Third of five parts
Betsy Stevens was pleased with her medical care at Duke Eye Center in July 2010. She was disgusted with the hospital’s business operations.
Duke submitted the wrong code to her insurance company, which denied her claim. For six months, Stevens tried to get Duke to fix its error, sending seven letters and four emails and making almost weekly calls. The chair of the Duke Eye Center sent her a letter of apology in November 2010, promising to make things right.
That same month, Duke sent her case to a collection agency, Absolute Collection Service, which reported Stevens in March to the national credit agencies, spoiling her credit rating.
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“The arrogance and insouciance shown by the Duke business office is downright appalling,” Stevens, a business professor who lives in Alamance County, wrote in a complaint to the state Attorney General. “I believe there are a number of others in this same situation, poor, elderly or perhaps lacking the education it takes to challenge an institution like Duke with numerous letters of complaint. I write on behalf of myself and others who may have been similarly abused.”
Most North Carolina hospitals are nonprofits with the mission of providing charity to the poor and distressed and benefiting their community. Yet some hospitals choose to pursue uninsured or financially distressed patients who can’t, or haven’t, paid their bills, sometimes suing them and placing liens against their property.
In the Triangle, hospitals turn to collection agencies, which aggressively pursue payment, sometimes even after patients have paid. Those who don’t pay can be reported to credit agencies, which can damage their credit for up to seven years, hurting their ability to refinance a mortgage or buy a car.
Hospitals say they pursue the unpaid bills with vigor because they need to stay financially viable to continue treating and healing patients.
WakeMed officials say they only send patients to collection agencies as a last resort, when patients refuse to work out a payment plan.
“If someone works with us in good faith, we don’t report them,” said spokeswoman Debbie Laughery. “It’s when they become obstinate that we won’t work with them.”
Hospitals themselves seldom report patients to credit agencies for unpaid bills: Less than one-tenth of one percent of collection reports come from health care providers, according to two major credit bureaus.
While providers seldom report patients, their collection agencies do: 52 percent of cases reported to credit agencies involve unpaid medical bills such as the one Duke sent to Stevens. And most of these are for small amounts, according to a Federal Reserve study in 2003, the latest available.
In recent years, Triangle hospitals have increasingly turned to private collection agencies to collect millions of dollars in unpaid medical bills. The reason is simple: It’s cheaper.
“The reason we outsource is that it is more costly to do it ourselves,” said Kenneth Morris, chief financial officer at Duke Hospital.
Adam Linker, a policy analyst at the Health Access Coalition in Raleigh, says medical debt differs from all other consumer debt and shouldn’t be treated like money owed on a flat-screen television.
“I don’t think medical debt should go on credit reports, period,” Linker said. “People aren’t going into medical treatment because they have extra money and think it’s a fun thing to do.”
It’s difficult to know exactly how many patients are referred to credit agencies. Combined, UNC Hospitals and WakeMed reported almost 1.6 million visits last year; of those, 62,000 were reported to credit agencies. WakeMed patients were reported to credit agencies at more than twice the rate.
Duke University Health System would not release similar numbers. But for a time, Betsy Stevens was one of those patients on the bad-credit list. Duke acknowledged its mistakes and Stevens’ credit rating has been restored.
Duke says it has billing problems in a tiny share of its cases.
Confusing the consumer
Hospital bills are unlike any others. When you buy a car or computer, you choose the product and agree on the price.
Hospital care is different. Often patients and families are first and foremost concerned about treatment of their loved ones, not the costs. At hospitals, doctors generally choose the medicine, tests and treatment, though often in consultation with patients. Prices are seldom discussed; patients generally learn the charges when they receive their bills after treatment.
Often, there are multiple bills. An appendectomy, for example, could result in bills from the hospital, the surgeon, the anesthesiologist and an ambulance service.
Collection agencies add another layer of bureaucracy and complexity to the hospital experience. Consumers complain about being caught in a vortex of dunning letters and harassing phone calls. They have complained that collection agencies harass the innocent or continue to pursue patients who have paid their bills.
Stevens’ complaint is similar to others’: It takes a complaint to the attorney general, the Better Business Bureau or a lawyer to get the collection agency to stop the letters and phone calls. Stevens estimated she spent at least two full work days trying to resolve a problem not of her making.
A number of North Carolina hospitals routinely file lawsuits against patients who are behind in their medical bills. But Triangle-area hospital executives frown on that practice.
“That’s kind of old school,” said Cecelia Moore, chief operating officer for Duke University Health System.
The last Triangle hospital to routinely sue patients was UNC Health Care. UNC stopped the practice in 2006, after The News & Observer told the story of how the hospital system won a $185,300 lien on the home of Jerry Ansley, a Clayton man who ran up medical bills of more than $1 million for treatment of a rare blood disorder and other life-threatening medical problems.
UNC has done what many other local hospitals have done – turned to Absolute Collection Service, headquartered in the Bank of America Plaza on Fayetteville Street in downtown Raleigh. The company employs more than 200 people.
Hospitals first try to collect bills themselves. But if the bill is not paid within 90 or 120 days, a hospital’s automated billing system forwards the account to the collection agency.
Hospital officials at UNC, Duke, Rex and WakeMed say they are pleased with Absolute Collection. At UNC and Rex, hospital officials say they were unaware of any complaints about the company.
The files at the Consumer Affairs Division of the state Attorney General’s Office tell a different story. At least 169 complaints have been filed about Absolute over the past five years, second in collection complaints only to a national agency. The Better Business Bureau has 101 complaints on file; it says all were resolved favorably. It gives Absolute an A+ rating.
Those complaints represent a tiny fraction of the hundreds of thousands of accounts the company processed in that period, said Ken Perkins, the company’s legal counsel.
