NONPROFIT HOSPITAL BILLING OF UNINSURED PATIENTS: CONSUMER-BASED CLASS ACTIONS MOVE TO STATE COURTS David L. Nie• TABLE OF CONTENTS I. INTRODUCTION .•..••••••.••••.....•..•••••.•.•..••....••.....•••...•..•..•..••.......•••..•.. 173 II. A REVIEW OF NONPROFIT HOSPITALS AS TAX- EXEMPT 0RGANIZATIONS ............................................................... 178 A. Tax-Exempt Hospitals and the Provision of Charity Care ....... l79 B. State and Local Interpretations of Competing Federal Standards for Tax-Exemption ..................................... l82 C. State Recognition of the Community Benefit Standard ................................................................................... 183 ill. RECENT SCRUTINY FROM THE EXECUTIVE AND LEGISLATIVE BRANCHES AND GRASSROOTS ORGANIZATIONS ............................ 186 A. Congressional Hearings Regarding the Tax-Exempt Health Sector ............................................................................ 186 B. State Legislatures Address the Charity Care Practices of Hospitals within Their Borders ........................................... 188 C. State Attorneys General Act on Their Role of Supervising Charitable Organizations ..................................... 189 D. Advocacy Groups Acting on behalf of Uninsured Patients ...... 190 IV. THE CONSUMER PROTECTION CLAIMS OF THE SUTTER HEALTH NONPROFIT HOSPITAL PRICING CLASS ACTION ............... 193 A. California's Consumers Legal Remedies Act ........................... 194 B. California's Unfair Competition Law ...................................... 196 V. THE SUTTER HEALTH SETTLEMENT ............................................... 202 VI. CONCLUSION ................................................................................... 203 I. INTRODUCTION During a visit to a local grocery store, California resident Duane Darr was injured after he slipped and fell.' Mr. Darr was subsequently transported by • J.D. Candidate, 2007, Indiana University School ofLaw, Indianapolis, Indiana; B.A, 1999, DePauw University, Greencastle, Indiana. I would like to thank Leeanne Coons ofK.rieg Devault LLP and Kristen Heath for their feedback and guidance in writing this Note. In addi­ tion, I thank my wife, Jennifer, for her unwavering support and encouragement. 1 Sutter Health Uninsured Pricing Cases, J.C.C.P. No. 4388, at 13 (Cal. Super. Ct filed 174 INDIANA HEALTH LAW REVIEW [Vol. 4:173 ambulance to the emergency room of a local nonprofit hospital.2 Despite lack­ ing health insurance, Mr. Darr underwent basic testing at the hospital which included blood tests, a hip x-ray, and even an EKG.3 His injury did not require invasive treatment so Mr. Darr was given a pharmaceutical and discharged to return home.4 For his short visit, however, the hospital billed Mr. Darr, who had no health insurance and was not enrolled in a government plan, $4,599.1 0. 5 This amount far exceeded what he could personally afford, and, what some allege is estimated to be two to four times higher than the amount private health insurance companies have negotiated on behalf oftheirparticipants.6 Based on Mr. Darr's situation, it would appear that a nonprofit, charitable hospital was expecting a patient who can least afford the high cost of health care to pay the list price for the services the hospital provided. 7 Plaintiffs across the country have brought claims on this very issue by asserting that private insurance com­ panies and governmental payors like Medicare and Medicaid are receiving sig­ nificant discounts for services rendered by nonprofit hospitals while uninsured patients are being billed the full list prices. For many uninsured Americans, obtaining access to affordable medical services is a daunting, if not impossible, task. Although many of these indi­ viduals may fmd charitable organizations to provide them with free or dis­ counted medical care, there exists a contingent of low-income uninsured patients whose trouble does not end with the medical treatment they receive. Rather, what may have appeared to these patients to be a charity hospital, or one perhaps founded on religious principles, proved in actuality to provide very little charity care. Stories of these patients' financial burdens, combined with allegations of nonprofit hospital surpluses, excessive hospital expenditures, and aggressive debt collection practices, have permeated the media for the last sev­ eral years. Private health insurers typically negotiate discounts on behalf of their customers and Medicare and Medicaid enrollees benefit from government dictated prices. As a result, a segment of patients who do not benefit from ei­ ther of these subsidies fall within a coverage gap so these persons, for purposes of this Note, will generally be referred to as the "uninsured." As recent litiga­ tion has alleged, these uninsured, often low-income, patients are being asked by hospitals to pay the list price, which some also allege is an inflated price, for the medical services they received. 8 Jul. 22, 2005) [hereinafter Complaint]. 2 !d. 3 Id. at 14. 4 !d. s !d. 6 Associated Press, Uninsured patients pay more for care, MSNBC.COM, June 24, 2004, http://www.msnbc.msn.com/id/5290172/. 7 Complaint, supra note 1, at 14 ("PlaintiffDarr was unable to pay his bill and no one from [the hospital] provided him with any information regarding payment plans, charity care or the [hospital administered charity care program].j 8 Leo T. Crowley, Hospitals Prevailing in Charity Care Cases, N.Y. L.J., Dec. 28, 2004, at 3 [hereinafter Crowley 1]. In reviewing the patients' claims made in the nonprofit liti- 2007] NONPROFIT HOSPITALS & UNINSURED PATIENTS 175 Many hospitals have not adopted, nor are they required by law to adopt, a standard policy or method for providing charity care, in the sense of :free or dis­ counted medical services. 