Fall, 2004
By Sidney D. Watson, JD
Professor of Law
center for Health Law StudiesSt.
Louis University School of Law
How much does an overnight stay in a hospital cost? Answer: It depends. For Paul Shipman, a 43-year-old uninsured furniture
salesman, a 21-hour hospital stay for a cardiac catheterization and stent was billed at $29,500. Medicare pays $15,000 for the procedure; the state's Medicaid program pays $6,000. Managed care and private insurers reimburse at a variety of rates that hospitals typically will not disclose- but all private insurers pay rates well below the "billed charges" that Mr. Shipman was
expected to pay. 1
Increasingly hospitals are the target of lawsuits alleging that they overcharge patients who are uninsured, engage in unfair billing and collection practices, and fail to provide charity care to patients in need. Nationwide, more than 40 hospital systems and upwards of 500 hospitals have been sued for "gouging the poor." While the legal theories and parties vary, the facts underlying the complaints are fairly uniform: patients who do not have insurance are charged double or even triple the price paid by insured patients; hospitals fail to offer discounts or charity care to low and middle income patients; and aggressive hospital collection practices result in patients losing their homes, having their wages garnished, and landing in jail pursuant to "body attachments," a practice under which a hospital or its collection agent has a patient arrested and jailed for missing a court appearance related to a medical debt. 2
The first wave of lawsuits, filed in early 2003, targeted Tenet and HCA (Hospital Corporation of America), national for-profit hospital chains. In December 2003, the Service Employees International Union 1199- New England filed a class action lawsuit against Yale New Haven Hospital and Bridgeport Hospital in Connecticut. Then in mid-June 2004, the lawyers who brought down Big Tobacco began filing federal court class action lawsuits against not-for-profit hospitals and the American Hospital Association (AHA). This coordinated effort, dubbed the Not-for-Profit Class Action Litigation, is led by Richard Scruggs and the Scruggs Law Firm of Oxford, Mississippi, and now includes 39 lawsuits in 20 states with more promised. 3
The Not-for-Profit Class Action Litigation alleges, among other things, that not-for-profit hospitals have an obligation to provide care at a "fair and reasonable charge"-an obligation the hospitals allegedly violated when they charged uninsured and under-insured patients the "highest and full undiscounted price," failed to notify them of charity care or discounted care, and engaged in aggressive collection practices. According to the complaints, this right to a "fair and reasonable charge" arises from: 1) Section 501(c)(3) of the Internal Revenue Code, and similar provisions of state and local law, which grant tax-exempt status to hospitals; 2) an express or implied contractual obligation to uninsured patients to bill "not more than a
fair and reasonable charge" for care; 3) the Emergency Medical Treatment and Active Labor Act (EMTALA), which obligates hospitals that accept Medicare payments to screen all patients who come to their emergency rooms without conditioning emergency care on patients signing agreements to pay "full charges" for care; 4) charitable trust doctrine; and 5) state consumer protection laws. 4 The complaints also allege that the hospitals entered into a "civil conspiracy" with the AHA to conceal and misrepresent the hospitals' billing and collection practices, and charge the AHA with providing "advisory assistance" to hospitals on how to over-bill their uninsured patients and aggressively collect medical debt. The complaints seek a declaration that the hospitals are in violation of the law; a court order requiring the hospitals to change their billing and collection practices; damages, attorneys fees and costs; and "imposition of a constructive trust on hospitals' tax-exempt savings, profits and net assets and revenues in amounts sufficient to provide 'mutually affordable medical care.'"
