You changed the batteries in your flashlights and smoke detectors, but did you revise your charity care and discount payment policies prior to the stroke of midnight on December 31, 2014? A new law, SB1276, took effect in California on January 1, 2015, and it means that many California hospitals[1] and emergency physicians[2] will need to revise their charity care and discount payment policies (collectively “charity care program policies”)[3] to comply.

The law imposes duties upon hospitals, physicians, and collection agencies regarding the billing and collection of payment for medical services provided to a “financially qualified patient.”[4] A “financially qualified patient”[5] is a patient who is both of the following:

(1)       A patient who is a self-pay patient or a patient with high medical costs.

(2)       A patient who has a family income that does not exceed 350 percent of the federal poverty level[6]

“High medical costs” are defined in the statute as annual out-of-pocket medical expenses that exceed 10 percent of the patient’s family income (or a lower level established by the hospital or emergency physician’s charity care program policies).[7] The law also requires that any affiliate, subsidiary, or external collection agency that collects receivables on behalf of a hospital or emergency physician must agree to adhere to the hospital or emergency physician’s standards and scope of practices and comply with the hospital or emergency physician’s definition and application of a reasonable payment plan.[8]

The original “Hospital Fair Pricing Policies” legislation, AB 774, was enacted in 2006, after several years of debate between consumer advocates and hospitals. It requires hospitals to establish charity care program policies and provide patients with notices about those policies. It also limits hospital charges to uninsured patients with family incomes below 350 percent of the FPL to no more than the hospital could expect to receive for the same services from Medicare or Medi-Cal (California’s Medicaid program) or other government-sponsored benefits. It requires hospitals to screen patients for government-subsidized programs for which they may qualify and established practices for medical bill collection, including that a hospital or collection agent may not take adverse action against a consumer for at least 150 days after the initial bill.

In 2010, AB 1503 imposed similar, but not identical, fair pricing obligations upon emergency physicians.It also required hospitals to include a statement in its notice patients that the emergency physician is also required by law to provide discounts to uninsured patients or patients with high medical costs who are at or below 350 percent of the federal poverty level. It also specified billing and collection procedures to be followed by the emergency physician, its assignee, collection agency, or billing service.

With the enactment of the Patient Protection and Affordable Care Act (“ACA”), many of the previously uninsured became eligible for Medi-Cal or subsidized insurance purchased through Covered California, California’s health benefit exchange. Under the ACA, however, insurance plans with the lowest premiums also have the highest out-of-pocket costs. Thus, the Western Center on Law and Poverty (“WCLP”), the sponsor of SB 1276, observed that even though a patient may have third-party coverage, he or she may still be unable to pay or negotiate a payment plan on the balance due to the hospital or emergency physician and still have enough money left to survive. The WCLP noted that existing law provided no guidance to determine a reasonable payment plan for a financially qualified patient, and it had received reports that collection agencies were demanding unaffordable monthly payments.

SB1276 made the following changes:

1. Revised the definition of “high medical costs,” thereby allowing a financially qualified patient to become eligible for a hospital’s charity care program, regardless of whether the patient previously received a discount from the hospital as a result of third-party coverage, but the definition of “high medical costs” relating to emergency physicians was not changed.
2. Defined a “reasonable payment formula” for purposes of determining the monthly payment obligation of a financially qualified patient under the hospital’s or emergency physician’s charity care program.
3. Defined a “reasonable payment formula” as not more than 10 percent of a financially qualified patient’s family income for a month, excluding deductions for essential living expenses.
4. Defined, for purposes of determining a reasonable payment formula, “essential living expenses” as expenses for any of the following: rent or house payment and maintenance, food and household supplies, utilities and telephone, clothing, medical and dental payments, insurance, school or child care, child or spousal support, transportation and auto expenses, including insurance, gas, and repairs, installment payments, laundry and cleaning, and other extraordinary expenses.
5. Required that an affiliate, subsidiary, or external collection agency of a hospital or emergency physician that collects debt must comply with the hospital’s definition and application of a reasonable payment formula.
6. Revised the notice that hospitals and emergency physicians are required to provide patients under their charity care programs to inform patients that they may be eligible for various public insurance programs by including references to the California Health Benefit Exchange (Covered California), and other state- or county-funded health coverage programs.
7. Required hospitals and emergency physicians, in addition to the existing notice requirements under financial assistance programs, to also provide patients with a referral to a local consumer assistance center housed at legal services offices.
8. Specified that if a patient applies, or has a pending application, for another health coverage program at the same time that he or she applies for a hospital’s charity care program, neither application precludes eligibility for the other program.
9. Requires a hospital to negotiate the terms of a payment plan with the patient and take into consideration the patient’s family income and essential living expenses.
10. Provides a procedure for an emergency physician to use when establishing a new extended payment plan after a financially qualified patient’s default on a previous extended payment plan.
11. Permits, for purposes of determining the reasonable payment formula, the emergency physician or his or her assignee to rely on the determination of family income and essential living expenses made by the hospital at which emergency care was provided, and permits the emergency physician at his or her discretion, to accept self-attestation of family income and essential living expenses by a patient or a patient’s legal representative.