9 Any policies on charity care that exist tend to be developed internally by a hospital and can be a complicated consideration of multiple factors that include, but are not limited to, the applicant's personal, family, medical, and financial history to determine a patient's eligibility.10 Even so, some uninsured patients never have an opportunity to receive the char­ ity care for which they may qualify because information regarding the hospi­ tal's charity care options is never delivered to the patient or is otherwise presented in a confusing manner.11 In addition to the complexities of adminis­ tering hospital billing, patients in need of emergency medical attention often lack the incentive or time, at least during their medical crisis, to research and make crucial decisions about the costs of the services they are about to receive. Nevertheless, some hospitals contend that individuals have a responsibility to research the financial costs of their impending treatment as well as their pay­ ment options. The reality, however, is that most patients never bother pursuing the charity care policies for which they may qualify.12 Hospitals further posit that they are victims "of unions that have spread misinformation to embarrass the hospital industry, and of a society that has made impossible demands of fi­ nancially beleaguered health care providers. "13 Regardless of the reasons for the problems associated with the charity care practices in the United States, multiple lawsuits have been filed, starting in 2004, against nonprofit hospitals in several federal courts alleging unlawful hospital billing practices for medical services rendered to the uninsured.14 Re­ nowned Mississippi plaintiffs' attorney Richard Scruggs15 coordinated the ini- gation discussed in this Note, the focus of this Note is on those patients who lack health insur­ ance and are not benefiting ftom managed care rates or government programs subsidizing their health care. 9 Guy Boulton, Wisconsin to File Complaints Against Hospitals, MILWAUKEE J. SENTINEL, Nov. 8, 2005, at Dl. 10 !d. 11 Id 12 Id 13 Jonathan Cohn, Uncharitable?, N.Y. 'DMEs, Dec. 19,2004, § 6 (Magazine), at 51, 52. 14 Crowley I, supra note 8. Although not discussed in this Note, similar lawsuits were filed in 2004 against for-profit hospitals alleging they made millions of dollars by charging un­ insured patients inflated prices. 15 Frontline Online, Inside the Tobacco Deal: Interviews: Richard Scruggs, http://www. pbs.orglwgbhlpageslftontline/shows/settlement/interviews/scruggs.html (last visited Mar. 4, 2007). Mr. Scruggs was very successful pursuing large class action cases against the asbestos industry. /d. Mr. Scruggs then took on the tobacco industry in the 1990s in which his relation­ ships with long-time-mend Mississippi Attorney General Mike Moore and brother-in-law Sen­ ate Majority Leader Trent Lott, likely helped to facilitate the anti-tobacco litigation. Id The tobacco suits yielded over a $200 billion settlement to be paid out to the states for health-related damages. Id. Mr. Scruggs's role in the litigation was later featured in the 1999 film, "The In­ sider." Mr. Lott currently sits on the U.S. Senate Committee on Finance, which, since 2005, has been reviewing the charity care practices of the nonprofit hospital industry. See U.S. S. Comm. 176 INDIANA HEALTH LAW REVIEW [Vol. 4:173 tial class action suits which have been followed by a growing list of derivative cases around the country brought under similar theories. At last count, there were over seventy suits filed in various federal courts alleging unfair hospital pricing of the uninsured. 16 The complaints centered around a variety of similar theories, including federal law governing tax-exempt organizations, federal law governing emergency care, state law governing charities, and state contract and tort principles.17 The federal claims in the overwhelming majority of these cases consistently have been dismissed with prejudice. 18 With the exception of a few federal courts, 19 most of these courts have dismissed the state claims without prejudice. Many of these suits have since been, or soon will be, refiled in state courts in pursuit of the remaining state claims.20 In at least thirteen state courts where the plaintiffs have re:filed, the judges have denied the hospitals' initial attempts to have these cases dismissed.21 Thus, this litigation currently appears to be most promising for those plaintiffs pursuing it at the state level because state courts are apparently willing to acknowledge the causes of action on the remaining state law theories. The issues surrounding accessible health care are numerous and deserving of attention. This litigation concerning hospital pricing of services provided to uninsured patients is noteworthy because it attempts to alter the charity care practices of nonprofit hospitals through consumer-based class action litigation in state courts. 22 It may be unreasonable to expect nonprofit hospitals to pro­ vide free or discounted health care to every person lacking health insurance by voluntarily overhauling their respective charity care practices and policies; however, by drawing attention to the ongoing plight of the indigent, uninsured, and underinsured, this litigation could pressure nonprofit hospitals, as well as on Fin., Comm. Members, http://finance.senate.gov/sitepages/committee.htm (last visited Mar. 4, 2007). 16 Nonprofit Hospital Charity Care Litigation, HEALTH L. REP., Nov. 22, 2004, http://healthcenter.bna.comlpic2/hc.nsf7id/BNAP-674MLV (providing a detailed list of over seventy cases filed across the country); see also Hospital Watch, Hospital Watch Update, http://www.hospitalpricegouging.orglmain.html (last visited Mar. 4, 2007) (providing court and settlement documents, as well as press releases regarding the nonprofit and for-profit hospital litigation). 17 Crowley I, supra note 8. 18 Press Release, Richard Scruggs, Statement ftom Dick Scruggs Nonprofit Hospital Litigation Status (Oct. 2005), available at http://www.cliffordlaw.comlnot-for-profit-hospital­ class-action-litigationlpress-releases/statement-ftom.dick-scruggs-nonprofit-hospital-litigation­ status [hereinafter Statement from Scruggs]. 19 See both Kolari v. N.Y.-Presbyterian Hosp., 382 F. Supp. 2d 562, 579 (S.D.N.Y. 2005) and Bobo v. Christus Health, 227 F .R.D. 479, 483 (B.D. Tex. 2005), where the defendant hospitals' motions to dismiss the state claims were granted with prejudice. 20 William McCall, Hospital Settles Class-Action Claim by Uninsured, ALBANY DEMOCRAT-IIERALD, Nov. 3, 2005, at A7. 21 Statement from Scruggs, supra note 18. 22 Lisa W. Clark et al., What May Arrive in Tomotrow's Mail?: An Analysis of Class Action Lawsuits Concerning Hospital Billing of Uninsured Patients, 13HEALTH L. REP. 1134, 1135 (2004). 