'Presumptive eligibility' algorithms let hospitals increase amount of charity care, but does it benefit patients?
September 25, 2016 12:00 AM
UPMC Passavant Hospital.
By Sean D. Hamill / Pittsburgh Post-Gazette
Quietly over the last decade, a growing number of hospitals in Pennsylvania and across the country have been redefining how they award much, if not most, of their charity care.
Typically called by the arcane name of “presumptive eligibility,” this new way of identifying people eligible for charity care uses credit-score-like technology — plus the addition of demographic and even social media data — to evaluate whether people qualify for free care at a hospital, instead of having their bills labeled “bad debt” and possibly sent to a collection agency.
How presumptive eligibility turns bad debt into charity care (Click image for larger version)
Among the health systems in Pennsylvania using the tool are Allegheny Health Network, St. Clair Hospital in Mt. Lebanon and UPMC, as well as Wellspan Health and Geisinger Health System in central Pennsylvania, and several dozen others.
So many hospitals in Pennsylvania — particularly large health systems — are using presumptive eligibility now that it appears to be a major reason why the average percentage of charity care that hospitals provide in the state has nearly doubled in the last eight years, according to data from the Pennsylvania Health Care Cost Containment Council (PHC4), a state agency.
What has patient advocates upset about the way this new technology is being used is that many hospitals using presumptive eligibility — including UPMC, Allegheny Health Network and St. Clair Hospital — don’t tell patients they are qualified for charity care if they are approved this way. Instead, they leave patients in the dark about their financial situation. Though the hospital takes credit for providing charity care, the patients leave the hospital thinking they still owe money.
“There really shouldn’t be a secret financial assistance policy for some patients,” said Julie Trocchio, senior director of community benefit at the Catholic Health Association, and an expert on charity care.
But hospitals praise the new technological tool because it accomplishes a long-sought goal of finding a way to qualify people for charity care who would not, or could not, fill out a traditional charity care application.
“The industry has always thought that it is people who are uninsured who need financial assistance. But there are always some people who won’t complete the [charity care] form. This helps us get them assistance,” said Rich Chesnos, the chief financial officer for St. Clair Hospital, which began using a presumptive eligibility model in 2010.
Why don’t patients cooperate with hospitals and fill out the charity care applications if they need financial help?
Advocates and hospitals say the individual reasons are as numerous as there are uninsured patients, from illiteracy, to a language barrier, or they just don’t know it exists.
Barbara Tapscott, vice president of revenue management at Geisinger Health System, which has five hospitals in central and eastern Pennsylvania, said: “Some people are just plain embarrassed and don’t apply. Or they may think on their own, ‘That doesn’t apply to me.’ ”
But the biggest reason, many interviewed for this series said, is something the hospitals themselves have heard over and over again.
“They fear they’re going to have to give up a state benefit” from some other program that they have already qualified for, such as public housing or food stamps, said Liz Allen, the former CFO for Allegheny Health Network, who retired late last year.
Hospitals say one of the benefits to them of presumptive eligibility is that it allows them to focus their collection efforts on people who do have assets but have not paid their bill. That potentially provides them with more revenue at a time when many hospital budgets are strained.
PARO Decision Support, a Miami-based company that is the industry leader, said it has sold its presumptive eligibility tool to 350 hospitals nationally. The Advisory Board Co. of Washington, D.C., said it has sold its tool to more than 200 hospitals. At least another dozen companies sell similar tools, including Experian, which provided it to St. Clair Hospital.
The number of hospitals using presumptive eligibility is sure to grow dramatically in coming years, consultants and the companies said. That is because of a new Affordable Care Act-related regulation that went into effect this year.
The regulation was enacted by the IRS and is known as “501r.” It includes a provision that requires hospitals, starting in 2016, to “make reasonable efforts to determine whether an individual is eligible for assistance under the hospital’s financial assistance policy before engaging in extraordinary collections against the individual.”
“Extraordinary collections” are efforts to recover the money patients owe, such as sending the debt to a collection agency, reporting it to a credit bureau, suing in court, placing liens against the person’s home, and other actions.
“We’re seeing a market interest in demand and interest in this across the country. And not just because of 501r,” said Jim Lazarus, managing director of strategy and innovation at The Advisory Board. “But also because of the ‘patient centered revenue cycle’ that hospitals are adopting. As that happened hospitals realized they needed intelligence like this.”
