FEATURE REPORT: (Note
that this page scrolls down with much content, so please be patient)
Tax-Exempt Hospitals' Pricing/Collections/Charity Care Practices
Lead To Governmental Investigations, Class Action Lawsuits, Legislative Activity
And, Now, A Landmark Case Revoking An Illinois Hospital's Property Tax Exemption
SELECTED NEWS ITEMS
August 28, 2008: Illinois Appellate
Court unanimously upholds Champaign County's revocation of Provena hospital's exempt
status.
Read the Full Opinion
Jan. 1, 2007: California's mandated hospital discounting for uninsured law goes into
effect. Read
the Legislation.
Dec. 18, 2006: Illinois Appellate Court, in primary care clinic property tax exemption
case, declares 27% charity care insufficient, citing prior
court decisions and state law that requires tax-exempt property to be 'actually and exclusively
used for' charitable purposes.
See The
Appellate Court's Ruling (Illinois Third District Appellate Court) Get the Admin Law Judge's Original Decision
Dec. 12, 2006: Outgoing Ways and Means Chair Bill Thomas Introduces 'charity care'
legislation. Read the Bill.
Dec. 10, 2006: Congressional Budget Office Releases Report on Nonprofit Hospitals'
community benefits. Read the Report.
Nov. 7, 2006: Catholic Healthcare West hospitals settle uninsured class action lawsuit.
See settlement web site.
Oct. 26, 2006: Provena files official court appeal in Illinois property tax exemption
controversy. Read the
Complaint.
Sept. 29, 2006: In a highly controversial, widely followed hospital
tax exemption case the llinois Department of Revenue upholds Champaign County's
recommendation to revoke Provena Covenant Medical Center's property tax exemption for the
tax year 2002, finding that "...the property does not qualify for the
charitable institution tax exemption because the evidence is clear that this property is
not used exclusively for charitable purposes..." and, ominously, stating in reference
to the entire Provena hospital system: "Nor can I conclude from this record that
the owner of the property, Provena Hospitals, dispenses charity to all who need it or that
it does not place obstacles of any character in the way of those who need and would avail
themselves of the charitable benefits it dispenses. In summary, given all the very
limited amount of charitable care offered, I cannot conclude that Provena's primary
purpose is the provision of charity."
Read and/or
Download THE FULL ILLINOIS DEPARTMENT OF REVENUE DECISION
Will this final action by the Illinois Department of Revenue motivate other state and
county taxing bodies to investigate their hospitals, in that the controversies over the
most incendiary alleged practices -- hospitals' overpricing to and hounding the uninsured
-- seem to be continuing unabated (see related items below)? What are the strengths
and weaknesses of the Illinois Department of Revenue's legal reasoning in their ruling
regarding Provena?
Are other states' laws similar in this area? Could this happen to your hospital
in your state? What happens if your local county board knocks on your
hospital's door? What will they be looking at, and what proactive steps can local
hospitals take to avoid a property tax or other local tax revocation?
A SPECIAL TELECONFERENCE AMONG THE
CHAMPAIGN COUNTY, ILLINOIS PRINCIPALS AS WELL AS OUTSIDE LEGAL ANALYSIS
TOOK PLACE ON OCTOBER 4, 2006 and is available for download at no cost, no strings
attached.
LATE NEWS Sept. 1, 2006
Recent settlement by a Seattle medical center in a class action relating to
'provider-based' pricing versus 'freestanding' pricing brings an entirely new twist to
hospital pricing matters, going way beyond 'uninsured' issues and apart from such
issues,
with possibly ominous implications for off-campus 'facility-based' hospital enterprises.
See our Feature Report and Expert
Interviews.
The article/commentary just below appeared in the
Fall 2005 the Journal of Health Care Finance
Go to the author's previous article on
these matters from the summer of 2004
Two Years Into The Storm Over Pricing To
And Collecting From the Uninsured
A Hospital Valuation Expert
Examines The Risk/Return Dynamics And Asks:
-- Would Fair Pricing And Fair Medical Debt Repayment Plans Increase Yields To Hospitals
And Mitigate These Controversies?
