While hospital districts receive most of their funding from patient revenues, most of the laws affecting this are common to all hospitals and are beyond the scope of this manual. Two special issues are discussed in this section: discounting practices and refunds.

Consistent with changes in, and ultimately the sunset of, hospital rate-setting authority by the Washington State Hospital Commission in 1989, hospital districts have been increasingly asked for, or have offered, discount rates for the delivery of their health care services. From time to time, questions have arisen as to whether discounting practices are permissible for public hospital districts.

The usual question raised is whether it is permissible under Article 8, Section 7 of the Washington Constitution and prohibitions of gifting of public funds and assets. It appears that discounts are permissible under the Constitution so long as the hospital district is deriving an economic benefit through the discount practice. Thus, if discounting means greater volumes of patients, prompter payment of bills, or any other legitimate business advantage, the practice is justified. One Attorney General informal comment analogizes the situation to a county transit authority which reduces or eliminates fares at certain times of the day in order to balance use of public transit.

Practical Consideration

If a payor mandates a discount in a manner which provides no economic benefit to the public hospital district, questions should be raised as to whether the arrangement is permissible under Washington law.

Do hospital districts have the authority to discount as a matter of municipal corporation power? RCW 70.44.060 (3) authorizes the commissioners to provide and charge for health care services, and discounts would appear to be a logical implied power arising from this within the current hospital regulatory climate which emphasizes these arrangements. Further, the Attorney General commented in AGO 1986 No. 8 that discounts from rates were permissible even in a regulated environment under the negotiated rate exclusion to rate-setting by the Hospital Commission under 1984 amendments to that law.

Finally, some districts have discounted rates or waived co-payment requirements for hospital district residents who support the district through property tax payments. If not structured properly, such a practice could raise concerns the district is submitting fraudulent claims to insurance companies- because the district is requesting full payment for services while the resident received a discount. To remedy that concern the district can either report the lesser charge to the insurance company or document that the district resident is being reimbursed for the co-pay due to taxes he or she paid to the district. Without commenting on the applicability of other laws to this scenario, the approach seems to be within the powers expressed in RCW 70.44.060 (3) which includes a proviso that the public hospital district "at all times make adequate provision for the needs of the district and residents of said district shall have prior rights to the available hospital and other health care facilities of said district, at rates set by the district commissioners".

Questions also arise as to whether hospital districts may provide charity care under Article 8, Section 7 of the Washington Constitution. Several hospitals have not reported charity care to the Washington State Hospital Commission or Department of Health under financial reporting requirements because of their belief that such care was prohibited.

Simply put, the language of Article 8, Section 7 prohibits gifts of public money except for certain things, including "necessary support of the poor and infirm". As described in Chapter 70.170 RCW and Chapter 246-453 WAC, provision of charity care appears to meet the exception in Article 8 Section 7 regarding the necessary support of the poor and infirm. Hospital charity care policies must provide that all persons receiving hospital-based care with income at or below the federal poverty level are entitled to charity care without charge; all persons with incomes between one hundred and two hundred percent of the federal poverty level qualify for discounts based on the hospital's sliding fee schedule (specified in the charity care policy). Thus, hospital districts are not only authorized to provide charity care, but must do so in a manner consistent with these laws.

Practical Consideration

For rural public hospital districts, payment system changes are being adopted which recognize rural hospital costs, including charity care, and it may be to the hospital's advantage to be able to itemize legitimate charity care costs. For other public hospital districts, accurate charity care data may be important to the development of the cost base used for prospective payment system, like DRGs.