Hospital Billing Controversy

In General

It has been reported that as many as 48 class action suits have been filed against

some 370 hospitals charging billing abuses involving non-indigent uninsured patients.

Most are in state courts; they all target nonprofit hospitals. Some stress breach of contract; some stress unfair or deceptive trade practices; some stress violations of the hospital’s IRC §501 (c) (3) tax-exemption status. The American Hospital Association is sometimes named as a co-defendant.

The emotional issues are generally stressed. The suffering non-indigent uninsured is fleeced by the bloated-rich hospitals using trickery by their overpaid hospital officers all contrary to the letter and spirit of the hospital’s tax-exempt mandates.

It has been reported that the IRS is, or soon might be, conducting an investigation into the alleged tax-status of some of these nonprofit hospitals.

The consensus among hospital administrators is that the hospital billing system is sick. They would obviously prefer having it fixed institutionally rather than by litigation. What may be happening is a flood of litigation which will be similar to the tobacco litigations.

The core issue is that the inherent discrepancy between four hospital sticker prices:

1. Government-paid
2. Employer-paid
3. Self-paid (uninsured)
4. Charity-paid.

The billing problems being confronted by the non-indigent uninsured hospital patient is huge. The problem will grow larger since the number of non-indigent uninsured will grow larger.

One of the dark secrets which must be faced and to date has been ignored is this: Medicare and Medicaid are to a great extent at fault. This is because, in being such huge buyers, these systems pay a sticker price less than cost. It is for this reason that many people opine that the health care reimbursement system is broken and must be fixed.

Analysis of Litigation

Typical Class Action Suit

The typical class action suit complains that uninsured patients at a nonprofit hospital were victims of a scheme by which they were billed much higher charges than either government-paid or employer-paid patients. Being non-indigent, such patients failed to qualify as charity patients. As a result, such patients were presented with bills far in excess of what would be deemed fair or reasonable.

In support of its requested relief, the complaint would typically cite several infractions of law:

1. Violations were made of the state’s Unfair and Deceptive Trade Practices Act naming the token plaintiff and all those similarly situated as the victims. Issues of quality or quantity of hospital services are not involved.
2. The nonprofit status of the hospital is challenged emphasizing these facts:
• Only a minuscule portion of the hospital’s expenditures were for charity
• The hospital was very profitable with huge benefits going to its officers.
• Of the four types of hospital patients (government-paid, employer-paid, charity and uninsured) only the uninsured is subject to hospital victimization in that the sticker prices for their care are not subject to either publication or negotiation.
• Evidence exists that such uninsured sticker prices are not set in any way other than to self-serve the hospital when it files for Medicare-reimbursement under the so-called outlier program. The complicated Medicare reimbursement formulas permit the hospital to inflate its losses from uninsured patients thereby inflating what it is able to recover from the Medicare program under the outlier formulas. That is, the purposeful and unjusted overcharging of the uninsured patient is converted into an economic positive for the hospital.
• The hospital further exacerbated its bad faith by overaggressive patient bill collection tactics which involved, but were not limited to, placing liens on patient’s homes, destroying credit ratings, etc.
• The hospital was in violation of its federal tax-shelter being a IRC §501 (c) (3) hospital.

3. The nonprofit hospital violated the federal Emergency Medical Treatment and Active Labor Acts by failing to provide emergency medical care without regard to the ability of individuals to pay for such care. The defendant hospital violated this federal law by requiring all uninsured patients, including Plaintiffs of the Class, to sign a written agreement agreeing to pay all medical charges not covered by insurance before it will provide them any emergency medical care. The defendant hospital benefits from this violation not only by obtaining an agreement from the uninsured to pay for emergency medical care that they may not be required to pay for, but also by intimidating others from even pursuing emergency medical care at the defendant hospital that they are entitled to receive under such act. Plaintiffs and the class are alleged to have suffered personal harm as a result of these violations by the defendant hospital. The lawsuit alleges that the defendant hospital has amassed hundreds of millions of dollars in cash and marketable securities that should be available, but is has not provided, to ensure affordable or charitable care of the uninsured whose care was contemplated by the provision of the charitable, non-profit tax exemption that the defendant hospital enjoys.

Central to the complaint would be these issues:

• The hospitals’ sticker prices were non-disclosed; i.e.; a cloak of alleged secrecy existed.
• The hospital practiced bad faith when the patient admission agreement, with undisclosed fees became, in effect, a blank check signed in advance by the patient. The bad faith actually occurred when the hospital did, in fact, overcharge the patient.