-- When It Comes To The Uninsured, Can Fair Pricing Actually Be Good Business?
-- Was A Major Opportunity Missed To Set The Stage For Higher Yields From The Uninsured?
-- Should Hospital Associations Markedly Change Their Mindsets, Strategies and Actions?
By James Unland,
President, The Health Capital Group
Executive Editor, HealthBusinessAndPolicy.com
Editor, The Journal of Health Care Finance[1]
Get
This Article in A PDF Format
Overview
After
interviewing patient account representatives at hospitals and conducting other research
this analyst asks: should attention have been focused at the national and state hospital
association levels in 2003 to take steps to increase the net yield to hospitals from the
uninsured population through more equitable pricing and better medical debt repayment
terms, steps that might have mitigated these controversies?
Many
hospitals and hospital associations have been so intent on proving hospitals legal
right to charge list price to and sue the uninsured that they have overlooked
a simple yet effective business premise that many hospital patient accounts
representatives already fully know: fair pricing and fair payment terms are actually good
business.
The author asserts
that the controversies that emerged in 2003 actually represented a significant opportunity
that, with a different approach, would very likely have resulted in hospitals being able
to collect significantly more money from the uninsured population while, at the same time,
lessening or even avoiding the destructive ramifications that have occurred in the form of
investigations, legislation and lawsuits.
However, to realize higher net yields from the uninsured there are important, highly
specific leadership steps that need to be taken uniquely at national and state
association levels in order to avoid the negative financial consequences of
fragmented actions that can cause individual hospitals to become magnets for
the uninsured. Steps at the individual
hospital level need to be preceded by coordinated leadership at the
association level if these difficult controversies are to be transformed into
an opportunity for more revenue from the uninsured, an opportunity that existed in 2003
and before.
Looking Back Two
Years:
An Unwelcome Anniversary
It is now fully two
years since the modern incarnation of several interrelated controversies began, kicked off
in the winter and spring of 2003 by releases of reports from consumer groups and media
articles pertaining to hospital pricing, collection and charity care practices with
respect to the uninsured and underinsured.
From city councils to county boards to state legislatures, state attorneys general
and into the halls of the U.S. House and Senate, three allegations consistently stand out:
- Hospitals are
charging their list prices prices no one pays
to the uninsured.
- Hospitals are using
onerous collection tactics, including against low-income people whom they know cannot pay.
- Hospitals are not
providing enough charity care and, in some cases, conceal its availability.
Government officials
are doing more than just talking. In
Champaign-Urbana, Illinois the county Board of Review has recommended the revocation of
the property tax exemption of both hospitals there, citing, among other things, hospital
pricing and collection policies. In Minnesota the Attorney General has very
publicly moved against two large hospitals systems, in one case going to the extent of
making public 40 affidavits with documentation of hospital bills, bankruptcy filings and
the like. In several states Attorneys General
have, to one extent or another, undertaken investigations and sided with plaintiffs in
state class action lawsuits. In Congress
several committees in both the upper and lower chambers have undertaken investigations and
held hearings; in fact, both Senate and House activity seems to be on the increase.
In addition to
governmental activities, numerous class action lawsuits have been filed by the
tobacco lawyers. Although nearly
all of the federal suits have either been dismissed or withdrawn, the state suits are
exhibiting signs of having staying power, and numerous local copycat class
actions have been filed.
Powerful Galvanizing
Factors:
The Human Element In The Context Of An Unfairness Issue
The horror
stories of the uninsured have been recounted in local and national print media as well as
in televised features. In some areas
community groups have entered the publicly available databases of courthouses and
unearthed hundreds of lawsuits by local 501(c)(3) hospitals against patients, then
crosschecking patients income and family status to determine whether they should
have been eligible for charity care.
Leaving aside the issue of how much charity care so-called
charitable 501(c)(3) hospitals should provide, the
allegation of price discrimination that is, hospitals charging their highest
list prices to the uninsured has provoked community groups and state
attorneys general; unlike the Scruggs federal class actions, which were premised on
far-fetched federal legal theories, the consumer fraud statutes at the state law level are
expected to cause a number of class action lawsuits to have legs and proceed
to jury trials.
