Tuesday, June 3, 2008

More Evidence of Uncharitable Charitable Hospitals: Auctioning of Unpaid Debts

An interesting story in today's Wall Street Journal talks about hospitals' increasing practice of selling, via online auction, their accounts receivables (i.e., unpaid patient debt) to bill collectors.  (By the way, you may have to subscribe to get to the online story -- this is my first try at linking to a WSJ article).

The auctions reflect hospitals' continuing search for ways to collect from the uninsured and underinsured. In 2006, nearly 5,000 community hospitals provided uncompensated care totaling $31.2 billion -- mostly unpaid patient bills or charity care -- representing nearly 6% of all costs, according to the American Hospital Association.

The potential inconsistency of billing onself as a charitable institution but then letting the debt collector hounds loose on an indigent patient has, as we all know, not gone unnoticed.  In fact, even some nonprofit hospitals are having second thoughts about auctioning off their  unpaid debts, according to the article. 

"The hospital is an institution in the community, has a reputation, in many cases has a nonprofit mission to uphold," says Anthony Wright, executive director of the consumer-advocacy coalition Health Access California. "Once it goes to collections, that starts a process that can get a lot more antagonistic, a lot more aggressive, and a lot more damaging to a family's credit history and financial future."

One health system that has backed away from the online auctions is St. John Health. The Detroit system, which owns six hospitals, says it learned recently that, without its knowledge, some of its patient debt had been posted on ARxChange.com by Accretive Health, an outside company that manages collections for St. John. The hospital system says it "expressed our displeasure" to Accretive and told it not to continue because "we do not believe an environment such as a Web site is appropriate in dealing with patient accounts." No transaction was completed, St. John says. Accretive declined to make a statement about its business with St. John.

One issue not addresses is whether the auctioning of debt constitutes an unrelated business activity.  I suppose, though, that the income would be zero or negative since the asset sold (the debt) will usually have a higher basis than the amount  realized.

dkj

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