Lawsuits unwarranted, says hospital industry

Hospitals already taking action

About 18 not-for-profit hospitals in 15 states have been hit with class-action lawsuits filed in federal courts challenging their tax-exempt status as charity institutions. The suits state a breach of contract based on an explicit or implicit contract with the government to treat needy patients with compassion in exchange for significant tax breaks. The suits claim that these hospitals bill uninsured patients premium amounts while they negotiate large discounts with insurers, HMOs, and several government programs such as Medicare and Medicaid. In addition, when the uninsured patients are unable to pay, some hospitals go so far as to place liens on their homes and assess interest, fines, and legal fees.

The recent class-action lawsuits drew reactions of surprise and anger from industry representatives. "I don’t think it’s appropriate," says Michael Taubin, partner in the law firm Nixon Peabody LLP, Garden City, NY, and longtime legal counsel to the Washington, DC-based National Association of Healthcare Access Management, as well as a number of individual hospital clients. "I was surprised at these lawsuits in that the increasing focus on this issue over the past year [has] made every hospital cognizant of the issue and reactive to it," he adds.

Help for uninsured already under way

Not-for-profit hospitals are already taking action, and many have been giving discounts to uninsured patients and financially needy Medicare recipients for some time under the name of charity care and uncollectible bad debt. "[The not-for-profit hospitals] need to clean up their policies and make sure they are applying them consistently," Taubin says, "but I do not think it is something that warrants that kind of action."

"The great majority of not-for-profit accounting systems do comply with the [charity care] regulations," Taubin says. "Hospitals are reviewing their top internal policies with regard to billing and collections for the uninsured to make sure that they are following their rules for charity care for sliding-scale patients who have the ability to pay for certain services based upon their income. [These patients] get discounts."

Thin financial margins a problem

Beth Keith, CHAM, director of patient business services at Touro Infirmary in New Orleans, strongly agrees that most not-for-profit hospitals are doing all they can for the uninsured as well as the underinsured. "I have never seen a not-for-profit hospital take advantage of an uninsured patient," says Keith, who has worked at four not-for-profit hospitals and observed many more when she worked as a consultant.

The current focus on the uninsured is expected to have a "really scary" impact on the not-for-profit hospital industry that is already operating under a thin financial margin, she notes, pointing out the many heavy expenses necessary for operation. For example, "It costs, conservatively, $2 million for equipment upkeep alone just to run radiology." Keith notes. Added to that are the high insurance premiums that hospitals must pay to provide necessary pharmaceuticals and up-to-date equipment.

To stay solvent, she says, hospitals must try to get the insured, uninsured, and underinsured to pay whatever they can. This must, however, be done with compassion, and Keith adds that at Touro, "Basically, anyone who indicates a problem with paying their bill is offered the opportunity to apply for financial assistance."

These lawsuits are unlikely to produce significant changes, says Taubin. "I think the fallout has already occurred. I don’t think these lawsuits are going to make any drastic changes in what hospitals are doing with regard to the uninsured," he adds. "Their antennae [have been] up for the last year. The [federal] government has been looking at this. The state associations have been looking at this. The state governments have been looking at this. I don’t think these lawsuits are going to have any major change. I think hospitals are attuned to this issue right now."