, a hospital must: Provide bills upon inpatient discharge or the completion of outpatient service in clear, comprehensible language with an explanation of the nature and status of co-payments or deductibles Offer patients payment plans List a toll-free number, mailing address and the name, address and telephone number of the hospital s designated representative for responding to patient inquiries on all patient bills and collection notices Develop a system to record and log all oral and written patient complaints concerning billing and collection Not bill patients for any amount in excess of the patient s portion of the bill when there is an unresolved dispute with a third-party payor With respect to billing inquiries and disputes, a hospital must follow a two-cycle review of all disputed bills. The first cycle includes: Suspension of all billing efforts upon receipt of a written or oral notice from a patient that the patient disputes the bill (patients must include in their claim why they believe the bill is in error, such as remaining liability by a third-party payor, a pending charity care application or lack of documentation) Specific turn-around times to respond to patient telephone inquiries, written correspondence or requests for a personal meeting, including acknowledgement in writing by the hospital of a patient s claim that the bill is in error within five business days Review of a bill and written response to the patient within 14 days after receipt of the notice of dispute from the patient. The response must include notice of any corrections made by the hospital, an explanation of why the bill (as corrected, if appropriate) is correct, and documentation establishing the accuracy of the bill (after any corrections) and appropriate billing of all third-party payors Thereafter, the patient is obligated to pay the bill (as corrected, if applicable) or establish a payment plan with the hospital (providing reasonable verification, if requested, that the patient is unable to pay the entire debt in a single payment). Alternatively, the patient may dispute the hospital s determination, which triggers a second review cycle. The second cycle of review includes: The hospital s good faith review of the remaining disputed portion of its prior response, and written response to the patient within 14 days, indicating whether any further modifications to the patient s account will be made Boston Brussels Chicago Düsseldorf London Los Angeles Miami Munich New York Orange County Rome San Diego Silicon Valley Washington, D.C.

20 After the hospital s response, a 30-day period for the patient to either pay the entire debt or make arrangements to pay under a payment plan A hospital must not resume billing efforts until 30 days after the patient receives the initial written response to a billing inquiry. Similarly, hospitals must wait an additional 30 days if a patient continues to dispute a bill and asks for a second review. With respect to collection practices, a hospital must: Enter into a written contract with any collection agency or attorney it retains to collect medical debts, and the contract must require the agent to act in accordance with the act Verify before sending a bill to collection that the hospital has fully complied with the dispute and determination process described above, and if the patient is potentially eligible for charity care, the patient must be given at least 60 days following the date of discharge or receipt of care to submit an application Not sell any debt owed to it by a patient except to a licensed collection agency Not refer any debt for collection if the patient has made and continues to make payments on the debt in accordance with the terms of a payment plan Not refer a bill to collection while a claim for third-party payment is pending (including the time period wherein a patient retains appeal rights under an insurance plan or state or federal law) Collection agents must keep logs of all oral and written complaints, which the hospital must obtain at least six times per year. A hospital must require its agents to keep a record of all communications to or from patients. Any violation of these provisions must be cause for contract termination. With respect to legal action, a hospital must: Enter into a written contract with an attorney (without subcontracting attorney selection to a collection agency) Not take legal action for the collection of a medical debt unless the collection effort has been authorized by a designated corporate officer appointed by a hospital s governing board and the designated officer must not authorize a legal filing until verifying the hospital has complied with the full provisions of the act pertaining to billing and billing disputes Not seek to enforce a judgment (e.g., wage garnishment and liens) obtained against a patient unless the hospital s governing board provides prior written authorization. Further, the act requires hospitals to provide written notice to patients that they may receive separate bills from hospital staff members and from out-of-network providers, i.e., staff members who attend to the patient but are not in the patient s health insurance network. This notice must include the proviso that some services rendered may not be covered or will be covered only in a limited fashion by the patient s health insurance. The act mandates that if the hospital knows of available thirdparty benefit coverage, it must submit timely claims to such payors within