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Are You Ready for Mandated Hospital Fair Pricing Policies?


As a result of AB 774 (Chan), effective January 1, 2007, all General Acute Care hospitals will be required to implement new policies on charity care and discount payments as a condition of licensure in California. The new law also places new limits on billing and collection activities and on charges for hospital procedures for uninsured and underinsured patients whose incomes are at or below 350 percent of the federal poverty level.

Is Your Hospital Subject to AB 774?

While there is some inconsistent language in the legislation, in general AB 774 is being interpreted to apply only to all General Acute Care hospitals. Acute psychiatric hospitals, special hospitals, psychiatric health facilities, and chemical dependency recovery hospitals should be exempt from the AB 774 requirements.

Patient Eligibility

Under AB 774, all General Acute Care hospitals must establish a discount payment policy and a charity care policy for patients at or below 350 percent of the federal poverty level, and who are either (1) uninsured or (2) insured but whose annual medical expenses exceed 10 percent of family income (with the exception that hospitals designated as "rural and small" may establish a lower eligibility level).

Maximum Payment Levels and Other Key Requirements

  • Each hospital must limit expected payments from eligible patients to not more than the highest amount of payment it would receive from any government-sponsored health program that the hospital participates in.
  • The discount payment policy must also include an interest-free extended payment plan option that allows patients to make the discount payment over time.

Both discount payment and charity care policies must clearly state the process the hospital will use to determine patient eligibility, and the process to appeal a dispute. The new law, however, does not define "charity care."

Notice Requirements

Each hospital must provide written notice of the availability of its discount payment and charity care policies to all patients – including inpatients, outpatients, and emergency patients. The notice must be understandable, and be provided in English and any other primary language that is representative of 5 percent or more of the service population. The notice must include information about eligibility and a hospital contact for more information. Hospitals must also post public notices of its policies in locations visible to the public, including the emergency department, billing office, admission office, and other outpatient settings.

Billing Requirements

Hospitals must make "all reasonable efforts" to obtain information about whether private or public health insurance might fully or partially cover the charges for their services to their patients. If a hospital bills a patient who has not provided proof of coverage, it must provide the following as part of the billing:

1) A statement of charges for services rendered by the hospital;

2) A request that the patient inform the hospital if he/she has health insurance coverage, Medicare, Healthy Families, Medi-Cal, or other coverage;

3) A statement that if the patient has no insurance coverage, the patient may be eligible for various government programs;

4) A statement indicating how patients can obtain applications for the Medi-Cal and Healthy Families programs, and that the hospital will provide these applications; and

5) Information regarding the hospital’s discount payment and charity care programs.

OSHPD Reporting Requirements

Every two years or whenever a significant change is made, each hospital must provide the Office of Statewide Health Planning and Development (OSHPD) with its discount payment policy, charity care policy, eligibility procedures for both policies, review process, and applications for the programs.

Limits on Billing and Debt Collection Activities

Each hospital must establish a written policy about when and under whose authority patient debt is advanced for collection. It must also obtain written agreements with outside collection agencies to ensure adherence to the hospital’s standards and scope of practices regarding debt collection. A hospital may not send the unpaid bill to a collection agency if the patient has a pending appeal for coverage of service and is attempting in good faith to negotiate a reasonable payment plan or make regular and reasonable partial payments. Prior to commencing collection activities, a hospital must provide the patient with a "fair collection notice."

A hospital and its collection agency may only consider a patient’s income and monetary assets in determining the amount of debt they may recover from eligible patients. Hospitals may not consider retirement or qualified and non-qualified deferred compensation of a patient. They are also prohibited from using wage garnishment or liens on primary residences as a means of collecting patient debt, except by order of the court and with special considerations. If the collection agency determines a patient is eligible for the hospital’s discount payment or charity care program, it may only attempt to collect the amount the patient is qualified to pay.

For a patient who lacks coverage or who provides information of high medical costs, the hospital and its collection agencies may not report adverse information to any consumer credit reporting agency or commence civil action for nonpayment at any time prior to 150 days after the initial billing.

Penalty for Noncompliance with AB 774

  • Under AB 744, a hospital must repay any amount an eligible patient pays in excess of the amount due, including interest. Additional penalties may be introduced in the future.
  • A hospital may challenge penalties on due process grounds, claiming it was not afforded an appeal process. At present, however, it is unclear what appeal process, if any, will be provided.

Is Your Hospital Ready?

  • There are a variety of procedural issues and areas of policy confusion that will need to be straightened out very quickly by OSHPD. Hospitals should begin focusing now on the new requirements so they have time to raise procedural and policy questions as necessary.
  • The legislation requires all policies and procedures to be in place by January 1, 2007. It is important for affected hospitals to carefully review AB 774, and work with their healthcare consultants and attorneys to ensure they are AB 774-compliant.

John P. Wagner, Partner in Nossaman’s Sacramento office, is a seasoned healthcare lawyer with a broad practice, primarily focusing on healthcare litigation. He can be reached at

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