Ensure your uninsured patients aren’t being hounded for payment

Nearly 300 facilities sued over billing and collection practices

Outpatient surgery managers are taking notice of 31 lawsuits that have been filed against nearly 300 nonprofit hospitals and the Chicago-based American Hospital Association (AHA) in federal court since June.1 The lawsuits claim some tax-exempt hospitals charged uninsured patients more than insured ones or that they use aggressive collection practices against low-income patients. In light of these suits, outpatient surgery managers are re-examining their own practices.

Some of the lawsuits claim the AHA and the hospitals have collaborated to force uninsured patients to pay "full excessive health care costs."2

The first provider to settle, North Mississippi Health Services in Tupelo, agreed to provide an estimated $150 million in refunds, debt forgiveness, free care, and discounts to about 48,000 eligible uninsured patients.3 The settlement includes six hospitals and two surgery centers.

This litigation, along with increased congressional scrutiny, has caused outpatient surgery managers to reevaluate their own practices. And nonprofits aren’t the only ones who should be concerned, say sources interviewed by Same-Day Surgery.

According to one report, aggressive collection practices by some hospitals have included placing liens on homes, attaching wages, and arresting some patients.1 The suits also claim some facilities have large cash reserves that they should be using to provide charity care.

The lawsuits are led by attorney Richard Scruggs, who led multibillion dollar lawsuits against the tobacco industry that netted him $1 billion in fees.1

On the government front, CEOs of nonprofit hospitals have been challenged in congressional hearings that examined their hospitals’ not-for-profit status. Also, there have been numerous state and federal reports focusing on billing practices for uninsured patients, says Michael J. Taubin, partner in Nixon Peabody, a Garden City, NY-based law firm.

Nightline devoted an entire episode of its television show to the issue. And don’t expect the heat to let up anytime soon. Michael Moore, whose documentary Fahrenheit 9/11 continues to receive widespread attention, has indicated that his next movie will target health care.

In the meantime, many same-day surgery providers are re-examining their billing and collection practices to determine whether they are legal and ethical. "I think that [providers] can’t be looking the other way on this issue," says Lisa W. Clark, partner with the law firm of Duane Morris in Philadelphia. "Not only could they be a party to the litigation, but they could be investigated by their local tax authority" concerning their tax-exempt status, she says.

In August, nearly half of Chicago’s City Council asked the county tax assessor to revoke the tax-exempt status of not-for-profit Resurrection Health Care, which operates eight hospitals. Twenty-four of 50 alderman said in a letter to the county assessor, "There’s been a steep decline in charity care, implementation of restrictive charity care policies and aggressive collection procedures, including lawsuits against poor patients."4 The hospital responded that in 2003, it provided more than $124.5 million dollars of care that was never compensated or reimbursed.

The AHA has offered a hand to providers who feel under fire by developing "Hospital Billing and Collection Practices." (For information on how to access the guidelines, see resources, below.)

The guidelines address how facilities can communicate more clearly and concisely with patients, provide information upfront to make billing and collection more transparent to outpatients, and follow concrete steps to make care more affordable for patients, notes Carmela Coyle, senior vice president for policy at the AHA.

"One of things [the AHA] said was to re-examine your policies to make sure they’re in line with your mission," Clark says. "Don’t go against any state law and Medicare, and generally, determine whether they do what your hospital wants to do legally and from a mission standpoint."

Hospitals are following through, Coyle adds. "We’ve now gone back and asked every hospital CEO to sign on the dotted line and let us know that either they already have changed their policies and practices to meet their guidelines or they are in the process of doing that," she says. More than 3,000 hospital CEOs have signed that "Confirmation of Commitment," Coyle notes.

"I think it’s an area that needed to be addressed by the hospital community," Taubin adds, "because of the inconsistencies in the way billing was done, in terms of these patients."

Some of that inconsistency was addressed earlier this year when the U.S. Department of Health and Human Services clarified that hospitals can discount charges for uninsured patients of limited means, Coyle says.5 "We’re seeing a number of hospitals adopt and implement discounting policies for the uninsured," she says.

So how do you manage to provide charity care and also ensure your program isn’t overwhelmed with bad debt? Consider these suggestions:

  • Look at your demographics.

Consider your geographical area when examining your payment and collection policies and procedures, Clark advises. However, even in suburban areas where patients have higher incomes and higher property values, they may find it difficult to pay bills on time, she says.

The key element is to develop polices that are fair, says Ann S. Deters, MBA, CPA, CEO and founder of SevenD & Associates, an Effingham, IL-based consulting and management company affiliated with 17 surgery centers. "Every provider has to evaluate its own circumstances, demographics, and decide accordingly," she says.

  • Determine patient’s need for charity care or financial assistance.

