Hospital files counterclaim, predicts lawsuits will fizzle

Some hospitals targeted by the spate of lawsuits against charity health care providers are fighting back, and one hospital executive tells Healthcare Risk Management that he expects the legal brouhaha to die out soon without any major payouts.

Florida Hospital, part of the nonprofit Adventist Health System, recently filed a counterclaim against Nicolas Arzate, a plaintiff in the national litigation spearheaded by attorney Richard Scruggs, JD. The Florida Hospital suit seeks more than $12,000 for a disputed hospital bill for an appendectomy. While risk managers and defense attorneys may see the move as appropriate in the face of the aggressive lawsuits, the counterclaim by the hospital made it a target for even more criticism of its policies.

The move, a first since the litigation began in June, immediately drew fire from the Consejo de Latinos Unidos, a national nonprofit organization that educates and assists minorities and the uninsured. K.B. Forbes, executive director of the Consejo, says, "Florida Hospital proved that they are a heartless organization and that they will sue anyone, anywhere to collect on these outrageously high hospital bills."

She goes on to say that the hospital "appears to seek the inalienable right to price gouge and financially destroy middle-class Americans, like the Arzate family. Florida Hospital’s legal actions are nothing more than a disgraceful example of corporate greed."

Counterclaim required by statute

Not at all, says Richard Morrison, regional vice president of government relations for Adventist. He can’t comment specifically on Arzate’s case, but he says the counterclaim against Arzate is required by statute as part of the hospital’s defense against the claim, he says. It does not represent any malice toward the plaintiff or a desire to punish him for filing the lawsuit, Morrison says. "It’s called a mandatory counterclaim," he says. "We didn’t have any choice in whether to file it."

Morrison notes that there was no lawsuit against Arzate seeking payment. In every case in which Scruggs is alleging unfair treatment, Morrison says Florida Hospital still is owed money and had not sued the patient for payment.

But the criticism from Consejo is just the latest round of claims that Florida Hospital, and the other defendants in the lawsuits, are heartless and only want to squeeze money out of people who don’t have it. Observers have noted that the lawsuits were spawned in part by the way some hospitals, not necessarily Florida Hospital, were too aggressive in pursuing payment from indigent patients. Poor oversight of debt collectors has been cited as one failing by hospitals because the collection practices still are done in the name of the hospital even if a completely separate company is making the harassing phone calls.

Collection sometimes necessary

Nevertheless, Morrison says, hospitals are left with a tough choice when it comes to debt collection. No one likes to pursue patients over unpaid bills, but sometimes the hospital is forced into that position, he says. "We tried to make contact with the patients to have them provide us with financial statements so we could get them qualified for discounts or Medicaid or other things, and there is a limit to what we can do when people do not cooperate with us," he says. "You’re left with no other option but to pursue the debt through collections until you’re shown otherwise, that the person cannot afford to pay it."

According to the Consejo, Medicare would have paid $4,018.58 for Arzate’s appendectomy while a typical insurance company would have paid $4,498.46. Arzate was charged $14,853.47 — more than $10,000 more for the same care. Arzate made three payments totaling $2,200. The hospital is seeking $12,653.47.

Forbes says Florida Hospital appears to have demanded monthly payments of $1,000 after Arzate made an initial payment of $200. She characterizes Florida Hospital’s collection practices as "vicious for a faith-based, so-called Christian’ organization."

The Arzate family met with lawyers of the law offices of Archie Lamb in June 2004 and filed suit shortly thereafter. Lamb is affiliated with the Scruggs group. In November 2004, the Consejo dispatched a letter to the Internal Revenue Service asking them to investigate and revoke Adventist Health System’s nonprofit status.

While some say the complaints about the details of debt collection practices and some of the price differential for insured and uninsured patients are legitimate, Morrison says the charity lawsuits are not having the impact that some risk managers may have feared when they were first filed.

"We’re hoping that our court will be consistent with what other courts have done and toss these lawsuits out," he says. "They’ve been dismissed in four states and all on the same basis, that there is no legal basis for them bringing this action as it relates to any sort of implied contract about not-for-profits. The whole legal theory is just not holding up in court."

Monitor debt collection closely

Morrison says one lesson for the industry is that hospitals must be more proactive about their charity and discount policies. "We have to work harder up front to let them know what information we need to verify their financial situation. It would be so much better if we could get that kind of cooperation up front so we can steer them toward the right kind of help instead of using all our resources on the back end to try to collect a debt, and then eventually find out that it can’t be collected," he says.

Morrison also suggests monitoring debt collection agencies very closely. Pay particular attention if a collection agency is generating a lot of complaints. Don’t get caught up in the legal separation between your hospital and the collection agency, he says. Your name is firmly attached to that debt, so anything the collection agency does to collect it will come back to you.

"You can’t say you didn’t know what they were doing," he says. "In the last 10 years, we let one agency go because we do have standards. We don’t let them call people on weekends, for instance, because it violates our view of what the Sabbath is. Whatever your standards are for respecting people, you have to enforce that with the agencies."