By:  Donald P. Wagner, Esq.

You changed the batteries in your flashlights and smoke detectors, but did you revise your charity care and discount payment policies prior to the stroke of midnight on December 31, 2014? A new law, SB 1276, took effect in California on January 1, 2015, and it means that many California hospitals[i] and emergency physicians[ii] will need to revise their charity care and discount payment policies (collectively “financial assistance policies”)[iii] to comply.

The law imposes duties upon hospitals, physicians, and collection agencies that bill or collect payment for medical services provided to a “financially qualified patient.”[iv] A “financially qualified patient”[v] is a patient who satisfies both of the following criteria:

  1. a self-pay patient or a patient with high medical costs; and
  2. family income that does not exceed 350 percent of the federal poverty level (“FPL”).[vi]

The term “high medical costs” is defined in the statute as annual out-of-pocket medical expenses that exceed 10 percent of the patient’s family income (or a lower threshold amount pursuant to the hospital or emergency physician’s financial assistance policies).[vii] The law also requires that any affiliate, subsidiary, or external collection agency that collects receivables on behalf of a hospital or emergency physician must agree to adhere to the standards and scope of practices and comply with the definition and application of a reasonable payment plan established by the hospital or emergency physician.[viii]

The original “Hospital Fair Pricing Policies” legislation, AB 774, was enacted in 2006 after several years of debate between consumer advocates and hospitals. It requires hospitals to establish financial assistance policies and provide patients with notice of those policies. It also limits hospital charges to uninsured patients with family incomes below 350 percent of the FPL to no more than the hospital could expect to receive for the same services from Medicare, Medi-Cal (California’s Medicaid program) or other government-sponsored benefits. It requires hospitals to screen patients for government-subsidized programs for which they may qualify and establish practices for medical bill collection, including that a hospital or collection agent may not take adverse action against a consumer for at least 150 days after the initial bill.

In 2010, AB 1503 imposed similar, but not identical, fair pricing obligations upon emergency physicians. It requires hospitals to include a statement in its notice to patients that the emergency physician is required by law to provide discounts to uninsured patients or patients with high medical costs who are at or below 350 percent of the FPL. It also specifies billing and collection procedures to be followed by the emergency physician and his or her assignee, collection agency, or billing service.

With the enactment of the Patient Protection and Affordable Care Act (“ACA”), many previously uninsured Californians became eligible for Medi-Cal or subsidized insurance purchased through Covered California, California’s health benefit exchange. Under the ACA, however, insurance plans with the lowest premiums also have the highest out-of-pocket costs. Thus, the Western Center on Law and Poverty (“WCLP”), the sponsor of SB 1276, observed that even with third-party coverage, a patient may be unable to pay or negotiate a payment plan on the balance due and still have enough money left over to survive. The WCLP noted that the law existing at the time provided no guidance on how to determine a reasonable payment plan for a financially qualified patient. Apparently, the WCLP had received reports of collection agencies demanding unaffordable monthly payments.

SB 1276 made the following changes:

  1. Revised the definition of “high medical costs,” thereby allowing a financially qualified patient to become eligible for a hospital’s financial assistance program, regardless of whether the patient previously received a discount from the hospital as a result of third-party coverage.
  2. Defined a “reasonable payment formula” for purposes of determining the monthly payment obligation of a financially qualified patient under the hospital’s or emergency physician’s financial assistance program, as not more than 10 percent of a financially qualified patient’s family income for a month, excluding deductions for essential living expenses.
  3. Defined “essential living expenses” as expenses for any of the following: rent or house payment and maintenance, food and household supplies, utilities and telephone, clothing, medical and dental payments, insurance, school or child care, child or spousal support, transportation and auto expenses, including insurance, gas, and repairs, installment payments, laundry and cleaning, and other extraordinary expenses.
  4. Revised the notice that hospitals and emergency physicians are required to provide patients to inform them that they may be eligible for various public insurance programs and required that the notice include references to the California Health Benefit Exchange (Covered California), and other state- or county-funded health coverage programs.
  5. Required hospitals and emergency physicians, in addition to the existing notice requirements, to also provide patients with a referral to a local consumer assistance center housed at legal services offices.
  6. Specified that if a patient applies, or has a pending application, for another health coverage program at the same time that he or she applies for a hospital’s financial assistance program, neither application precludes eligibility for the other program.
  7. Required a hospital or emergency physician to negotiate the terms of a payment plan with a financially qualified patient, taking into consideration the patient’s family income and essential living expenses and specified that this also applies when a patient wishes to renegotiate the terms of a defaulted payment plan.
  8. Permits, for purposes of determining the reasonable payment formula, the emergency physician or his or her assignee to rely on the determination of family income and essential living expenses made by the hospital at which emergency care was provided, and permitted the emergency physician at his or her discretion, to accept self-attestation of family income and essential living expenses by a patient or a patient’s legal representative.

