When Patients Can’t Pay, Many Hospitals Are Suing

Politicians want to rein in aggressive tactics used by nonprofit hospitals to collect unpaid bills, including suits and garnishing of wages………….


June 25, 2019 9:00 am ET

Carlos Ortiz underwent tests last year at Mary Washington Hospital in Fredericksburg, Va., for dizziness that later was linked to an inner-ear problem.

When the uninsured gardener couldn’t pay his bill of about $15,000, the nonprofit institution took him to court. Mary Washington Hospital and others in Virginia were suing so many other patients that day that Fredericksburg Circuit Court had cleared the docket to hear all the cases.

The patients “were coming one by one in front of the judge,” said Mr. Ortiz, 65, of Locust Grove, Va. “It was sad to see how many people were going through this.”

Nonprofit hospitals—which receive significant tax breaks because of their not-for-profit status—are more likely than for-profit hospitals to garnish the wages of patients, according to a study of Virginia hospitals published Tuesday in the Journal of the American Medical Association. The study examined hospital lawsuits that resulted in wage garnishment for unpaid bills.

In Virginia, where Mary Washington is based, nonprofit hospitals in 2017 filed 20,000 lawsuits against patients for unpaid debt, according to the study led by Dr. Marty Makary, a health-policy professor at Johns Hopkins University.

Bill CollectionThirty-six percent of Virginia hospitalsgarnished wages of patients who had unpaidbills in 2017, with a small number of nonprofithospitals accounting for most of the cases.Percent of hospitals by typeSource: Journal of the American Medical Association

Garnished wagesDid not garnish wagesNonprofitFor-profitGovernment0%100255075

Rather than turn over unpaid bills to debt collectors, some hospitals, including nonprofit ones, sue directly to seek payments. But they say they do so as a last resort. They say they offer payment plans, charity care and price reductions for people who are uninsured.

At Mary Washington, uninsured patients already receive an across-the -board discount of 30%, said Lisa Henry, a spokeswoman for Mary Washington Healthcare, the health system for the hospital and another one. Mary Washington also provides millions of dollars annually in charity care and other community benefits, she said.

“We go to court because we want to get patients to engage with us,” Ms. Henry said. “We do have to pay our bills as a nonprofit.”

The Affordable Care Act, the signature achievement of former President Barack Obama, set new requirements for nonprofit hospitals that were largely expected to curb aggressive collection efforts. These hospitals must post and provide information on their financial-assistance policies and send notices that they are planning to sue. They also must limit the amount charged to the uninsured and wait four months before using stepped-up collection efforts such as filing a lawsuit.

And yet, concerns persist. Congressional and state lawmakers from both political parties say nonprofits hound low-income patients with aggressive collection efforts, even as they enjoy tax-exempt status and their senior executives bring in salaries that rival for-profit organizations. (“Nonprofit” refers to hospitals’ tax status; nonprofit hospitals can, and often do, make a profit. They generally donate to community benefits.)

“While the majority of hospitals make a good-faith attempt to follow these rules, some have not always done so,” said Senate Finance Committee Chairman Chuck Grassley (R., Iowa). “For those that have not, the IRS must conduct a thorough review and determine whether the nonprofit hospital should continue to take advantage of this designation.”

Some Arizona hospitals have put legal claims on their patients’ personal-injury settlements in Medicaid cases. A three-judge panel for the state appeals court in March said the practice, along with the statute allowing it, violated federal law.

University of Kentucky HealthCare, a nonprofit, was sued for using its state revenue department to collect on patient bills. Patients had their state tax returns levied or wages garnished. In February, a Fayette Circuit Court judge ruled against the hospital and the case has been appealed to the state Supreme Court.

When hospitals try to collect fees from patients who aren’t insured or can’t pay, what methods are acceptable and which are too extreme? Join the conversation below.

The Trump administration has pushed for aggressive action aimed at nonprofit-hospital monopolies, but was rebuffed by career staff at the U.S. Treasury Department, according to a person familiar with the negotiations. A White House executive order issued Monday is aimed at forcing hospitals to disclose more information on prices they negotiate with insurers, but falls short of doing more to regulate nonprofits, as some in the administration had advocated.

A proposal from Sens. Lamar Alexander (R., Tenn.) and Patty Murray (D., Wash.) would curb anticompetitive practices under which insurers exclude smaller health systems at the behest of dominant hospitals in a region. Many of those large regional players are nonprofits.

States also are taking aim at nonprofits. The Oregon Senate on June 17 passed legislation requiring nonprofit hospitals to maintain financial- assistance policies that include specific reductions in bills based on a patient’s household income.

In Massachusetts, a state nurses union is backing a proposal that would require some nonprofits that pay large salaries to their chief executives to also contribute to a Medicaid enhancement fund. Nationwide, the mean salaries of chief executives at nonprofit hospitals rose 93% since 2005 to reach $3.1 million in 2015, according to an October 2018 study in Clinical Orthopaedics and Related Research.

Nonprofit hospitals say they are being unfairly maligned, given what they do for their communities.

Nonprofits in 2016 received an estimated $9 billion in federal tax breaks, according to a study by Ernst & Young LLP for the American Hospital Association. But the study said they also provided $95 billion in benefits to their communities. Benefits may include grants to organizations, health fairs, programs to help new, low-income mothers and other efforts aimed at promoting health.

Nonprofits say a big reason patients suffer is outsized bills from doctors, such as anesthesiologists, who are out of a patient’s insurance network but work at the facility. These high charges can make hospitals, including nonprofits, look like they are overcharging.

Hospitals have to re-examine the way this system works, some in the industry said. “Most of the large bills are from physicians,” said Tom Nickels, executive vice president at the American Hospital Association. “We as an industry need to get it fixed.”

The bill-collection practices have spawned patient advocacy groups and volunteer brigades who aid patients being sued. In Virginia, they helped Mr. Ortiz, the gardener. His lawsuit was dropped in May, he said.

“We’re talking about a lot of nasty behavior about an institution that’s supposed to be a community pillar,” said Dr. Makary, who led the report on Virginia legal cases. “The underlying disconnect is how these predatory practice impact low-income patients.”

Lucy Alexander, 39, of Waddy, Ky., a magnetic imaging technologist, said her wages have been garnished, with a hospital taking $100 a month out of her paycheck. She disputes the bill because she said the hernia surgery involved should have been covered by insurance.

“I’m upset about it,” she said. “It was so embarrassing when my HR at work called me down at work and said my wages were garnished. I had to explain what happened.”

Write to Stephanie Armour at stephanie.armour@wsj.com