It also allows hospitals to increase what they classify as charity care without actually providing more care to the poor, but, rather, reclassifying accounts that would have been considered bad debt.
“We were providing the care, but it was just getting written off as bad debt,” said Ms. Allen, who was Allegheny Health Network’s chief financial officer when the network began using presumptive eligibility in 2014.
Some hospitals had long used the phrase “presumptive eligibility” to describe the way they would award charity care to patients without making them fill out the application. Instead, if a patient was already approved for some other means-tested government program that had a similar financial threshold, like food stamps or public housing, they would simply okay them for charity care, too.
Many hospitals continue to use such programs, including the University of Pennsylvania Hospital. The difference is those hospitals tell the patient that they have been approved for charity care.
This new kind of presumptive eligibility started to be offered to hospitals about a decade ago.
Mark Rukavina, an expert on medical debt who consults for hospitals, said some of the early versions of the presumptive eligibility tools were the result of a series of lawsuits filed against non-profit hospitals in 2004 across the country — including one filed against UPMC. The lawsuits alleged the hospitals were not doing enough to justify their tax-exempt status.
The lawsuits — begun by Richard Scruggs, the attorney who filed the lawsuit against the big tobacco companies that won states billions of dollars in damages — contended that hospitals were over-charging patients, were overly aggressive in pursuing collections and were not providing enough charity care.
Jeff Suher, the Monroeville attorney who filed the lawsuit against UPMC, said, like the other lawsuits elsewhere, the one against UPMC “went nowhere.”
Still, they led to concerns by hospitals.
Mr. Lazarus of the Advisory Board said several credit score companies responded by creating presumptive eligibility algorithms for hospitals that were similar to ones they created for other types of business.
“It is financial profiling patients, something other businesses have been doing for 15 to 20 years, such as banks, auto dealers, retailers,” he said.
Mr. Rukavina said that while the public might understand a for-profit car dealer or bank suing someone who defaulted on a loan, hospitals have other considerations.
Presumptive eligibility was designed “to save themselves from the embarrassing story of taking action against someone with limited means,” he said.
One of the earliest adopters of the new financial tool was UPMC.
It began using presumptive eligibility at least as far back as 2009, UPMC spokeswoman Susan Manko said in an email response to questions.
The financial tool is “part of our whole assessment process to assist patients and their families. … The PARO score identifies patients who are eligible for charity care, ensuring we reduce or eliminate the financial burden for those individuals,” Ms. Manko wrote.
In 2007, at UPMC’s 11 hospitals, on average, 35.8 percent of its uncompensated care was charity care, and 64.2 percent was bad debt. By 2008, that jumped to 46.5 percent charity care and 53.5 percent bad debt. By 2014, UPMC had more than flipped the ratio from 2007, to 74.9 percent charity care and just 25.1 percent bad debt.
That switch more than tripled the percentage of charity care that UPMC hospitals reported to the state, jumping from .8 percent of net patient revenue, system-wide, in 2007, to 2.52 percent in 2014.
Ms. Manko said UPMC began using presumptive eligibility because “there are many patients who do not follow up on or return applications or necessary documentation. … Rather than using money and resources to chase after them and pursue collection, we first assess their ability to pay using presumptive eligibility; if they qualify, we immediately write-off the account and never initiate any collection efforts.”
St. Clair Hospital, a non-profit hospital, generated a $25 million surplus on $296 million in revenue in 2014, according to its IRS 990 tax form. But for years it provided among the least amount of charity care of any hospital in the region, far less than 1 percent.
In 2010, though, it began to use “Passport Health,” a presumptive eligibility tool provided by Experian.
Charity care spending at the hospital jumped from just $620,000 or .3 percent in 2009 to $3.9 million or 1.63 percent in 2014. (These figures were provided by St. Clair, which says that it has been incorrectly reporting its data to PHC4 for the last decade. Figures from PHC4 in the Pittsburgh Post-Gazette’s database with this story are different for St. Clair.)
Like UPMC, it also saw the ratio of charity care to bad debt change dramatically. It rose steadily from 13.4 percent charity care and 86.6 percent bad debt in 2009, to 48.9 percent charity care and 51.1 percent bad debt in 2014.
“We didn’t alter our policies just because we didn’t provide enough charity care,” said Mr. Chesnos, St. Clair’s chief financial officer, “but because we wanted to be at the forefront of best practices.”
