HA400 Unit 10 Charity Care Lawsuits Case Study Example

One Hundred Forty Lawsuits Against Former Patients: An Integrated Case Study of a Composite Nonprofit Hospital's Collection Policy Through Federal Tax-Exemption Rules, the Ethics of a Charitable Mission and the Board Decision That Approved It

[Student Name]

Purdue University Global

HA400: Health Care Ethics, Law, and Governance

Unit 10 Integrated Case Study

[Instructor Name]

[Date]

The hospital, the lawsuits and every figure are composite and bracketed; the legal analysis is simplified for a course, marks uncertainty rather than declaring violations and is not legal or tax advice.

Case Summary

[Valley Regional Medical Center], a composite [210]-bed nonprofit hospital, has a written financial assistance policy offering free care to patients with incomes up to [200] percent of the federal poverty level and discounts up to [400] percent. Two years ago, the board's finance committee approved a collection policy that allowed the hospital's collection agency to file lawsuits on balances above [$1,500] after [150] days. Last year the agency filed [140] lawsuits and obtained [62] wage garnishments. A local reporter reviewed court records and found that at least [55] of the patients sued had incomes within the free care range. None had applied for assistance. The finance committee had not reviewed the collection results since approving the policy.

Part 1: The Legal Question

What did the hospital have to do before suing? To keep federal tax exemption, a nonprofit hospital must meet additional requirements, including a written financial assistance policy, limits on charges to eligible patients and limits on billing and collection (26 U.S.C. § 501, 2024). The final regulations define extraordinary collection actions to include lawsuits and wage garnishment, and they require the hospital to make reasonable efforts to determine whether a patient is eligible for assistance before taking such actions (79 Fed. Reg. 78954, 2014). Testing the facts against those steps:

1. Notification period: the hospital generally may not start extraordinary collection actions until at least [120] days after the first post-discharge bill. The policy's [150] days meets this on its face.

2. Written notice: the patient must receive written notice, at least [30] days before the action, that describes the actions planned and comes with a short, readable version of the assistance policy. The record does not show whether the agency sent these notices. This is uncertain and must be checked.

3. Oral notice: the hospital must make a reasonable effort to tell the patient orally about the policy and how to get help with the application. The record is silent.

4. Applications: if a patient applies during the application period, actions must be suspended while the application is processed. None of the [55] applied, but the hospital should check whether anyone tried to apply and was turned away.

5. Responsibility for agents: the hospital remains responsible for actions taken by its collection agency.

Conclusion: The lawsuits may or may not violate the rules; the answer depends on notices the record does not show. That uncertainty is itself a finding: the hospital cannot show it complied. A hospital that cannot prove it told patients about free care before suing them is in a weak position, whatever its agency actually did.

Part 2: The Ethical Question

Even if lawful, does the policy fit a charitable mission? Justice asks how burdens are distributed. The burden of the lawsuits fell on low-income patients who were eligible for free care and did not know it. Research has found that lawsuits and wage garnishments for unpaid hospital bills can be concentrated among a minority of hospitals, including nonprofits (Bruhn et al., 2019), and a study in one state found hospital lawsuits over unpaid bills rose by more than a third over nearly two decades (Cooper et al., 2021). Stewardship offers a counterargument. The hospital must collect what it is owed to stay solvent and serve the community; uncollected balances reduce what it can spend on care. But the amount at stake in the [55] lawsuits was about [$190,000], compared with an operating budget of about [$310 million]. The financial gain was small; the harm to families and to the hospital's standing was large. A charitable hospital's tax exemption rests on the idea that it returns value to the community. Suing patients who qualify for its own charity care contradicts that idea.

Part 3: The Governance Question

Who was responsible, and what should the board have done? The board's finance committee approved the collection policy. Approval was within its authority, but approval is not oversight. The committee never asked for data on how many patients were sued, how many were screened for assistance or how much was collected. The board had no measure that would show whether the financial assistance policy reached the people it was written for. Directors of a nonprofit hospital owe duties of care and loyalty to its charitable purpose. Overseeing how the hospital treats patients who cannot pay is part of that purpose.

Where the Three Analyses Meet

The legal analysis found uncertainty about notices. The ethical analysis found a conflict with the mission. The governance analysis found a committee that approved a policy and never looked at its results. All three point to the same gap: nobody checked whether patients who qualified for free care were identified before collection began.

What Management Should Tell the Community

The hospital should not wait for the review to speak. A short public statement should say that new lawsuits are suspended, that every file is being reviewed and that patients who were eligible will have lawsuits withdrawn and garnished wages returned. It should give a phone number for patients who believe they qualify. A hospital that explains its own correction is more likely to keep community trust than one that answers only after more reporting.

Recommendations

1. Suspend all new lawsuits and garnishments until a compliance review is complete.

2. Review all [140] files for the required notices and for eligibility, using income data where available. Withdraw lawsuits and refund garnished wages for patients found eligible.

3. Screen every account for assistance before it goes to collection, using a presumptive eligibility tool where permitted.

4. Amend the collection policy to require board approval for any lawsuit and to exclude patients who appear eligible.

5. Add a quarterly report to the finance committee showing accounts sent to collection, screening results, lawsuits and garnishments.

6. Publish the financial assistance policy in plain language at every registration desk and on bills.

Limits

The analysis relies on composite facts and does not include state laws on medical debt, which may add protections.

Conclusion

The hospital may or may not have broken the federal rules, but it cannot show that it followed them, and it sued people its own policy says should not pay. The fix is a system that identifies eligible patients first and a board that watches the results.

References

Bruhn, W. E., Rutkow, L., Wang, P., Tinker, S. E., Fahim, C., Overton, H. N., & Makary, M. A. (2019). Prevalence and characteristics of Virginia hospitals suing patients and garnishing wages for unpaid medical bills. JAMA, 322(7), 691-692. https://doi.org/10.1001/jama.2019.9144

Cooper, Z., Han, J., & Mahoney, N. (2021). Hospital lawsuits over unpaid bills increased by 37 percent in Wisconsin from 2001 to 2018. Health Affairs, 40(12), 1830-1835. https://doi.org/10.1377/hlthaff.2021.01130

79 Fed. Reg. 78954 (2014). Additional requirements for charitable hospitals; community health needs assessments for charitable hospitals (final rule).

26 U.S.C. § 501 (2024). https://www.law.cornell.edu/uscode/text/26/501