2007] NONPROFIT HOSPITALS & UNINSURED PATIENTS 177 legislators and the general public, to ask whether the hospitals are at least doing their financial part. This litigation could provoke change within an area of health care where state and federal legislatures, for-profit and nonprofit hospi­ tals, and health insurance providers have failed in their attempts to find ade­ quate remedies for the provision of discounted or affordable health care to all persons. Some hospital systems have already begun to act either in response to settlement agreements reached in their own litigation or simply in response to the negative attention surrounding these suits. Although most courts have indi­ cated that the issue of nonprofit hospital pricing is more appropriate for the state legislatures to address, state consumer protection laws could be the means that brings this issue to a head in a state court. When in need of medical care, uninsured patients are likely to look to nonprofit hospitals for medical attention because of mission statements, reli­ gious affiliations, and advertising materials that indicate helping the sick, poor, and uninsured are part of the hospital's core goals. Consequently, low-income uninsured persons are surprised when they are billed for medical services at what appear to be radically inflated rates. Although there are patients who Jack health insurance, but can afford to pay the hospital bills, there are also patients who are without health insurance and lack the financial resources to pay the hospitals back. On the one hand, it is difficult to contest the price of saving a life. But if uninsured persons are expected to pay the full amount for the medi­ cal services they received then the resulting debt can be a real life financial nightmare. Whether nonprofit hospitals are to blame for not doing enough in the provision of charity care services or the patients are to blame for their own misunderstandings regarding the costs of the care they receive, the focus of this Note is on the state consumer protection laws upon which the plaintiffs are bas­ ing their claims and which could prove to be a catalyst for reform in the way hospitals administer and subsequently bill for medical services rendered to the uninsured. The plaintiffs in the nonprofit hospital pricing litigation have generally al­ leged that the defendant hospitals have a duty to operate exclusively for a chari­ table purpose because they were granted tax-exempt status under state and federal law. Therefore, in Part TI, this Note will discuss the history of nonprofit hospitals and their tax-exempt status. In Part lll, this Note will explore there­ cent scrutiny these hospitals are under and identifY the interesting connections that exist among the ongoing litigation in state courts, recent initiatives at the legislative and executive levels of government, and the impact some powerful nonprofit organizations have had in advocating for the uninsured. Finally, in Part IV, this Note will examine the California consumer protection laws serving as the basis for the claims made in a class action against California's Sutter Health network, 23 which is one of the suits that was refiled in a California state 23 Complaint, supra note 1; see also Sutter Corporate Watch, What is Sutter Health?, http://www.suttercorporatewatch.com/aboutsutter.php (last visited Mar. 7, 2007). 178 INDIANA HEAL Til LAW REVIEW [Vol. 4:173 court and showed particular promise for the plaintiffs that it would go to trial. The California class action implicates Sutter Health which is a private, nonprofit corporation that owns and operates twenty-six hospitals in Northern California. The uninsured plaintiffs first brought suit in 2004 in the United States District Court of the Northern District of California. 24 The district court ultimately granted Sutter Health's motion to dismiss the patients' federal claims but dismissed the patients' state law claims without prejudice to refiling in state court after declining to exercise supplemental jurisdiction over the state law claims. In July 2005, the plaintiffs refiled in the Superior Court of the State of California, County of Sacramento; however, in late 2006 the parties reached a settlement.25 Despite the settlement, the California state law claims are worthy of review for at least two reasons. First, the Superior Court denied Sutter Health's initial motions to dismiss and, second, because Sutter Health counter­ sued members of the class. These actions had the combined effect of indicating that this case might actually go to trial. Thus, a review of the two California consumer protection laws that make up two of the five causes of action26 brought by the plaintiffs may prove relevant to hospital pricing cases brought in other states under similar theories. The plaintiffs in these hospital pricing cases generally allege that nonprofit hospitals have acted unlawfully, unfairly, or even fraudulently in their business with uninsured patients despite the charitable purposes for which they are supposed to operate in exchange for their tax­ exempt status. Consequently, these suits have fueled the national debate re­ garding charity health care practices in the United States. IT. A REVIEW OF NONPROFIT HOSPITALS AS TAX-EXEMPT ORGANIZATIONS In the last several years, new attention has been given to the governance of nonprofit hospitals and to the way in which they are meeting their tax­ exempt obligations. 27 There are several potential reasons for this focus, includ­ ing, "financial and management scandals in both the for-profit and nonprofit sectors, the increased need for charity care in the wake of governmental cut­ backs, and the changing economics ofhealth care in general.'.28 In effect; this attention has pressured nonprofit hospitals to examine their levels of disclosure, their methods of corporate governance, and their existing billing and debt col- 24 Darr v. Sutter Health, No. C 04-02624 WHA, 2004 U.S. Dist LEXIS 24592 (N.D. Cal. Nov. 30, 2004). 25 Sutter Health Uninsured Pricing Cases, J.C.C.P. No. 4388 (Cal. Super. Ct. Dec. 12, 2006) (final order and judgment). 26 Complaint, supra note l, at 17-24. The three non-statutory based causes of action were unjust enrichment, breach of contract, and breach of duty of good faith and fair dealing. 27 ThomasL.Greaney,NewGovernanceNormsandQualityofCareinNonprofitHospi­ tals, 14 ANN. HEALTH L. 421, 423 (2005). 28 /d. 2007] NONPROFIT HOSPITALS & UNINSURED PATIENTS 179 lection practices. 