October 3, 2006
The Honorable Charles Grassley
Chairman, Senate Committee on Finance
United States Senate
Washington, DC 20510
Dear Mr. Chairman:
The Healthcare Financial Management Association (HFMA) is pleased to submit comments for the record of the September 13, 2006, hearing, "Taking the Pulse of Charitable Care and Community Benefits at Nonprofit Hospitals." We hope you and the Finance Committee staff will find the comments and resources the Association offers useful in developing the discussion paper on options for improving the reporting of community benefit by tax-exempt hospitals.
We applaud your efforts to improve the accuracy and comparability in reporting this important financial information by not-for-profit healthcare providers. HFMA has long worked toward that goal for disclosure for all types of financial reporting for healthcare providers.
The Role of Charity Care and Community Benefit
First, we wish to clarify that HFMA believes that while the provision of charity care is an important attribute of community benefit, it is one of several important attributes. Failure to recognize the broad basis of community benefit could lead to a specific trade-off, which would undermine important and cumulative community benefits that tax-exempt healthcare institutions deliver.
We concur with Sen. Baucus' observation that the greater issue is that the number of uninsured Americans is growing, and that if all Americans had adequate heath insurance; the context for this discussion would be much different. The problem of ensuring sufficient care for uninsured patients is far greater than healthcare providers can resolve alone. Even if each provider in the country devoted every exempt dollar they get to charity care, there would still be inadequate funds to care for the uninsured, and furthermore, vital community services, ranging from trauma centers to boarder baby programs, would be compromised.
Reporting Community Benefit
HFMA believes healthcare providers should identify, measure, and prominently disclose all the attributes of their organizations that warrant tax-exempt status. It is important that all stakeholders, from government officials to members of the provider's community, understand all the reasons why an organization qualifies for tax-exemption and the progress that is being made toward achieving its mission of protecting and improving public health.
This can be accomplished effectively only with appropriate community benefit reporting standards that promote comparability and are still scaleable enough to accommodate the wide variation in provider size and resources that characterize the nation's exempt healthcare providers. To that end, we support the Catholic Health Association's guidelines for community benefit reporting, and have worked with them to ensure that our guidance on charity care reporting and theirs are consistent.
Reporting Uncompensated Care
HFMA's Principles and Practices (P&P) Board is about to complete revisions to Statement No. 15, Valuation and Financial Statement Presentation of Charity Service and Bad Debts by Institutional Healthcare Providers. We sent the exposure draft of the revisions to your office when it was released for public comment in March 2006; in November, the P&P Board will seek approval from HFMA's Board to publish a final revised statement.
The statement is particularly relevant to the discussion of how much charity care tax-exempt hospitals provide; however, all types of healthcare providers need to accurately and consistently report bad debts and charity service. The guidance is applicable to all institutional providers, including skilled nursing facilities, subacute care facilities, multispecialty clinics, freestanding ambulatory centers, and continuing care retirement communities.
Statement 15 interprets and clarifies the implementation of the American Institute of Certified Public Accountants Audit and Accounting Guide, Health Care Organizations. The revisions to Statement 15 seek to improve clarity in accounting practices and address questions about assessing the exempt hospitals' charity practices. It also incorporates principles of the PATIENT FRIENDLY BILLING® project, a national, cross-industry initiative that HFMA established in 2000 to improve hospitals' financial communications with patients.
Key points of Statement 15 include:
- Policies on charity care and financial assistance discounts should be easy tounderstand, uniformly applied, easily accessible, and flexible enough to meet the vast diversity of patient circumstances, including the potential for medical indigence. No single set of financial assistance criteria is universally applicable; each provider must use criteria that fit the organization's mission, community needs, and resources.
- Charity care determinations should be made as early as practical, but can be made at any time during the revenue cycle as eligibility information is gathered.
A noteworthy revision to Statement 15, which has important implications to charity care reporting as well as collection activities concerning unpaid patient bills, addresses how to record bad debt. The P&P Board states that revenue for patient services should be recognized only when it meets GAAP's revenue recognition criteria:
- Pervasive evidence exists of a payment agreement between the provider and the patient
- Services have been rendered
- The price is fixed or determinable, and
- Collectibility is reasonably assured
When patients do not meet the collectibility criteria, those amounts should not be recognized as revenue at the time of service. In these instances, revenue should be recognized when collections are reasonably assured and for an amount that is determinable.