Officials at all levels of government have expressed outrage at
charitable hospitals pricing and collection tactics, and their message
seems clear: no amount of rationalization by hospitals and hospital associations, blaming
government regulations or citing the need for national health reform can counteract the
fundamental perception that supposedly charitable hospitals are practicing
price discrimination against a population that can least pay list prices, then using
onerous collection tactics on people many of whom would qualify for all or partial
charity care in the first place.
It is the basic perception of unfairness repeatedly brought to life in the human
voice that, in my view, has galvanized this issue among politicians in a nation where
nearly one-third of the population is either uninsured or underinsured,
at a time when public budget deficits and financial stresses make it easy for these
politicians to ask the question: exactly what is our society getting from giving hospitals
the gift of being tax-exempt?
Risk Analysis:
Just How Serious Are The Legal/Regulatory Risks?
Legal and
regulatory risks need to be bifurcated into federal versus state
in that the two are quite different and need to be separately assessed.
On the federal level, its clear that the tobacco lawyers lawsuits
arent going to go anywhere, not surprisingly. The
Scruggs team knew their federal arguments were far-fetched going in but wanted to take a
crack at consolidating a global settlement with the hospital industry. In Congress activity is proceeding in both the
House and the Senate, with the first investigations started in the spring of 2003, then
with some hearings in the summer of 2004 and, most recently, hearings and investigations
ratcheted up. Interestingly, much of the initial Congressional
activity revolved around collection practices, whereas more recent activity has revolved
around the juxtaposition of the overpricing issue against the
overcompensation of executives issue.
Will anything come of the activities of the Senate Finance Committee and the House
Ways and Means Committee? Although I very
much doubt that Congress will revoke hospitals federal tax-exempt status, it is
entirely likely that an attempt will be made to force hospitals to change their pricing
and collections behavior as well as to provide some minimum amount of charity care.
The state law issues, from the standpoint of sheer legal exposure,
have been much more potentially consequential from day one than the federal issues. In reviewing the observations that follow, the
reader is encouraged to keep in mind that in respect to (a) charitable status,
(b) property tax and other state tax exemptions and (c) consumer fraud, many state
constitutions and statutes are similar. Some
state law issues that come into play are:
Class action lawsuits: there are grounds
for such lawsuits at the state law level mainly in the context of consumer fraud and
deceptive practices statutes. Unlike
the case in the federal class actions, several state judges have refused to dismiss these
suits. Many attorneys believe that the
greatest legal exposure to hospitals lies in the unfairness prong of consumer
fraud statutes in respect to the overpricing allegations.
A risk analyst is not comforted by the thought of local citizens telling
their horror stories in relation to hospital pricing and collections to local juries.
AGs
investigations: investigations
are now underway into hospitals pricing, collection and charity care practices by
state attorneys general, the most widely publicized of which are those of Mike Hatch, the
Attorney General of Minnesota, who recently also testified before the U.S. Senate Finance
Committee.
Revocations of
tax-exempt status: the Champaign
County Board of Reviews actions in the Provena and Carle Foundation cases and the
ultimate outcomes of those cases will, quite likely, reverberate well outside of Illinois. Some jurisdictions are not waiting for the outcome
in Illinois to look into these matters themselves.
State legislation: in Minnesota and
a number of other states, legislatures have considered bills to require hospitals to price
services to the uninsured at the Medicare or Medicaid levels.
From
my point of view at this writing, the most significant risks fall into three areas:
(a) State and/or
federal legislation will require hospitals to price at certain levels to the uninsured,
and possibly to provide some yet-undefined baseline percentage of charity
care.
(b) Other municipal and
county taxing bodies will move against hospitals property tax exemptions similarly
to what happened in Champaign County, Illinois.
(c) The local class
actions have the potential to be financially damaging to the affected hospitals,
particularly those in which Attorneys General join in on the side of the plaintiffs.
As a hospital
valuation expert and credit analyst, I am now looking at a controversy that has persisted
for two years, dissipated enormous energy and money, and that is now multi-faceted and
apparently unabated. Instinctively, Im
now evaluating the risk/return dynamics.