the deadline established by them or forego reimbursement. A hospital must not bill a patient for a claim that was not submitted to a patient s third-party payor but should have been. Moreover, a hospital will be found in violation of the act if it bills a patient because of a third-party denial that resulted from hospital error. The AG s office will develop a standard form of Patient s Billing Rights that outlines the mandated regimen established to ensure patients clearly understand the billing and collection process, their right to dispute bills, the right to make complaints about billing practices to the AG and their payment obligations. The Patient s Billing Rights must be posted on the hospital s website and throughout the hospital. Violations of any of the mandated procedures trigger the AG s investigatory power, including the right to request records regarding patient communication and complaints. The AG may bring an action for injunctive relief for any violation of the act and may seek the removal and replacement of any director, officer, agent or employee of any hospital who has approved, authorized, or acquiesced, directly or indirectly, in a violation. The AG can seek civil monetary penalties for failure to provide information to a patient ($1,000 per violation) and for violation of any other provision ($10,000 per violation). In the event a court grants a final order of relief against a hospital for violation of the act, the AG must refer the hospital to the Illinois Department of Public Health for possible adverse licensure action under the Hospital Licensing Act. For more information, please contact your regular McDermott lawyer, or: Michael F. Anthony: manthony@mwe.com Leatrice Berman Sandler: lbermansandler@mwe.com Bernadette M. Broccolo: bbroccolo@mwe.com Elizabeth M. Mills: emills@mwe.com Joan Polacheck: jpolacheck@mwe.com For more information about McDermott Will & Emery visit: The material in this publication may not be reproduced, in whole or part without acknowledgement of its source and copyright. On the Subject is intended to provide information of general interest in a summary manner and should not be construed as individual legal advice. Readers should consult with their McDermott Will & Emery lawyer or other professional counsel before acting on the information contained in this publication McDermott Will & Emery. The following legal entities are collectively referred to as "McDermott Will & Emery," "McDermott" or "the Firm": McDermott Will & Emery LLP, McDermott Will & Emery/Stanbrook LLP, McDermott Will & Emery Rechtsanwälte Steuerberater LLP, MWE Steuerberatungsgesellschaft mbh, McDermott Will & Emery Studio Legale Associato and McDermott Will & Emery UK LLP. These entities coordinate their activities through service agreements. This communication may be considered advertising under the rules regulating the legal profession. 2

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29 SPONSORED BY THE SARBANES-OXLEY ACT TASK FORCE; HMOS AND HEALTH PLANS; HOSPITALS AND HEALTH SYSTEMS; TAX AND FINANCE; IN-HOUSE COUNSEL; AND TEACHING HOSPITALS AND ACADEMIC MEDICAL CENTERS PRACTICE GROUPS Testimony from OAG: HB 5000 Anne M. Murphy, Office of the Attorney General State of Illinois, Chicago, Illinois, TESTIMONY FROM THE OFFICE OF THE ATTORNEY GENERAL: HB 5000 Before the Health Care Availability and Access Committee February 14, 2006 I. INTRODUCTION A. Thank you Madam Chair and members of the Committee. My name is Anne Murphy, and I serve as Senior Counsel to the Attorney General. It is my pleasure to testify, on behalf of Attorney General Lisa Madigan, in support of House Bill This bill would create the Tax-Exempt Hospital Responsibility Act. B. At the outset, it is imperative that I be very clear as to our goals in connection with the development of this legislation. The problem of inadequate charity care delivery by Illinois tax-exempt hospitals has reached a critical point in Illinois. While this should raise concerns for all policymakers, these charity service deficiencies have now created a highly volatile legal environment for Illinois taxexempt hospitals. Illinois hospitals currently have a tenuous hold on state taxexemption. In addition, Illinois hospitals are facing legal attack under consumer protection and other laws, on the ground that their billing practices are unfair and their charity care is inadequate. These developments are part of a national trend, and mirror increased scrutiny by Congress and the IRS as to the basis for hospitals to secure federal tax-exemption. C. Let me give you a sense of how we arrived at this proposal. First and foremost, we have undertaken extensive investigation. Our office currently has investigations opened as to the pricing, billing and collection, and charity care practices of 42 Illinois hospitals. And, as part of our responsibility to enforce the consumer protection laws in Illinois, our Health Care Bureau has received many complaints regarding unfair hospital practices relating to both uninsured and insured consumers. We also have primary authority in Illinois to oversee the practices of charitable institutions, and in this role have addressed numerous concerns regarding hospital practices. We have convened a task force comprised of health care policy, financial and legal representatives, in order to advise us on the conceptual underpinnings of this legislative initiative. And we have met with representatives of the hospital community and other interested parties. Finally, while we have filed amicus briefs in pending litigation against hospitals, we have 1

