Attorneys File Lawsuits Against Not-for-Profit Hospitals Over Allegations Related to Provision of Charity Care
Plaintiffs' lawyers on Wednesday filed civil class-action suits in federal courts in eight states against roughly one dozen not-for-profit hospital systems, alleging that the institutions have violated their obligation as charities by overcharging uninsured patients, the Wall Street Journal reports. While the cases have small variations, they are all essentially breach-of-contract suits focused on the idea that not-for-profit hospitals have "an explicit or implicit contract" with the federal government to serve uninsured patients to receive "significant" tax breaks, the Journal reports. The suits allege that the hospitals have violated their contracts by charging uninsured patients "premium" rates, even though insurers, HMOs and government programs like Medicare and Medicaid pay discounted rates, according to the Journal. Some suits also cite particular hospitals' use of tactics to collect unpaid bills, including placing liens on homes and assessing interest, fines and legal fees (Wall Street Journal, 6/17). The lawsuits, which allege that hospitals are "sitting on large, untaxed sums," seek the creation of a trust fund that the hospitals would finance to provide affordable medical services to the uninsured, the New York Times reports (Abelson/Glater, New York Times, 6/17). Richard Scruggs, one of the lawyers involved in the lawsuits, said, "This is going to force a major re-evaluation" of not-for-profit hospitals, adding, "We want them to be doing what they are supposed to be doing." Scruggs also participated in the lawsuits against the tobacco industry in the 1990s. He alleges that the uninsured patients receiving care at the hospitals cited represent a "class" that is entitled to damages. For the suits to continue to trial, a judge will have to certify the suit's status as class-action, a lengthy process that might take years and is not always successful, the Journal reports (Wall Street Journal, 6/17). Don Barrett, another lawyer involved in the case, said that the suits are "part of a coordinated attack on [hospitals'] reprehensible practice" and that more suits are expected to be filed (New York Times, 6/17).
According to the Journal, the lawsuits' "push to the fore a thorny debate in academic, health care and legal circles on what a hospital needs to do to maintain its status as a charitable institution." For a hospital to be designated as a not-for-profit charitable institution under Internal Revenue Service section 501c3, it must offer free or discounted services to low-income patients. However, the rules were altered in 1969 so that hospitals have to show instead that they offer a "community benefit" by running an emergency room that admits all patients, for instance, or by sponsoring health education community programs, John Colombo, a professor of tax-exempt organizations at the University of Illinois College of Law, said. Colombo said, "If a not-for-profit has substantial charity care for the poor, that will be enough, and no one will question their exemption." He added, "The problem lies with those hospitals that don't have substantial charity-care programs. The question is -- are hospitals exempt even if they don't have charitable care, and the answer is there is no clear answer." A House subcommittee has been investigating not-for-profit hospitals' services for uninsured patients and is planning to hold hearings in June during which hospital CEOs are expected to testify (Wall Street Journal, 6/17). In addition, attorneys general in some states have investigated or filed lawsuits against hospitals regarding their billing practices (New York Times, 6/17).
American Hospital Association spokesperson Alicia Mitchell said that the lawsuits are "baseless and misdirected -- diverting focus away from real issue of how we are as a nation are going to extend health care coverage to all Americans." AHA has encouraged hospitals to adopt voluntary reforms concerning billing and collection (Wall Street Journal, 6/17). Mitchell added that hospitals cannot afford to provide free health care and that the lawsuits would affect already limited financial resources, the Times reports (New York Times, 6/17). Most hospitals said Wednesday that they could not comment without first reviewing the allegations. Provena Covenant Medical Center's CEO Mark Wiener said that his system, Provena Health, "always cares for the patients first -- finances come later," adding that it is working to improve its financial-assistance program for uninsured patients. Mike Thomas, vice president of East Texas Medical Center Regional Healthcare System, said, "We are stunned that anyone would question [our] commitment and approach to meeting our not-for-profit responsibility to deliver charity care" (Wall Street Journal, 6/17).
Uwe Reinhardt, a Princeton University professor of economics and public affairs, said that hospitals' unpaid bill collection tactics "has brought on them the wrath of the community over their tax exemption." Eugene Elder, a lawyer for Akin Gump Strauss Hauer & Feld who has represented hospitals, said that the issue of how hospitals treat the uninsured is likely to keep drawing attention because "[m]ore and more people have become sensitized" to the issue as they experience the high price of health care and "it's easy to get outraged." Samuel Issacharoff, a professor at Columbia Law School, said it is not clear how strong the suits are. He added, "There are a couple of moving parts that are hard to define. What is the legal obligation to provide charity care?" (New York Times, 6/17).This is part of the California Healthline Daily Edition, a summary of health policy coverage from major news organizations. Sign up for an email subscription.