Maryland Hospitals Sue Poor Patients For Payments Despite Rates That Incorporate Payment for Bad Debt

The Baltimore Sun recently ran a three-part series documenting efforts by hospitals in Maryland to collect “bad debt” bills from patients, even when the state rate-setting process pays them for unpaid bills.

Maryland has a unique arrangement where the state sets rates for all payers, including Medicare. The rates are set to incorporate costs of unpaid care for each hospital. Essentially, hospitals can wrap the cost of this year's unpaid care into their future bills. Under this program, Maryland hospital bills have grown at a slower rate than the rest of the country, and Medicare payments to Maryland are inflated by as much as $500 million per year.

The Sun reporters created a database of all civil lawsuits filed to collect for hospital bills, a total of 132,000 lawsuits with over $100 million of judgments. The investigating team discovered that there are no standards for when medical bills are written off as free care, and there are wide disparities from hospital to hospital. Furthermore, some hospitals “double dip” by writing off bills as bad debt (and building this into their rates), and then later suing patients for the charges which had previously been written off.

Johns Hopkins acknowledged sending 20% of its patients to collection, and the Maryland Hospital Association expressed pride that the industry sends only ½% of patients to collection. Hospitals routinely charged higher interests rates than allowed by law, and at times sued patients for payments not made by Medicaid, a violation of provider participation rules for that federal-state program. Many hospitals had substantial surpluses attributed to high rates to make up for uncompensated care.

Hospitals are in substantial financial distress across the country - and bad debt rates are likely to increase in coming months. Hospital are obligated to try to collect legitimate debts; otherwise, the costs for those who do pay will go way too high.  But suing patients with no resources and charging them credit-card-worthy interest rates is unseemly, and suing even after the bad debt has been factored into future bills seems at least immoral, and probably illegal. 

Maryland has in place an attractive process to discourage hospitals from turning away those who cannot afford to pay. However, its regulators have not watched over hospital behavior well enough to guard the public interest.

Thanks to John Petito of our Harvard School of Public Health class for pointing this series out to me.