Non-Profit Hospitals Sue to Get Patient Financial Responsibility

July 12, 2019 - Non-profit hospitals are more likely to sue patients and garnish their wages to collect overdue patient financial responsibility, according to a case study recently published in JAMA.

Researchers from Johns Hopkins University School of Medicine and the University of Oklahoma College of Medicine found that 36 percent of the 135 Virginia hospitals analyzed pursued warrant-in-debt lawsuits and garnished the wages of patients. Of these hospitals, 71 percent were non-profit institutions.

The study of 2017 Virginia court records also revealed that hospitals with lower revenue were also more likely to pursue the collection of owed patient financial responsibility in court. The mean annual gross revenue of garnishing hospitals in Virginia was $806 million.

Garnishments also decreased with annual gross revenue (0.76 per $100 million), researchers reported.

“Some characteristics suggest that hospitals with greater financial need (nonprofit, lower annual gross revenue) may be pursuing debt collection to the final stage of garnishment,” they wrote in the study.

READ MORE: In IRS First, Non-Profit Hospital Loses Status Under ACA Rules

Hospitals have recently struggled to stay in the black. A 2018 Navigant analysis of 104 prominent health systems that operated nearly one-half of US hospitals found that two-thirds of hospitals saw their operating income fall from FY 2015 to FY 2017. For 22 of the health systems, operating income reductions totaled over $100 million each.

Hospital profitability is on shaky ground as expenses continue to rise while demand falls for revenue-generating services, like surgery and inpatient care. This can be especially troubling for non-profit hospitals which treat some of the most vulnerable patient populations.

To be a non-profit, hospitals must meet community benefit standards according to Section 501(r) of the Internal Revenue Code. The statutory community benefit standards include a variety of medical billing and collection requirements, including having an established financial assistance policy.

But hospitals across the board may find their patients increasingly seeking financial assistance.

Patient financial responsibility increased 12 percent from 2017 to 2018 after increasing by 11 percent in the previous year, TransUnion recently reported. The popularity of high-deductible health plans and greater cost-sharing arrangements with health plans is forcing patients to pay more out-of-pocket.

READ MORE: Key Ways to Boost Collection of Patient Financial Responsibility

As patient financial responsibility climbs, availability and affordability of healthcare remains at the top of Gallup’s list of potentially worrisome issues for Americans. And in Virginia, where about a third of hospitals sue patients for unpaid bills, more than half of residents had problems with affording healthcare in the last year, according to the 2019 Virginia Consumer Healthcare Experience State Survey.

Non-profit hospitals are absorbing a large portion of patient financial woes. The American Hospital Association (AHA) recently reported that non-profit hospitals contributed a total of $95 billion in community health services in 2016, the most recent year for which AHA had access to complete data. Financial assistance counted toward the total.

Non-profit hospitals are using lawsuits to reach out to patients with unpaid medical debt, not necessarily as a strategy for collecting patient financial responsibility, Lisa Henry, communications director at Mary Washington Healthcare recently told NPR.

“We selected to do this because we think it is a fair and appropriate way to help our patients reach out to us — to open the lines of communication,” she told the national news source that reported about the Maryland health system’s tendency to sue patients over uncollected financial responsibility. “There are many cases resolved before litigation. The court summons alone is enough to open that door of communication so that we can work with them.”

But industry leaders have begun to question the financial assistance and collection policies of non-profit hospitals. Earlier this year, Senator Chuck Grassley (R-IA) called on the IRS to look into non-profit hospital compliance with IRS rules the require the facilities to provide finance assistance to patients.

READ MORE: Consolidated Medical Billing Boosts Collections for a TX Group

Senator Grassley led the investigation into Mosaic Life Care’s garnishment practices from 2009 and 2013.

“Making sure that tax-exempt hospitals abide by their community benefit standards is a very important issue for me,” he wrote in the February 2019 letter. “As chairman of the Senate Judiciary Committee, I oversaw an investigation into the billing practices of the Mosaic Life Care Hospital. That investigation resulted in debt relief of almost $17 million for thousands of low-income patients. This issue is still just as important to me now that I am chairman of the Senate Finance Committee.”

Mary Washington Healthcare recently decided to stop its practice of suing patients to collect medical debt following the publication of the NPR story.

“We have decided it is in our community’s best interest to suspend the practice of pursuing legal action for unpaid bills. We are committed to a complete re-evaluation of our entire payment process to ensure that all patients know they have access to care,” the health system announced on Twitter.

But many more non-profit hospitals across the country are still filing lawsuits against patients to collect what is owed to them and reach out to patients who may truly need financial assistance. As national news sources expose the practice, non-profit hospitals may want to reexamine their financial assistance and collection policies to not on ensure the policies comply with IRS rules but also to determine if they could harm the hospital’s brand as a community pillar.