Allegheny Health Network says there are two basic reasons why it began using PARO’s presumptive eligibility tool in the later half of 2014.
“It’s a safety net to ensure that patients are screened prior to any collection actions and as a way to help AHN comply with the new [IRS 501r] rules,” said AHN’s spokesman Dan Laurent in an email answer to questions.
Because it only started using presumptive eligibility in 2014, there is no state data available that would demonstrate its impact on the hospital system. (AHN switched to a calendar year reporting in 2014, so it only reported data from the last six months of 2013 for the state’s 2014 fiscal year.) But Mr. Laurent said internal, calendar year 2014 data from AHN shows the same dramatic impact on charity care that other hospitals have seen.
He said Allegheny General Hospital jumped from just .23 percent charity care in calendar year 2013 to 1.41 percent in calendar year 2014; West Penn Hospital went from .04 percent to 1.52 percent; and Forbes Regional Hospital went from .19 percent to 1.24 percent.
“If a patient meets that [presumptive eligibility] scoring we can give it without making them go through that laborious process” to get traditional charity care, said Ms. Allen, the former CFO. “That’s probably the biggest reason for the switch” from bad debt to charity care.
Why not tell the patient?
Not many people outside of the health care industry know about presumptive eligibility.
That is, in part, because many of the hospitals that use it — like St. Clair, AHN and UPMC — don’t tell the patient they qualified for charity care using the new method. The hospital simply reclassifies an unpaid “bad debt” bill to charity care and the patient just stops getting phone calls or paper bills in the mail seeking payment.
So, while the existing bill is taken care of as charity care at some hospitals, patients qualified under presumptive eligibility are not told they can come back to receive more free care for the next six months or a year until having to re-qualify. Advocates say that being told you can come back for more free care for the next six months or so is an important advantage that traditional charity care patients typically receive that encourages them to get follow-up care.
Charity care experts and patient advocates say that if hospitals are not informing the patients that they qualified for charity care under presumptive eligibility, it may be a violation of the same federal regulation — 501r — that they were hoping to adhere to when they started using the new tool.
Ms. Nelson said part of the letter and spirit of the ACA and the 501r regulation is to get hospitals to be more transparent and not just provide more charity care, but get patients to come back for regular hospital care.
Heather Klusaritz, senior fellow at the University of Pennsylvania’s Center for Public Health Initiatives, said it is particularly odd to be a growing tactic in the Affordable Care Act era, because a big aim of the act is “trying to drive down readmission rates and provide complete care; this does not do that.”
“What rubs me the wrong way about this is that it’s not in the true nature of how we conceptualize charity care,” she said. “The goal of charity care is providing the comprehensive care that a patient needs, not just a single point-in-time encounter.”
Hospitals counter, though, that they believe federal regulations do allow them to qualify someone for charity care without telling them.
“Treasury [IRS] rules relating to presumptive charity qualification do not require us to notify the patient of the free care decision as long as the discount is at our most generous level,” said Allegheny Health Network’s Mr. Laurent in an emailed answer to questions.
Ms. Manko, UPMC’s spokeswoman, gave a similar explanation: “We do whatever the law requires.”
She later added that “Until further clarification by CMS regarding the use of presumptive charity, it has been the prevailing opinion of CMS auditors that presumptive charity should not be used to create an ongoing state of charity care. … Also, UPMC wants to avoid the cost and burden of trying to notify patients that have not engaged in the final assistance process.”
Both the federal — Centers for Medicare and Medicaid Services — and state — PHC4 — entities that collect data on charity care, were unaware that hospitals were reporting charity care to them using this new form of presumptive eligibility.
Joe Martin, PHC4’s executive director, said that his agency was unaware of this but "we'll look at it."
CMS has no regulations concerning presumptive eligibility, but said in a statement to the Post-Gazette: “CMS does not dictate a provider’s charity care policy, but whatever that policy is, it should be applied universally to all patients.”
But not all hospitals avoid telling the patients that they were qualified for charity care with presumptive eligibility.
Geisinger has been using the Visiquate Presumptive Charity system for six years and, like UPMC and other hospitals, greatly increased the percentage of charity care compared to bad debt. But it tells its patients when they’re qualified.
Ms. Tapscott said the reason seemed obvious to Geisinger: “I’d imagine it might be very stressful for someone who is ill to be burdened by unpaid bills. Their getting charity care can help relieve that stress.”
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