Big hospital lawsuit settled
Accused of overcharging, CHW will reimburse up to 700,000 uninsured patients.

By Dale Kasler -- Bee Staff Writer

Published Thursday, June 15, 2006
Story appeared on Page A1 of The Bee

In a move that could affect 700,000 patients, Catholic Healthcare West on Wednesday settled a lawsuit accusing the hospital chain of overcharging uninsured patients.
CHW, which operates five hospitals in greater Sacramento, said it couldn't put a dollar value on the settlement. But Kelly Dermody, a San Francisco lawyer representing the patients, said the agreement will translate into "hundreds of millions of dollars in refunds or bill adjustments for the uninsured." The settlement covers uninsured patients who visited CHW hospitals since July 2001.

In a prepared statement, CHW said it agreed to the settlement "to put this matter behind us, avoid the cost of litigation, and focus our resources on caring for patients." It will send notices to 700,000 patients notifying them of their eligibility for refunds or bill adjustments.

Based in San Francisco, CHW operates 41 hospitals in California, Nevada and Arizona. In the Sacramento region, the chain operates Methodist Hospital of Sacramento, Mercy San Juan Medical Center, Mercy Hospital of Folsom, Mercy General Hospital of Sacramento and Woodland Healthcare. It also operates hospitals in Grass Valley, Red Bluff, Redding and the Shasta area.

Dermody said the claims against CHW are symptomatic of a problem plaguing many hospital chains -- how to deal with the uninsured. A second lawsuit against CHW, covering many of the same allegations but dating back to 1995, is pending in Los Angeles. And Dermody's firm has a similar lawsuit pending against Sacramento-based Sutter Health, she said. The Sutter case has yet to be certified as a class-action suit, she said.

Sid Backstrom, a Mississippi attorney representing the CHW patients, said his firm has 50 cases pending across the country in which hospital chains are accused of overcharging uninsured patients.

In the CHW case, "we alleged that Catholic Healthcare West charged uninsured patients substantially more than other patients for the same treatment," Dermody said. Generally speaking, the uninsured were charged three or four times as much as Medicare cases, she said.

The case was brought by two patients, a Los Angeles woman and Auburn-area resident Amber Howell.

In early 2005, Howell was charged $2,000 by Sierra Nevada Memorial Hospital in Grass Valley to treat her son Andrew's broken thumb, Dermody said. The treatment took three hours, she said.

Howell couldn't be reached for comment.

In the CHW case, Dermody said the "incredibly generous" settlement will enable patients to recover up to 100 percent of the alleged overpayment.

The settlement also calls for CHW to keep in place for four more years a discount policy for uninsured patients that went into effect in July 2004.

The policy establishes a graduated payment scale. An uninsured family of four making $40,000 a year or less would qualify for free care. Families earning up to $60,000 a year would pay approximately what Medicare would pay. Families earning up to $100,000 a year would pay about what private insurance would.

CHW, which said it provided $623 million worth of charity care last year, said "we are pleased that this settlement maintains our policy of offering free or discounted care to uninsured individuals."

Joanne Spetz, a health care economist at the University of California, San Francisco, said the cases spotlight a growing problem in health care.

Hospital costs are rising, but reimbursements -- from Medicare, Medi-Cal and private insurance -- are falling, Spetz said.

At many hospitals, uninsured patients are just about the only ones who are charged the full fare, known as the "charge master," she said.

Without insurance, "you don't have a negotiated cheap rate," Spetz said. "You actually get charged the listed rate."

Yet most of the charges wind up being written off as uncollectible, she said, leaving hospitals in an ever-growing quandary.

Hospitals "are trying to figure out, 'Who can we charge? Who can we not charge?' " Spetz said.

This squeeze is one of the reasons insurance premiums are going up so quickly, Spetz said. "We all pay for it, one way or another," she said.

That's why hospitals are starting to treat uninsured patients like everyone else. One year before CHW instituted its graduated payment scale, Tenet Healthcare, under fire for some of its pricing practices, announced it would start charging uninsured patients the same as those in managed care.

Health Access California, a patient advocacy group, has sponsored legislation, AB 774, that would prohibit hospitals from overcharging uninsured patients, said executive director Anthony Wright.

Dermody said CHW also has changed its debt-collection methods regarding the uninsured. "I want to commend CHW for taking leadership on this issue," she said.

An investigative report in The Bee in September 2004 said Mercy Healthcare Sacramento, which operates four CHW hospitals in Sacramento County, is the county's most aggressive hospital chain at collecting debts from the poor and uninsured.