Sutter Health Added to Class-Action Suit Against Not-for-Profit Hospitals Over Charity Care
A coalition of trial lawyers on Wednesday filed a lawsuit in federal court in San Francisco against not-for-profit hospital chain Sutter Health for alleged charity care violations, the AP/Contra Costa Times reports. In recent weeks, similar suits have charged that several other hospitals around the nation also have violated their obligation as charities by overcharging uninsured patients (Kravets, AP/Contra Costa Times, 7/1). The suits, which are seeking class-action status, have small variations but all are 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 suits allege that the hospitals have violated contracts by charging uninsured patients "premium" rates, even though insurers, HMOs and government programs like Medicare and Medicaid pay discounted rates. Some suits also cite particular hospitals' tactics to collect unpaid bills, including placing liens on homes and assessing interest, fines and legal fees. The lawsuits, which allege that hospitals are holding onto large, untaxed sums, seek the creation of a trust fund that the hospitals would finance to provide affordable medical services to the uninsured. The lawyers filing the suits are led by Richard Scruggs, who also participated in class-action lawsuits against the tobacco and asbestos industries in the 1990s (California Healthline, 6/23).
The lawsuit filed against Sutter says that the system spent 40% less on charity care for low-income or uninsured patients than the statewide average among private institutions. According to the suit, charity care spending represented 0.6% of Sutter's revenue in 2002, and the chain reported total patient service revenues in 2003 of $4.5 billion and profits of $465 million. The suit, which seeks unspecified damages for all uninsured patients treated by Sutter since June 30, 2000, alleges that the chain uses "gross 'sticker prices'" only for uninsured patients, the Sacramento Bee reports. The lawsuit also alleges that Sutter uses "coercive, unfair and fraudulent collections methods," including lawsuits, to seek payments from uninsured and low-income patients (Rapaport, Sacramento Bee, 7/1). Kelly Dermody, one the attorneys who filed the suit in San Francisco, said that Sutter "should provide appropriate and reasonable charity care for people who cannot afford to pay for hospital services"(AP/Contra Costa Times, 7/1).
According to the Bee, "[n]othing in federal or California tax code requires [not-for-profit] hospitals to provide free medicine to the poor in exchange for substantial tax breaks," including property, sales and income tax exemptions, federal and state officials said. Bill Steiner, an Internal Revenue Service spokesperson, said, "Nonprofit hospitals as charitable organizations have to accept any patient who comes in the door. There is nothing specific in the code that says anything about how much hospitals should or should not charge patients." However, Scruggs said, "When [not-for-profit hospitals] get tax exemptions, these hospitals take on a contractual obligation with the federal and state governments to take care for indigent patients." Scruggs said that current tax codes "should be more specific, and more aggressively enforced," the Bee reports. Scruggs added, "[N]ot-for-profits have a mission statement to provide charity and indigent health care. And the courts can make them live up to their mission."
Sutter spokesperson Bill Gleeson said that the chain has a "very strong charity care policy and equally strong prohibitions on unfair collections." In February Sutter revised its charity care and collections guidelines, Gleeson said. He added that all of Sutter's hospitals now provide no-cost or discounted care to people with annual incomes up to 400% of the federal poverty level (Sacramento Bee, 7/1). According to the AP/Times, the hospital chain also has adopted a policy that prohibits garnishing wages and foreclosing property of people who cannot pay their bills (AP/Contra Costa Times, 6/1). Gleeson said, "For people who are truly indigent and cannot afford to pay, we have generous programs in place to assist them. But we also have an obligation to collect payment from the patients who have the means to pay all or even part of their bill" (Sacramento Bee, 7/1).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.