Legal woes persist over hospitals' practices on uninsured billing

Lawsuits and public scrutiny challenge nonprofit hospitals to re-examine and defend policies on billing, debt collection and charity care.

By Amy Snow Landa — Posted Sept. 19, 2005

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More than a year has passed since Mississippi trial lawyer Richard Scruggs and his high-profile legal team launched a wave of class-action lawsuits against nonprofit hospitals. But the jury is still out on whether the litigation blitz ultimately will reap rewards for lawyers and their clients.

Calling themselves the Not-For-Profit Litigation Group, Scruggs' law office and 10 other firms allege that nonprofit hospitals have failed to live up to their obligations as charity providers. They accuse the hospitals of violating their federal tax-exempt status by overcharging uninsured patients, using abusive tactics to collect payment and devoting too little of their revenue to charity care.

When lawsuits filed in federal court met with little success, lawyers shifted most of their cases to state courts. The state lawsuits allege that the hospitals have charged uninsured patients unfair prices and used debt-collection tactics that violate state unfair trade practices and consumer protection laws.

The federal lawsuits ran into early difficulty in October 2004, when a federal judge rejected the Scruggs group's bid to consolidate all of the federal cases into a single proceeding.

Within a few months of that decision, federal judges dismissed more than half of the lawsuits.

Of the approximately 80 federal cases that Scruggs and other lawyers filed, more than 75% have been dismissed, according to the American Hospital Assn., which is tracking the lawsuits and is named as a co-defendant in some of them.

Another setback came in April. North Mississippi Health Services, based in Tupelo, Miss., withdrew from a tentative settlement it reached with Scruggs' group in August 2004. Scruggs then filed suit, but a federal judge dismissed the case on jurisdictional grounds.

Revised tactics

Though rebuffed in the federal courts, Scruggs' team of trial lawyers isn't calling it quits. The group announced in February that its members made the decision to launch a "second offensive" in state courts.

To date, at least 110 state lawsuits have been filed throughout the country, said Maureen Mudron, the AHA's Washington counsel.

State judges have dismissed five of the lawsuits -- four in Georgia and one in North Carolina. But of the more than 50 state court lawsuits that members of the Not-For-Profit Litigation Group filed, at least 10 have withstood motions to dismiss, said Zach Scruggs, an attorney in the Scruggs Law Firm in Oxford, Miss. They include cases against hospital systems in Arkansas, California, Illinois, New Hampshire, Ohio, Oregon and West Virginia.

Prospects for the plaintiffs appear much brighter in state court, said M. Gregg Bloche, a law professor at Georgetown University and a visiting fellow at the Brookings Institution in Washington, D.C. "Different state courts are going to interpret state law differently, but the claims of fraud being pursued in state court have more of a chance than the federal tax claims."

In one state lawsuit filed in a California court, uninsured patients accuse Sutter Health, a nonprofit hospital network in Northern California, of charging them " unreasonable" prices that were allegedly several times higher than rates for insured patients. The defendant's motion to dismiss was denied, and the case is pending.

But Sutter, which denies the allegations against it, filed a counterclaim in August alleging breach of contract by uninsured patients who were treated at Sutter hospitals and did not pay their bills, even though they did not qualify for charity care.

Lawsuits sparking change?

As cases continue to grind their way through the court system, there are some signs that legal pressure and public scrutiny have spurred hospitals to alter their billing and collection practices.

In settling a class-action lawsuit earlier this year, for-profit giant Tenet Healthcare Corp. agreed to offer uninsured patients the same rates it charges managed care patients, for four years. Tenet did not acknowledge any wrongdoing in the settlement, but said it would issue partial refunds to uninsured patients who accused the hospital chain of unfair pricing in 114 of its facilities in 16 states.

Among nonprofit hospitals, some degree of change is also evident, according to Paul Ginsburg, president of the Center for Studying Health System Change in Washington, D.C.

"The thing that has struck me is how many of them are revamping their procedures," he said.

But the wave of change might not be entirely attributable to the lawsuits. Even before Scruggs' group started filing lawsuits in June 2004, the AHA was encouraging its members to review and update their billing and collection practices with respect to the uninsured, AHA spokesperson Alicia Mitchell said.

In December 2003, AHA's board of trustees released guidelines advising hospitals to communicate clearly with patients about charges and billing, and to help patients apply for charity care and financial assistance programs. The guidelines also urged hospitals to make sure charges "are reasonably related to both the cost of the service and to meeting all of the community's health care needs" and that debt collection "is pursued fairly and consistently."

To date, more than 4,300 hospitals have signed a statement that they have met or exceeded AHA guidelines or are in the process of making improvements to meet them, Mitchell said.

But trial attorneys say that's not enough. Calling the guidelines "a nice little public relations ploy," Scruggs said his group's lawyers "haven't seen any evidence of a dramatic shift in hospital practices."

Uninsured patients continue to contact the firm seeking legal assistance, and Scruggs expects to see more cases brought against hospitals in the future. "Once these cases get before a jury," he said, "that's when things will really start to change."

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