Hospital Financial Assistance

Hospital financial assistance is the discounted or free care a charitable hospital provides to patients who cannot afford the full cost, structured around a written policy the hospital is legally required to have. The formal term of art is a financial assistance policy, or FAP. Under Internal Revenue Code section 501(r), a hospital organized as a 501(c)(3) nonprofit must, to keep its tax exemption, maintain a FAP describing who qualifies and how, limit what it charges assisted patients, and hold back on harsh collection tactics until it has checked whether a patient is eligible. The requirements attach to the hospital's charitable status, which is why they bind nonprofit hospitals specifically.

Section 501(r) sets four related obligations, added by the Affordable Care Act and finalized in regulations in 2014. Under 501(r)(4), the hospital must adopt and publicize a written financial assistance policy stating the eligibility criteria, the basis for calculating what patients are charged, and how to apply, along with a separate written emergency medical care policy requiring care regardless of eligibility for assistance. The FAP must be genuinely accessible, not buried.

Under 501(r)(5), a patient who qualifies for assistance cannot be charged more than the amounts generally billed, known as AGB, to patients who have insurance covering emergency or other medically necessary care. This is the provision that ends the practice of billing the uninsured the full list price, or "chargemaster" rate, while insurers pay a fraction of it. AGB is a hospital-specific ratio the facility calculates from its own insured claims, not a single national number.

Under 501(r)(6), before a hospital may pursue extraordinary collection actions, such as suing, garnishing wages, or reporting the debt to a credit bureau, it must first make a reasonable effort to determine whether the patient is FAP-eligible. The rule does not forbid collections; it forbids skipping the eligibility check first.

Two boundaries are worth drawing. First, these rules reach 501(c)(3) nonprofit hospitals. For-profit and government hospitals may offer charity care, and many do, but not under this federal tax provision, so the specifics depend on state law and hospital policy rather than 501(r). Second, hospital financial assistance is a different thing from the No Surprises Act. That law limits balance billing from out-of-network providers in defined situations and applies broadly; 501(r) is about a nonprofit hospital's duty to help patients who cannot pay for care it does provide. A patient can be protected by one, both, or neither depending on the situation.

A patient who cannot afford a bill from a nonprofit hospital asks for the financial assistance policy and applies, providing income and household information. If eligible, the patient receives free or discounted care, and the hospital may not charge more than the amounts generally billed to insured patients. If the hospital has not yet determined eligibility, it may not take extraordinary collection actions.

A hypothetical example of the AGB limit. Suppose a hospital's list price for a procedure is $30,000, but its insured payers, on average, are billed 35% of list for such care, an AGB percentage of 35%. A FAP-eligible uninsured patient could not be charged more than $10,500 for that care, and depending on the policy's income tiers might owe far less or nothing. The list price the uninsured were once charged in full is exactly what the rule caps. The 35% and the dollar figures here are hypothetical; each hospital sets its own AGB from its own claims data.

What the protection provides

• Eligible patients cannot be charged the inflated list price, only the amounts generally billed to insured patients.
• Nonprofit hospitals must have a written, publicized policy, so the help is a defined right rather than a discretionary favor.
• The hospital must check for eligibility before suing, garnishing wages, or reporting the debt, which slows harmful collection tactics.

The limits

• The rules apply to 501(c)(3) nonprofit hospitals; for-profit and government facilities are governed by other rules or by state law.
• Assistance is not automatic; the patient generally has to apply, and awareness of the policy is often low.
• Eligibility criteria, income thresholds, and the discount tiers vary from hospital to hospital.
• It does not address surprise out-of-network bills, which are a separate matter under the No Surprises Act.