The initial legal hurdle the Not-for-Profit Hospital Class Action plaintiffs are likely to face is whether the plaintiffs-all former patients at the defendant hospitals-have standing to seek judicial enforcement of any duty to provide discounted and charity care that may exist under the federal and state tax codes. Historically, it is the government that must pursue not-for-profit entities for obligations owed pursuant to the tax code, and a number of tax cases brought by governmental agencies have challenged
hospital billing and charity care practices. 5 However, the concept that a patient has standing, through a contract theory or other claim, to challenge a hospital's tax-exempt standing and to obtain damages if the hospital is in violation of taxexempt law is novel-to say the least. 6
While the procedural issues may toll the death knell for the Not-For-Profit Class Action Litigation, the lawsuits' complaints that
uninsured and underinsured patients paid the "highest and full undiscounted price" accurately describe what had become common industry practice. Until recently, the AHA and hospitals nationwide took the position that Medicare pricing policies, which require that hospitals bill all patients the same charge for each service, meant that the uninsured had to pay full price for their care precluding hospitals from providing discounts or other means of financial assistance for patients. 7 However, in February 2004, Department of Health and Human Services Secretary Tommy Thompson, responding to an inquiry from the AHA, declared that Medicare pricing policies do not-and never have-prohibited hospitals from providing discounts to uninsured patients. 8 Both the Centers for Medicare and Medicaid Services (CMS) and the Office of the Inspector General
(OIG) issued guidance outlining policies that hospitals can use to assist their uninsured and underinsured patients. 9 The cMS guidance document, in the form of a set of questions and answers on charges
for the uninsured, states that Medicare regulations and program instructions do not prohibit hospitals from waiving collection of charges-including copayments-to any patient if it is done as part of the hospital's "indigency policy"-which CMS defines as a policy developed and used by a hospital to determine a patient's financial ability to pay for services. 10 It also makes clear that hospitals do not have to file lawsuits against patients, seize their homes or send unpaid bills to a collection agency.
The issue underlying the class action lawsuits-and other lawsuits against for-profit and not-for-profit hospitals-is sticker shock:
outrage that hospitals not only charged uninsured patients more than their insured patients, but refused to negotiate some "reasonable" discount or, in appropriate cases, free care. Whatever the merits of the creative legal theories underlying the class action litigation, it is now clear that hospitals can give price discounts and free care to uninsured patients. The AHA has issued new guidelines to help hospitals evaluate their free care, discount and collection policies and practices, 11 and community advocates have issued nine principles to guide patient financial assistance policies.12 Publicly available, well publicized hospital policies on free and discounted care can not only help reduce the cost of care, but alleviate sticker shock.
Footnotes
1 Lagnado L. Anatomy of a hospital bill. The Wall Street Journal September 21, 2004.
2 Langnado L. Hospitals try extreme measures to collect their overdue debts. The Wall Street Journal October 30, 2003.
3 See, plaintiffs' counsel website, (www.nfplitigation.com), which provides an updated list of cases, an archive of press releases and other information on the coordinated class action litigation.
Other litigation which appears to have been brought by law firms who are not part of the coordinated
lawsuits does not appear on the website.
4 The complaints also allege that the hospitals violated federal and state
not-for-profit law prohibitions against profiteering by "private interests," through either "connected" board members and/or physicians whose for-profit businesses are formed and subsidized by the "tax-free" organization.
5 See, for example, Utah County v Intermountain Health Care, Inc. 709 P.2d 265 (1985) (denying taxexempt status to two not-for-profit hospitals that made "every effort...to recover payment for services rendered
and devoted less than one percent of their gross revenues to providing charity care").
6 Eastern Kentucky Welfare Rights Org. v Simon, 426 U.S. 26 (1976)(class of uninsured patients had no standing to challenge IRS revenue ruling granting hospital tax-exempt status).
7 Pryor C, Siefert R. Unintended consequences: How federal regulations and hospital policies can leave patients in debt. The Commonwealth Fund June 2003.
8 Letter from Tommy G. Thomson, Secretary of Health and Human Services to Richard J. Davidson,President, American Hospital Association, February 19, 2004, (www.hhs.gov/news/press/2004pres/20040219.html).
9 Hospital discounts offered to those who cannot pay their hospital bills. February 2, 2004, available at(www.oig.hhs.gov/fraud/docs/alertsandbulletins/2004/FA021904hospitaldiscounts.pdf).
10 Questions on charges for the uninsured. Feb. 17, 2004, available at
(http://www.cms.hhs.gov/FAQ_Uninsured.pdf).
11 Hospital billing and collection practices: statement of principles and guidelines by the board of trustees of the American Hospital Association. http://www.aha.org/aha/key_issues/bcp/index.html).
12 Patient financial assistance principles. Community catalyst June 2004.
in collaboration with
Dartmouth-Hitchcock Medical Center
The opinions expressed in the journal, Lahey Clinic Medical Ethics,
belong to the individual contributors and do not represent the institutional position
of Lahey Clinic on any subject matters discussed.
