Tax Return Intercept program provide relief for hospitals

Hospitals face a plethora of challenges with one of those challenges being bad debt. According to the HFMA, between 2015 and 2018, medical bad debt increased by $617 million to nearly $56.5 billion. That’s a number hospitals cannot afford to ignore. 

As margins continue to be razor thin for hospitals, additional ways to recover revenue become even more important. With options like Medicare, Medicaid and charity care (for those that qualify), the most difficult demographic to collect from is those that have the means to pay and choose not to 

In Minnesota, and a handful of other states, hospitals and providers have another option for revenue recovery through the state income tax return. A Modern Healthcare article lists Alabama, Kansas, Oregon, South Carolina and Wisconsin as the other states that offer similar programs. Each state has its own methods and requirements, so research is essential if your facility is looking to utilize these programs. 

The Minnesota “Revenue Recapture” program extends to government-owned and private nonprofit hospitals that lease space from local governments. They are able to use the revenue department to intercept income tax refunds, property tax refunds, lottery winnings and forest land incentive payments for as many years as it takes to satisfy medical debt. Medical providers cannot use the program to take tax refunds away from taxpayers making less than $25,520 a year, which helps protect those that should qualify for other assistance. 

In a Star Tribune article, vice president of revenue services with Essentia Health, Melanie Wilson, said that her company only uses the program to collect debt “from those who do have the ability to pay.” 

South Carolina’s “setoff debt” program allows private, not-for-profit hospitals to recover debts owed by patients from the state. In Alabama, as in Minnesota and South Carolina, patients can challenge any claims. Alabama also sends patients notice that their tax refund has been placed in escrow, and that they have 30 days to request a hearing to contest the seizure. 

For hospitals across these states, using the tax return programs is never their first step. It’s often used as a last resort. A Modern Healthcare article quoted Atrium Health, a South Carolina health system, as saying, “This process is used as a last resort, and only after exhausting all other avenues to settle a patient’s account and ensuring that the patient can but has refused to pay the debt.” 

Healthcare leaders echoed these sentiments, adding that patients often don’t understand how small operating margins are for hospitals. One example in the Star Tribune article was how a $20 or $30 copay can make the difference in how hospitals can invest in services, let alone how bad debt can impact keeping the doors open. 

While some see tax return intercept programs as controversial, hospitals that utilize them see them as an important option. Dean Griffin, CEO of Alabama-based Lawrence Medical Center, said in a Moulton Advertiser article, “More and more hospitals are doing this. The hospitals that have tried it have had good success recovering a significant amount of money from bad debt.” 

With medical bad debt nearing $57 billion, hospitals need to explore all avenues to maximize their revenue recovery. In the states where it is available, tax return intercept programs offer an additional way to make advances in receiving the money they are entitled to for the services provided.