Why? Because there is high,
ever-expanding regulatory and financial risk to hospitals over a population of people that,
under present pricing/repayment terms, is not really paying a significant portion of their
hospital bills to begin with. The large
proportion of hospitals I talk with are collecting a few percentage points of what they
charge the uninsured, most often less than 5% net to the hospital.
My concern is to maximize net cash flow to hospitals, not to collection
agencies or law firms, and to minimize hospitals financial risk. In looking at a very high risk, very low return
picture a risk/return dynamic utterly out of whack a good risk analyst wants
to take steps to lower the risk, increase the return, or both. In this regard, patient account representatives in
hospitals themselves may be providing valuable input when they contend that fair pricing
will increase their net yield.
A Risk To Hospitals
Not Much Discussed:
The Costs When Patients Stay Away From Emergency Rooms
By overpricing to and suing the uninsured, there
is a marked risk in that we are developing in this nation a class of people who are afraid
to go to emergency rooms for fear of being ripped off from a pricing standpoint or hounded
by collectors. The consequences of this have,
in my view, not yet been fully appreciated either by public officials or by hospital
associations.
For example, have
hospitals seriously assessed the added costs to them of people not seeking care
until their conditions are life-threatening? In
other words, if under present law people who present at emergency rooms are required to be
treated, then what happens when a patient who is being hounded by collection agents fails
to go to the ER until what would have been a $500 or $1,000 visit becomes a $50,000
medical episode when that same patient finally does go to the ER?
In posing this
question I fully recognize that in some ways our health care resources are used most
inefficiently with respect to many of the uninsured, in that they should have but
often do not have access to primary care services outside of hospital emergency
rooms. Still, the fact of the matter is that
for both primary care and specialty care, the ER seems to be the place where many of the
uninsured end up going.
As long as federal and state laws compel hospitals to treat all comers (and I do
recognize that in this respect hospital in no way operate in a free market)
the financial incentives would seem to be for hospitals to (a) keep their costs down by,
among other things, treating patients at a point in a medical episode when the relative
costs are low and (b) collecting more money from patients through fairer pricing and
payment terms. The thought of an entire class
of people essentially being afraid to go to emergency rooms until medical episodes become
very high cost is unnerving to the financial analyst, even leaving aside the public health
implications of such a development on any significant scale and remember that we
are talking about roughly one-third of the American population that is either flat out
uninsured or underinsured.
II.
Could The Net Yield From The Uninsured Be Increased With A Different Approach?
Was An Opportunity Missed In 2003?
Conversations With
Patient Account Representatives
Interviews with
several hundred hospital patient account representatives have been revealing, particularly
in regards to the pricing issue.
Asked whether
uninsured patients would take their hospital bills more seriously if told they
were being placed on a pricing level commensurate with that of insurance payors more than
90% said yes. A few were unsure. Not one said no. Asked if their
hospital would collect more actual money under this kind of pricing to the uninsured, more
than 80% said yes but, not surprisingly, qualified this answer by agreeing
with the statement that the repayment terms are crucial to collecting more
money from the uninsured.
Many patient account representatives are aware that their hospitals senior
managements and law firms are intent on establishing their legal right to charge
list price to the uninsured and, for this reason, did not want to speak on the
record. But their message, in the words of
one, was pretty clear: we arent collecting much from this population (the
uninsured) anyway; we might as well try to price to them more fairly. Another put it more bluntly: hospitals may
have the inalienable legal right to charge the highest prices to the uninsured, but
its better business to price fairly and let them know were meeting them half
way
I think we could collect a lot more money.
Additional comments included consensus on the point that even with discounting to,
for example, pricing levels that insurers pay, and even with fairer, more individually
tailored medical debt payment plans, hospitals will never collect all medical debt from
100% of the uninsured. Many are too poor and
deserve all or partial charity care in concert with discounts, etc. and it is
also a fact of life that some people just dont pay regardless of how
consumer-friendly the terms are. Thus, a
number of patient account representatives said that hospitals should hold the line on
certain credit and collection principles, especially if they meet the uninsured more than
halfway by virtue of fair pricing and fair payment plans.