29 The public's expectations, statutory requirements, and judi­ cial treatment of tax-exempt hospitals have evolved over time and vary from state to state. Thus, a national debate exists regarding the charity care practices of nonprofit hospitals and whether those practices are sufficient to satisfy the tax-exempt obligations and corresponding benefits the hospitals receive. A. Tax-Exempt Hospitals and the Provision of Charity Care In order for an organization to be tax-exempt, it must be organized and operated exclusively for the purposes set forth in§ 501(c)(3) of the Internal Revenue Code. 30 Organizations meeting these requirements are commonly re­ ferred to as charitable organizations but also are considered "nonprofit" or "not­ for-profit." The term "nonprofit" can be misleading because its meaning does not preclude an organization from earning a profit.31 In order for an organiza­ tion to be tax-exempt under the law, it is not sufficient that the organization be simply structured as a nonprofit entity, but rather it must meet specific federal statutory and regulatory requirements.32 If the hospital qualifies for tax­ exemption, then it is presumptively expected to meet certain standards in order for it to maintain that exemption; however, those standards are not always so easily interpreted and can be the source of confusion and controversy when the hospital is asked to justify its tax benefits. According to the Internal Revenue Service ("IRS"), the term "charitable" as used to describe a§ 501(c)(3) organization has come to mean an organiza­ tion that provides for the ''relief of the poor, the distressed, or the underprivi­ leged; advancement of religion; [and] lessening the burdens of government.'.J3 Most individuals might associate "charity" or "charitable" as an activity or or­ ganization that benefits the poor or underprivileged members of society. These terms, however, have proved to be a gray area for courts when faced with de­ ciding whether a nonprofit hospital is meeting its charitable obligations under§ 501(c)(3). Specifically, the confluence of the IRS and common law interpreta­ tions of the word "charity" has evolved into the present day definition that ap­ plies to nonprofit hospitals. 29 See id. at 423-28. 30 26 U.S.C. § 501(cX3) (2000) ("Corporations, and any community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, testing for public safety, literary, or educational purposes. ... no part of the net earnings of which inures to the benefit of any private shareholder or individual, no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation (except as otherwise provided in subsection (h)), and which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office. j. 31 BRUCERHOPKINS,650EssENTIALNONPROFITLAWQuEsTIONSANSWERED 1 (2005). 32 !d. at40. 33 Internal Revenue Serv., U.S. Dep't of the Treasury, Exemption Requirements, http://www.irs.gov/charities/charitablelarticle/O,,id=96099,00.html (last visited Mar. 7, 2007). 180 INDIANA HEALTII LAW REVIEW The general usage of the word charity means "relief of the poor." The word "charitable" can also be traced back through common law to mean "any function promoting the general welfare of society." Initially~ the IRS sub­ scribed to the "relief of the poor" interpretation [or char­ ity care standard] .... When hospitals started serving the entire community instead of limiting themselves to the indigent, a significant source of their revenue came from paying patients. Thus, if nonprofit hospitals were going to retain their tax-exempt status, "charitable" needed to be redefined. Consequently, the common law meaning of charitable [any function promoting the gen­ eral welfare of society] began to apply to the tax code. 34 [Vol. 4:173 Thus, for purposes of federal tax-exemption as it applied to nonprofit hos­ pitals, the meaning of" charitable" evolved from a connotation that the hospital had to provide "relief of the poor" to a legally acceptable standard that consid­ ered the general "promotion of health" to the community as sufficient justifica­ tion for exemption. The competing standards are generally referred to as the "charity care standard" and the "community benefit standard. "35 The charity care standard initially adopted by the IRS was first evident in a 1956 Revenue Ruling which found that in order to qualify for tax-exemption, a hospital "must be operated to the extent of its financial ability for those not able to pay for the services rendered and not exclusively for those who are able and expected to pay."36 Thus, serving the poor became a prerequisite for exemption. This in­ terpretation lasted until nonprofit hospitals started serving the entire community which led the IRS to adopt broader interpretations of the word charitable. This relaxing of requirements was confirmed with Revenue Ruling 69- 545.37 The standard changed to one that considered the benefit a hospital pro- 34 Jack Burns, Note, Are Nonprofit Hospitals Really Charitable?: Taking the Question to the State and Local Level, 29 J. CoRP. L. 665, 667 & n.25, 668 (2004) (quoting A. Kay B. Roska, Comment, Nonprofit Hospitals: The Relationship Between Charitable Tax-exemptions and Medical Care for Indigents, 43 Sw. L.J. 759, 763-65 (1989)); see also Jack E. Karns, Justi­ fying the Nonprofit Hospital Tax-exemption in a Competitive Market Environment, l3 WIDENER L.J. 383, 523 (2004). Although § 501 ( c X3) does not specifically mention "hospital" or ''health care," hospitals have generally proposed two justifications for the federal tax-exemptions they receive. Id First, hospitals assert that the health care services they provide have ''traditionally been included implicitly with those services that are listed in the federal exemption statute." Id Second, they point to IRS administratively institutionalized exemptions, which are created by revenue rulings and have been used to justify the nonprofit hospital exemption. Id. 35 See generally Burns, supra note 34, at 676-78. 36 Rev. Rut. 56-185, 1956-1 C.B. 202; see generally Bums, supra note 34, at 667-68. 