Revocations of local property tax exemptions, class action lawsuits
and state and Congressional investigations all beset the industry…

Are ambiguous government regulations to blame?
Is large-scale payment reform the real answer?

By James J. Unland                                                         

The widely reported revocation of a Champaign, Illinois hospital’s property tax exemption by the Champaign County Board in February, 2004—a decision enthusiastically supported by the State of Illinois Department of Revenue pending administrative hearings—sent justifiable ripples of concern through the nation’s not-for-profit hospital sector as well as in investment banking circles, particularly in light of other concurrent and subsequent events at the local, state and federal levels. All of these events point to concerns about the ‘charitable purposes’ of community hospitals and, in particular, billing and collections practices with respect to people who are uninsured, underinsured or otherwise ‘medically indigent.’ To wit:

The breadth, scope and time frame of these events motivated me to interview dozens of people, including members of both the Champaign County and North Attleborough property tax review boards, executives of several of the affected hospital systems, officials of hospital associations including the AHA, officials of healthcare professional trade associations such as the HFMA, other state and local officials, congressional staff members and numerous hospital and hospital system CFOs. The findings of these interviews—many of which were taped on the record—as well as implications for hospitals’ top management and boards are presented here.

All of the parties in Champaign County, Illinois including all three members of the tax review board established conclusively that the singular precipitating factor in galvanizing the local tax board to review the exempt status of the two local not-for-profit community hospitals revolved around billing and collection practices, particularly allegations that the local hospitals, Provena Covenant and Carle Foundation, were overcharging uninsured and otherwise medically indigent patients and then pursuing aggressive collection efforts against these patients. Similar allegations are present in both the Cook County and Connecticut class action lawsuits.

All U. S. hospitals need to be aware that not only are billing and collection practices by hospitals potentially discoverable by the press, but the events in Champaign County have now attracted the attention of other counties’ officials and many community groups throughout the U.S. who are advocates for better access to health care on the part of the medically indigent population. These groups can freely enter courthouses and research how many people have been sued by hospitals, identifying people considered medically indigent who, in turn, can then be sought out and interviewed, each bringing his or her experience palpably to life.

On-the-record interviews conducted in February and March, 2004 reveal that all three of the tax board members in Champaign County were moved by ordinary citizens’ descriptions of alleged billing and collections abuses. Officials interviewed with the State of Illinois Department of Revenue were also interviewed and expressed clear concern. Of significance is that in Champaign County the actual case studies of people being sued by hospitals were brought to light by a Champaign-Urbana community group with the resulting publicity attracting the local taxing board’s (and media’s) attention. In fact, there are now between 1,200 and 2,000 community groups in the U.S. with a keen interest in access to health care by the uninsured and underinsured, all of whom have the capability and, in light of recent developments, the incentive to go to local courthouses and study publicly available records about lawsuits brought against patients by hospitals and, in some instances, hospital-affiliated doctors.

Of at least equal significance, once the Champaign County tax review board delved into the ‘charity care’ and other financial and operating information of Provena Covenant, the board greatly broadened its purview of concern to encompass the hospital’s contracts with physician groups, a laboratory management company and other ‘contracted’ entities, concluding that these entities were ‘making a profit on charitable property.’
In addition, in a finding that in itself has investment banking implications, the local tax board determined that the Catholic hospital was ‘transferring profits out of the community’ to a corporate headquarters, a move that county officials found to be ‘hypocritical at best’ in that during this same time the local hospital was allegedly suing medically indigent patients. Finally, the tax board expressed disapproval that funds were being transferred by the not-for-profit corporate headquarters of the multi-hospital Catholic system to for-profit subsidiaries.
Although originally not the subject of a class action lawsuit, Provena Covenant and its parent hospital system, Provena Health, are now one of the groups of defendants in the national class action lawsuits brought in federal courts by Richard Scruggs’ legal team in June of 2004. Many of the same issues brought to light first by the Champaign County community group and then by the Champaign County Board of Review are contained in the complaints filed in federal courts against various hospital systems throughout the U.S. As was the case with respect to the Champaign County Board of Review, the issues of pricing/billing/collections/lawsuits appear to have opened the door to much broader issues relating to alleged misuse of funds, breach of charitable purpose, overaccumulation of profits, for-profit enterprises and related matters.

