Fresh Pain for the Uninsured

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Dubious "Help"

Hot Spring's chief financial officer, Sheila Williams, said the hospital switched to Complete­Care hoping that patients "would pay a little faster if they were charged interest. It would become like a credit card." CompleteCare ran an ad in a local newspaper this summer to announce the change. But in recent weeks, she said, the hospital has reconsidered the arrangement in response to a complaint from a patient other than Dial. Hot Spring decided that effective Nov. 9, patients using CompleteCare would no longer be charged interest. "We just rethought it and decided that maybe it is not in the best interest of our patients," the hospital executive said.

Dubious innovations in medical financing are beginning to gain attention in Washington. Lawmakers and the IRS are investigating more broadly whether nonprofit hospitals provide sufficient free care to the uninsured to warrant more than $50 billion in annual tax breaks. Senator Charles Grassley (R-Iowa), the ranking Republican on the Senate Finance Committee, says some new financing arrangements appear to undermine the justification for tax-exempt status enjoyed by more than half of the country's 5,700 hospitals. "I'm very troubled by what we're seeing with some nonprofit hospitals' cozying up to banks, debt buyers, and credit-card companies over patients' medical bills," Grassley said in a statement responding to questions from BusinessWeek. The American Hospital Assn. said it hasn't studied the financing in question, but the trade group has repeatedly asserted that nonprofits provide ample community service to justify their tax benefits.

One of the leaders in this new field, HELP Financial, says that it merely makes the health-care business run more smoothly. The privately held Plymouth (Mich.) firm, whose initials stand for Hospital Expense Loan Program, says it has financed close to $300 million in medical bills at 100 hospitals nationwide. HELP purchases the debt at a discount and then charges patients interest of 10% to 18% over periods of one to five years. "The motivation for the hospital is really to keep them in the health-care business and out of the banking business," says HELP Vice-President Steve Posa.

Mia and Jase Redick reluctantly became HELP customers earlier this year and then discovered that they owed the company a hefty 14.5% on a bill of $6,293. In January, Mia, 36, had been rushed to Satilla Regional Medical Center in Waycross, Ga., after suffering a mild stroke. Tests revealed a small hole in her heart, a congenital defect that eventually required surgery. Mia, a pharmacy worker, and Jase, a job trainer for the state of Georgia, earn a combined $90,000 a year and have two small children. They lost state-provided insurance when Jase became an independent contractor in 2005, and had chosen to save money by going without coverage at the time Mia had the stroke. The couple assumed they would be able to pay the $6,293 tab for emergency care and tests in monthly interest-free installments. For years that's how Mia's family, Waycross natives, had used Satilla's in-house payment program. "It's what we always did," she says.

But on the winter morning when Mia arrived at the emergency room, a hospital administrator informed the Redicks that Satilla no longer offered its old payment plan. Jase says he was distraught and refused to discuss money that day. At a meeting the next week, the Redicks say they were told they had two options: retire the debt within 90 days and receive a 15% discount, or finance through HELP. With insufficient cash in the bank, the Redicks chose HELP. Distracted by Mia's condition, they didn't ask about having to pay interest. The bill arrived in March with the 14.5% rate, which translates into a monthly payment of $148. On top of $24,000 they owe to another hospital where Mia had surgery in February, "the overall cost of the debt is a lot to handle," says Jase.

Discounted Debt

Officials at Satilla say they brought in HELP in 2002 to reduce bad debt levels among the large population of uninsured patients in the hospital's rural south Georgia region. Through October, HELP had acquired $718,000 in Satilla debts. HELP pays 92¢ per dollar owed to the hospital. Satilla could trim the firm's 14.5% interest rate by selling debts at a greater discount but has chosen not to, according to Brenda Williamson, the hospital's accounts-receivable supervisor.

Barbara G. Albert, Satilla's patient financial services manager, stressed that the Redicks turned down Satilla's discounted 90-day payment plan.

With more uninsured patients failing to pay medical bills, she said Satilla has to rely on HELP. "When you go to the dentist or the vet, you know you have to pay. If you go to the hospital, why should it be different?" said Katrina Wheeler, Satilla's chief financial officer. HELP's Posa said that it's up to ­Satilla and other hospitals to decide on appropriate interest rates: "What is right in one market may not be right for another."

Melvin Johnson, 55, another Satilla patient, has insurance, but his low-cost policy with AARP, the retiree-advocacy group, didn't cover the colonoscopy his doctor ordered in September. Johnson turned out not to have cancer, but the visit produced a bill for $3,304. He and his wife, Dolores, earn about $35,000 a year from her work as an outreach coordinator at a community health center and his construction job. Satilla's cut-off for charity care is twice the federal poverty level, or $27,380 for a two-person household. Unable to pay in cash, the Johnsons chose HELP. The 14.5% interest rate means their monthly payment comes to $125. "It has caused us to rearrange our budget," says Dolores, 35. "We've had to cut other expenses and reduce our savings." Satilla's Albert said the couple could have bought better private coverage. "They're saving money," the hospital manager said. HELP imposes a cost on the hospital, her colleague Williamson added, in that Satilla gives HELP an 8¢-per-dollar discount on patient debt.

Patient Focus

Some medical financing programs manage to turn a profit without charging patients conventional interest. Aequitas Capital Management, a private equity firm in Portland, Ore., provides financing through its CarePayment card to 50,000 patients treated at two dozen hospitals. CarePayment charges no interest on debts repaid over 25 months. Aequitas Chief Executive Robert Jesenik says his firm makes money by buying patient debts for about 80¢ on the dollar and then seeking to recover the full amount.

But patients aren't necessarily better off with CarePayment because they sometimes forgo discounts hospitals offer to people who pay in cash. At Spectrum Health, a nonprofit group of seven hospitals in Grand Rapids, Mich., self-pay patients who can write a check within 30 days receive a 20% discount; those who pay within six months get 10% off. Patients who charge their debts to CarePayment get no discount. Referring to CarePayment, Kathleen Engel, an associate professor at Cleveland-Marshall College of Law, asserts: "This is a markup, not a markdown." Engel, a consumer law expert, says that because hospitals effectively charge more when patients use CarePayment, the hospitals should disclose the price difference as the equivalent of an interest rate under the federal Truth in Lending Act.

Joseph Fifer, Spectrum's vice-president of finance, said its disclosure is legally sufficient. Steven M. Wright, Aequitas' senior managing director for health markets, agreed. Wright said Aequitas complies with the law by disclosing its payment terms when it sends CarePayment charge cards to new customers. From his position as chief financial officer of Methodist Le Bonheur Healthcare, a $1.2 billion nonprofit network in Memphis, Chris McLean has grown increasingly skeptical of all these developments. Five of his seven hospitals serve a large portion of Memphis' poor population. Instead of selling medical debt, Methodist gives self-pay patients a 50% discount. Many are then allowed to pay over five years, interest-free. The debts of many others are immediately written off. One of Methodist's facilities serves a wealthier clientele and another is the city's only children's hospital; those units subsidize the other five. "We get a lot of tax breaks, and for that we should ­produce some community benefit," says McLean. "If we heal somebody medically, but we break them financially, have we really done what is in the best interest of the patient?"

Join a debate about the fairness of financed medical care

Grow is a correspondent in BusinessWeek's Atlanta bureau. Berner is a correspondent for BusinessWeek in Chicago. With Jessica Silver-Greenberg.