37 Rev. Rul. 69-545,1969-2 C.B. 117,117-19(adoptingthecommunitybenefitstandard over the charity care standard). The ruling held in relevant part, "[t]he promotion ofhealth, like the relief of poverty and the advancement of education and religion, is one of the pwposes in the 2007] NONPROFIT HOSPITALS & UNINSURED PATIENTS 181 vides to the community as a whole even though the hospital may not provide direct benefits to indigent community members.38 While this Ruling confirmed a shift of interpretations in the tax code, it likely had little effect in changing the average consumer's perceptions of the word "charity," 39 which arguably are more consistent with a "relief of the poor" interpretation rather than the com­ munity benefit standard adopted by the IRS. Nevertheless, the IRS offered with Revenue Ruling 69-545 factors to assist in the assessment of a nonprofit hospi­ tal's tax-exempt status.40 When the provision of charity care was dropped from a hospital's tax-exemption requirements, hospitals were granted greater flexibil­ ity to develop charity care policies and procedures that would best fit within their business plans while also ensuring the retention of their tax-exempt status. Despite the federal shift in tax-exempt standards from a charity care ap­ proach to a community benefit assessment, issues still arise when it comes to determining whether a hospital is in fact providing an appropriate level ofbene­ fit to the community to justify its tax-exempt status.41 For example, proponents of the charity care standard prefer a system where "for every dollar of taxes for­ gone, the public get a 1 000/o return in the form of free hospital services" on the premise that the flexibility of the community benefit standard is not sufficiently quantifiable to justify tax-exemptions.42 Without the strict guidelines of a char­ ity care standard, some propose that the nonprofit sector has "created opportu- general law of charity that is deemed beneficial to the community as a whole even though the class of beneficiaries eligible to receive a direct benefit from its activities does not include all members of the community, such as indigent members of the community, provided that the class is not so small that its relief is not ofbenefit to the community." ld. 38 Rev.Rul.69-545,1969-2C.B.117, 118. SeealsoHelenaO.Rubenstein,Nonprofit Hospitals and the Federal Tax-exemption: A Fresh Prescription, 7 HEAL1HMATRIX 381,397 (1997); Bums, supra note 34, at 668 & n.37. 39 WEBSTER'S THIRD NEW INTERNATIONAL DICTIONARY 378 (3d ed. 1961) ("an organiza­ tion or institution engaged in the free assistance of the poor, the suffering, or the distress; public provision for the care or relief of the needy"). 40 Burns, supra note 34, at668-69 (citing Rev. Rul. 69-545, 1969-2 C.B. 117). These factors as appearing in the Ruling include, "(I) whether a board of trustees control the hospital and, if so, whether civic leaders compose the board; (2) whether the hospital has an open medi­ cal staff and extends privileges to all qualified physicians in the area; (3) whether the hospital operates an active and accessible emergency room, regardless of patients' ability to pay; (4) whether the hospital provides medical care to all persons able to pay; and (5) whether smplus funds, when used, improve the quality of patient care." Id. According to the IRS, a hospital that meets these factors is operating for a public rather than private purpose. /d. at 669. This federal shift from a requirement of charity care to an acknowledgement of general community benefits was further supported by Rev. Rul 83-157, 1983-2 C.B. 94, 95, which held that a nonprofit hospital could still qualify for exempt status even if it had no emergency care facilities as long as the general purposes of the hospital sufficiently benefited the community. Bums, supra note 34, at669. 41 Burns, supra note 34, at 667. 42 Id at 676 & n.14l (citing Mark A. Hall & John D. Colombo, The Charitable Status of Nonprofit Hospitals: Toward a Donative Theory ofT ax-exemption, 66 WASH. L. REv. 307,345- 63 (1991) (explaining the "quid pro theory" as it applies to hospitals and assessing why this charity care standard is inadequate for the exclusive basis for tax-exemption)). 182 INDIANA HEALTH LAW REviEW [Vol. 4:173 nities for [hospital] noncompliance" with even minimum community benefit standards.43 Regardless of the outcome of the national debate over the compet­ ing standards, consumers without health insurance are left to assess whether the nonprofit hospital in their community will be providing them health care within the context of free or discounted care or instead within the broad parameters of the federal, community benefit definition. B. State and Local Interpretations ofCompeting Federal Standards for Tax-Exemption When nonprofit hospitals benefit from their tax-exempt status, many states and local governments bear a corresponding burden in the form of lost revenue.44 A nonprofit corporation is not automatically exempt from federal and state taxes. Before a hospital can receive federal tax-exempt status, it must first apply for nonprofit incorporation at the state level. Once incorporated as a nonprofit, the hospital can apply to the IRS for federal tax-exemption. If granted exemption from federal income taxes, then states vary on their exemp­ tion requirements: "some states require a separate application to get a state tax­ exemption; some states are satisfied with your federal tax-exempt status; and in others, [the hospital] will need to send a copy of[its] IRS determination letter" to the appropriate state agency.4s It is to the state's advantage to develop, and hold nonprofit hospitals accountable to, minimum standards for the provision of medical care to its uninsured and indigent residents when the federal prerequi­ site for tax-exemption is the lenient community benefit standard. The federal government is less inclined to heighten the qualifications for tax-exemption because "[t]he amount of money [it] expends through Medicare and Medicaid programs predisposes the federal government to favor efficient, business-like hospitals" rather than entities burdened with meeting the needs of charity cases. 46 When nonprofit hospitals adopt more commercial, profit oriented poli­ cies and operations, state and local communities tend to lose charitable health services. Consequently, it may be up to the states to take a more active role in the regulation of these organizations. Although some state legislatures have taken proactive steps toward ensuring that nonprofit hospitals are providing an adequate amount of charity care,47 this Note examines whether consumer pro­ tection laws may also serve as an impetus for reform via the judiciary. 43 Ice Miller LLP, Survey of Recent Developments in Health Law, 391ND. L. REv. 1051, 1072 (2006) (quoting The Tax-Exempt Sector Before the H. Comm. on Ways & Means, 109th Cong. 19 (2005) (statement of Mark Everson, Commissioner, Internal Revenue Service)). 