There is some good news out of Champaign County, Illinois. It is noteworthy that both the management team and the actions of Provena Covenant Medical Center in Urbana, Illinois have changed markedly even notwithstanding its status awaiting hearings with the Illinois Department of Revenue and Provena’s status in respect to the broader ‘tobacco lawyers’ class action lawsuits. If the local community group’s research activities at courthouses and related news conferences were an attempt to place a wake-up call, Provena Covenant’s new CEO and CFO did answer the phone, to the point of revising charity care policies and even establishing a joint ‘medical debt committee/task force’ with the local community group (The Champaign County Health Care Consumers) that meets regularly to review medical debt cases and attempt to avert lawsuits and other aggressive collection efforts.

Additional jointly developed innovations are now expected to emerge out of what was, at one time, a disastrous community relations situation. Testimony to the progress made in this situation is the fact that the executive director of the local community group publicly stated that Provena Covenant itself should not have been named in the tobacco lawyers’ class action suit.

Halfway across the nation from Champaign, Illinois the Town of North Attleborough, Massachusetts has successfully revoked the property tax exemption of a not-for-profit physicians’ clinic affiliated with a 501(c)(3) hospital as evidenced by a recent appeals court decision. I was able to reach the Chairman of the local North Attleborough tax board, who commented on all of this in a taped interview.

Although the allegation of a health care provider suing its patients was not per se at issue in the North Attleborough situation, concerns about access to care, pricing of services and contractual arrangements between a medical group and a hospital were at issue. Of particular concern to the tax board, according to its Chairman, were two matters: first, the fact that the physicians’ group did not have a ‘charity care policy’ involving the provision of charity care and discounted fees to patients; and second, the fact that the group’s clinic had no ‘walk-in’ availability for patients who were uninsured. He also mentioned ‘physicians being paid bonuses’ and other business activities and relationships among organizations that are ‘supposed to be charitable in both their purpose and their use.’

Of more than passing interest was the nearly uncanny similarity of the interviews with both local tax boards—in Champaign County, Illinois and North Attleborough, Massachusetts—none of whom knew what the other was doing or had ever been in touch. If I literally switched the tapes of the Illinois and Massachusetts interviews, except for the different regional accents of the people interviewed the attitudes about the provision of ‘charity care’ and the treatment of the uninsured or medically indigent are virtually identical.

Moreover, the local officials shared several other characteristics in common:

-- First, they were clearly not taking their duties or the implications of their findings lightly. Contrary to what some in the hospital industry might want to believe, these people are not uneducated farmers who, bored during the winter months, are trying to stir up trouble in the hospital industry by capriciously shaking down nearby community hospitals. All of the local officials whom I interviewed were intimately familiar with the facts, the applicable statutes and the case law in respect to the issues of concern to them.

-- Second, the initial precipitating factor leading to their local investigations had to do with access to discounted fees and charity care at a 501(c)(3) facility. The sensitivity of this matter in the minds of the local and state officials whom I interviewed cannot be overstated.

-- Third, once they became interested in the charity care/pricing/billing/collection activities of the local health care provider, these officials greatly broadened the scope of their investigations and, in turn, expanded the scope of their concerns in relation to all kinds of business arrangements entered into by ‘charitable organizations’ up to and including the structure of the organizations themselves, especially in relation to the arrangements between not-for-profit entities and for-profit entities inclusive of for-profit subsidiaries and/or affiliated corporations.

-- Fourth, the local and state officials whom I interviewed not only were unimpressed by my suggestion that the 501(c)(3) organizations very likely took pains to conform to federal regulations governing hospital pricing, reimbursement, business arrangements with doctors and the establishment of for-profit subsidiaries but in a few instances they bristled at my implication. The phrase ‘we have state laws and local review authority’ was repeated numerous times, their clear message to me being that the fact of a not-for-profit provider comporting with federal laws and regulations was, to them, little more than a backdrop and not really relevant to their situation or their perception of the responsibilities of their respective positions.

-- Finally, my assertion to the local and state officials that certain hospital industry practices were commonplace if not universal—for example, paying bonuses to employed physicians or contracting with emergency physician groups—provoked a typical reaction summarized by one board member’s comment that ‘if they can get away with it, that’s nice for them I guess but here in Champaign County we take these things seriously.’ As with the issue of the possession of a federal 501(c)(3) designation, the fact that certain business arrangements between not-for-profit health care providers and medical groups or for-profit subsidiaries might be pervasive in the industry and in compliance with federal guidelines, this mattered little to local and state officials in their examinations of whether a not-for-profit organization’s property was ‘in exempt ownership’ or ‘in exempt use’ from their perspective.

