COLUMBUS, OHIO -- Even before the hospital bills started coming, Lori Duff and her family were living paycheck to paycheck. So when the debt collector called and demanded $1,800 for the prenatal visits she’d had while pregnant with her third son, she panicked.
The collector said the local Catholic hospital Duff had gone to could garnish 25 percent of each of her paychecks to pay off the bill. She offered to make a $20 payment—all she could afford at the time—but the collector told her the minimum was $400 down. "I was like, 'I don’t have that. You can have everything in my account right now. It's $1.25,'" Duff recalls.
Duff was likely eligible for free care under the Mount Carmel Health System’s financial assistance policy, which offers medical care at no charge for patients earning less than 200 percent of the federal poverty level. But the debt collector kept calling and soon informed her that the hospital was planning to sue her for the money.
Duff is one of nearly 1,600 people Mount Carmel sued in county court between 2009 and 2011. Most of them were patients like her who did not pay their medical bills.
Nonprofit hospitals, including Mount Carmel, pay no federal, state or local taxes, giving them a competitive edge over their for-profit counterparts. In return, they are expected to offer a community benefit, including free and discounted care for low-income patients.
But even as more and more Americans need extra help after losing their jobs and health insurance in the recession, studies suggest that on average, nonprofits provide only slightly more free and reduced-cost care than for-profit hospitals. Patient advocates argue the line dividing nonprofit hospitals and for-profit hospitals, which do not receive the tax exemption, has blurred.
The federal health law passed in 2010 attempts to address that by mandating how a nonprofit hospital must report charity care and serve poor patients. The new rules have already gone into effect but are not being actively enforced, and not all hospitals are complying with the new rules (see sidebar).
Duff, 27, works as a manager at an auto parts store, earning about $25,000 a year—less than the federal poverty level for a family of five-- while husband Michael stays home with their three little boys, ages 1, 4 and 6. They own a modest house in a Columbus neighborhood hit hard by foreclosures. Her children are covered under Ohio's health insurance program for low-income kids, but both Duff and her husband are uninsured.
When Duff became pregnant with her youngest son Henry, she wasn’t taking any chances; she went straight to a clinic at Mount Carmel to make sure the baby was healthy. She assumed the care would be provided for free, either through an emergency Medicaid option offered to pregnant women or through the hospital’s financial assistance policy. But then, a few months after Henry was born, she started getting the letters and phone calls from the debt collector.
"It's hard to make bills meet, and then when a doctor bill gets thrown in, you try to work it in as best you can," she says. "But when people start harassing you and they start calling on a daily basis, or every other day demanding money you don’t have, I mean, it's hard." She worried that the hospital might try to garnish her paychecks or even take her house.
While Ohio has a law that prevents foreclosures based on medical debt alone, it is legal for hospitals to garnish patient wages, attach bank accounts and get a lien on any future earnings, including from the sale of a house.
"The vast, vast majority of medical debt cases we get are from Mount Carmel. We get almost no cases from the other health systems," says Kathleen McGarvey, a lawyer at The Legal Aid Society of Columbus, which is currently representing six patients being sued by Mount Carmel. McGarvey says all of them were eligible for free care but now face bankruptcy, ruined credit scores and medical charges that are often much higher than the negotiated rates paid by private insurers.
Often, patients who have filled out financial assistance applications while at the hospital, assume their bills will be covered, and do not learn they owe money until collection agents begin calling.
Few patients who are sued by hospitals seek legal assistance. McGarvey says the vast majority never even show up in court. Instead, the hospital wins the case by default, and the patient is accountable for the entire bill, even if there are errors or duplicate charges.
"I think for a nonprofit hospital, whose job it is to provide this community care, that it's obscene that they’re going after folks who are at 100 percent of the poverty level who are working to try to support their children," McGarvey charges.
Karen Geisler, vice president of patient financial services at Mount Carmel, did not dispute the number of lawsuits filed by the health system, but calls its actions appropriate. Mount Carmel processes 5,000-7,000 charity care applications each month, she says, and approves 90 percent of completed applications for some sort of aid from the hospital or the state.
The health system's mission is to provide care to everyone, regardless of their ability to pay, she explains. "In order to provide charity in the community—and we provide a lot and do a lot of good – we have to collect payment from those who can afford to pay us," she says.
Geisler says Mount Carmel reaches out to patients several times in the billing process to see if they qualify for financial assistance. "I firmly believe we're providing charity care for anyone who comes to us and shows us they're eligible, [but] it's a two-way street—they have to cooperate with us," she says. Patients who do not receive assistance either "failed to give us the information to confirm what they wrote on their application, or they’re over income or resource," she adds.
McGarvey counters that her clients report sending the requested information multiple times and often cannot get in touch with anyone at the hospital to discuss their applications, or verify that their forms have been received. Some were told they were eligible, only to be sued later, she adds.