Cost vs. Charges in Quantifying Charity Care
Over the past decade, an important distinction has emerged in the reporting of charity care. In the past, charges were the prevalent basis for quantifying charity care. In the revisions to Statement 15, however, the P&P Board emphasizes that costs, not charges, should be the basis for reporting the amount of charity care provided, accompanied by sufficient information to provide a clear context for the numbers reported. Reporting based on costs is more reliably measured and provides more consistency when comparing amounts of charity care from different providers and the amounts of resources consumed in providing charity care.
Because this distinction is not yet universally held, HFMA urges the Committee and all users of financial information to take care when comparing charity care statistics that the same basis of measurement is used before drawing conclusions.
Patient Financial Communications
In 2000, HFMA launched the Patient Friendly Billing project, a cross-disciplinary, nationwide initiative to make patient financial communications clear, concise, correct, and caring. Over the years, work groups have addressed topics ranging from patient glossaries to financial assistance policies to consumerism.
HFMA and other participants of the Patient Friendly Billing project believe that all financial communications, from advising patients of available financial assistance to the practices of third party collection agencies, should be based on the following ideals:
- The needs of patients and family members should be paramount when designing administrative processes and communications.
- Information gathering should be coordinated with other providers and insurers, and this collection process should be done efficiently, privately, and with as little duplication as possible.
- Whenever possible, communication of financial information should not occur during the medical encounter.
- The average reader should easily understand the language and format of financial communications.
- Continuous improvement of the billing process should be made by implementing better practices and incorporating feedback from patients and consumers.
During the July 13 hearing, witnesses were asked specifically about how information about financial assistance and charity care policies should be communicated to patients. The principles listed above and the February 2005 Patient Friendly Billing project report on how hospitals can review and improve their financial assistance policies, demonstrate HFMA's agreement that the availability of financial assistance and charity care policy information should be broadly communicated. The report addresses ways hospitals can meet that priority, and was accompanied by an extensive collection of resources, including examples of patient communication brochures.
HFMA will continue its commitment to developing and promoting ethical, high-quality healthcare finance practices that allow healthcare financial managers to both support patients' needs and protect the financial and operational well being of healthcare organizations.
HFMA appreciates your recognition that healthcare needs-and the solutions to those needs-differ greatly by community, and therefore solutions, whether legislated or voluntary, must be flexible to ensure the best health outcomes for their communities.
To balance this flexibility and ensure accountability, comparable, scaleable reporting standards will greatly help tax-exempt hospitals accurately document and report the entire range of the community benefits they provide. These comprehensive reports should be communicated regularly and clearly to the public. HFMA believes that the standards put forth in Statement 15 for reporting uncompensated care are an important component of these standards, as are the guidelines developed by the Catholic Health Association.
HFMA hopes that these comments and recommendations are useful as the Finance Committee pursues the best interests of patients, taxpayers, and the nation's healthcare system. We are at your service to help your Committee gain a balanced perspective on this complex issue. If you have additional questions, you may reach me, or Richard Gundling, Vice President of HFMA's Washington, DC, office, at (202) 296-2920. The Association and I look forward to working with you.
Richard L. Clarke, DHA, FHFMA
President and Chief Executive Officer
Healthcare Financial Management Association
HFMA is the nation's leading membership organization for more than 35,000 healthcare financial management professionals. Our members are widely diverse, employed by hospitals, integrated delivery systems, managed care organizations, ambulatory and long-term care facilities, physician practices, accounting and consulting firms, and insurance companies. Members' positions include chief executive officer, chief financial officer, controller, patient accounts manager, accountant, and consultant.
HFMA is a nonpartisan professional practice organization. As part of its education, information, and professional development services, HFMA develops and promotes ethical, high-quality healthcare finance practices. HFMA works with a broad cross-section of stakeholders to improve the healthcare industry by identifying and bridging gaps in knowledge, best practices, and standards.
Attachment: HFMA Resources on Charity Care and Community Benefits
Publication Date: Tuesday, October 03, 2006