30 SPONSORED BY THE SARBANES-OXLEY ACT TASK FORCE; HMOS AND HEALTH PLANS; HOSPITALS AND HEALTH SYSTEMS; TAX AND FINANCE; IN-HOUSE COUNSEL; AND TEACHING HOSPITALS AND ACADEMIC MEDICAL CENTERS PRACTICE GROUPS Testimony from OAG: HB 5000 Anne M. Murphy, Office of the Attorney General State of Illinois, Chicago, Illinois, thus far refrained from suing hospitals for their failure to meet their charity care obligations. D. Some have asked us why we do not simply sue hospitals that we believe are not living up to their legal obligations. As the Illinois Hospital Association and Metropolitan Healthcare Council recently acknowledge in a court filing, this is a complex legal and social issue better resolved in the legislature rather than the courts. E. We are dedicated to taking a thoughtful and deliberate approach to this pressing legal and policy problem. We believe the General Assembly is the preferred venue to seek meaningful improvements in hospital charity care service delivery, because it is in this forum that a public airing and resolution of this complex issue can best be achieved. We look forward to continued discussions and negotiations with the health care community, legislators, and other interested parties. II. STATEMENT OF THE PROBLEM A. Tax-exempt hospitals are failing to demonstrate themselves as sufficiently distinguishable from for-profit businesses, both in Illinois and elsewhere around the country. Low levels of charity care. In 2003, tax-exempt hospitals in Illinois devoted less than 1% of hospital charges to the delivery of charity care. This figure tends to get lost in the rhetoric surrounding this issue. But let=s pause for a moment - - does anyone really think that this level of charity care is sufficient to support tax-exemption? Aggressive billing and collection practices, and excessive charges, against poor individuals, especially the uninsured Excessive executive compensation Complex webs of for-profit affiliates and subsidiaries, management agreements with for-profit companies, and increasingly pervasive joint ventures through for-profit corporate vehicles. An emphasis on competition through capital intensive expansion, replacement hospitals, comprehensive renovation, and construction. Over the past few years, for example, many hundreds of millions of dollars in hospital projects have been proposed for approval by the Health Facilities Planning Board, involving new hospitals, replacement hospitals, new 2

31 SPONSORED BY THE SARBANES-OXLEY ACT TASK FORCE; HMOS AND HEALTH PLANS; HOSPITALS AND HEALTH SYSTEMS; TAX AND FINANCE; IN-HOUSE COUNSEL; AND TEACHING HOSPITALS AND ACADEMIC MEDICAL CENTERS PRACTICE GROUPS Testimony from OAG: HB 5000 Anne M. Murphy, Office of the Attorney General State of Illinois, Chicago, Illinois, hospital wings, hospital-sponsored Medical Office Buildings, and comprehensive hospital renovations. B. For at least 15 years, hospitals have been on notice as to concerns from Congress, and from federal and state taxing bodies, that hospitals are delivering insufficient charity care to justify tax-exemption. In 1990, the General Accounting Office reported that not for profit hospitals with the highest operating margins tend to deliver the lowest levels of charity care. The GAO concluded that one approach to this problem would be to condition hospital tax-exemption on care provided to Medicaid patients, free care to the poor, and other efforts to improve the overall health status of under served sectors of the community. In the 1980 s and early 1990 s, Pennsylvania hospitals faced widespread challenge to local and state taxexemption. C. Representatives of the hospital industry would have you believe that this is a problem very recently brought to their attention, and that it is better to afford hospitals the opportunity to self-regulate. But here we are in 2006, more than 15 years after the issue was raised in high relief for the hospital industry, and the problem hasn=t been resolved. Self-regulation clearly hasn=t worked. And, while hospital reporting to the Attorney General=s Office under the Community Benefits Act will provide some information about hospital charity care and community benefit, the magnitude and urgency of this problem is not one that can be solved merely through the filing of reports. A clear legal standard is needed. D. Given the failure on the part of industry to solve the problem of inadequate charity care, it should be no surprise that the government spotlight is once again being placed on tax-exempt hospitals. And the difficult question on the table is this: What do tax-exempt hospitals do that distinguishes them from taxable hospitals? It is not enough to ask what hospitals do that is good for the community. Many taxable corporate businesses give back to the communities they serve, and no one is suggesting that these responsible corporate citizens should be tax-exempt. E. The Illinois constitution indicates that the General Assembly may exempt from taxation only certain property, including Aproperty used exclusively for... charitable purposes.@ The Illinois statutes also require exclusive charitable use. As recently as 2004, the Supreme Court has indicated that, in resolving the question of whether a health care facility unequivocally meets this constitutional requirement, a court must consider several factors, including whether: 3