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Policy Innovation Profile

California Law Enhances Access to Affordable Care by Limiting Amount Hospitals Can Collect From Low-Income Uninsured and Underinsured Patients


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Snapshot

Summary

Enacted by the California State legislature, the Hospital Fair Pricing Act limits the amount all licensed, general acute-care hospitals (including nonprofit, for-profit, and public hospitals) can collect from low- and moderate-income uninsured and underinsured patients to the highest rate paid by a government program (typically Medicare). Under the law, hospitals must develop and disseminate written policies related to these discounted prices and free care, including eligibility requirements, decision-review processes, and debt-collection practices. They still send out initial bills based on full charges, leaving it to patients to apply for the discounted or free care. For those who apply, hospitals cannot initiate debt-collection activities for a period of time, and they must retroactively reimburse eligible patients who overpay based on the initial bill. The legislation has enhanced access to affordable medical care for low- and moderate-income patients who lack adequate insurance, with the vast majority of hospitals now offering discounted rates and/or free care to these individuals. Due in large part to the law, nearly 4 million individuals are now eligible for free care and another 1.3 million qualify for discounted prices. Overall, 60 percent of uninsured patients' emergency department visits qualified for free care and another 20 percent of their emergency department visits qualified for discounted rates.

Evidence Rating (What is this?)

Suggestive: The evidence consists of a post-implementation evaluation of hospital pricing practices with respect to uninsured and underinsured patients, including the proportion offering discounts and free care to those in various income groups.
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Developing Organizations

Health Access California
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Use By Other Organizations

Maryland, New Jersey, and New York have laws that require hospitals to notify patients of their financial assistance/free care policies; set financial thresholds for the provision of discounted or free care; and limit the amount charged to low-income uninsured and underinsured patients.

Date First Implemented

2008
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Patient Population

Vulnerable Populations > Impoverished; Medically uninsured; Insurance Status > Uninsuredend pp

Problem Addressed

Uninsured patients are charged more for hospital care than what government or commercial insurance pays because they do not benefit from the discounted prices that these payers negotiate into contracts with providers. While the Patient Protection and Affordable Care Act (ACA) has expanded access to affordable health insurance coverage, it does not specify eligibility criteria or minimum levels of assistance that hospitals must provide to individuals without insurance.
  • Higher prices for uninsured: Hospitals typically charge uninsured patients based on full charges, which is much more than patients covered by government or commercial plans pay because of the discounts negotiated with providers by these payers. For example, one 2004 study found that uninsured and self-pay patients paid prices that were 2.5 times higher than those paid by commercial insurers and more than three times higher than those paid by Medicare.1 Another study found that, between 2001 and 2005, California hospitals collected a higher percentage of charges from uninsured patients than from Medicare and Medicaid beneficiaries.2
  • Limited financial assistance for low-income individuals: For low-income individuals, the burden of health care costs can be high with limited financial assistance options. Uninsured and underinsured individuals can face high out-of-pocket (OOP) costs that are difficult or impossible to pay. For example, the highest annual maximum OOP cost for a plan sold on the Federal exchange in 2014 is $6,350 for an individual and $12,700 for a family, levels that are difficult for low-income individuals to afford.3 While the ACA requires nonprofit hospitals (which make up 58 percent of all general acute-care hospitals) to create financial assistance policies for the uninsured, it does not mandate specific eligibility rules or levels of assistance.4

What They Did

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Description of the Innovative Activity