Ordinary citizens do not require hospital reimbursement expertise to grasp what one Catholic hospital patient called the ‘disgusting hypocrisy’ of community hospitals ‘overcharging and then suing’ their uninsured or underinsured patients, wittingly or unwittingly leaving what one community leader called a ‘wake of personal financial destruction.’ People can easily fathom what it means to be sued, have liens attached, have one’s credit ruined or declare bankruptcy, and the general media are all too willing to publicize such experiences.

Leaving aside the devastating public relations impact that these practices can have, in at least two states—Connecticut and Illinois—the attention to these practices raised by community groups and affected patients has gone much farther. In late 2003 class action lawsuits were filed against not-for-profit community hospitals alleging that, among other things, the hospitals failed to inform uninsured or medically indigent people about charity care and then, subsequently, sued them when they could not or did not pay undiscounted hospital prices following allegedly aggressive collection efforts.

I was able to interview numerous individuals and review court documents in both the Illinois and Massachusetts state cases. One of the more disturbing features of these lawsuits is that in addition to alleging breaches of charitable hospitals’ fiduciary duty to their patients, the plaintiffs accuse hospitals of violating state consumer fraud statutes, the significance of this being that if "fraudulent concealment" is proven and upheld, the statute of limitations may no longer apply, in which case claims could be brought going back many years.

Regardless how many years the two extant (at this writing) state class action suits could reach back and irrespective of the applicability of the statue of limitations, these lawsuits alleging violation of state consumer fraud statutes have the potential to spread to other jurisdictions, propelled at least in part by the same kind of on-the-spot courthouse research undertaken in New Haven, Connecticut, Cook County, Illinois and Champaign County, Illinois, surfacing countless affected plaintiffs and resulting in, at a minimum, disclosure of significant contingent liabilities.

Class action lawsuits on behalf of thousands of patients who were sued by community hospitals over many years evoke a special anxiety when one contemplates the June 2004 entry of the tobacco plaintiffs’ lawyers onto the scene. At first the tobacco suits were thought to be logistically impossible to undertake, too far-fetched to win, even outright crazy. Yet they happened, they were coordinated and they resulted in multi-billion dollar settlements, all of this at a time when many plaintiffs in those lawsuits were dead or otherwise unable to testify.

No so in this instance. In fact, the tobacco class action lawyers have, not surprisingly, requested jury trials recognizing that most of the people affected by hospital collection practices and lawsuits are not dead even though their access to credit may now be. The affected persons are alive to testify in their own voices, tote hospital bills into courts and poignantly tell their stories in the same way that people’s experiences publicly related at press conferences in Champaign County, Illinois clearly moved the individual members of the Champaign County Board of Review to delve into two hospitals’ charity care and collection policies.

The point is that large-scale, emotionally charged class action lawsuits—whether coordinated nationally or brought regionally—could result in hospitals not only having to make full monetary restitution but also being required to restore people’s credit ratings and pay punitive damages, especially if "fraudulent concealment" is substantiated. Even more, the proliferation of these lawsuits in themselves could attract so much attention as to propel more counties and states—encouraged to look into hospitals’ charity care policies by local community groups—to revoke hospitals’ tax exemptions.

The vision of class action lawsuits and county taxing bodies feeding off one another is a hospital credit analyst’s nightmare even aside from issues with Congress.

Class action lawsuits pose special legal concerns in the context of hospital capital financing leaving aside their potential to wreak actual damages in the tens of millions or hundreds of millions of dollars. For example, the mere existence of such a lawsuit—even before the commencement of a trial—could force the defendant’s potential ‘contingent liabilities’ to be valued in order for bond counsel, underwriters’ counsel, rating agencies or even institutional bondholders to obtain full disclosure of financial risks to bondholders, irrespective of whether or not a hospital’s management and lawyers feel confident in their legal position at trial.

The valuation of such contingent liabilities, while obviously involving some unknowns, would likely end up with a range of values depending upon: (a) the anticipated applicability of the statute of limitations, (b) the numbers of people sued or pursued by allegedly aggressive collection efforts who could be classified as otherwise eligible for ‘charity care’ in whole or in part at the time they were treated by the hospital, (c) the issue of whether charity care was available and not disclosed to the patients at the time—in other words, whether ‘fraudulent concealment’ might have been at issue—with implications for punitive damages and statutory fraud penalties imposed by attorneys general, (d) the amounts of debt and interest collected from such patients, (e) the retrospective damage, if any, to people’s credit ratings by these incidents and (f) the estimate of a range of ‘punitive damages’ or other possible settlements with a class of plaintiffs.

