Outrage of the Month: Nonprofit Hospital Systems Exploiting Poor Patients, Driving Them Into Debt

Health Letter, November 2022

By Michael Carome, M.D.

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Nonprofit hospitals in the U.S. are obligated to provide free medical services to poor patients. But a damning exposé published in the New York Times on Sept. 24, 2022, provided a stunning example of how some major nonprofit hospital systems as a matter of policy violate this obligation by aggressively seeking payment from patients who are entitled to free medical care.

The Times exposé described a disturbing program implemented by the Providence hospital system that was designed to extract money out of patients, including those eligible to receive free care due to their low income levels. The Providence program, called Rev-Up, was devised by company executives, led by its chief financial officer. Under the program, hospital staff were trained to pressure every patient to pay, every time. Employees were instructed to ask patients how they wanted to pay. And if patients didn’t pay, the hospital sent debt collectors after them.

The Times noted that with 51 hospitals and more than 900 clinics, Washington state-based Providence is among the largest nonprofit health systems in the U.S. Its 2021 revenue was greater than $27 billion. Like other nonprofit hospital systems, Providence receives hefty federal tax exemptions. For Providence, these tax breaks total more than $1 billion annually. In exchange for these tax breaks, the Internal Revenue Service (IRS) requires Providence to provide free care to the poor and other services that benefit the communities served by its hospitals and clinics. Under Washington state law, hospitals operating in the state are required to provide free medical care to anyone who makes under 300% of the federal poverty level, which for a family of four would be $83,250 per year.

Moreover, Providence holds $10 billion in investments and runs its own venture capital fund, so it has vast financial reserves available to provide free care to the poor.

In 2018, prior to implementation of the Rev-Up program, Providence’s spending on charity care represented 1.24% of its expenses, which was below the average of 2% of spending among all nonprofit hospitals in the U.S. In 2021, following implementation of Rev-Up, spending on charity care by Providence decreased to less than 1% of expenses.

The Times found that by reducing the provision of free care to poor patients and developing “elaborate systems to convert needy patients into sources of revenue,” Providence had saddled thousands of poor patients with debts that they never should have owed. Many of these patients had their credit scores ruined, and some had to cut back on groceries to pay medical bills from Providence.

Providence’s reprehensible, profit-driven behavior likely is causing substantial harm to the health and well-being of patients who have been driven into debt. A study published in JAMA Network Open on Sept. 16, 2022, that was coauthored by Drs. David Himmelstein and Steffie Woolhandler — distinguished professors at CUNY’s Hunter College, lecturers in medicine at Harvard Medical School and research associates for Public Citizen’s Health Research Group — found that incurring medical debt more than doubled an individual’s subsequent risk of becoming food insecure; becoming unable to pay their rent, mortgage or utilities; and losing their home because of eviction or foreclosure. These key social determinants have previously been shown to cause health deterioration. Hence, the study authors concluded, “unaffordable medical bills may constitute an SDOH [social determinant of health] in their own right and contribute to a downward spiral of ill-health and financial precarity.”

Bob Ferguson, the Washington state attorney general, earlier this year filed a lawsuit against Providence for violating state law, in part by engaging debt collectors to pursue more than 50,000 patient accounts for individuals eligible for financial assistance.

But Providence’s aggressive billing practices targeting poor patients extend to Providence hospitals and clinics outside Washington. Therefore, the IRS must do more by imposing stiff penalties on all “nonprofit” hospital systems like Providence that fail to satisfy their obligation to provide free care to poor patients in exchange for lucrative federal tax exemptions.

More broadly, as Himmelstein, Woolhandler and their coauthors stated, “Eradicating medical debt would require implementing universal coverage that eliminates burdensome out-of-pocket costs.” Such universal coverage will require improving traditional Medicare and expanding it to cover everyone in the U.S.