by Kathryn Larlee, J.D., Hotline Attorney

The spectre of medical debts haunts many people and especially those who are living on fixed incomes.

According to a study done at Harvard University, the leading cause of bankruptcy is medical debt in this country. The study also shows that 78% of filers had some form of insurance, so those with medical insurance are not immune to the risk of medical expenses that could lead to financial insolvency.

What is not well known is that under the Affordable Care Act, Congress directed the IRS to develop rules to protect people who receive services at nonprofit hospitals.

First, the hospital must have nonprofit status to fall under these IRS regulations.  More than half of all U.S. Hospitals are nonprofit according to the Hospital Association.

If you receive services at a nonprofit hospital, the hospital is required to:

1. Meet the community health needs assessment requirements;
2. Meet the financial assistance policy requirements;
   1. Have a written financial aid policy that is publicly available;
3. Meet the requirements on charges;
   1. Limits on the amounts charged for emergency or medically necessary care;
   2. Prohibits gross charges;
4. Meet the billing and collection requirements;
   1. The hospital may not engage in extraordinary collection measures before the hospital has made reasonable efforts to determine whether the person is eligible for financial assistance.

Section 4 is important because it requires a nonprofit hospital to make an effort to determine if a person is eligible for financial assistance before taking such measures to collect on a medical debt. For instance, if a person is living on Social Security only, but has a house that is paid for, the hospital may not pursue a money judgment or attach a lien to that person’s home if he/she is eligible for the financial assistance program.

Under the IRS guidelines a nonprofit may not begin any of these listed collection activities if a person is eligible for financial assistance:

1. Report negative information about the patient to credit reporting agencies
2. Place a lien on the person’s property
3. Foreclose on real estate
4. Seize bank accounts or other personal property
5. File a civil suit
6. Cause arrest or detainment
7. Garnish wages

Those who have existing medical bills with nonprofits can ask the hospital for information about the financial assistance program offered by that hospital and in some cases may be granted retroactive coverage.

In addition, the IRS requires that the nonprofit hospital must accept applications for financial assistance for 240 days after providing medical service.

The important things to remember about how the Affordable Care Act affects the billing policies of hospitals are;

1. The hospital must be nonprofit;
2. The nonprofit must meet IRS guidelines;
3. The hospital must accept financial assistance applications for 240 days after medical service;
4. The hospital must make its financial assistance policy public and easily accessible;
5. If the nonprofit hospital does not meet the guidelines, it is subject to severe penalties.

26 U.S.C.A. § 501 (effective December 19, 2014)

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Kathryn Larlee is a licensed Michigan attorney at Elder Law of Michigan, and has been a member of the Elder Law team since June 2013.  Kathryn started as an intern in 2013 and was hired full time at Elm in August, 2014.

Before joining the Elder Law of Michigan team, she served as a clinician with MSU’s Chance at Childhood Clinic. At the clinic she did guardianship reviews, child custody evaluations, supervised parenting time, and represented clients in family matters under the supervision of an attorney.

Kathryn Larlee is a licensed Michigan attorney who assists the Mid-America Pension Rights Project with research, appeals, and client support. Ms. Larlee also works on the Legal Hotline for Michigan Seniors providing advice and support to seniors on a wide range of legal issues.