Special Report: Charitable Hospital Lawsuits

Trust and its perception: Hospitals and charitable lawsuits clash in the courts

Review your collections practices and EMTALA procedures now

Even if your hospital was not named in the recent wave of lawsuits against charitable providers, the alarm bell is ringing and you need take action now. The message from legal experts and health care analysts is clear: These lawsuits represent a significant new threat to all hospitals because they highlight business practices that may not withstand close scrutiny. If your hospital is not included in the lawsuits, they say, count yourself lucky and seize the opportunity to correct any questionable practices before it’s your facility’s name on the court docket.

The lawsuits filed nationwide charge that nonprofit hospital systems and hospitals have failed to provide government-required charity care to uninsured patients. Thirty-nine lawsuits are under way in 20 states against defendants that control approximately 340 hospitals. The lawsuits should concern all risk managers, not just those currently facing lawsuits, says Bryan Liang, MD, PhD, JD, professor of law, medicine, and public policy, and executive director of the Institute for Health Law Studies at California Western School of Law in San Diego. "Risk managers are going to be on the hot seat. This is going to be a major issue," he says. "Risk managers will be the ones who really have to deal with this issue because the CEOs and CFOs don’t see these problems from a day-to-day perspective. But risk managers do."

One observer predicts there will be many more such suits filed in the near future, though not necessarily as part of the same effort currently under way. Robert P. Charrow, JD, a shareholder with the law firm of Greenberg Traurig in Washington, DC, notes that of about 4,100 hospitals in the country, 3,200 are nonprofit and could be targeted by such lawsuits. "And there are potential implications for the for-profit hospitals from regulators," he says. "If the regulators think that these lawsuits highlight questionable practices, they will take action."

An attorney for one of the hospitals being sued, St. Thomas Hospital in Nashville, says the charges are "novel" and not supported by much previous case law. Berry Holt, JD, a Nashville attorney who serves as outside counsel for the hospital, says the charges against many of the hospitals are remarkably similar and speculates that some facilities seem to have been chosen just for the sake of including all geographic regions.

"We’re being sued by a named plaintiff — who we don’t have any reason to believe — paid us for any health care services," he says. "This is clearly an allegation to suggest that tax exemption carries an obligation to take care of the poor and uninsured, which St. Thomas certainly does, but to make it into a lawsuit is unprecedented. The country is debating how to pay for health care for the uninsured and with the lawsuits they’re trying to decide that in the courts instead of in the legislature, where it ought to be."

Holt expects many of the claims to be dismissed. But he says the lawsuits may still have far-reaching implications for all health care providers because they have brought many policies and procedures into question.

A spokeswoman for the American Hospital Association in Washington, DC, which is being sued along with the hospitals, says the lawsuits are misdirected and divert focus away from the bigger issue of how to provide care for uninsured patients. Alicia Mitchell says the charges are "baseless, and the lawsuits will consume the already limited resources for caring for these patients."

Risk managers must take action

Liang says risk managers must be proactive in addressing some of the concerns raised by the lawsuits, and he says there are some legitimately troubling issues cited in the cases. Many of the hospitals are accused of excessively aggressive debt collection with poor patients, and he says that is a problem that might be found in many more health care organizations, both for-profit and nonprofit. The practice looks worse for nonprofits but certainly doesn’t look good when it is revealed at for-profit facilities, Liang adds.

"At the very least, it’s a marketing problem," he says. "There was a certain amount of arrogance among community hospitals when they said they didn’t care what the local community thought of their business practices as long as they fulfilled the 501(c)(3) charity requirements. That was a big mistake."

Once the community learns that the charity hospital has been harassing poor people to pay debts — possibly at inflated charges many times more than that paid by insurers — the hospital’s image takes a beating, Liang says. "The public is now hearing that the hospitals that promised to care for those who can’t pay are going door-to-door, badgering people for money and making threats," he says. "That’s the worst marketing in the world."

High charges also at issue

To make matters worse, the hospitals often charge uninsured patients far more for the same service than they would charge an insurance company. Some markup might be justified by the lack of volume discounts and individual billing costs, Liang says, but hospitals will find it hard to justify charging an uninsured patient 100% more.

The tightening of health care budgets in recent years and financial advisers who urged more aggressive collections prompted many of those practices. But he says the risk manager might have to be the person who says, "Enough."

The risk manager must make sure that the charges and collection practices are not only reasonable, but that they look reasonable to an outsider, Liang says. After these lawsuits shine a spotlight on these previously ignored practices, it won’t be enough to merely meet the minimum requirements, he says, because critics will be eager to pounce on any perceived wrongdoing. "You might have worked for years to build a trust relationship with your community and a positive public image," he says. "But all of that can be destroyed with one news report about how your collections agency was hassling some old grandmother for a few dollars."

Charrow suggests conducting an annual audit of charge structures and collections practices. An audit can help produce hard numbers on how much revenue those aggressive pricing structures actually bring in. "It’s not easy to go to your boss and tell them you want to lower those high charges for uninsured patients, but an audit might show you that you’re only collecting pennies on the dollar from those people, anyway," he says. "And then you can weigh whether those pennies are worth all the grief and bad publicity from that pricing structure."

Can encourage lawsuits

The fallout from such negative publicity can have very real effects on the health care provider, Liang says. He compares the situation to a well-known fact in risk management: Patients are less likely to sue for malpractice when they trust the physician and believe he or she had the best intentions. "When your image changes, and they see you as transferring charity dollars to for-profit enterprises and going after people aggressively, they’re not going to give you the benefit of the doubt when something goes wrong," he says. "They’ll take you right to the courthouse door."

Liang predicts that the lawsuits will prompt a significant increase in state scrutiny of financing and collections practices. That could lead to large settlements and fines if the hospitals are found to have abused public funds with their tax-exempt status, he says. "The federal government also is going to get involved, looking at abuse of 501(c)(3) status and maybe revoking that status for some hospitals," he says. "Even without revocation, the hospitals could be looking at increased taxes, fines, and millions of dollars in legal fees."