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Hospital Financial Assistance and Medical Debt

The federal rules that make a nonprofit hospital publish a financial assistance policy, limit what it may charge eligible patients, and restrict how it collects - and what a patient with a medical bill can do with them.

Informational only - this is not legal advice. These definitions explain general legal vocabulary in plain English. They are not advice about your situation, reading them creates no attorney-client relationship, and the law differs from state to state and changes over time. For advice you can rely on, speak to a lawyer licensed in your state.

What it means

Most hospitals in the United States are nonprofit, and the price of that tax exemption is a set of federal conditions on how they bill and collect. A tax-exempt hospital must adopt and publicise a written financial assistance policy stating who qualifies for free or discounted care and how to apply; it must limit what it charges patients eligible under that policy for emergency and other medically necessary care to no more than the amounts generally billed to insured patients, rather than the full list price; and it may not take extraordinary collection actions - reporting to a credit bureau, selling the debt, suing, garnishing, placing a lien on a home - until it has made reasonable efforts to find out whether the patient qualifies for assistance, including a notice period and a plain-language summary of the policy with the bill.

Those conditions give a patient a procedure. Before paying a hospital bill in full, and certainly before it goes to collection, a patient can ask for the financial assistance policy and its application, apply, and require the hospital to hold collection while the application is pending; a patient who qualifies after a collection action began is entitled to have the action reversed and the excess refunded. For-profit hospitals are not bound by these rules, though many states impose similar obligations on all hospitals, and community benefit and charity care rules of the state may add to them.

Medical debt is also treated differently from other consumer debt in several respects: the consumer credit bureaus have voluntarily stopped reporting paid medical debts and small ones, some states prohibit reporting medical debt to credit bureaus at all, and federal rules on medical debt reporting have been adopted and litigated in recent years, so the reporting position should be checked as of the date it matters. None of that cancels the debt; it changes who may see it and how it may be pursued.

Where this comes from

Internal Revenue Code § 501(r), 26 U.S.C. § 501(r), added by the Affordable Care Act, with regulations at 26 C.F.R. §§ 1.501(r)-1 through 1.501(r)-7: § 1.501(r)-4 (the financial assistance policy), § 1.501(r)-5 (limitation on charges) and § 1.501(r)-6 (billing and collection, including the definition of extraordinary collection actions and the reasonable-efforts requirement). State hospital fair billing and charity care laws, such as California Health and Safety Code § 127400 and following, add obligations that apply to for-profit hospitals as well.

When people hire a lawyer for this

A patient facing a large hospital bill should apply for financial assistance first and dispute the bill second, because the application is the lever the federal rule provides and most hospitals process it without a lawyer. A lawyer or a medical-billing advocate becomes worth the cost when the hospital has already sued, garnished or reported the debt without offering assistance, when the bill involves a surprise out-of-network charge, or when the amount is large enough that a negotiated reduction pays for the help.

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Part of the LawyerLand plain-English legal glossary. Definitions are written from primary sources - statutes and court rules - and each entry states the authority it rests on, or says plainly when the doctrine is state law with no national rule.

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