44 Burns, supra note 34, at 679. 45 Joanne Fritz, Nonprofit Incorporation-The First Step to Fonning a Tax-Exempt Non­ profit, http://nonprofit.about.com/od/nonprofitbasics/a/incorporating.htm (last visited Mar. 9, 2007). 46 Burns, supra note 34, at 678. 47 See infra text accompanying notes 77-82. 2007] NONPROFIT HOSPITALS & UN1NSURED PATIENTS 183 Despite the federal shift to the community benefit standard,48 some state courts have rejected the IRS's opinion that the provision of health care is inher­ ently charitable and instead have adopted interpretations oftheir respective state statutes that are more consistent with the charity care standard. 49 When doing so, states tend to utilize one of two approaches in considering their hospitals' tax-exempt status: the "process approach" (which is closer to the community benefit standard) in states such as California; 5° and the "prescriptive approach" (which often requires a minimum amount of charity care) in states such as Pennsylvania and Utah. 51 Claims brought in states that have adopted the pre­ scriptive approach may be more successful because courts can more readily determine whether the hospital has quantifiably satisfied its charity care man­ dates. This does not necessarily preclude equally successful claims in states that have adopted the process approach. The basis of the claims in the non­ profit hospital pricing litigation is not a direct challenge to a hospital's tax­ exempt status. Instead, the plaintiffs alleged that hospitals are misleading the public in holding themselves out to be a charitable organization operating for the benefit of the community, but are in tum overcharging those members of the community who are in the greatest need of their fair pricing. C. State Recognition of the Community Benefit Standard Although the Sutter Health pricing case has settled, a review of the Cali­ fornia laws regarding tax-exemption may help to put the plaintiffs' consumer protection claims in the appropriate context. A nonprofit corporation exempt from federal taxes must still apply for exemption from the California tax, but the state taxation laws in California are similar to the federal laws in that they generally adopt the community benefit standard. In Article XIII, Section 4(b) of the California Constitution, nonprofit hos­ pitals are granted express exemption from real estate taxation. Specifically, this section provides that the legislature may exempt from taxation in whole or in part "[p ]roperty used exclusively for religious, hospital, or charitable purposes and owned or held in trust by corporations or other entities (1) that are organ- 48 See supra text accompanying note 3 7. 49 Bums, supra note 34, at 674-76. 50 See infra text accompanying notes 52-56. 51 Leah Snyder Batchis, Can Lawsuits Help the Uninsured Access Affordable Hospital Care?: Potential Theories for Uninsured Patient Plaintiffs, 78 TEMP. L. REv. 493,511 (2005). See also Hosp. Utilization Project v. Commonwealth, 487 A.2d 1306, 1317 (Pa. 1985) (finding that a hospital is charitable if it meets the following five prongs: 1) advances a charitable pur­ pose, 2) donates or renders gratuitously a substantial portions of its services, 3) benefits a sub­ stantial and indefinite class of persons who are legitimate subjects of charity, 4) relieves the government of some of its burden, and 5) operates entirely free from profit motive); Utah County v. Intermountain Health Care, Inc., 709 P.2d 265, 278 (Utah 1985) (denying state tax­ exemption to two nonprofit hospitals because they were not operated for "charitable" purposes in accord with the state's interpretation of charity, which was a "gift to the community''). 184 INDIANA HEALTH LAW REVIEW [Vol. 4:173 ized and operating for those purposes, (2) that are nonprofit, and (3) no part of whose net earnings inures to the benefit of any private shareholder or individ­ ual."52 Thus, California law clearly provides the prerequisites for a hospital's tax-exempt status where federal laws do not. The California legislature added further support for a hospital's tax-exemptions in the California Revenue and Taxation Code, 53 which provides in relevant part: Property used exclusively for religious, hospital, scien­ tific, or charitable purposes owned and operated by com­ munity chests, funds, foundations, limited liability companies, or corporations organized and operated for religious, hospital, scientific, or charitable purposes is exempt from taxation, ... if: (1) The owner is not or­ ganized or operated for profit. However, in the case of hospitals, the organization shall not be deemed to be or­ ganized or operated for profit if, during the immediately preceding fiscal year, operating revenues, exclusive of gifts, endowments and grants-in-aid, did not exceed op­ erating expenses by an amount equivalent to 10 percent of those operating expenses. As used herein, operating expenses include depreciation based on cost of replace­ ment and amortization of, and interest on, indebtedness . . . . The exemption provided for herein shall be known as the "welfare exemption."54 Although California has taken steps to include hospitals within its "welfare ex­ emption," not every state has been so explicit. 55 California case law has con­ firmed that the benefit a hospital provides to its community is a factor to consider in justifying tax-exemption. 56 52 CAL. CONST. art. XIII, § 4(b) (emphasis added); see also Nat'l Charity League, Inc. v. County ofLos Angeles, 330 P.2d 666 (Cal. Ct. App. 1958) (finding that this exemption is not a constitutional mandate, but permissive such that the legislature may extend or deny exemption to any of the organizations listed in the Constitution). 53 Kellen McClendon, What the National Health Care Debate Tells Us About Whether Hospitals are Entitled to Exemption from Real Estate Taxes, 6 WIDENER J. PuB. L. 41, 45 (1996). 54 CAL. REv. & TAX. CODE§ 214(a) (West 1998) (emphasis added). 55 McClendon, supra note 53, at46 & n.l2 (citing FLA. CONST. art. VII,§ 3(a); MAss. CONST. pt.2, ch.1, 1, art. IV (amended 1978); Mo. CONST. art. X,§ 6; OR. CONST. art. IX,§ 1; TENN. CONST. art. II,§ 28; UTAH CONST. art. XIII,§ 2; FLA. STAT.§ 196.192 (1989); MAss. GEN. LAWS ch. 59, 5, cl. 3 (1994); Mo. REV. STAT.§ 137.100(5) (1988); OR. REv. STAT.§ 307.130 (1995); TENN. CODE ANN.§ 67-5-212 (1994); UTAH CODE ANN.§ 59-2-1101 (1996)). 