Enacted by the California State legislature, the Hospital Fair Pricing Act limits the amount
licensed, general acute-care hospitals (nonprofit, for-profit, and public hospitals) can collect from low- and moderate-income uninsured and underinsured patients to the highest rate paid by a government program (typically Medicare). Under the law, hospitals must develop and disseminate written policies related to discounted prices and free care. Hospitals still send out initial bills based on full charges, leaving it to patients to apply for these discounts or free care.
For those who apply, hospitals cannot initiate debt-collection activities for a period of time, and they must retroactively reimburse eligible patients who overpay based on the initial bill. Key components of the legislation are described below:
  • Price limits for uninsured/underinsured, low-income individuals: Passed in 2006 and effective as of January 1, 2008, the Hospital Fair Pricing Act prohibits hospitals from collecting prices from certain patients that exceed the highest rate that any government program pays them, typically the Medicare rate for most hospitals. The limit applies to patients with incomes at or below 350 percent of the Federal poverty level (FPL) who do not have health insurance or who have OOP medical costs that exceed 10 percent of their annual income. Rural hospitals may use a different, more stringent income threshold (e.g., 250 percent of FPL) if necessary to maintain financial solvency. The law does not cover charges for physician services, although a companion piece of legislation (the Emergency Physician Fair Pricing law, which became effective January 1, 2011) applies to emergency department (ED) physicians.
  • Development and communication of easy-to-understand policies: The legislation requires hospitals to develop and communicate understandable, written policies related to discounted hospital care, including eligibility requirements and procedures, review processes, and debt-collection practices. Although the law does not specify which services hospitals must include in these policies, the Federal Emergency Medical Treatment and Active Labor Act requires that all hospitals participating in Medicare provide emergency care regardless of a patient's ability to pay for it. If hospitals offer free care, they must also develop and communicate written policies related to such care. For all policies (both for discounted and free care), hospitals must explain them clearly on their Web sites, include information on them in bills mailed to patients, and post them prominently on signs in EDs, admissions and billing offices, and other outpatient locations. The signs and other written information must be printed in any language spoken by 5 percent or more of the hospital's patient population. (Since passage of the aforementioned companion legislation, hospitals’ written materials must also explain that ED physicians provide discounts to eligible patients.)
  • Patient-initiated applications: Under the law, hospitals still send bills to patients based on total charges. However, the law requires hospitals to include a notice with the bill that explains the existence of financial assistance policies and how to apply. Uninsured and underinsured patients receiving such bills must apply for discounted rates or (if available) free care. To do so, they complete the hospital’s application form and submit documentation related to their income. Patients who have insurance but whose OOP medical costs exceed 10 percent of their income also submit information on their coverage and medical expenses.
  • Limits on debt collection activities: Once a patient applies for discounted rates or free care, the law prohibits hospitals from sending their accounts to collection agencies or sending information to a credit reporting organization within 5 months of the date on the first bill. The law also prohibits hospitals from placing a lien on patients’ primary residences or garnishing their wages to collect a debt during this time period.
  • Required reimbursement for overpayments: If qualified patients pay more for hospital care than the discounted rates, the law requires hospitals to reimburse them, including interest. This scenario could occur if a patient pays the initial bill and later applies for and is approved for discounted or free care.
  • Mandatory submission of policies for entry into searchable database: Under the law, hospitals must submit their written financial assistance policies, eligibility procedures, review processes, and application forms to the California Office of Statewide Health Planning and Development every other year. This office enters all submitted policies and application forms into a searchable, electronic database that consumers can access via a Web site. A separate site presents basic information about the law in an easy-to-read, question-and-answer format.
  • Administrative penalties: The State Department of Public Health Licensing and Certification monitors compliance with the law. As of April 1, 2014, the Department of Public Health will have the authority under a separate law to assess administrative penalties on hospitals for violations of the Hospital Fair Pricing Act. Base penalties range from $12,500 to $25,000 and can be adjusted up (by as much as 10 percent) or down (20 percent) depending on the frequency of violations and/or how quickly they are rectified.5

Context of the Innovation

The impetus for this legislation came from the high number and percentage of uninsured in California and the efforts of about a dozen consumer advocacy organizations under the leadership of Health Access California, with key support from other groups such as the Western Center on Law and Poverty. A coalition of consumer organizations based in Sacramento, Health Access California advocates for affordable health care for all Californians. At any given time, between 60 and 100 entities belong to the coalition, with well-known members including Consumers Union, Congress of California Seniors, Children NOW, CALPIRG (California Public Interest Research Group), California Labor Federation, Mexican-American Legal Defense and Educational Fund, SEIU (Service Employees International Union), California Immigrant Poverty Center, and the California Women’s Agenda.

The advocacy organizations spent approximately 5 years advocating for the legislation before then-Governor Arnold Schwarzenegger signed it into law in 2006. An original version of the bill set minimum dollar amounts for annual spending on free care by nonprofit hospitals. But as Health Access and other organizations began searching for patient stories to use in their advocacy work, their leaders began to realize that a bigger problem was the financial hardship faced by the uninsured because of hospital bills based on full charges. As a result, these groups began advocating for subsequent iterations of the bill that focused on requirements to provide discounted rates to the uninsured and underinsured, similar to what others pay. Around the same time, national media reports and congressional hearings focused on this issue, as did several class-action lawsuits that ultimately led to California hospital chains refunding money to uninsured patients. Eventually, these efforts persuaded California legislators to pass the bill and the governor to sign it.

Did It Work?