The concepts of means testing and individually tailored pricing
and payment plans were brought up by some patient account representatives, many of
whom also pointed out that the hospital industry is not using the most modern tools of
automation, tools that might greatly assist in certain respects. Many felt that a more sophisticated, faster method
of dealing with two forks in the road needed to be devised:
-- The first fork in the road is to determine whether a patient is qualified
for all or partial charity care; there was consensus that the existing charity care
application process is cumbersome for all parties concerned and that, for example,
verification of income and number of dependents and credit screening could be automated.
-- The second fork in the road is to determine how much medical debt should be
repaid, with the terms of such repayment based on credit and other individual or
family-specific credit characteristics; and again, there was consensus that more
sophisticated, more automated technologies would greatly help.
This author recognizes what many patient account representatives also pointed out:
that both federal and state banking and credit regulations become involved when one starts
talking seriously about individually tailored pricing and payment plans, to say nothing of
regulations under the purview of CMS and the OIG. In
many states, for example, if a hospital starts charging interest for consumer medical debt
the organization becomes subject to an array of banking and consumer credit regulations;
many hospitals have dealt with this issue by simply not charging interest on the medical
debt but, rather, by just structuring a simple schedule of repayment.
The big question to the risk analyst in relation to all of this is: would
fair pricing (a) mitigate these controversies and, simultaneously, (b) increase
the financial yield from the uninsured, recognizing the probability that even at
discounted prices the net yield from this group may always fall below optimum
levels?
A related question is: would any of these controversies have gotten to this point
had hospitals and, in particular, hospital associations advocated re-pricing to the
uninsured two years ago, plus taken a few other proactive steps?
At least as
grave a concern as the attacks by politicians and regulators on hospitals is the challenge
of what happens when one hospital attempts to do the right thing in regards to
highly specific steps and others in its market do not.
The recent breakdown of the so-called Mississippi settlement in
the Scruggs litigation illustrates the problem, the North Mississippi Medical Center
reporting that it had become a magnet for the uninsured because it had, among
other things, re-priced services to the uninsured at Medicare price levels and other
hospitals in the region had not.
Except for in Minnesota, hospital associations have
not taken on this challenge, either at the state or national levels, in respect to
promulgating specific fair pricing standards.
The author realizes that if fair pricing standards are not properly formulated
there might be antitrust concerns. Nonetheless,
I believe that general policy guidelines in the context of encouraging
hospitals to price to the uninsured at or near the level of their own specific
insurance payors would not be considered price-fixing.
Although some
guidance on charity care policies and, to some extent, collection policies has been
forthcoming from the AHA, CHA, HFMA and local hospital trade organizations by virtue of
encouraging hospitals to review these policies, decisive, specific and coordinated
guidance on pricing to the uninsured and on other elements of these incendiary
controversies viewed by a risk analyst as a high risk/low return caldron of trouble
has been largely absent.
It may sound
politically correct for hospitals trade associations to encourage hospitals to
individually review their policies, but the practicalities of hospital markets, community
relations and risk management favor coordinated action, especially in regards to pricing
and charity care standards.
Could Lemonade Have
Come From Lemons With Proper Leadership Two Years Ago?
What frustrates
a risk analyst most is not the unknown risk which, by definition is
unknown and, thus, unworthy of anxiety but known risks that go
unaddressed by people who should be able to fathom risks and mitigate or eliminate them.
Looking back to
March and April of 2003, when the first series of Wall Street Journal articles and
other reports on hospitals treatment of the uninsured came out, the risk analyst
wonders whether most, if not all, of these mushrooming controversies could have been
avoided, for from day one these issues had high risk and potentially
explosive written all over them.
If industry-wide
fair pricing standards, collection standards and charity care guidance (that is, the
provision of charity care in the context of a hospitals resources) had
been assertively promulgated in a coordinated manner by, for example, the American
Hospital Association, the Catholic Hospital Association and the Healthcare Financial
Management Association in the spring of 2003, one wonders whether any
class action lawsuits would have occurred, whether any hospital would be having its
tax-exempt status challenged and whether governmental bodies from city councils to
attorneys general to Congress would be investigating the industry and all this over
a population of people, the uninsured, whose net yield to hospitals was known to be (and
still is) quite low.