The entry of the tobacco class action lawyers cannot be taken lightly notwithstanding some of the shortcomings of their initial complaints and some of their initial remarks evidencing what might diplomatically be termed less than sophisticated understanding of the hospital business and credit fundamentals. That said, these lawyers brought down a determined and resourceful tobacco industry and cannot in any case be taken lightly or dismissed as naïve. At this writing, it is too early to tell exactly what the class action lawyers expect to accomplish in federal court or how many of the counts in the complaints will ‘stick.’ My own view is that the state class action lawsuits alleging fraudulent concealment based on the consumer fraud statutes are, at the moment, potentially graver matters.

As a separate matter, several colleagues and I will be releasing a detailed assessment of the tobacco lawyers’ complaints in the near future.

My health industry colleagues and I entered the fall of 2003 (prior to the filing of the first class action lawsuits) already quite concerned about community hospitals. Even though attention is again being paid to many of the same health reform issues of a decade ago—the growing numbers of uninsured, persistent health care inflation, state Medicaid shortfalls and the costs to businesses of maintaining health care coverage for their employees—one issue not in the forefront is the continued core viability, and in some cases survivability, of this nation’s several thousand community hospitals who now face unprecedented challenges—especially accessing capital—at the onset of an era when they will be needed most.

Although large, publicly held hospital corporations such as HCA, Tenet and HealthSouth often produce sensational press stories, the overwhelming majority of U.S. hospitals remain not-for-profit community hospitals that continue to unglamorously provide the preponderance of medical care in this country. Not only do these 4,000 plus community hospitals continue to represent the largest single component among health care providers, this sector continues to be the provider of most emergency services and many other community health services and remains, too often, the last line of defense for people who are uninsured or underinsured—a major underlying cause of the latest billing/collection problems. Yet crucial though they are to our health care system, many community hospitals now face at least four other threats from forces converging in real time apart from challenges to their exempt status and class action lawsuits.

Threat #1: Ever-Present Imbalanced Reimbursement

The first threat to hospital viability is what seems to be a timeless problem, an imbalance in reimbursement for services as well as erratic reimbursement. In addition, the ‘medically indigent’ uninsured and underinsured population has grown, now comprising 20% of the population and, worse, consuming disproportionate services resulting largely from their limited treatment options that too often cause them to turn to hospital emergency departments.

Fundamental to the reimbursement stress on community hospitals is that in this country sick or injured people are not turned away from hospitals. In fact, hospitals are required to take all comers, and in that sense, do not operate in a ‘free market’ by any stretch of the imagination. People get treated whether they have insurance or not—and, in fact, whether they are U.S. citizens or not—and hospitals often end up caring for the uninsured while, at the same time, pricing their services so as to recover these lost revenues through reimbursement from the private insurance community and corporate health plans, leading of course to many of the criticisms about hospital pricing.

Hospitals cost shift in two ways: the first type of cost shift, known as a ‘payor-to-payor’ cost shift, is a relatively well known cross-subsidy. Another much less known and often little understood type of cost shift is the ‘inter-procedure’ or ‘inter-case’ cost shift. This occurs when hospitals seek higher procedure-specific reimbursement for cardiac surgery, orthopedic surgery, etc. as compared with the reimbursement sought for more routine medical-surgical services.

Bottom line on the first threat to hospitals: (a) the level of relative reimbursements to hospitals remains erratic and (b) the jerry-rigged systems of cross-subsidizations and cost shifts cause community hospitals to be persistently vulnerable to the slightest change just as would be a mountain climber perched on a windy, icy mountain precipice.

Threat #2: A Competitive Disadvantage in a ‘Not Free’ Market

Even though the issue of cost-shifting was briefly discussed above, special mention needs to be made of the threat to community hospitals’ viability from the growing numbers of uninsured and underinsured within the context of a competitive disadvantage.

Fundamental to this threat is that hospitals do not operate in a competitive, level health care market. Unlike any other health care provider, hospitals are required to treat anyone who walks into an emergency room: the uninsured, the underinsured, the unemployed, the gang bangers, the drug addicts, the prostitutes, the gunshot victims, those in accidents, illegal and undocumented aliens….absolutely anyone.