Perkins acknowledged that collection agencies won’t ever win popularity contests, but that Absolute trains its employees to be courteous and professional.
“We really try to help patients resolve their bills,” Perkins said. “You don’t get this work from major hospital groups by being a jerk on the phone. Hospitals want to retain their patients.”
Perkins says Absolute’s employees get health insurance and good pay. The founder and owner of the company, Raleigh native Harry Scott Jr., has done well for himself since he started the company in 1989 shortly after graduating from UNC. He owns a beach house valued at $1.7 million in a gated community in Hilton Head, S.C., and is part-owner of a NASCAR team.
Problems after paying
Absolute has hundreds of thousands of accounts, all medical, according to a deposition of two Absolute employees taken in 2010. Collection agents work two shifts to make calls.
The company earns a percentage of money collected. Typically, collection agencies pocket between 5 and 25 percent of the money collected, depending on the age of the bill and the demographics of the patients.
Absolute uses letters and calls to collect. It writes a series of letters, progressing from an initial bland letter to stronger and more insistent letters, with the last one telling patients they are being reported to national credit agencies. Similarly, the phone calls grow more urgent with each round.
Diane Russell’s run-in with Absolute started in late summer of 2008, after her husband, Jerry, was treated at Moore Regional Hospital. Russell received bills from the hospital and from the emergency room doctors. Jerry Russell had experienced several serious medical conditions over the preceding years, and Diane Russell requested financial assistance. The couple had no insurance.
The hospital reduced her bill by 80 percent, and Russell paid it. Russell made the same request to the emergency room doctors, but did not get a response.
In the fall of 2008, Absolute began sending letters and making phone calls to Russell, demanding that she pay the $501 doctor bill. After four months of phone calls and letters from Absolute, Russell wrote a check to the doctors for the entire bill on Dec. 30, 2008.
Absolute did not let up, sending letters each month. Each time, Diane Russell called the collection agency to tell it she had paid the bill. Each letter escalated the language: “We are dismayed by your inaction,” Absolute wrote in February 2009. A representative will call soon “to determine the reason you are ignoring our request for payment.”
On March 31, Absolute wrote that it would report the past-due debt to the national credit bureaus and the information would stain her credit rating for seven years.
Fed up, Russell called the Better Business Bureau, which forwarded her complaint to Absolute. The next day, Absolute told the Better Business Bureau that Russell had been correct all along. The bill had been paid for more than three months.
When Russell sued, Absolute declined to settle. The company said that it wasn’t its duty to check a patient’s claim that a bill was paid. It relies on a list from the hospital.
“If we investigated everyone who said that they’ve paid and we didn’t have record of it, we’d spend our entire day investigating rather than collecting for our clients,” Chris Malmfelt, an Absolute supervisor, testified in a deposition.
The case went to trial in federal court in Greensboro in April of last year. Suzanne Begnoche, one of Russell’s lawyers, said she believes this is the only case that has gone to trial in North Carolina under the federal Fair Debt Collections Practices Act.
The jury found for Russell on all counts and imposed the maximum penalties allowed. The jury found that Absolute had used unfair threats or coercion; fraudulent, deceptive or misleading representations; and unfair practices.
The jury awarded Russell $37,501. Absolute is contesting the verdict.
Under the federal law, Absolute must also pay attorney fees, which now stand at about $150,000, according to court records.
Perkins, Absolute Collection’s lawyer, declined to speak about the Russell case because it is still in litigation. In general, he said patients should not ignore letters from collection agencies. Patients who have paid their bills should send proof to the collection agency to close the account, he said.
Help from Congress?
U.S. Rep. Heath Shuler, a Waynesville Democrat, has pushed a bill to ease the damage that medical debt can do to a person’s credit rating. Medical bills can remain on a credit report for up to seven years, even if the bill has been paid and the balance is zero.
Shuler wants to change the law so that medical debts of less than $2,500 are removed from credit reports 45 days after the balance goes to zero. Most of the debts are small, in the range of a few hundred dollars or less. Sometimes patients get reported because they lack insurance, or because the hospital or insurance company made a billing error.
“These medical bills are complete necessities you need to have for your quality of life,” Shuler said. “It dings the credit score quite substantially, even after they pay it off.”
Sometimes the errors are the hospitals’ – such as the case of Betsy Stevens. Sometimes the errors are baffling.
For three years, Ray McKinney and his wife received regular computer-generated calls for a woman named Cynthia Wells: “This call is for Cynthia Wells. If you are not Cynthia Wells, hang up immediately. By remaining on the line you confirm that you are Cynthia Wells ”
McKinney has had the same number at his Raleigh home since 1976. He knew no one named Cynthia Wells. He made repeated calls to Absolute. He said the agents always promised to remove his number from the lists.
McKinney said he contacted AT&T, his phone carrier, which referred him to the state Utilities Commission, and from there to the Federal Communications Commission and then to the Fair Trade Commission. He made formal complaints in each place.
In August 2010, McKinney wrote the state Attorney General’s consumer affairs division. The calls finally stopped one month later.
Perkins says that the patient in question had failed to pay for 51 separate medical visits during those years. Each new one triggered a new round of calls. He said the company had reprogrammed its computer so that such a problem will not happen again.
In a thank-you letter to Attorney General Roy Cooper, McKinney summed up his experience:
“One wonders at the mindset of the staff of that agency when offered evidence that we were not Cynthia Wells, that we did not know Cynthia Wells, that she had never resided at our address nor had our telephone number ever been hers, they persisted with their harassing phone calls!” he wrote. “After almost three years it became clear that they did not care.”
Tomorrow: The lobby that roars
To read other stories in our "Prognosis: Profits" series, click here.