Did anyone think to
make a try at actually increasing the net yield from the uninsured through fair
pricing and fair payment standards? Consider
for a moment if, in the spring of 2003, the three above-mentioned hospital trade
organizations had taken the following steps:
- Make forthright
public statements indicating that, yes, the adaptations and readaptations by hospitals to
the reimbursement environment have led to list price getting way out of whack,
a situation that has unintentionally harmed uninsured people; in this regard, state that
specific steps will be taken asap to rectify this situation.
- Reach out to national
patient advocacy groups such as the Access Project and exchange views and information,
taking a philosophy that these groups are, to a great extent, in a position to assist the
industry. Encourage local hospitals to reach
out to local community groups and get dialogue going.
- Encourage ALL
hospitals to price to the uninsured at a level close to or at the level their insurers
pay, and alert the private payors that this is not an excuse to renegotiate their
contracts.
- Move quickly to
resolve ambiguities and contradictions in CMS and OIG regulations and, if necessary, meet
with the FTC and any other relevant government agencies, including Congress.
- Make forthright
public statements indicating that hospitals practices of sending patient accounts to
collection agencies would be replaced by more careful deliberation and more individually
tailored, fairer medical debt payment plans and that necessary regulatory and legislative
steps (if necessary) would be taken to accomplish this.
- At the level of
national hospital associations particularly those mentioned above start
researching ways to help all hospitals and patients in respect to helpful technologies and
better, more automated access to crucial databases with the purpose of addressing the
aforementioned fork-in-the-road decisions: (a) whether a patient qualifies for all or
partial charity care and (b) structuring patient-specific medical debt repayment plans.
The goals would
have been:
(1) Transform patient
advocacy groups from adversaries into allies, at both the national and local levels, for
they can provide translation and other services to hospitals, plus the support of these
same groups will be needed to effect national health care payment reform, something we all
know is needed.
(2) Forthrightly and
urgently address all of the numerous federal regulatory ambiguities in regards to
charging, pricing and collecting and, in this regard, bringing the right parties together
with qualified experts a step that, unfortunately, still needs to take place.
(3) Take the
opportunity to tell Congressional committees how they can help in regards to resolving
regulatory ambiguities and related confusion.
(4) Combine talent and
resources to greatly modernize the entire patient intake/patient credit analysis process,
perhaps even creating a national resource/database.
(5) Address the issue
of matching a persons financial situation with repayment plans that at least have a
chance of being affordable.
(6) Establish
parameters for deep discounting in special circumstances where people fall outside of
charity care but still cannot be expected to pay revised prices.
The end goals would be to: (a) mitigate and/or eliminate the
controversies and (b) establish ways for hospitals to actually collect more money. The commotion of 2003 presented a golden
opportunity to reach out to the uninsured and to community groups and establish the kind
of rapport that, in the end, yields more net cash flow, to say nothing of building a
constituency to advocate desperately needed healthcare reform.
The Case of Champaign County, Illinois
On a smaller scale,
many of the steps that are recommended above took place in Champaign, Illinois between
Provena Covenant Medical Center and the community group there.
Prior to the spring
of 2003 relations between hospital and the community group had been strained, to say the
least. The hospital and the community group
were in litigation. Relations between the
hospital and the county Board of Review were also strained, the hospital basically
stonewalling the county tax board and, later, losing its property tax exemption.
Then a new CEO came
to Provena Covenant. He reached out to the
community group, which had been releasing reports and holding press conferences concerning
the negative effects on the uninsured of overpricing to and suing them. They agreed that it was in no ones best
interest to foster a public health problem with people afraid to go to the emergency room,
nor was it in the hospitals best interest to send so many patients to collections. They formed a Joint Medical Debt Committee and,
clearly, both the hospital executives and members of the community group began to learn
from each other and work together.
