Patients who should be eligible for free or discounted hospital care are instead being burdened with substantial medical bills due to significant loopholes and inconsistencies in the U.S. hospital charity care system. These gaps in the system allow many nonprofit hospitals, which receive tax exemptions in exchange for providing community benefits, to send bills to patients who qualify for financial assistance, leading to financial distress and debt for millions of Americans.
The problem stems from a combination of factors, including ambiguous federal regulations, complex application processes, and billing practices that prioritize revenue over patient welfare. As a result, even when financial assistance policies exist on paper, they are often inaccessible or insufficient to protect vulnerable patients from the high costs of care. This has led to calls for greater oversight and standardization of hospital charity care programs to ensure they fulfill their intended purpose of providing a safety net for those in need.
Inconsistent and Opaque Eligibility
A major issue with hospital charity care is the wide variation in eligibility requirements from one institution to another. The Internal Revenue Service (IRS) requires nonprofit hospitals to have financial assistance policies, but it does not specify concrete eligibility criteria or how much assistance must be provided. This leaves it up to each hospital to determine who qualifies for free or discounted care, leading to a patchwork of policies across the country. A patient who qualifies for full charity care at one hospital might only receive a small discount, or nothing at all, at another hospital in the same city.
These policies can be difficult for patients to understand, with some hospitals using language that requires a Ph.D. level of reading comprehension. Furthermore, some hospitals impose “onerous eligibility requirements” that can disqualify patients for seemingly arbitrary reasons. For instance, a patient might be denied assistance if their medical bill is not large enough, if they have any form of insurance, or if they have already made a partial payment. In some cases, patients have been denied aid simply because they are not a resident of the area where they received emergency care. This lack of standardization and transparency makes it incredibly challenging for patients to navigate the system and access the financial assistance they are entitled to.
Burdensome Application Processes
Even when a patient is eligible for charity care, the application process itself can be a significant barrier. Hospitals often require extensive documentation to prove income and financial status, such as recent tax returns, three months of pay stubs, and three months of bank statements. This can be a daunting task for anyone, but it is especially difficult for individuals who are also dealing with a serious illness or injury. The complexity of these applications often results in few patients successfully completing them, leaving them to face the full cost of their care.
The timeframe for applying for financial assistance can also be confusing. While some laws give patients up to 240 days to apply for aid, hospitals are often allowed to send bills to collections after just 120 days. This means a patient might start receiving calls from debt collectors while they are still technically eligible for their bill to be waived. Although hospitals are required to pull a bill out of collections if a patient is approved for charity care, many patients are intimidated by the collections process and may not realize they still have the right to apply for help.
Gaps in Coverage and Services
One of the most significant loopholes in hospital charity care involves physicians who work at a hospital but are not directly employed by it. These doctors, who often specialize in emergency medicine, anesthesiology, or radiology, are not bound by the hospital’s financial assistance policies. As a result, a patient who has been approved for charity care by the hospital can still receive separate, and often large, bills from the physicians who treated them. This can come as a shock to patients who believed their care was fully covered, leaving them with thousands of dollars in unexpected debt.
Another gap in coverage relates to how hospitals define “medically necessary” care. The IRS mandates that nonprofit hospitals must include emergency and medically necessary care in their financial assistance policies, but it gives hospitals considerable leeway in defining what that term means. While historically, this has been used to exclude services like cosmetic surgery or experimental treatments, there is concern that hospitals could use this ambiguity to limit the types of services eligible for charity care. A study of 209 nonprofit hospitals found that about 6% substantially excluded some forms of medically necessary care from their financial assistance policies, a trend that researchers worry could grow.
The Scale of the Problem
The number of patients affected by these loopholes is substantial. Nearly half of all nonprofit hospital organizations, representing over 1,600 hospitals, routinely send medical bills to patients whose incomes are low enough to qualify for charity care. In one year, nonprofit hospitals billed patients for an estimated $2.7 billion in care that likely would have qualified for financial assistance if the patients had successfully completed the application process. This figure is likely an underestimate, as it is based on self-reported data from the hospitals themselves.
The consequences of this for patients and their families can be devastating and long-lasting. Medical debt is a widespread problem in the United States, with an estimated 41% of adults carrying some form of it. For those with household incomes below $40,000, that figure rises to 57%. The financial strain of medical debt can lead to bankruptcy, damage to credit scores, and can force individuals to make difficult choices between their health and their financial stability.
Lack of Accountability and Oversight
A fundamental issue contributing to the failures of the charity care system is a lack of meaningful accountability and oversight. The tax benefits that nonprofit hospitals receive are not tied to the amount of financial assistance they provide. This means that a hospital with a very generous charity care program receives the same tax benefits as a hospital with a much more restrictive one. This creates a financial disincentive for hospitals to be generous with their financial assistance, as there is no penalty for providing the bare minimum of care.
While federal and state governments have the authority to regulate hospital charity care, enforcement has been inconsistent. In some cases, state attorneys general have taken action against hospitals for failing to comply with charity care laws. For example, in Washington state, the attorney general filed a lawsuit against 14 hospitals for violations that included sending patients’ bills to collections when the hospitals knew the patients were eligible for financial assistance. In California, the attorney general has sent letters to hospitals alleging they were not providing information about their charity care policies in patients’ primary languages. However, these actions are often reactive and do not address the systemic issues that allow these problems to persist.
The Patient Advocate Foundation, a nonprofit that helps patients with serious illnesses cover their medical bills, has described the gaps in the system as a “hole” that they have seen patients fall through repeatedly. Without stronger regulations and more consistent enforcement, the promise of charity care will remain unfulfilled for many of the nation’s most vulnerable patients.