The hospital also refused initial requests to provide its financial assistance policy, claiming it was proprietary, and only agreed to show it to a reporter after being presented with statutory language from the health law requiring that the policy be widely publicized. McGarvey says Columbus Legal Aid was only able to obtain a copy through the discovery phase of a lawsuit, in which documents must be revealed.
Geisler says Mount Carmel closely monitors the debt collection agencies they hire and approves the actions taken against patients, including lawsuits and garnishing wages as a last resort, when it believes the patient has the ability to pay. There is not much of a financial downside for the hospital—the debt collection agency is only paid if the debt is actually collected.
The Internal Revenue Service Code requires nonprofits to provide a "community benefit" to maintain their federal tax exemption. An important part of that benefit is free and reduced cost care for the poor, though the requirement is not specific about how much is expected.
But despite the requirement, a 2006 study by the Congressional Budget Office found that on average, nonprofits provide only slightly more uncompensated care than for-profit hospitals.
To be sure, some nonprofits do more than their share; a separate study by the Internal Revenue Service of more than 500 nonprofit hospitals found that 9 percent of hospitals provided 60 percent of all charity care.
For the past decade, Sen. Chuck Grassley, R-Iowa, has been leading the charge on Capitol Hill to hold nonprofits more accountable. Their tax exemption carries "certain responsibilities, and one of them is to provide charitable care. I mean, that’s why they’re set up, right?" Grassley explained in an interview.
There's little financial point in going after poor patients anyway, he says. "You're not going to get it out of them anyway," Grassley says. "You can’t get blood out of a turnip."
In a 2006 Senate hearing on the issue convened by Grassley, former IRS commissioner Mark W. Everson testified that over the past few decades, there has been "a convergence of practices between for-profit and nonprofit hospital sectors, rendering it increasingly difficult to differentiate for-profit and not-for-profit health care providers."
At the time, Grassley’s office recommended requiring nonprofit hospitals to contribute at least 5 percent of their total operating expenses or revenue (whichever is greater) toward free and reduced-cost care.
Provisions in the health care law aim to distinguish the two types of hospitals more clearly by creating new requirements for nonprofits. Under the rules, crafted by Grassley and Sen. Max Baucus, D-Mont., nonprofit hospitals are required to publicize their financial assistance policies and are prohibited from charging higher rates to uninsured patients or taking extreme collections efforts against patients who may qualify for free care.
But there is still no set level of charity care that must be provided. Grassley says that such a specific level would act as a ceiling rather than a floor, perhaps causing some of the more generous nonprofits to offer less free care.
The rules went into effect last year, and Grassley says most hospitals "are trying to do better." Nonetheless the American Hospital Association, the industry’s main trade group, has been "dragging their feet," he says, offering numerous criticisms of the new requirements. "It kind of makes you question whether they want it to work," Grassley adds.
Rich Umbdenstock, president of the AHA, counters that the association and its members have been consistently supportive of more clarity and transparency in nonprofit hospital reporting requirements. "Historically, we haven’t had the consistent definitions and agreed-upon standards for reporting," he says. “Now we have those at the federal level and we believe that those need to be given a chance to work,” which should help hospitals gain a sense of how they measure up to other nonprofits.
He adds, however, that hospitals are concerned that some of the reporting requirements may become an "unreasonable burden." At the request of the IRS, the AHA offered suggested changes to the new regulations.
Umbdenstock argues nonprofit hospitals are generally doing an excellent job providing a community benefit, which includes more than just free care. “Community benefit is broad,” he explains, and also includes health fairs, mobile screening, outreach and education. The AHA estimates that nonprofit hospitals spend an average of 11 percent of their total expenses on benefits to their communities, though the calculation also includes bad debt, which they have tried and failed to collect, and shortfalls from the rates paid by Medicaid and Medicare, which hospitals say do not cover their costs.
A recent analysis by the magazine Modern Healthcare found that nonprofits spend an average of just 1.5 percent of their expenses on free and reduced cost care. Mount Carmel spent 1.9 percent on charity care in FY 2010.
Meanwhile, some states are taking matters into their own hands. Minnesota Attorney General Lori Swanson recently released the results of a months-long investigation of Accretive Health, one of the nation’s largest collectors of medical debts. The documents included practices like embedding debt collectors as employees in emergency rooms and demanding that patients pay before receiving treatment. Accretive has contracts with nonprofit as well as for-profit hospitals.
In the past year, Illinois has revoked the state tax exemption for three nonprofit hospitals that the state Department of Revenue determined were not providing their share of free care. Dozens more could be on the chopping block, and five recently withdrew their applications for tax exemptions.
Grassley is pleased with Illinois' aggressiveness. "That's absolutely what [states] ought to be doing, and we ought to be doing it on the federal level too," he says.
For Lori Duff in Ohio, however, that’s little comfort. Her wages have not been garnished as she tries to fight the lawsuit. Mount Carmel is continuing to initiate suits against other patients.
Meanwhile, Duff and her husband remain uninsured and vulnerable to future collections actions.
"It's crazy," Duff says. "It's a hospital bill. It’s a doctor bill. Everybody needs care."