Sick of Hospital Bills

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Yet the uninsured are typically the only ones forced to pay sticker price. The lawsuits complain that hospitals then aggressively pursue patients for the full charge, sometimes garnishing wages, placing liens on homes, and in some cases lumping the bad debt into their calculation of charity care, a controversial accounting practice. "There's nothing charitable about it," contends Scruggs, noting that medical debt is a leading cause of personal bankruptcy.

In 2001, Laverne Dumas, one of the plaintiffs in a suit against Provena Mercy Center in Aurora, Ill., went into the hospital for a severe sinus infection and was sent a $12,338 bill that included $650 a day for the room and $6 for each ibuprofen pill. Uninsured and living mainly on her husband Joe's $800-a-month pension at the time, she says she tried to negotiate a payment plan, but the hospital refused. Provena won a judgment, and today the couple pays $100 in monthly installments, with scant hope of paying off their $27,000 in hospital bills (owed not just to Provena). Says Joe, 63: "We didn't go in expecting charity, but we didn't expect exorbitant prices either."

Was Provena overly harsh? Patrick Coffey, a lawyer for Provena, says the Dumas signed forms promising to pay their bills and "agreed that the charges were fair. We reject the notion of any legal basis or merit to their claims." But the state of Illinois revoked a tax exemption for a Provena hospital based on findings that the hospital wasn't providing enough charity care; Provena is appealing.

The AHA says hospitals must set the same charges for everyone. Secretary of Health and Human Services Tommy Thompson wrote to the AHA in February, however, saying the suggestion that hospitals must charge list prices "is not correct and certainly does not accurately reflect my policy." A Texas hospital administrator is blunt about why hospitals pursue the medically indigent: "The driving force is to badger them so they don't come back."

Scruggs was vaguely aware of such problems but didn't have the basis for a case until a couple of whistle-blowers from Georgia contacted him last March. Dr. John Bagnato and Charles Rehberg, the administrator of Bagnato's private practice, had spent hundreds of hours probing hospital finances — particularly those of Phoebe Putney Memorial, a hospital in Albany, Ga., where Bagnato was chief of surgery. Bagnato's private practice, Albany Surgical, had tried to open an outpatient surgery center across the street from Phoebe, and eventually he and Rehberg suspected the hospital of meddling in state rules that had blocked the plan. (Phoebe denies interfering.) Inspired, the pair began investigating hospital finances. The deeper they delved, the more they became convinced that Phoebe and other nonprofits weren't living up to their charity mission.

Probing Phoebe's IRS tax filings, they found that CEO Joel Wernick was paid $707,000 (including benefits) in Phoebe's 2002 fiscal year and had an interest-free loan from the hospital for $85,300. The filings also showed that Phoebe had more than $300 million in net assets and reported offshore entities in the Cayman Islands worth some $15.5 million. At the same time, Phoebe had sued citizens in the Dougherty County area, one of the nation's poorest, hundreds of times over a five-year span, making the hospital one of the region's most litigious parties. Phoebe garnished the wages of patient Virginia Franklins, 49, even though she made $7 an hour pressing men's dress shirts and had no house or car to her name. After that, Franklins says, "I couldn't afford to pay my bills." She now lives off welfare, caring for a 13-year-old niece as well.

Phoebe says there's nothing improper about its finances or executive compensation. The offshore entities are legal investment and insurance vehicles that have saved the hospital money, officials say. On its website, Phoebe notes that it spends $46.6 million on charity care, and officials stress that patients are informed by hospital signs and other means that they may be eligible for free or discounted care. CEO Wernick, who repaid the loan, calls the class action against Phoebe frivolous. It implies hospitals "are indifferent to the plight of the uninsured," Wernick continues. "That's just not the case."

Bagnato and Rehberg say they are not on a vendetta against Phoebe, though their feud with the hospital took some ugly turns. Aiming to draw attention to what they felt were unscrupulous practices, they sent faxes to local politicians and businesses last fall and winter, including one that showed a cartoon of a fat "Phoebe Exec" puffing on a cigar, with a caption saying, IS THERE REALLY CORRUPTION AT PHOEBE? Around the same time, they say, their office at Albany Surgical was bugged. Rehberg's wife Wanda reports coming home one day and finding the door lock jammed. She saw a phone-company employee outside attempting to install a line that the couple had not requested. Rehberg and Bagnato don't accuse Phoebe of bugging their office or orchestrating other surveillance, and a hospital spokeswoman denies any involvement. But Phoebe slapped Rehberg and "coconspirators" with a defamation suit for sending the faxes, claiming they harmed the hospital's reputation.