Charitable Hospital Lawsuits

Lawsuit primer: Hospitals accused of profiteering

Here is what you need to know about the class action lawsuits filed against some of the largest nonprofit hospitals in the United States:

The lawsuits were filed by Mississippi attorney Richard Scruggs, best known for heading the effort in recent years to sue tobacco manufacturers to recover money spent by state Medicaid programs on tobacco-related illnesses. Those tobacco lawsuits were settled and will bring more than $200 billion in payments to 46 states over the next 25 years.

The health care litigation seeks to stop nonprofit hospitals from "intentionally failing to fulfill their agreements with the United States Government, states, and local counties to provide charitable medical care to their uninsured patients in return for substantial tax exemptions," the lawsuits say. Named as a conspirator in the litigation is the American Hospital Association (AHA) in Washing-ton, DC, which Scruggs says was included because it advises and provides substantial assistance to the defendants on all manners of hospital operation, including billing and collection practices concerning the uninsured.

Alleged failure to care for indigent

The lawsuits charge that the defendant nonprofit hospital systems and hospitals, working with the AHA, have failed to provide government required charity care to uninsured patients. A total of 39 litigations are under way in 20 states against defendants that control approximately 340 hospitals.

Scruggs and the plaintiffs allege that the named hospitals retain hundreds of millions of dollars annually as a result of their tax-exempt status, in exchange for which the hospitals should be providing charity care. Instead, he says, the hospitals charge the uninsured "sticker" prices for health care, an amount higher than any other patient group, and then, when the uninsured can’t pay, the hospitals harass the uninsured through, among other tactics, aggressive collection efforts such as garnishment of wages and bank accounts, seizures of homes, and personal bankruptcies.

In addition to saving and amassing millions via unpaid taxes, the cases allege that the named hospitals benefit from income from their "for-profit" operations. These benefits often result in hospitals holding millions of dollars in offshore bank accounts located in havens which are known for secrecy, and where no taxes on these funds can be levied, the lawsuits charge.

The defendant nonprofit hospitals are charged with breaches of contract; breaches of good faith and fair dealing; breaches of charitable trust; consumer fraud and deceptive business practices; violations of EMTALA; unjust enrichment; civil conspiracy; conspiring with the AHA, and aiding and abetting with respect to the breaching of their tax exempt agreements.

The lawsuits allege that the defendants have operated free from federal and state taxes because they promised the government to operate as a charity provider of health care for the uninsured and that they would not engage in business "directly or indirectly, for the benefit of private interests."

"In reality, the defendants do just the opposite," Scruggs says. "The defendants violate the federal and state prohibition against profiteering by private interests through either board members and/or physicians whose for-profit businesses are favored and subsidized by the tax-free organization."

Creative accounting’ also charged

Private insurance companies and governmental third party payers also benefit from the tax-exempt hospitals’ operations, each receiving large discounts off of the sticker price that only uninsured patients pay. The result, Scruggs says, is that only the uninsured, those who should be receiving charity care, pay the hospitals’ highly inflated rates that bear no connection to the actual cost of providing the service.

The cases further assert that the defendants use "creative" accounting practices to grossly distort the small amount of charity care they provide to their uninsured patients, typically reporting the amount of charity care as the amount of gross charges — which are significantly inflated — rather than the cost of actually providing the service.

As if that weren’t enough, the lawsuits also allege EMTALA violations in which hospitals require that before admission patients must sign a form contract promising to pay the defendants in full for unspecified and undocumented charges for medical care that are set by the defendant nonprofit hospital at its sole discretion. The defendants will not admit a patient into their emergency departments for emergency medical care unless and until that patient agrees to pay in full for such unspecified and undiscounted charges, a practice that clearly violates EMTALA, Scruggs says.

The cases seek monetary damages for the cost of medical care charged, injunctive relief and the imposition of constructive trusts to be imposed on the defendants and from these trusts medical care will be paid for to the plaintiffs and class in each case.