Major hospitals agree to stop overbilling uninsured patients.

A Los Angeles judge has approved the settlement of a nationwide class action against Tenet Healthcare Corp., one of the largest providers of health care in the country, headquartered in California. The suit claims that Tenet's 114 hospitals in 16 states routinely charged uninsured patients substantially higher rates than those charged to patients with health insurance.

Plaintiff attorneys say the agreement is an important step forward for hundreds of similar cases filed nationwide.

The settlement is "the first case in the country to uphold a claim for overbilling the uninsured," said Steve Berman of Seattle, co-lead counsel for the plaintiffs. "Patients without health insurance are generally those who are unable to afford any service and are often traumatized financially by the bills. Any relief from inflated billing practices will be a huge assistance to the 2 million people affected."

Under the agreement, Tenet said it would charge uninsured patients discounted prices comparable to managed care rates, disclose estimated costs in plain English (or Spanish), and treat all patients fairly, regardless of their ability to pay. It agreed to offer reasonable payment terms and simple, flexible payment plans with no interest for 120 days; provide free financial counseling to patients, including information on available assistance; delay billing or trying to collect from a patient who has a financial assistance application pending; and follow a uniform, written collection policy. Tenet pledged not to foreclose or place a lien on a patient's house or garnish wages. Finally, the company will reimburse patients who were charged and paid more than a certain percentage of the hospital's gross-charge rate. (Tenet Healthcare Cases II, J.C.C.P. No. 4289 (Cal., Los Angeles Super. Ct., settlement approved Aug. 5, 2005).)

Also, in a series of separate agreements this year, over 60 hospitals reached similar settlements with the office of Minnesota Attorney General Mike Hatch, who threatened to sue those that continued to use two-tiered pricing schedules.

In a press release, Hatch's office cited a recent Harvard University study that found that over half the personal bankruptcies filed in the United States stem from health care costs and that most of those affected are members of the middle class. A 2004 study by the Access Project found that almost 60 percent of respondents said "their medical debt caused them to delay getting needed health care." The Access Project is a national reseach and advocacy organization in Boston that focuses on access to care for the poor and uninsured.

Dozens of class actions were filed last year against more than 300 nonprofit hospitals. Those suits challenged the facilities' tax-exempt status, claiming that the hospitals' billing and collection practices violated their agreement to provide charitable care. (Jean Hellwege, Class Actions Charge Nonprofit Hospitals with Unfair Billing, Collection, TRIAL, Sept. 2004, at 20.) Some of those cases are still pending, but several have been dismissed.

Now, a new wave of cases is taking a different approach using contract law, said Gary Jackson, a Charlotte, North Carolina, attorney who is handling several class actions in that state.

"Our cases don't have anything to do with the federal tax statute, and they don't depend on whether it's a profit hospital or not-for-profit hospital," he said. Rather, the cases focus on language in patient-hospital agreements stating that fees for services will be "reasonable," "standard," or "typical."

"If Medicare, Medicaid, and [insurance companies] are charged $5,000, say, for an appendectomy with a two-day hospital stay, and the uninsured patient is charged $25,000, then that's not a reasonable rate," Jackson said. He added that at least five major cases making the contract claim have survived motions to dismiss.

Other plaintiff attorneys expressed optimism that the Tenet and Minnesota settlements will have a positive ripple effect for their cases. Will Techmeier of Milwaukee, who is handling several nonprofit suits, said he now refers to the Tenet settlement in his complaints: "It is a model of what we are looking for in Wisconsin." Archie Lamb of Birmingham, Alabama, a plaintiff attorney involved in several cases, said he hopes the settlements will put public pressure on other hospital systems to revise their billing practices.

"This litigation is not about forcing hospitals to provide free or 'charity' care to the uninsured, but rather to force the industry to charge a reasonable rate for medical services," said Lamb. "This is about giving a voice to the small-business owner and the working poor who fall between the health insurance cracks."