The hospital
learned that community groups can actually assist hospitals in respect to their relations
with the uninsured. Whereas in years past
Provena Covenant Medical Center had been suing hundreds of patients annually, in 2004 they
sued only one patient. The community group
there has provided translation services and has encouraged its constituents the
uninsured to take the hospitals good faith efforts seriously. They were transformed from being a hospital
adversary into being an ally.
At this writing,
the hospital and the community group continue to work together. But what broke the ice was the
hospital CEO reaching out to the head of the community group and admitting that there were
unintended negative consequences stemming from years of adaptations and readaptations to a
reimbursement environment that caused pricing and collection policies to get out of hand. In addition, he and others at Provena owned up to
serious community relations mistakes.
My contention is
that owning up to mistakes and taking steps to address those mistakes combined with
the kind of fair pricing that patient account managers believe would cause the uninsured
to take their hospital bills more seriously would, with some of the other steps
cited above, result in a much higher net yield to hospitals from this population,
particularly if fair repricing were combined with reasonable payment plans.
I am not for one
minute contending that hospitals would ever or will ever capture anywhere near total
billings to this population. Nonetheless, I
wholeheartedly agree with the message sent by patient account managers: fair pricing is
good business, and combined with other steps will lead to much more money coming into
hospitals, a result that I, as a hospital valuation expert and credit analyst, find highly
appealing.
There is one bit of
bad news in Champaign County, which speaks to my point about the need for leadership at
the hospital association level: the other hospital there has not matched the specific
steps that Provena Covenant has taken (and, coincidentally, is having its own property tax
exempt status challenged). My point being: it is the consistency of
policies in respect to pricing and collecting to the uninsured across market areas that
makes them work from a practical standpoint.
The Minnesota
Agreement:
A Hospital Association Gets Involved
Although the
hospitals in Minnesota were very likely forced to go to the party by the very
active interventions of Attorney General Mike Hatch, it can be said that a major state
hospital association did address specifics in the areas of pricing and collections to the
uninsured even though totally voluntary, proactive steps would have been preferable in my
view. Nonetheless, in early May 2005 the
Minnesota Hospital Association, in conjunction with a number of large not-for-profit
hospitals and hospital systems, came to an agreement with the Minnesota Attorney General
that was memorialized in a court order. Without
going into great detail, that agreement contained the following key provisions:
For
copies of the Champaign County Board of Reviews filings email the author at: HealthCapitalGroup@yahoo.com. In their
recent filing recommending revocation of Carle Foundation Hospitals property tax
exemption, they wrote, among other things: There is a glaring juxtaposition of a
charitable hospital allowing doctors complete access and use of their
exempt facilities to pursue private gain while this same
charitable hospital continues an unfair policy of overpricing and suing the
uninsured. This juxtaposition cannot be
ignored, and it violates ones sense of fairness. It is our view that no hospital
that permits this fundamental unfairness to exist can be considered charitable
or tax exempt.
|
Article from the Summer of 2004 With Audio
Interviews
Note: this column contains links to selected relevant
information found on the Internet, including numerous exclusive audio interviews by the
author.
Listening to
these interviews requires Windows Media Player, a
free downloadable plug-in.
Scrutiny
Of Not-For-Profit Community Hospitals Exempt Status Targets Their Pricing/Collection
Practices, Charitable Purposes And Finances Resulting In Significant Local, State And
National Events
That Now Challenge Hospital Managements And Boards
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
Explosive Controversies Rock The Not-For-Profit Hospital Sector
The widely reported revocation of a Champaign, Illinois hospitals
property tax exemption by the Champaign County Board in February, 2004a decision
enthusiastically supported by the State of Illinois Department of Revenue pending
administrative hearingssent justifiable ripples of concern through the nations
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:
· At about the
same time as the recommendation by the Champaign County Board of Review to revoke the
property tax exemption of Povena Covenant Medical Center, in Massachusetts an appellate
court upheld the revocation of the property tax exemption of a North Attleborough
not-for-profit physicians clinic based in part on allegations about the
clinics inability or unwillingness to discount fees to the uninsured and to provide
walk-in services.