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Results

The legislation has enhanced access to affordable medical care for low- and moderate-income patients who lack adequate insurance, with the vast majority of hospitals now offering discounted rates and/or free care to these individuals. Due in part to the law, nearly 4 million individuals are eligible for free care and another 1.3 million qualify for discounted prices. Overall, 60 percent of uninsured patients' ED visits qualified for free care and another 20 percent of their ED visits qualified for discounted prices.5
  • Vast majority of hospitals offering discounts: By 2011 (3 years after the law took effect), 81 percent of hospitals offered discounted rates (at or below Medicare prices) to uninsured and underinsured individuals (i.e., those with high OOP medical costs) with incomes at or below 350 percent of the FPL. An even higher proportion of hospitals offered discounts to patients with lower incomes: 90 percent to those at or below 250 percent of FPL; 96 percent to those at or below 200 percent of FPL; and 99 percent to those at or below 150 percent of FPL.4
  • Vast majority also offering free care to lowest income groups: Even though the law does not require nonprofit or for-profit hospitals to provide free care, a very high proportion of them do so for the lowest income groups. As of 2011, 97 percent of hospitals offered free care to low-income uninsured and underinsured individuals with incomes at or below 100 percent of FPL. A substantial but lower proportion also offered free care to those at higher income thresholds: 91 percent offered free care to those with incomes between 101 and 150 percent of FPL; 85 percent to those between 151 and 200 percent of FPL; 29 percent to those between 201 and 250 percent of FPL; and 23 percent to those between 251 and 300 percent of FPL.4
  • Millions with access to free or discounted care: In 2010, nearly 4 million low-income patients in California (61 percent of all uninsured in the State) qualified for free care and another 1.3 million (20 percent of all uninsured) qualified for care at prices at or below Medicare rates. Overall, 60 percent of uninsured patients' ED visits qualified for free care and another 20 percent of their ED visits qualified for discounted rates.5

Evidence Rating (What is this?)

Suggestive: The evidence consists of a post-implementation evaluation of hospital pricing practices with respect to uninsured and underinsured patients, including the proportion offering discounts and free care to those in various income groups.

How They Did It

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Planning and Development Process

Key steps included the following:
  • Collecting patient stories: Through contacts with consumer organizations and searches of courthouse records, Health Access staff collected personal stories from patients who had suffered financial trauma (such as being forced to declare bankruptcy) as a result of large hospital bills. Health Access shared these stories with members of the news media and the California legislature, and many of the patients testified in policy committees and were featured news stories.
  • Conducting "secret shopper" survey: Health Access conducted a secret-shopper phone survey in which people posing as potential patients called hospitals to ask about prices for a hernia operation. Later, the California HealthCare Foundation funded a related "mystery shopper" survey with similar results. This led Health Access leaders to conclude that most hospitals were not following California Hospital Association voluntary guidelines on discounted rates for care. The association had developed these guidelines as an alternative to the proposed legislation.
  • Assessing early compliance after passage: Health Access, the Western Center on Law and Poverty, and other consumer coalition members banded together to assess compliance with the law shortly after it became effective. Of the 66 hospitals visited in July 2008, 43 percent were unable or unwilling to provide information about their discount/free care policies.4
  • Working to improve compliance: Based on the results of the survey, Health Access developed a working relationship with the California Hospital Association with the goal of improving compliance. Under this arrangement, Health Access contacted the association each time it found out about a hospital not implementing the law's provisions correctly. The association then contacted the hospital to rectify the situation. Health Access staff also worked one on one with hospital administrators, assisting in the development of policies and procedures to comply with the law.
  • Creating Web site: As noted earlier, Health Access created a Web site (www.hospitalbillhelp.org) to assist consumers in applying for discounted prices or free care from hospitals.

Resources Used and Skills Needed

  • Staffing: Most of Health Access's 8 to 10 employees during this time worked on this legislation to varying degrees. Major activities included the upfront lobbying efforts and implementation monitoring and support. During peak periods, the legislation took up half of the lead staff person’s time and a third of the executive director's time. Now that it is implemented, ongoing monitoring is only a few hours a month for one staffer on this and related issues.
  • Costs: Health Access has estimated that it spent between $400,000 and $600,000 on activities related to this legislation, including advocacy and implementation monitoring and support.
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Funding Sources

California HealthCare Foundation; Community Catalyst
Health Access used a combination of its general operating funds and grants to cover the costs of activities related to this legislation. After passage of the legislation, some funding was dedicated to implementation and consumer education. Boston-based Community Catalyst, a national consumer advocacy organization focused on improving access to affordable health care services, provided Health Access with a grant of around $250,000 to help with implementation. The California HealthCare Foundation provided a grant of around $25,000 to help set up the HospitalBillHelp Web site and related materials.end fs

Tools and Other Resources

California’s Office of Statewide Health Planning and Development, Healthcare Information Division, created a Web site to inform consumers and providers about this legislation and the related law requiring ED physicians to provide discounts. The site includes information in a question-and-answer format, available at: http://www.oshpd.ca.gov/HID/Products/Hospitals/FairPricing/FAQHospRptng.html.