Are physicians required to treat anyone who walks in? No. Are surgicenters? No. Family doctors? Internists? Allergists? Oncologists? Cardiologists? Orthopaedic surgeons? No. Is anyone who walks into a Wal Mart or Best Buy deserving of a television set even if they cannot afford one, and are these stores compelled by law to give them one? No.

One tragically ironic feature of the present billing/collection/charity care controversy is that hospitals realistically collect only a tiny amount of money—or ‘net yield’—from treating the uninsured and underinsured.

The point is that the law compels community hospitals to treat anyone who walks in, placing hospitals in an inherently noncompetitive position notwithstanding that community hospitals should prudently screen people for charity care and discounts within their resources.

Threat #3: Declining Access to Capital

Whether a hospital is for-profit or not-for-profit, hospitals cannot satisfy the credit gatekeepers in order to borrow money to keep facilities and equipment up to date without demonstrating the ability to earn a positive net cash flow over a predictably consistent period of time.

Sound hospital valuation principles hold that hospital buildings and equipment, because they are so specialized, really have little or no value—despite their tens of millions of dollars in required capital cost—except in connection with hospital operations. Hospitals acquire the ability to borrow not by putting limited-use facilities and high-tech body scanners on their balance sheets but by generating positive cash flow and by being able to demonstrate to credit gatekeepers the reasonable assurance of the relative stability of its continuation. Thus, if cash flows in the hospital industry take an unpredictable or declining turn, the rating agencies who rate hospital debt, the bond insurance companies who insure hospital bonds, credit valuation experts and, most important, the institutional investors who invest in such debt become more cautious, if not alienated.

This is exactly what has happened during the past few years, especially in the not-for-profit community hospital sector. Access to capital by not-for-profit community hospitals has become tighter and is expected to remain tight as a result of several factors, not the least of which were some spectacularly disastrous and widely publicized hospital bond defaults of the late 1990s whose ripple effects are still being felt. In addition—and on a note that is most troubling—the actual number of bond funds and other institutions investing in hospital debt for major capital projects has declined while, at the same time, the credit standards hospitals must now meet in order to be considered ‘investment grade’ are more stringent than ever.

All of this has happened at a time when the average age of hospital facilities has increased by 19% since 1990 along with the average age and the more intense expected health care needs of the U.S. population—not a good combination.

Leaving aside whether Congressman Bill Thomas decides to punish hospitals by removing their tax-exempt status, just on the basis of the issue of capital access apart from the charity care and collections controversies, some experts are starting to ask questions that one would have considered ridiculous a few years ago:

These questions remain to be answered but are not posed here frivolously.

Threat #4: Physician-Driven Dilution of Hospital Revenue

Perhaps the most ominous threat to hospitals in many communities—at least under our present reimbursement system—may actually be members of their own medical staffs, especially in high reimbursement specialties where physicians have been (a) steadily increasing the capture of ‘cases’ by performing tests and procedures in their own offices, (b) capturing ever more cases through the ownership or co-ownership of ambulatory surgery centers (known as "ASCs") and even (c) establishing their own ‘specialty hospitals,’ enabled at least in part by the ‘whole hospital exemption’ pursuant to physician self-referral regulations.

Physicians have owned their own diagnostic centers and ambulatory surgery centers for some time. However, the range of tests and procedures that are performed both in-office and in ASCs is continually increasing. The revenue impact on hospitals varies widely. In some areas these forays by physicians have minor effects upon hospitals that, themselves, devote significant resources to their own ‘outpatient centers’ and ‘ambulatory service centers.’ In other instances, hospital CFOs complain that their own physicians are gradually whittling away at their revenue base amidst a disadvantageous competitive position as described above.

The advent of physician-owned inpatient ‘specialty hospitals’ presents an even more pronounced problem for community hospitals. Moving beyond their longstanding ownership of outpatient surgery and diagnostic centers, specialists in disciplines such as cardiology, orthopedics, neurosurgery other specialties— weary of dividing power and money with hospital administrators and in an unabashed desire to control the life cycle of medical episodes and the concomitant revenue—have established full-scale inpatient specialty hospitals or ‘niche hospitals,’ referring patients exclusively to these hospitals and away from community hospitals.

Although one can be sympathetic to specialty physicians’ desire to control their surgical schedules and to exercise more control over the quality of care in respect to a singular medical specialty focus, the advent of a specialty hospital—especially in high reimbursement specialties—can be an alarming development for many community hospitals and has the potential, in some circumstances, to literally render a hospital untenable or force cutbacks in major community benefit services such as emergency care. Separate studies by others and myself indicate the potential for a marked, even stunning, dilution of revenue from full-service community hospitals in favor of high-ROI specialty hospitals most of which are not required to treat all comers.

