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On January 1, 2016, a new law will go into effect that requires nonprofit hospitals to provide patients a specific notice before engaging in certain debt collection activities to collect an unpaid hospital bill.

Unpaid hospital bills impact the medical field on both sides of the aisle. From the medical provider’s point of view, services were rendered that should be paid for. On the other hand, the patient with the mounting unpaid hospital bills may have been out of work for a period of time with diminished income and a strained ability to pay the medical bills.

The new statute, which unanimously passed in the house and the senate, should lead nonprofit hospitals to ensure that their policies and patient documentation are in order before the new law goes into effect in 2016. It will also will provide the often underrepresented hospital patient with recourse should a hospital attempt to collect on a bill if it failed to provide the requisite financial assistance notices.

What is the New Law?

Under Minnesota Statutes, Section 604.175, before a nonprofit hospital may commence “extraordinary collection actions” against a patient, nonprofit hospitals must provide patients “a plain language summary of the financial assistance policy.” The written financial assistance policy should contain the specific parameters as set forth in the Internal Revenue Code in Section 1.501(r)-4(b)(iii):

(A) The eligibility criteria for financial assistance and whether such assistance includes free or discounted care;

(B) The basis for calculating amounts charged to patients;

(C) The method for applying for financial assistance;

(D) In the case of a hospital facility that does not have a separate billing and collections policy, the actions that may be taken in the event of nonpayment;

(E) If applicable, any information obtained from sources other than an individual seeking financial assistance that the hospital facility uses, and whether and under what circumstances it uses prior FAP-eligibility determinations, to presumptively determine that the individual is FAP-eligible, as described in §1.501(r)-6(c)(2); and

(F) A list of any providers, other than the hospital facility itself, delivering emergency or other medically necessary care in the hospital facility that specifies which providers are covered by the hospital facility’s FAP and which are not.

Nonprofit hospitals in Minnesota offer financial assistance to patients with limited income who may have difficulty paying their hospital bills. This new law should promote patient awareness of these financial assistance programs.

What Debt Collection Activities are Barred if a Hospital Fails to Provide Notice of its Financial Assistance Policy?

The debt collection activities that may be barred by the new statute include more than the typical small claims lawsuits. For example, restricted debt collection activities could include:

  1. Selling the patient’s debt to a third party;
  2. Reporting adverse information about the patient to the credit reporting agencies or credit bureaus;
  3. Deferring or denying “medically necessary care” with payment by the patient for outstanding bills for previously provided care covered under the hospital financial assistance policy; and
  4. Taking legal action against the patient.

What Does This Mean for Nonprofit Hospitals?

Prior to January 1, 2016, nonprofit hospitals in Minnesota will want to ensure that their patient documentation policies are in accordance with the new law. Failure to provide the notice of its financial assistance policy may severely hinder a hospitals ability to collect an unpaid medical bill. It is worth noting that the new law applies only to “a hospital that claims federal tax status under United States Code, title 26, section 501(r).”

What Does This Mean for Patients?

If a nonprofit hospital fails to provide the notice of the financial assistance policy, a patient (debtor) may stop the “extraordinary collection actions” of the hospital by filing a lawsuit under Minn. Stat. § 604.175. The new law also provides a fee shifting provision entitling the prevailing patient in a lawsuit under Section 604.175 to recover their reasonable attorney’s fees and costs. The potential liability for a patient’s attorney’s fees may encourage hospitals to provide the financial assistance policy to patients. Not only would the hospital fail to collect its unpaid bill, it may also have to pay the patient’s attorney’s fees in bringing the action to stop the collection activities.

The law will also level the litigation playing field as the patient (debtor) generally has less resources than the hospital. If the patient is struggling to pay the bill in the first place, the notion of paying an attorney to sue the hospital is daunting without the attorney’s fees provision built into the statute.

In practice, there is a hope that the new law improves the debtor-creditor landscape for hospitals and patients. If hospitals are able to inform patients of the potential financial assistance programs available to them before the patient incurs a medical bill they can’t pay, it could prevent the inefficient use of resources to collect a bill that may never be recouped by the hospital. For the patient who qualifies for financial assistance provided by a nonprofit hospital, being aware of the program may avoid the uncomfortable realities that debt collection efforts by the hospital could impose on them after they receive medical care they are unable to pay for.


This post was created by Christopher Boline, a commercial and business litigator at Dudley and Smith, P.A. Mr. Boline has represented creditors and debtors ranging from large national banks to individual consumer debtors. If you have questions about debt collection or civil litigation, please contact Mr. Boline at 651-291-1717 or by email at Dudley and Smith, P.A. is a full service law firm with offices in St. Paul, Bloomington, Burnsville, Chanhassen, White Bear Lake, and Woodbury.

The law is continually evolving and Dudley and Smith, P.A.’s blog posts should not be relied upon as legal advice, nor construed as a form of attorney-client relationship. Postings are for informational purposes and are not solicitations, legal advice, or tax advice. A viewer of Dudley and Smith, P.A.’s blog should not rely upon any information in the blog without seeking legal counsel.