As noted, the office also created a separate, searchable Web site where consumers can access hospitals’ written policies and applications for free care and discounted rates, available at: http://syfphr.oshpd.ca.gov/.

The California Health and Safety Code includes sections pertinent to the Hospital Fair Pricing Act and the related Emergency Physician Fair Pricing law, available at: http://www.oshpd.ca.gov/hid/products/hospitals/fairpricing/HSC127400_CharityCarePoliciesSB350.pdf (If you don't have the software to open this PDF, download free Adobe Acrobat ReaderĀ® software External Web Site Policy.).

Health Access' Web site helps consumers navigate the application process for free or discounted care and is available at: www.hospitalbillhelp.org/.

Adoption Considerations

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Getting Started with This Innovation

  • Collect and share patient stories: To build support for this type of legislation, find and share stories that illustrate the financial hardship that low- and moderate-income patients endure as a result of medical debt. Court records, legal and financial advice agencies, and other consumer organizations are often good sources for such stories.
  • Create Web sites for consumers: Web sites can help explain the step-by-step process of applying for free or discounted care and can provide comparative information on hospitals' discount and free care polices. These tools are important for consumers, since under the California law they must initiate the application process.

Sustaining This Innovation

  • Monitor hospital compliance: Keeping tabs on hospital compliance with the law should be an ongoing activity for consumer advocacy organizations, although the amount of time needed for this effort should diminish over time as hospital staff become comfortable with the law and the policies adopted by their hospitals in response to it.
  • Engage State hospital association: The State hospital association represents a logical partner for consumer groups as they try to support hospital administrators in interpreting the law and developing policies to comply with it.
  • Analyze impact of law after ACA: Consumer advocacy organizations should monitor the impact of ACA on this type of legislation, focusing in particular on the remaining uninsured and patients with high deductibles and OOP maximums that might cause them to spend more than 10 percent of their income on medical care.

Use By Other Organizations

Maryland, New Jersey, and New York have laws that require hospitals to notify patients of their financial assistance/free care policies; set financial thresholds for the provision of discounted or free care; and limit the amount charged to low-income uninsured and underinsured patients.

More Information

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Contact the Innovator

Anthony Wright
Executive Director
Health Access California
1127 11th Street, Suite 234
Sacramento, CA 95814
(916) 442-2308
E-mail: awright@health-access.org

Innovator Disclosures

Mr. Wright reported having no financial interests or business/professional affiliations relevant to the work described in the profile other than the funders listed in the Funding Sources section.

References/Related Articles

Melnick G, Fonkych K. Fair pricing law prompts most California hospitals to adopt polices to protect uninsured patients from high charges. Health Aff. 2013;(32)6:1101-8. [PubMed]

Footnotes

1 Anderson G. From ‘soak the rich’ to ‘soak the poor’: recent trends in hospital pricing. Health Aff. 2007;26(3):780-9. [PubMed]
2 Melnick GA and Fonkych K.  Hospital Pricing and the Uninsured: Do the Uninsured Pay Higher Prices? Health Aff. 2008;27(2): W116-22. [PubMed]
3 Healthcare.gov. How do I choose Marketplace insurance? Available at: https://www.healthcare.gov/how-do-i-choose-marketplace-insurance/.
4 Melnick G, Fonkych K. Fair pricing law prompts most California hospitals to adopt polices to protect uninsured patients from high charges. Health Aff. 2013;32(6):1101-8. [PubMed]
5 California Department of Public Health. California Code of Regulations. Chapter 1, Article 10. Hospital Administrative Penalties, December 4, 2013. Available at: http://www.cdph.ca.gov/services/DPOPP/regs/Documents/DPH09012FINALApprovedRegText12-4-13.pdf.
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Disclaimer: The inclusion of an innovation in the Innovations Exchange does not constitute or imply an endorsement by the U.S. Department of Health and Human Services, the Agency for Healthcare Research and Quality, or Westat of the innovation or of the submitter or developer of the innovation. Read more.

Original publication: May 21, 2014.
Original publication indicates the date the profile was first posted to the Innovations Exchange.

Last updated: May 21, 2014.
Last updated indicates the date the most recent changes to the profile were posted to the Innovations Exchange.

Back Story
After having a heart attack, Bob spent 2 days in the hospital recovering. "While the care he received was excellent, our experience with the billing department was not," recalls Bob's wife, Anne. Because Bob was uninsured, the hospital sent him a bill for $60,000. It was based on the hospital's...

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Anthony Wright
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