Which leads me back to an underlying cause of these controversies about collections and charity care:
hospitals, singularly, must treat all who come to their doors.

Not surprisingly, so many issues are on the plates of hospital CFOs that whether and the extent to which these issues—challenges to exempt status, questions about ‘charity care,’ activities of community groups, investigations of local tax review bodies—are of concern depends partially on their hospital’s geographic location in the U.S., their corporate status (not-for-profit vs. for-profit), the degree of attention of lack of attention to these issues in their local press, the degree of focus on any of these issues by local and county officials and many other factors not the least of which is whether they are in a hospital system that is now being sued by the tobacco lawyers.

The CFOs with whom I conducted off-the-record interviews fell into a few categories:

Despite the differences among hospital CFOs in respect to their immediate levels of concern surrounding these issues, some common findings did emerge from my interviews and discussions:

As much as one might hope for truly national governmental definitions of ‘charity care’ and ‘charitable purpose’ that are detailed, practical and explicit—supported by hospitals and community groups alike—this is unlikely. In any event, our nation’s counties and states can clearly be expected to continue to be protective of their respective dominions in regards to oversight of community hospitals’ exempt status. Hence, hospitals need to be realistic about what can and cannot be done at the national, industry-wide level and, instead, focus more upon what can be done state-by-state, county-by-county and community-by-community.

Conceptually, I encourage everyone to think of these issues and controversies as bifurcated, as having two main ‘branches’ if you will:

(a) Those issues relating to the business and structural arrangements of 501(c)(3) hospitals separate and apart from ‘charity care’ matters, arrangements such as hospital-physician contracts, alleged hospital ‘profit making,’ hospital for-profit subsidiaries and relations between local hospitals that are members of ‘systems’ and the ‘system headquarters’ within the context of the perception that hospitals ‘transfer money out of our community.’

(b) Those issues relating to the provision of ‘charity care’ and, in this regard, relating to the pricing/billing/collections concerns of uninsured, underinsured and otherwise medically indigent patients as well as the concerns of community groups representing them.

I’m suggesting that these two general ‘branches’ although related to some extent, are quite distinct even though both areas can be and have been embraced by local county boards’ investigations of not-for-profit community hospitals and, now, class action lawyers.

I might also suggest that the first of the two areas, ‘a’ above, is a general area that can and should be addressed immediately in dialogues between a community hospital and local governmental officials as well as community groups, in that the business arrangements of the vast majority of hospitals do have a rational purpose that can be explained. My view is that 90% of the issues in branch ‘a’ above can be explained, understood and accepted and that notwithstanding what local officials say about the distinction between federal and state laws, the compliance efforts of hospitals in the federal realm will, once explained, go a long way toward mitigating challenges to exempt status based on ‘business arrangements’ between, for example, hospitals and emergency room physician groups.

‘B’ above—the entire area of ‘charity care’ and particularly as correlated with the area of billing and collections—is a more difficult matter for everyone: the patients, the hospitals and the community. For one thing, it is an area requiring hospitals to address both ‘macro’ and ‘micro’ issues. An example of a ‘macro’ issue is answering the question: how much ‘charity care’ can our particular hospital afford to provide given our financial condition, reserves and foundation endowment, and can we offer special discounts and extended payments plans in this regard? An example of a ‘micro’ issue is answering the question: how assertive can or should our patient ‘intake’ people be in concert with our patient account representatives to pre-qualify or qualify patients for whatever charity care, discounts and payment plans we can offer them? 

Some specific steps that community hospitals’ top management and board members can take with respect to ‘a’ above—the issues of hospital contractual arrangements and hospital operations within the context of educating local officials and the public—are as follows:

Some specific steps that community hospitals’ top management and board members can take with respect to ‘b’ above—the issues relating to the provision of ‘charity care’ and, in this regard, the pricing/billing/collections concerns of uninsured, underinsured and otherwise medically indigent patients and community groups representing them:

It has been essentially axiomatic for some time that major health care payment reform is needed in the United States. Controversies such as the specialty hospital controversy and the billing/collections controversy arise in large part because this nation has not addressed a fundamental societal matter that now threatens to hold back our nation’s progress, just as did the civil rights controversies of the 1960s. Forty years ago this week Lyndon Johnson signed the Civil Rights Act; today, our generation of health care leaders, government regulators, insurance industry executives and politicians needs to address a problem that, again, is holding back our society, facing up to the fact that our payment system is, in so many ways, a living and breathing state of hypocrisy in which much of the budget is balanced on the backs of community hospitals.

