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A Mississippi Business Journal Q&A: Attorney Dick Scruggs discusses latest concerns

Nonprofit hospitals targeted for alleged overcharges

Oxford — Dick Scruggs, perhaps most famous for his role in Mississippi’s successful litigation to recover billions in public healthcare expenditures from the tobacco industry, has a new cause: a push against nonprofit hospitals for alleged overcharges of uninsured patients.

The Mississippi Business Journal chatted with Scruggs, who has moved from the Gulf Coast to Oxford, about class actions filed in June against some of the largest nonprofit hospitals in the U.S. by uninsured patients of those hospitals. The complaint: nonprofit hospitals fail to provide government-required charity care and that hospitals are charging uninsureds more than any other patient group including Medicaid, Medicare and those with private insurance.

As of July 1, 19 litigations have been filed in Alabama, Arizona, California, Colorado, Florida, Georgia, Illinois, Missouri, Minnesota, Ohio, Tennessee and Texas, and cases of a similar nature are expected to be filed soon against major hospitals in other states.

The litigation is focused on “assuring that the nonprofit hospitals properly fulfill their missions and obligations of providing charity care to those who need it most and seeks to stop nonprofit hospitals from intentionally failing to fulfill their agreements with the federal government, states and local counties to provide charitable medical care to their uninsured patients in return for substantial tax exemptions.”

The American Hospital Association (AHA), the national organization of hospitals that advises and provides substantial assistance to the defendants on all manners of hospital operation, including billing and collection practices concerning the uninsured, has been named a conspirator in the litigation.

Mississippi Business Journal: How did you get involved in this case?

Dick Scruggs: Medical professionals that were outraged by the deplorable billing practices occurring in the nonprofit hospitals where they worked brought this issue to our attention. We researched the practice of nonprofit hospitals overcharging the uninsured higher prices than any other patient group and found it to be a rampant problem in nonprofit hospitals across that country. This practice breaches the nonprofit hospitals’ obligation to provide government-required charity healthcare to uninsured patients for which the nonprofit hospitals receive tax-exempt status, saving them millions of dollars.

MBJ: Why do you believe this issue is so important?

DS: Despite the large size of the hospital industry, there is no one government regulator to oversee how these hospitals are operating. When legislators and regulators fail to address a problem that is endangering the health and well-being of the public, then the courts represent a responsible and appropriate venue. I believe that we have a moral duty to hold these hospitals accountable to their government obligation to the uninsureds — the patient group that is charged the most and can least afford healthcare.

MBJ: What allegations are you making as a result of your research?

DS: The hospitals charge the uninsured “sticker” prices for healthcare, an amount higher than any other patient group, and then, when the uninsured can’t 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 addition to saving and amassing millions via unpaid taxes, the cases allege that the named hospitals benefit from income from their “for profit” operations. These benefits often result in hospitals holding millions of dollars in offshore bank accounts located in havens which are known for secrecy, and where no taxes on these funds can be levied. Notably, none of these excesses are used for the reason the tax-exempt status was allowed by the government: providing charitable care for the uninsured.

MBJ: What complaints have been filed against the defendant nonprofit hospitals?

DS: Breaches of contract; breaches of good faith and fair dealing; breaches of charitable trust; consumer fraud and deceptive business practices; violations of the Emergency Medical Treatment and Active Labor Act; unjust enrichment; civil conspiracy; conspiring with the AHA and aiding and abetting with respect to the breaching of their tax exempt agreements.

The cases highlight that the defendants have operated free from federal and state taxes because they promised the government to operate as a charity provider of healthcare for the uninsured and that they would not engage in business “directly or indirectly, for the benefit of private interests.” In reality, the defendants do just the opposite. The defendants violate the federal and state prohibition against profiteering by “private interests” through either board members and/or physicians whose for-profit businesses are favored and subsidized by the “tax-free” organization. Private insurance companies and governmental third-party payors also benefit from the tax-exempt hospitals’ operations, each receiving large discounts off of the “sticker” price that only uninsured patients pay. Thus, only the uninsured, those who should be receiving charity care, pay the hospitals’ highly inflated rates that bear no connection to the actual cost of providing the service.

The cases further assert that the defendants use “creative” accounting practices to grossly distort the small amount of charity care they provide to their uninsured patients, typically reporting the amount of charity care as the amount of gross charges — which are significantly inflated — rather than the cost of actually providing the service. The cases allege violations of the Emergency Medical Treatment and Active Labor Act (EMTALA) in that before the defendants admit uninsured patients, they require their patients to sign a form contract promising to pay the defendants in full for unspecified and undocumented charges for medical care that are set by the defendant nonprofit hospital at its sole discretion.

The defendants will not admit a patient into their emergency rooms for emergency medical care unless and until that patient agrees to pay in full for such unspecified and undiscounted charges, a practice that clearly violates EMTALA.

MBJ: What relief is being sought for the clients?

DS: The cases seek monetary damages for the cost of medical care charged, injunctive relief and the imposition of constructive trusts to be imposed on the defendants and from these trusts medical care will be paid for to the plaintiffs and class in each case.

Note: The Mississippi Hospital Association, Mississippi State Medical Association, American Hospital Association and American Medical Association turned down requests to comment for this story.

Contact MBJ contributing writer Lynne W. Jeter at mbj@thewritingdesk.com.

About Lynne W. Jeter

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