· In
Connecticut the Yale-New Haven Hospital and other hospitals are defendants in a class
action lawsuit filed in state court alleging that, among other things, the hospitals
failed to inform uninsured or underinsured, medically indigent people about charity care
and then, subsequently, sued them when they could not or did not pay undiscounted hospital
prices.
· In Cook
County, Illinois the largest hospital system in the Chicago area, Advocate Health Care, is
the defendant in a class action lawsuit filed in state court with allegations similar to
those of the Connecticut suit.
· The lawyer
instrumental in the well-known tobacco class action of the 80s and 90s that
resulted in multibillion dollar settlements, Richard Scruggs, announced in mid-June, 2004
the filing of numerous class action suits in various federal courts against hospitals and
hospital systems, alleging that hospitals failed to provide government required
charity care and instead, the hospitals charge the uninsured sticker prices
for healthcare, an amount higher than any other patient group, and then, when the
uninsured cant pay, harass the uninsured through, among other tactics, aggressive
collection efforts such as garnishment of wages and bank accounts, seizures of homes, and
personal bankruptcies
.
· In the
Executive Branch of the U.S. Government, Secretary of HHS Tommy Thompson and the U.S.
Inspector General have spoken out about hospitals charity care policies, encouraging
hospitals to provide more charity care and to immediately begin discounting their
fees to the uninsured and underinsured.
· In Congress
several committees are looking into not-for-profit hospitals billing,
collection and charity care practices. More ominously, the Chairman of the House Ways and
Means Committee, Rep. Bill Thomas, recently announced that his and other committees would
be conducting an analysis of the trade-offs between the costs in lost federal taxes from
granting hospitals exempt status and the relative benefits gained by our society from that
status, again referencing the billing, collections and charity care issues in a speech
before a national hospital convention.
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
interviewsmany of which were taped on the recordas well as implications for
hospitals top management and boards are presented here.
In Champaign County, Illinois Collection Practices Trigger Broader Concerns
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 boards (and medias) 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
hospitals 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 Provenas status in respect to the broader
tobacco lawyers class action lawsuits. If the local community groups
research activities at courthouses and related news conferences were an attempt to place a
wake-up call, Provena Covenants 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.
In Massachusetts An Exempt Physicians Clinic Loses Its Property Tax
Exemption
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 groups 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.
The Significance Of The Mindsets Of State And Local Officials As Well As Local
Publicity
In Relation To Pricing/Billing/Collections, Etc.
Of more than passing interest was the nearly uncanny similarity of the
interviews with both local tax boardsin Champaign County, Illinois and North
Attleborough, Massachusettsnone 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 universalfor example, paying bonuses to
employed physicians or contracting with emergency physician groupsprovoked a typical
reaction summarized by one board members comment that if they can get away
with it, thats 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 organizations
property was in exempt ownership or in exempt use from their
perspective.
More Trouble Hits When State Level Class Action Lawsuits Are Filed In the Fall of
2003
Then In June 2004, Enter The Tobacco Plaintiffs Lawyers Who File Multiple Federal
Court National Class Action Lawsuits
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 ones 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 statesConnecticut and Illinoisthe 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 peoples
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 lawsuitswhether
coordinated nationally or brought regionallycould result in hospitals not only
having to make full monetary restitution but also being required to restore peoples
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 statesencouraged to look
into hospitals charity care policies by local community groupsto revoke
hospitals tax exemptions.
The vision of class action lawsuits and county taxing bodies feeding off one another is
a hospital credit analysts 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
lawsuiteven before the commencement of a trialcould force the defendants
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
hospitals 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 timein other words, whether fraudulent concealment might
have been at issuewith 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 peoples 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.
Understanding The Broader Context of A Community Hospital Industry
Facing At Least Four Other Major Threats
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 agothe growing numbers of uninsured, persistent health care
inflation, state Medicaid shortfalls and the costs to businesses of maintaining health
care coverage for their employeesone issue not in the forefront is the continued
core viability, and in some cases survivability, of this nations several thousand
community hospitals who now face unprecedented challengesespecially accessing
capitalat 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 underinsureda 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
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