That said, all of us must live with the state of reality as it exists now.

The convergence of billing, collection, charity care and other financial and organizational controversies surrounding hospitals at a time of desperate financial need on the part of cities, counties and states—fed by a press all to eager to listen to and publicize patients’ negative experiences—is a dangerous combination that can lead to: (a) local governmental investigations of and challenges to a hospital’s charity care/billing/collections policies, (b) challenges to business arrangements by people who do not yet fathom the universality or federal legality of such arrangements, (c) the revocation of a community hospital’s local/state tax-exempt status and (d) class-action lawsuits provoking enormous actual or contingent liabilities.

While the bad news is that some of these developments can generate millions of dollars in actual or reserved liabilities and an impaired community image to say the least, the good news is that with proper charity care policies accompanied by understandable action steps, some internal process reengineering and effective external relations inclusive of some public education, many if not most of the underlying problems can be addressed. However, it is my firm belief that such remedies need to be highly proactive and, most importantly, need to involve both the employed hospital executives as well as community-based, informed, articulate hospital board members, whose positive influence in these matters cannot be overstated and yet, thus far, appears in many hospitals to have been underutilized.

Text of letter from Secretary of HHS to the American Hospital Association

View Excerpted Remarks by
Rep. Bill Thomas

Link to the House Ways And Means
Committee

Link to the House
Committee on Energy and Commerce

See information and interviews below
relevant to the Champaign County
Board of Review’s action relating to
Provena Covenant Medical Center:

"…charitable purpose" must be an ongoing state of action, in particular action pursuant to the fundamental purpose of any ‘charitable hospital’ in regards to proactively assisting human beings each day in respect to meeting their medical needs and, to the extent necessary and possible given hospital resources, assisting them in paying for services thus rendered…"

Read The Full Q & A With Mr. Jenkins

Listen to the CFO of the parent of the local hospital, Provena Health,
remark on the community relations implications of events in
Champaign-Urbana, Illinois.
Listen to the Interview (Time: 6:56)

Read the Provena Complaint which is similar in content and theme to the other ‘tobacco lawyers’ complaints.

In a 6/18/04 press release the Champaign, Illinois consumer group evidenced the degree of the turnaround in relations with Provena Covenant:
"…I can’t speak about the Provena corporation as a whole, but at this point I certainly would not be suing Provena Covenant based on their current charity care and debt collection practices…In fact, this hospital is on its way to being a positive role model for the hospital industry…"
Claudia Lennhoff, Executive Director
Champaign County Health Care Consumers, whose relationship with Provena Covenant has changed markedly. Compare the present with past history. (Time 2:30)

Read the Massachusetts
Appellate Court’s Decision

Hear an exclusive interview with the Chairman of the North Attleborough, Mass. Board of Review.
Listen to the Interview (Time: 3:56)

Listen to the attitude from a Champaign, IL Tax Board Member (Time 2:00)

Both state laws and the state and local attitudes of public officials are distinct from federal laws and regs.  The attorney Stephen Weyl of Hinckley, Allen & Snyder in Boston takes time to put these and related issues in context.

Stephen Weyl

Some comments from citizens…

"The whole point of a community hospital is to serve the community…health care is not an extravagance, it’s a necessity…I’m embarrassed that Catholic is in the name of these institutions…"

"…medical debt is involuntary debt, it’s not like going out on some shopping spree…"

Ordinary working people find it difficult to understand hospitals suing their patients, particularly the poor and the working uninsured, underinsured or otherwise ‘medically indigent.’

Listen to a single mother’s remarks.
(Time 1:00)

Press releases by Richard Scruggs and other attorneys bringing these class action lawsuits against hospital systems in federal courts may be found at:
www.nfplitigation.com
This web site also contains links to the complaints, audio presentations, etc. in relation to the individually filed federal court class action suits.

Listen to Champaign County Board of Review member Laura Sandefur
describe the impact of people’s experiences in press briefings (1:30)

Don Carlson, Senior Managing Director of Ziegler Capital Markets
and head of the Health Finance Forum explains some of the concerns that these controversies bring from the point of view of the hospital investment banking community.

