Hospital Debt Collection Practices

One of the major points of friction in tax-exemption for nonprofit hospitals over the past decade has been the hospitals’ use of aggressive debt collection techniques. Aggressive debt collection is what first brought Provena-Covenant hospital in Urbana, IL to the attention of the local property tax board, and ultimately played a significant role in the decision of that board to recommend revocation of Provena’s state property tax exemption. Then there’s the tale of Quentin White, who had paid Yale-New Haven Hospital for over 20 years for the debt from his late wife’s medical care. Despite paying almost $16,000 on a $19,000 bill over the years, the debt ballooned to nearly $39,000 after the payments because of the compound interest charges (over 10%) by the hospital. At one point, the hospital placed a lien on the White’s home and nearly cleaned out his bank account.

Now comes an in-depth examination of the debt collection practices of Maryland hospitals by the Baltimore Sun. In an article released over the weekend, the Sun found

• Hospitals filed more than 132,000 debt collection suits in the past five years, winning at least $100 million in judgments.

• Hospitals sometimes added annual interest at twice the rate allowed for other types of debts.

• Hospitals placed liens on houses 8,000 times in the past five years.

• Maryland lacks uniform standards to determine who qualifies for reduced-price or free hospital care.

• The state doesn’t closely monitor hospitals’ debt collection practices.

• A majority of Maryland’s hospitals have received surpluses from free and unpaid care in recent years, though they are supposed to break even in the long run.

It is surely the case that hospitals have some cases that call for debt collection; some people can afford to pay their bills and choose not to. But as the Sun story found, debt collection practices by nonprofit hospitals are often poorly supervised and lack sufficient internal controls. The Provena case in Illinois and the Quentin White case in Connecticut led to state legislation regulating hospital collection practices. In 2006, California passed similar legislation, and attorney generals across the country have opened investigations into hospital billing practices. The wave of bad publicity and legislative and regulatory efforts has led some (maybe many) nonprofit hospitals to re-examine their debt collection practices – but perhaps self regulation is simply not enough. Will Maryland be next on the legislation list? Will Senator Grassley pursue federal standards on debt collection as a limit on 501(c)(3) status for nonprofit hospitals? Stay tuned . . .

JDC