56 !d. at 48 & n.l6 (citing Rideout Hosp. Found., Inc. v. County ofYuba, 10 Cal. Rptr. 2d 141, 143 (Cal. Ct. App. 1992)(holding that "[t]he rationale for the welfare exemption is that the exempt property is being used either to provide a government-like service or to accomplish 2007] NONPROFIT HOSPITALS & UNINSURED PATIENTS 185 State court interpretations of the state tax laws regarding nonprofits vary, but some common trends are identifiable in those states where the state exemp­ tion laws are similar to the federal versions. For example, Vermont granted nonprofit hospitals tax-exemption because it saw the social value and potential community benefit that can be derived from the general provision of health care. 57 The Supreme Court of Vermont dealt with hospital exemptions in Medical Center Hospital v. Burlington58 where the plaintiff hospital sought a declaratory judgment that its property qualified for exemption under state tax laws59 after the City of Burlington sent the hospital a notice of assessment and a tax bill. The hospital argued that its goal "of establishing and maintaining a public hospital and nursing home exclusively for charitable and educational purposes" was consistent with the community benefit standard for exemption.60 Acknowledging the changing landscape ofhealth care facilities, as well as the change in meaning of the word "charitable,',t;1 the court decided it was the role of the legislature to grant tax-exemptions and that, accordingly, the hospital was indeed taxMexempt because it was "a not-for-profit institution with a recognized charitable purpose whose services [were) available regardless of ability to pay and whose excess revenues [were] devoted to the maintenance of its purpose .. • • " 62 Although the Vermont court showed deference to the legislative mandate, if consumers continue to challenge the extent to which a hospital is benefiting the community in exchange for the tax breaks it is receiving, then the judiciary may prove to be a forum for successful challenges of the nonprofits' business practices. As the debate surrounding the validity of hospital tax breaks moves to state courts, plaintiffs' attorneys will likely draw on the disparity between the rates accepted for those participants in federal programs and the rates private insurance companies negotiate compared to the list prices a nonprofit hospital bills its uninsured patients. If great disparity exists, it could serve as the prem­ ise for arguments that the nonprofit hospital is not meeting its tax-exempt obli­ gations. The more a hospital's representations are likely to mislead or deceive patients, the more difficult it will be to downplay the inadvertent deception as insignificant when compared to the community benefit derived from the hospi­ tal's services. some desired social objective")). 57 Bums, supra note 34, at 676. 58 Med. Ctr. Hosp. v. Burlington, 566 A.2d 1352, 1353 (Vt. 1989). 59 VT. STAT. ANN. tit. 32, § 3802(4) (1994) (exempting from taxation "[r]eal and per­ sonal estate granted, sequestered or used for public, pious or charitable uses .... "). 60 Med. Ctr. Hosp., 566 A.2d at 1353. 61 !d. at 1356 (quoting SHARE v. Comm'r of Revenue, 363 N.W.2d 47, 52 (Minn. 1985)) ("The term 'charitable' as applied to health care facilities has been broadened since ear­ lier times, when it was limited mainly to almshouses for the poor."). 62 Id at 1357; see also Bums, supra note 34, at675-76 (discussing Utah Countyv. In­ termountain Health Care, Inc., 709 P.2d 265 (Utah 1985), Hosp. Utilization Project v. Com­ monwealth, 487 A.2d 1306 (Pa. 1985), andMed. Ctr. Hosp. v. Burlington, 566A.2d 1352 (Vt. 1989), to "show that the question of granting tax-exempt status to a nonprofit hospital is a po­ litical and policy question that will be determined on a state-by-state basis.") 186 INDIANA HEALTH LAW REVIEW [Vol. 4:173 III. RECENT SCRUTINY FROM TilE EXECUTIVE AND LEGISLATIVE BRANCHES AND GRASSROOTS ORGANIZATIONS A. Congressional Hearings Regarding the Tax-Exempt Health Sector The United States House of Representatives Committee on Ways and Means held a hearing on May 26, 2005, at which it received testimony that raised questions about what a hospital should be required to do to deserve ex­ empt status.63 During this hearing, David Walker, the Government Account­ ability Office Comptroller General of the United States, summed up his testimony by stating that the current tax policy lacks specific criteria with respect to tax-exemptions for charitable entities, ... including not-for-profit hospitals, in particular. If these criteria are articulated in accordance with desired public policy goals, standards could be established that would allow not-for-profit hospitals to be held accountable for pro­ viding services that benefit the public commensurate with their tax-favored status.64 In a time of increasing health care costs, the hearing was an effort to re­ view fonner, as well as existing, standards and criteria, used to detennine whether a hospital is eligible for tax-exempt status. 65 The May 26 hearing was one of several hearings regarding the tax-exempt sector, but this one in particu­ lar focused on nonprofit hospitals qualifying for tax-exempt status.66 The Chainnan of the Committee explained the hearing was not an attempt to "pick on" the hospitals but was necessary because the majority of revenue in the charitable sector was going to tax-exempt hospitals.67 According to one ac­ count, nonprofit hospitals in the United States made up only 1.9 percent of the charitable organizations under§ 501(c)(3) in 2001, but received 41 percent or $337 billion in tax expenditures.68 Moreover, less and less was being required 63 The Tax-Exempt Sector Before the H. Comm. on Ways & Means, 109th Cong. passim (2005) [hereinafter House Hearing on Tax-Exempt Sector]. 64 ld at20. 65 Independent Sector, Congressional Oversight: House Ways and Means Committee Holds Hearing on Tax-Exempt Hospitals, http://www.independentsector.org/programs /gr/hospital.html (last visited Mar. 9, 2007) ( "[I]n a recent study of hospitals in five strategi­ cally selected states, the GAO found little difference between the level of uncompensated care offered by for-profit and nonprofit hospitals.'') (paraphrasing the testimony of GAO Comptroller General David Walker). 66 Id. 67 House Hearing on Tax-Exempt Sector, supra note 63, at 4-5. 