The court typically must grapple with these issues:

1. Were the hospital charges in violation of the admission contract?
2. Were the hospital charges unreasonable and unconsciousable?
3. Was the hospital unjustly enriched by its actions?
4. Did the hospital act unfairly and/or deceptively?
5. Are patients eligible for restitution?
6. Is an injunction ruling in order?
7. Is a class action justified?
8. What legal theories might apply?

§ Breach of contact

§ Unjust enrichment

§ Violation of IRC §501 (c) (3)

§ Unfair and deceptive trade practices.

The complaint would typically seek relief from the court in these ways:

1. Certification of class action

2. Compensable and treble damages of at least $10,000

3. Restitution to patients

4. Injunction for the hospital to cease and desist

5. Reimbursement of legal fees.

Relevant Rhetoric is Ugly

Charges being leveled against the hospitals, outside of the court room, are becoming rather ugly. Some samples:

1. “Billing abuses and wrongdoings are widespread throughout the nonprofit hospital industry.”
2. “We are becoming painfully aware that many nonprofit hospitals, benefiting from the cross-pollination of information from the AHA, are not meeting the needs of the communities they serve but rather are catering to the special interest groups.”
3. “To cover up their actions, such hospitals often engage in manipulative accounting, less than full disclosure and public misinformation campaigns.”
4. “Such hospitals are reaping hundreds of millions of dollars in tax benefits but not living up to their end of the obligation in return for these tax benefits; i.e., charitable health care to the uninsured. In effect, the wrongdoers are having the taxpayers underwrite their actions.”
5. The adjective nonprofit is counterfeit; such hospitals while garnishing the wages of its uninsured patients, compensates and/or contributes excess of six-figure incomes to many of its executives.”

Response from the Defendant Hospital

As the target of the class actions, such defendants do have a rational defense and may properly claim much virtue. Their views are of great importance.

The hospitals couch the issues as follows:

• Hospitals vary their sticker prices and are therefore discriminatory but do so with economic justification.
• Many uninsured patients can well afford to pay and are definitely not indigent.
• Litigation is costly and detracts from the hospital being able to provide the requisite care to its patients.
• Ethos of hospitals being expected to provide free care will only destroy the present health care financing framework.

The hospital-related economics must be reviewed:

• The fundamental and necessary principle in healthcare economics is the concept of cost-shifting to the private sector to compensate for government under-funding of Medicare, Medicaid and the uninsured.
• In general, hospitals across the country have one set of charges for all patients.
• Furthermore, hospitals generally lose money on every single Medicaid or Medicare patient (although this varies from hospital to hospital).
• Therefore, to remain financially viable, hospital must collect a greater percentage of their charges from payors, such as managed care companies, to make up the difference for government payors that do not cost of providing care and for those who pay nothing at all.
• Experts argue that hospitals set charges above the cost of providing care, but that most patients don’t pay these prices because insurance companies negotiate discounts and government payers set lower reimbursements.
• Additionally, non-profit hospitals historically lose more or break even on some services to carry out their mission, so they must make money on others to remain stable.
• Charity care represents patients who are not able to pay. In most healthcare organizations, the vast majority of the debt expenses also represents charity care for patients that fail to apply for charity or do not cooperate with staff.
• The problem at hand is not a hospital billing problem but rather a larger societal problem.

Restraint of Trade Issue

None of the class action litigations cite on their litany of complaints a restraint of trade infraction. This omission may not be correct.

1. 15 USC ch 1 § 13 forbids discrimination in prices or services which tend to lessen competition unless such discrimination is economically justified.
2. When John, a non-indigent uninsured patient of Dr. Jones, is admitted to Hospital A with no effective choice in the matter by John, Dr. Jones or Hospital A is there a tying agreement? When John is surprised by a bill much larger than comparable bills with insured patients and has no choice in the matter and as a consequence must face bankruptcy, might this be deemed an assault on competition?

The writer has the right to ask the questions but does not offer any answers.

Conclusions

The writer is concerned with these class action law suits for the following reasons:

1. They will not go away and will eventually end up on the Supreme Court with an uncertain conclusion. This we do not need with our many present challenges.
2. The class action suits might be modified to include a restraint of trade infraction as one of their complaints.
3. The multiple class actions joined with the consensus that our present hospital billing system is in disrepair could be one more argument for Congress to go to a single payer system.