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New regs limit nonprofit hospital billing

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The Internal Revenue Service (IRS) has completed final regulations that will impose a cap on how much charitable hospitals can charge needy uninsured and underinsured patients for emergency services and medically necessary services.

The IRS developed the regulations to implement a section of the Patient Protection and Affordable Care Act (PPACA) that requires hospitals to stop charging uninsured people more than they charge people with health coverage.

The heart of the new system will be calculations of “amounts generally billed” (AGB) to patients who have health coverage. When a charitable hospital that wants to keep charitable hospital tax breaks treats a patient who needs financial assistance, the hospital will have to hold charges for emergency and medically necessary services to the AGB limit.

The new final regulations are based on draft regulations released in 2012 and batches of guidance issued earlier.

See also Promise of price cut on hospital bills is in limbo.

Originally, IRS officials proposed letting a hospital calculate its AGB level by looking back at actual past claims paid to the hospital either by traditional Medicare alone or by Medicare and all private health insurers. A hospital could also base the AGB level on how much it would expect to get paid by traditional Medicare. Hospitals said that approach was too rigid. The IRS has not eased up, but it says it has given itself the flexibility to come up with different AGB calculation methods later, in guidance.

Commenters also wrote to the IRS about how the IRS could apply the AGB system to needy patients who do have health insurance but have trouble paying deductibles and other out-of-pocket costs.

In the final regulations, the IRS lets a hospital bill a needy, privately insured patient for an amount over the AGB level, but the IRS says the AGB limit still applies to the amounts that the needy, privately insured patient has to pay ot of pocket.

The patient cannot be “personally responsible for paying (for example, in the form of co-payments, co-insurance or deductibles) more than AGB for the care after all reimbursements by the insurer have been made,” IRS officials say in a preamble to the regulations.

The final regulations are on track to appear in the Federal Register Wednesday.

The new system is set to take effect in a hospital’s first tax year after Dec. 29, 2015.