The law requires California hospitals to file updated charity care program policies with the Office of Statewide Health Planning and Development (“OSHPD”) biennially on January 1, or when a significant change is made to the policies.[ix] OSHPD is required to collect from each hospital a copy of its charity care policy, discount payment policy, eligibility procedures for those policies, review process, and application form.[x] Copies of all filed hospital policies are available on the OSHPD website.[xi] Submitted information is reviewed by OSHPD to ensure compliance with reporting requirements. OSHPD has indicated that beginning January 1, 2015 its audit staff will contact hospitals on issues of possible non-compliance to obtain clarification and/or revised information.

Compliance with the law is a condition of licensure for general acute care hospitals in California, and noncompliance may be the basis for the imposition of penalties by the California Department of Public Health (“CDPH”).[xii] When deciding whether to impose a penalty, the CDPH will consider the extent of noncompliance, the amount of financial harm to the patient, whether the violation was willful, and the willingness of the hospital to take corrective action.[xiii] Compliance with the law is not a condition of licensure for physicians and surgeons, however.[xiv] Nonetheless, if a hospital or emergency physician collects payments in excess of the amount due under the law, the hospital or emergency physician must repay the excess plus interest.[xv]

Many open questions remain with respect to SB 1276. For example, the law does not clearly specify whether hospitals must provide financial assistance for non-emergency services, such as elective surgeries or long-term care. OSHPD directs each hospital to make its own determination as to the scope of covered services under its financial assistance policies. Therefore, it is important for hospitals and emergency physicians to consult with their legal counsel before revising financial assistance policies, which will eventually be available to the public on the OSHPD website.

SB 1276 is just one of the many new laws and regulations affecting health care providers that became effective on January 1. A New Year’s resolution that every health care provider should make is a renewed focus on regulatory compliance.




[i] The term “hospital” means a facility that is required to be licensed under Health & Safety Code § 1250 (a) [general acute care hospitals], (b) [acute psychiatric hospitals], or (f) [special hospitals that provide inpatient or outpatient care in dentistry or maternity] of Section 1250, except a facility operated by the State Department of State Hospitals or the Department of Corrections and Rehabilitation. Health & Safety Code §§ 127400(d) and 127450(f).

[ii] Emergency physician” means a physician and surgeon licensed pursuant to Chapter 5 (commencing with Section 2000) of Division 2 of the Business and Professions Code who is credentialed by a hospital and either employed or contracted by the hospital to provide emergency medical services in the emergency department of the hospital, except that an “emergency physician” shall not include a physician specialist who is called into the emergency department of a hospital or who is on staff or has privileges at the hospital outside of the emergency department. Health & Safety Code § 127450(c).

[iii]The term “charity care” is used to describe the situation where the patient is not expected to pay any amount for provided services, based on the hospital’s determination that the patient is unable to pay for that care. This may also be referred to as “full charity care” or “free hospital care.” The term “discount payment plan” describes the situation where the hospital has determined that the patient does not qualify for completely free care but is eligible for a discount and is expected to pay only a part of the bill. See, OSHPD Frequently Asked Question PQ3 available at:

[iv]Health & Safety Code §§ 127405(a)(1) and 127454(b)(4).

[v]Health & Safety Code §§127400 (c) and 127450(e).

[vi] Health & Safety Code §§ 127400(g) and 127450(i).

[vii]Health & Safety Code §§ 127400(g) and 127450(i).

[viii]Health & Safety Code §§ 127425(b) and 127455(b).

[ix]Health & Safety Code § 127435.

[x] Id.

[xi]The SyFPHR website is available at:

[xii]Health & Safety Code § 127401, 22 CCR § 70959.

[xiii] 22 CCR § 70959.

[xiv]Health & Safety Code § 127451.

[xv]Health & Safety Code § 127440 and 127458.