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Delaying or Denying Care Due to Non-Payment

on Monday, 13 June 2016 in Health Law Alert: Erin E. Busch, Editor

With the recent implementation of the final 501(r) regulations, many tax-exempt hospitals have significantly revised their charity care and billing and collection policies and practices. However, one issue that may have flown under the radar for many is the delay or denial of care due to the non-payment of outstanding account balances. This practice is clearly implicated by § 501(r). 1

Under the final regulations, a hospital cannot take an extraordinary collection action (ECA) against a patient until (i) at least 120 days have passed since providing the first post-discharge bill for care and (ii) at least thirty (30) days following the provision of a compliant final written notice containing the appropriate regulatory information. There are significant implications for taking ECAs without providing the requisite timely notice and waiting the required amount of time.

Section 501(r) considers the delay or denial of medically necessary care due to a failure to pay outstanding account balances to be an ECA. However, unlike other ECAs, the nature of the situation and typical process of delaying or denying care due to nonpayment does not lend itself to waiting 120 days and/or providing a 30-day notice. In the case of a hospital that delays or denies care due to the nonpayment of outstanding account balances, the IRS provided an alternative notification process in the final regulations that satisfies the “reasonable efforts” standard. This allows hospitals to delay or deny care within the initial 120-day period.

However, in order to delay or deny care due to a failure to pay an outstanding account balance, a hospital take the following steps:


  1. Provide the patient with a written notice (i) stating that financial assistance is available and (ii) stating a deadline after which the hospital will no longer accept and process a financial assistance application for the previously provided care. That deadline can be no earlier than the later of (a) 30 days after the date of the written notice or (b) 240 days after the date of the first post-discharge billing statement for the previously provided care.
  2. The written notice described above must include (i) a financial assistance application and (ii) the hospital’s plain language summary of the financial assistance policy.
  3. The hospital must also promptly make reasonable efforts to orally notify the individual about the hospital’s financial assistance policy and about how the individual may obtain assistance with the financial assistance application process. This notice likely would take place at the time the care is denied or delayed.
  4. When and if the hospital receives a financial assistance application, it must process the application on an expedited basis.

So long as these steps are followed, a hospital may defer or deny care (with the exception of emergency care) until the patient (i) pays their past due bill or (ii) submits a completed financial assistance application before the stated deadline.
Even if a hospital elects to deny or defer care under this process, it should recognize that the expedited notice does not permit other ECAs against the patient. Furthermore, because the denial or delay of care is an ECA, the regulations require that this approach specifically be included in the hospital’s financial assistance and billing and collection policies. If a hospital delayed and/or denied care using this process but did not include the process in its policies, it would be in violation of § 501(r).

Nonetheless, even though the regulations permit hospitals to delay or deny medically necessary care following this process, hospitals should be wary of instituting such a process. The failure to follow any one of the above steps would result in a violation of § 501(r). Likewise, the hospital is at increased risk of patient complaints and negative publicity associated with this type of collection action and patient abandonment principles should be considered and followed. At the very least, hospitals that still utilize this practice as a method of collecting on accounts or terminating its treatment relationship with nonpaying patients must bring their policies and procedures into compliance with § 501(r).

Andrew D. Kloeckner


1 Instituting a broad policy that requires prepayment for medically necessary services and does not take into account whether a patient has an outstanding balance prior to requiring prepayment is not an ECA and is outside the scope of this article.




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