Listen to the Interview (Time: 6:09)

Hear the perspective of Rick Wade,
Senior Vice President of the American Hospital Association.
Interview
Interview on Provena Situation (5:21)

These interviews were conducted in
early March, 2004 following the action
on Provena by Champaign County, Illinois.

In 2003 and 2004 a task force led by the HFMA has been examining challenges faced by community hospitals in accessing capital.

Dick Clarke Randy Fuller
President, HFMA GE Healthcare
Financial Services

For additional information about the issue of access to capital (or lack of it) by community hospitals there are many sources, including the recent task forces of the HFMA, GE Healthcare Financial Services and PricewaterhouseCoopers who in 2003 and 2004 are devoting much time and resources to a series of studies and research reports, including surveys of hundreds of hospital CFOs.

Listen to an interview (Time 33:41)
with Dick Clarke of the HFMA, Randy Fuller of GE Healthcare Financial Services and Sandy Lutz of PWC.

Go Here for additional information on the ‘Financing the Future’ Study.

Listen to Remarks By Martin Arrick of Standard & Poor’s, Steve Renn of AMBAC and Don Carlson of Ziegler Capital Markets (and head of the Healthcare Finance Forum) about the significance of the ‘specialty hospitals’ issue excerpted from a longer 2003 feature interview. (Time 4:43)

Look, Jim, I went to the courthouse myself and did a search on their computer which anyone can now do, typing in as the plaintiff the name of my hospital and I was shocked at how many people we are suing…or, to put it more accurately, how many people the collectors and lawyers are suing in our name. But the buck stops here, I gotta get a grip on this and damned quick."

A Hospital CFO

"Tommy Thompson’s letter-writing and barking don’t help solve my practical problems. The government needs to give us a safe harbor that everyone, including the public, understands."

A Midwestern Hospital CFO

The June 1, 2004 CMS/OIG teleconference held by HHS
‘Open Door Forums’
seemed to portray a better understanding on the part of the government of some of the ambiguities and issues. In addition, Herb Kuhn, Director, Center for Medicare Management Centers of CMS attempted to clarify matters in June 22, 2004 testimony before Congress.

Links to Government Advisories:

February 2, 2004 OIG Advisory

February 17, 2004 HHS Q & A
On Charges for the Uninsured

February 19, 2004 Letter From
Tommy Thompson to Dick Davidson

Link to OIG Fraud Alerts Site

Read the Champaign County Filing
for more information on their reasoning in respect to contracts and agreements

Lessons learned in respect to
community relations.
Hear Remarks by Provena’s CFO
(Time 2:16)

‘Suing the poor is clearly a dead end; we just have to figure out how to collect from people who can and should pay and then we have to figure out how to write off everything else without getting caught in some government catch-22,’ said one CFO.

These two ‘branches’ -- although conceptually distinct -- are related in terms of the concerns of county boards as well as issues brought up in the class action lawsuits, illustrated by the Provena filing.

ER Problems Can Attract Highly Negative Attention (Time 1:44)

"If they don’t understand our business…if county boards don’t understand, if community groups don’t understand—it’s up to us to get dialogue going and I mean dialogue at the local level. They don’t teach hospital management and reimbursement in junior high school, high school or most colleges. We need to be the ones to educate the public in our communities and, at the same time, listen to both the public and community groups, then try to make changes where we can or put our foot down and explain why we can’t in plain talk. Point being that it’s a two-way communication challenge," said one multi-hospital system CFO. "These recent events are really a challenge to all of us; the burden of educating and communicating is on us, our hospitals, not our county board or our local consumer advocacy groups."

This issue of hospitals being more assertive on the ‘patient intake’ side of things is a pet peeve with many public officials. The Chairman of the Champaign County Board of Review and all the other public officials whom I interviewed emphasized the need for hospitals to be proactive in this regard.

"We all have to figure out how to get the patient past the fork-in-the-road quickly relating to whether or not they qualify for charity care or partial charity care, or if they are underinsured or otherwise private pay in whole or in part, what kinds of discounts and terms we can give them."

"Unfortunately, many taxing bodies are ‘salivating’ at the prospect of increased tax revenues from formerly exempt healthcare institutions. Marketing campaigns, positive media ‘spin’ and ‘feel good’ stories on local news channels serve their purpose, but do little to address property tax issues and the requirements that need to be met to remain tax-exempt. Administrators must think ‘outside of the box.’ Doing it the way that it has always been done is no longer going to suffice."