The law requires California hospitals to file updated charity care program policies with the Office of Statewide Health Planning and Development (“OSHPD”) biennially on January 1, or when a significant change is made to the policies.[9] OSHPD is required to collect from each hospital a copy of its charity care policy, discount payment policy, eligibility procedures for those policies, review process, and the application form.[10] Copies of all filed hospital policies are available on the OSHPD website.[11] Submitted information is reviewed by OSHPD to ensure compliance with reporting requirements. OSHPD has indicated that its audit staff will contact hospitals on issues of possible non-compliance to obtain clarification and/or revised information.

Compliance with the law is a condition of licensure for general acute care hospitals in California, and noncompliance may be the basis for the imposition of penalties by the California Department of Public Health (“CDPH”).[12] When deciding whether to impose a penalty, the CDPH will consider the extent of noncompliance, the amount of financial harm to the patient, whether the violation was willful, and the willingness of the hospital to take corrective action.[13] Compliance with the law is not a condition of licensure for physicians and surgeons, however.[14] Nonetheless, if a hospital or emergency physician collects payments in excess of the amount due under the law, the hospital or emergency physician must repay the excess plus interest.[15]

There are many open questions with respect to SB 1276. For example, the law does not clearly specify whether hospitals must provide charity care or payment discounts for non-emergency services, such as elective surgeries or long-term care. OSHPD directs each hospital to make its own determination as to the scope of covered services under its charity and discount policies. Therefore, it is important for hospitals and emergency physicians to consult with their legal counsel before revising charity care program policies that will be available to the public on the OSHPD website.

SB 1276 is just one of the many new laws and regulations affecting health care providers that became effective on January 1. Therefore, one of the resolutions health care providers should make for 2015 is a renewed focus on regulatory compliance.

[1] The term “hospital” means a facility that is required to be licensed under Health & Safety Code § 1250 (a) [general acute care hospitals], (b) [acute psychiatric hospitals], or (f) [special hospitals that provide inpatient or outpatient care in dentistry or maternity] of Section 1250, except a facility operated by the State Department of State Hospitals or the Department of Corrections and Rehabilitation. Health & Safety Code §§ 127400(d) and 127450(f).

[2] Emergency physician” means a physician and surgeon licensed pursuant to Chapter 5 (commencing with Section 2000) of Division 2 of the Business and Professions Code who is credentialed by a hospital and either employed or contracted by the hospital to provide emergency medical services in the emergency department of the hospital, except that an “emergency physician” shall not include a physician specialist who is called into the emergency department of a hospital or who is on staff or has privileges at the hospital outside of the emergency department. Health & Safety Code § 127450(c).

[3]The term “charity care” is used to describe the situation where the patient is not expected to pay any amount for provided services, based on the hospital’s determination that the patient is unable to pay for that care. This may also be referred to as “full charity care” or “free hospital care.” The term “discount payment plan” describes the situation where the hospital has determined that the patient does not qualify for completely free care but is eligible for a discount and is expected to pay only a part of the bill. See, OSHPD Frequently Asked Question PQ3 available at: http://www.oshpd.ca.gov/HID/Products/Hospitals/FairPricing/FAQPublic.html#PQ3

[4]Health & Safety Code §§ 127405(a)(1) and 127454(b)(4).

[5]Health & Safety Code §§127400 (c) and 127450(e).

[6] Health & Safety Code §§ 127400(g) and 127450(i).

[7]Health & Safety Code §§ 127400(g) and 127450(i).

[8]Health & Safety Code §§ 127425(b) and 127455(b).

[9]Health & Safety Code § 127435.

[10] Id.

[11]The SyFPHR website is available at: https://syfphr.oshpd.ca.gov/Logon.aspx

[12]Health & Safety Code § 127401, 22 CCR § 70959.

[13] 22 CCR § 70959.

[14]Health & Safety Code § 127451.

[15]Health & Safety Code § 127440 and 127458.