Look at your registration and admission procedures to decide if patient eligibility for charity care and financial assistance is being determined, Taubin suggests. "Hospitals need to be making sure these people don’t slip through the cracks and eventually get billed for complete charges for services rendered by the hospital," he explains.

At R. Hewlett Lee Surgecenter of Palo Alto (CA), physicians sometimes request that the center reduce fees for uninsured poor patients, and the center reduces the fee to equal the facility’s most common insurance carrier, says Margo Mynderse-Isola, RN, chief executive officer. "We ask that [patients] pay at least 50% of it and sign a credit agreement to make monthly payments, depending on how much is left," she says. The center strives to make the monthly payments affordable (some are $25), and no interest is added, Mynderse-Isola says. Also, the center and surgeons occasionally provide charity work, particularly on plastic surgery performed on children from other countries.

At Valley Health System in Winchester, VA, designated eligibility staff help qualified outpatient surgery patients apply for state assistance, says Ann R. Ryder, CPAM, corporate director of patient accounts. "If they do not qualify for these programs, we offer total write-off up to 200% of the poverty guidelines," which is determined by proof of income and size of family, Ryder explains. If they exceed the income level, the hospital sets up an interest-free payment plan, she says.

For this process to work, patients must provide the necessary information to determine their eligibility, Ryder adds. "If patients will not provide us information to work with and simply ignore our bills, then it is possible, based on all information that we can obtain, that we will obtain judgment and place liens or garnishments as necessary," she says. "Every effort is made to avoid this by evaluating their individual situations."

In terms of charity care, typically your community will have an expectation that you provide some, Clark advises. "There could be state or federal laws that could apply, even if for profit, that you’re providing some charity care," she says. And even for-profit organizations can be sued, Clark warns. "By far, it’s a not-for-profit problem, but take a second look at the situation, based on applicable law, if you’re for profit," she adds.

Apply policies consistently.

Look at your policies to determine how the uninsured are handled in terms of discounts and sliding scales, Taubin says. "See if the policies have been applied consistently and whether or not they have adequate marketing of the policies to the geographic service area," he says.

Patients who fail to pay on time also should be handled consistently. When patients of Surgecenter of Palo Alto fall behind, they are sent three statements in increasing intensity, Mynderse-Isola says.

The third and final notice is sent via certified mail with a return receipt requested. If patients contact the center, staff attempt to work out a payment arrangement, she says. If the patient doesn’t respond, a letter from a collection agency gives the patient 30 days to make payment. "If they make it, then there’s nothing against their credit, and we get the whole amount," she adds. After 30 days, the amount is written off as bad debt and turned over to a collection agency. If money is collected then, the total is split evenly with the agency, Mynderse-Isola explains.

Keep in mind the Centers for Medicare & Medicaid Services can investigate if you’re claiming Medicare bad debt, Clark warns. "They’ll look to see if your indigent policies and collection policies are uniform for Medicare and non-Medicare patients alike," she says.

Over the years, many providers with good intentions have negotiated with patients on a case-by-case basis, Clark says. Instead, have standards in place, she advises. For example, should patients receiving assistance have an income that is a set amount over poverty level? Also, examine what other financial pressures, such as other sick family members, patients may have, Clark says. "Make sure the questions you ask and the standards you apply to each person’s case is consistent."


1. Appleby J. Barrage of lawsuits huge wake-up call’ for non-profit hospitals. USA Today. Web: www.usatoday.com/money/industries/health/2004-07-19-lawsuits_x.htm?POE= MONISVA.

2. Orlando Regional Healthcare named in class-action lawsuit. Orlando Business Journal. July 22, 2004. Web: www.bizjournals.com/orlando/stories/2004/07/19/daily28.html.

3. Traylor M. Miss. system first to settle over uninsured billing. Modern Healthcare Alert. Web: www.modernhealthcare.com.

4. Washburn G. Assessor pushed to tax hospital. Chicago Tribune. Aug. 3, 2004. Web: www.chicagotribune.com/news/local/chicago/chi-0408030105aug03,1,6527073.story.

5. Department of Health & Human Service, Office of Inspector General. Hospital Discounts Offered to Patient Who Cannot Afford to Pay Hospital Bills. Washington, DC; 2004. Web: http://oig.hhs.gov/fraud/docs/alertsandbulletins/ 2004/FA021904hospitaldiscounts.pdf.

Sources and Resource

For information on treating the uninsured, contact:

  • Lisa W. Clark, Partner, Duane Morris, One Liberty Place, Philadelphia, PA 19103-7396. Phone: (215) 979-1833. Fax: (215) 979-1020. E-mail: lwclark@duanemorris.com.
  • Margo Mynderse-Isola, RN, CEO, R. Hewlett Lee Surgecenter of Palo Alto, 795 El Camino Real, Palo Alto, CA 94301.

To access the free guidelines from the American Hospital Association, go to: