Schwarzenegger Vetoes Charity Care Bill – Calls for Hospitals to Implement Hospital Association’s Voluntary Charity Care Guidelines

By John P. Krave, Gerry Hinkley, and Jill H. Gordon
[September 2004]

Another chapter in the controversy over nonprofit hospitals’ charity care responsibilities unfolded on Sept. 22, 2004, as Governor Schwarzenegger vetoed Senate Bill 379 (“SB 379”), which would have required nonprofit hospitals to comply with specific charity care and debt collection practices. The legislature passed SB 379 in the wake of dozens of class-action lawsuits against nonprofit hospitals and health systems across the country, all challenging the inadequacy of nonprofit hospitals’ delivery of charity care to the uninsured and their pursuit of overly aggressive collections practices. Instead of a legislative solution, the governor called for voluntary compliance with Guidelines put forward by the California Healthcare Association (CHA).

Under SB 379, nonprofit hospitals would have had to develop charity care and reduced payment policies including requirements for discounted or free care to patients whose income is at or below 400% of the federal poverty level. Nonprofit hospitals would also have been required to develop applications for charity care, provide oral and written notices to patients of the availability of charity care and discount policies, and limit hospital debt collection activities during the first 150 days after a patient’s discharge.

In his veto message, Governor Schwarzenegger expressed sympathy with the aims of SB 379 but noted the “hospital community’s” recent adoption of charity care guidelines to assist low-income uninsured Californians, and stated his decision that “the voluntary guidelines must be given time to be implemented and reviewed.” The governor also stated his “expectation that all hospitals in the state uphold their important commitment to the voluntary guidelines and that they are applied evenly, consistently, and without hesitation.” Contrary to the governor’s expectations, Health Access, a consumer group, claims that less than one-half of all California hospitals comply with the CHA Guidelines.

The “voluntary guidelines” mentioned by Governor Schwarzenegger are, in fact, the “Voluntary Principles and Guidelines for Assisting Low-Income and Uninsured Patients” (the “Guidelines”) adopted on Feb. 6, 2004 by CHA. The Guidelines propose, among other items, that hospitals adopt and communicate policies whereby patients with incomes at or below 300 percent of the federal poverty limit be eligible to apply for financial assistance under charity care policies, and that hospitals should limit expected payments from these patients to “amounts that do not exceed the payment the hospital would have received from Medicare, other government-sponsored health programs, or as otherwise deemed appropriate by the hospital.”

The CHA Guidelines also recommend limiting hospital billing and collection practices, including the adoption of a policy against sending charity patients’ bills to a collection agency for the first 120 days from the time of initial billing. In dealing with low income patients, the Guidelines advise that hospitals refrain from wage garnishments or liens on primary residences as a means of collecting unpaid hospital bills.

The CHA Guidelines address issues raised in more than 50 class-action lawsuits filed against nonprofit hospitals and health systems in 23 states, including California. In the main, each of the suits alleges that, by virtue of their tax exemptions, the nonprofit defendants agreed to render significant amounts of charity care to the uninsured, and that they have breached this obligation. The suits also allege that the defendants routinely engage in abusive collection practices in an effort to collect excessive charges from the uninsured. While the soundness of legal theory for these suits may be questionable, they raise the possibility that unsympathetic courts and juries will award significant damages, attorneys’ fees, and public opprobrium as the price for nonprofit hospital’s refusal to take heed of a pressing social concern.

Lawyers at Davis Wright Tremaine are well-prepared to assist in your hospital’s or health system’s response to this burgeoning issue. Among other things, our lawyers can advise you concerning the extent of your hospital’s charity care obligations under state and federal law; whether your policies and procedures regarding charity care and billing and collection practices are consistent with state and federal law and other guidelines; the adoption of policies designed to conform to the CHA Guidelines or other appropriate standards; the reimbursement implications of changes in billing policies, including discounts for services; and the education and training of your governing board, administrators, employees, and medical staff concerning their charity care obligations.

For additional information concerning how Davis Wright Tremaine can help in addressing the troublesome issues raised by this controversy, see our Charity Care Fact Sheet.

If you wish to consult with one of our lawyers concerning these vital issues or other aspects of charity care, please contact any of the following attorneys:

Gerry Hinkley, San Francisco, (415) 276-6500, gerryhinkley@dwt.com
John P. Krave, Los Angeles, (213) 633-6800, johnkrave@dwt.com
Jill H. Gordon, Los Angeles, (213) 633-6800, jillgordon@dwt.com
Brent R. Eller, Seattle, (206) 622-3150, brenteller@dwt.com

This Advisory is a publication of the Health Law Department of Davis Wright Tremaine LLP. Our purpose in publishing this Advisory is to inform our clients and friends of recent developments in health law. It is not intended, nor should it be used, as a substitute for specific legal advice as legal counsel may only be given in response to inquiries regarding particular situations.

Copyright © 2004, Davis Wright Tremaine LLP.