Class actions charge nonprofit hospitals with unfair billing, collection.

Dozens of federal class-action lawsuits have been filed recently against more than 300 nonprofit hospitals and hospital systems in 20 states. The plaintiffs accuse the defendants of failing to honor their agreement to provide charitable care to uninsured patients in return for substantial federal and state tax exemptions.

The complaints allege that the hospitals charge uninsured patients substantially more than insured patients for the same health services, then use predatory methods to collect on unpaid bills.

The American Hospital Association (AHA), which represents approximately 5,000 hospitals and health care providers, has been named as a co-conspirator. Plaintiffs claim that it "aids and abets ... its nonprofit hospital members in carrying out their unfair, discriminatory, unconscionable, and oppressive business practices." (See, e.g.,

Wright v. St. Dominic Health Servs., Inc., No. 04CV521LN (S.D. Miss. filed July 7, 2004).)

Plaintiff attorney Richard Scruggs of Oxford, Mississippi, said the litigation is designed to "stop profiteering by non--profit hospitals." His firm and 11 others nationwide have teamed up to represent the plaintiffs.

AHA President Dick Davidson called the lawsuits "misdirected and baseless." They are "diverting focus away from the real issue of how we as a nation are going to extend health care coverage to all Americans," he said.

The lawsuits charge the defendants with breach of contract, the duty of good faith and fair dealing, and charitable trust; violations of state consumer protection laws and a federal law that prohibits hospitals from denying or delaying emergency care to uninsured patients; and unjust enrichment.

The plaintiffs say that they are third-party beneficiaries of agreements between the nonprofit hospitals and state and federal governments. They allege that the defendants agreed that in return for substantial exemptions from income, property, and sales taxes "valued in the millions of dollars, they would: operate actually and exclusively for charitable purposes; provide emergency room medical care to the plaintiffs and the class without regard to their ability to pay for such medical care; provide mutually affordable medical care to the plaintiffs and the class; not pursue outstanding medical debt from the plaintiffs and the class by engaging in aggressive, abusive, and humiliating collection practices; and not provide financial inurement to private individuals and entities."

The plaintiffs claim the defendants provided little charity care, charging uninsured patients up to 300 times what insured patients were charged for the same services and resorting to predatory debt-collection methods that included lawsuits, wage garnishments, liens, and arrests for failure to appear in court. These practices allowed the hospitals to rake in enormous profits, plaintiffs say. The lawsuits seek money damages and injunctive relief.

Nonprofit hospitals have come under increased scrutiny and criticism for their billing practices since a series of Wall Street Journal articles in early 2003 exposed some hospitals' aggressive debt-collection tactics. In one reported case, a 77-year-old man was still paying his dead wife's bill for cancer treatment she had received 20 years before. Even though the man was making court-ordered payments on the debt, the hospital had seized $10,000 from his bank account and had placed a lien on his house. Interest charges drove the original $20,000 bill to $39,000, although the man had paid $16,000 over the years. (Lucette Lagnado, Twenty Years and Still Paying: Jeanette White Is Long Dead but Her Hospital Bill Lives On, WALL ST. J., Mar. 13, 2003, at B1.)

After the articles appeared, AHA president Davidson wrote to Health an d Human Services (HHS) Secretary Tommy Thompson, asking him to clarify the agency's rules on bow hospitals should bill uninsured patients. Those rules, Davidson answered, required that hospitals charge uninsured patients full price for medical services. Hospitals often negotiate discounts with insurers, resulting in lower bills for insured patients.

Davidson was wrong, Thompson replied: "[H]ospitals can provide discounts to uninsured and underinsured patients who cannot afford their hospital bills and to Medicare beneficiaries who cannot afford their Medicare cost-sharing obligations," Thompson wrote. "Nothing in the Medicare program rules or regulations prohibits such discounts."

The U.S. House Energy and Commerce Subcommittee on Oversight and Investigations has opened a probe--led by Reps. Billy Tauzin (R.-La.) and James Greenwood (R.-Pa.)--into nonprofit hospitals' billing and collection practices. Davidson and Mark Rukavina--executive director of the Boston-based Access Project, an advocacy group for health consumers--testified before the subcommittee in June.

Rukavina said that "no hospital should take collection actions against uninsured patients until they have [been] screened to see whether they are eligible for public programs or the hospital's own charity, care policy and [the hospital is] certain that they have the means to pay for their care.

"Shameful hospital practices have resulted in patients' being hounded by collection agencies, sued, and subsequently charged high interest; having wages garnished and liens slapped on homes; and even being arrested as they struggled to pay their bills," he said.

Davidson testified that AHA member hospitals have been working to change how uninsured patients are billed, in light of Thompson's letter. "Recently, we've challenged out" members to formally lend their support to our principles and guidelines. Hospitals are responding. To date, more than 2,600 hospitals have pledged their support. But there's more work to be done, and our efforts will continue," he said.

But plaintiff attorney Scruggs said statements like that are just "spin" designed to "deflect focus away from the simple fact that many nonprofit hospital systems and hospitals are not carrying out their government obligations to provide charitable health care to uninsured patients and are, in fact, chafing uninsured patients inflated rates that are above and beyond what they charge any other patient group."

At press thee, the defendants had not yet filed answers to the complaints.