68 Batchis, supra note 51, at 513 & n.161 (citing Press Release, Subcomm. On Over­ sight, H. Comm. on Ways & Means, Houghton Announces First Hearing in a Series on Tax- 2007] NONPROFIT HOSPITALS & UNINSURED PATIENTS 187 of these hospitals in order to maintain their tax-exempt status. Since this is where the money was, so to speak, the Committee considered it within its con­ gressional responsibility to ask what it is that taxpayers are getting in return for the billions of dollars hospitals are receiving in tax subsidy. 69 Although no wit­ nesses offered specific recommendations for changing the tax-exempt policies for nonprofit hospitals, witnesses did testifY that legislators should proceed with caution because major policy changes bad the potential "for profound negative and unintended consequences to the sector."70 In May 2005, United States Senator Chuck Grassley issued a letter in his role as Chairman of the Committee on Finance to ten hospitals and hospital systems requesting responses to extensive questioning about their business practices as related to charitable activities, patient billing, and ventures with for-profit companies. 71 On September 12, 2006, the Committee released a compilation of the responses it had received from the ten nonprofit hospitals Grassley had written in 2005.72 The next day, the Committee held a hearing during which Senator Grassley focused his opening statement on two issues regarding the nonprofit sector: "measurements and reporting of community benefit and also discounted charges or free care to low-income uninsured indi­ viduals.'m Senator Grassley commended one hospital system in particular for their development of best practices for measuring and reporting their activities within the community benefit context. 74 Testimony revealed some of the chal­ lenges nonprofit hospitals face despite well-developed policies committed to providing a community benefit. 75 Senator Grassley acknowledged that under exemption: Pricing Practices of Hospitals (June 15, 2004), available at http://waysand.means. house.govlhearings.asp?formmode=view&id=l673). 69 House Hearing on Tax-Exempt Sector, supra note 63, at 4. 70 Independent Sector, supra note 65. 71 Press Release, Grassley.Senate.gov, Grassley Asks Non-Profit Hospitals to Account for Activities Related to Their Tax-Exempt Status (May 25, 2005), available at http://grassley.senate.gov/index.cfin?FuseAction=PressReleases.Detail&PressRelease _id=4921 (reprinting the text of Senator Grassley' s letter to the ten hospitals and hospital systems). 72 U.S. S. CoMM. ON FIN., SUMMARY OF 10 NON-PROFIT HOSPITAL RESPoNSES passim (2006), http://finance.senate.gov/press/Gpress/2005/prg091206summary.pdf. 73 U.S. S. Comm. on Fin., Taking the Pulse of Charitable Care and Community Benefits at Nonprofit Hospitals, Opening Statement of Chainnan Grassley, http://finance.senate.gov/hearingslstatements/091306cg.pdf(last visited Mar. 27, 2007). 74 !d. 75 U.S. S. Comm. on Fin., Taking the Pulse of Charitable Care and Community Benefits at Nonprofit Hospitals, Testimony: Sister Carol Keehan, http://finance.senate.gov/hearingsltestimony/2005test/091306cktest! .pdf (last visited Mar. 27, 2007). Sister Keehan, the President and ChiefExecutive Officer of Catholic Health Association of the United States, testified that some ofthe challenges facing nonprofit hospitals include, but are not limited to, the growing numbers oflow-income uninsured persons in need of medical attention, the difficulty in distinguishing patients who will not pay their health care bills from those who unable to pay, and the challenge of identifying those patients who are eligible for financial assistance. Id Sister Keehan also stressed that "community benefit is much more than providing charity care and discounted care to low-income persons. We also have a responsibility 188 INDIANA HEALTH LAW REviEW [Vol. 4:173 the present system there is little common ground from which to develop poli­ cies or answer basic questions regarding the activities of tax-exempt hospitals. 76 B. State Legislatures Address the Charity Care Practices of Hospitals within Their Borders Recognizing that state laws regarding tax-exemption are lacking in certain respects, some state legislatures have enacted laws that set more specific stan­ dards and requirements for exemption. For example, Illinois and Connecticut adopted new legislation specifically regulating nonprofit hospital billing and collection practices. 77 This legislation includes the following: "notice require­ ments about available free care on all bills from debt collectors; prohibitions on the filing of collection lawsuits by hospitals against patients eligible for free care; setting required levels of discounts for low-income uninsured patients; and capping interests rates hospitals charge on hospital debt. "78 These con­ sumer oriented initiatives go toward imposing at the state and local level a cor­ responding burden on the hospitals for the significant tax benefits they receive. In the wake of class actions brought against nonprofit hospitals in Califor­ nia federal court, the California legislature passed Senate Bill 379 in August 2004.79 Although Governor Arnold Schwarzeneggerultimatelyvetoed this leg­ islation, Senate Bill379 would have required nonprofit hospitals to develop charity care and reduced payment policies in­ cluding requirements for discounted or free care to pa­ tients whose income is at or below 4000/o of the federal poverty level. [D]evelop applications for charity care, provide oral and written notices to patients of the avail­ ability of charity care and discount policies, and limit to the whole community." Id. at 5. 76 U.S. S. Comm. on Fin., Taking the Pulse of Charitable Care and Community Benefits at Nonprofit Hospitals. Closing Statement of Chairman Grassley, http://finance.senate.gov/hearings/statements/091306cg.pdf(last visited Mar. 27, 2007). In his closing statement, Senator Grassley directed the Finance Committee staff to develop a staff dis­ cussion paper that would provide the Finance Committee members with proposals to consider in addressing the issues covered at the hearing with particular emphasis on those proposals consis­ tent with the community benefit standard. Id 77 · Batchis, supra note 51, at 505 & n.97 (citing The Access Project, Hospital Billing and Collection: AHA Guidelines on Providing Financial Assistance to Uninsured Low-Income Pa­ tients, http://www.accessproject.org/hospital.html (last visited Mar. 12, 2007)). 78 Id. 79 John P. Krave, Gerry Hinkley & Jill H. Gordon, &hwarzenegger Vetoes Charity Care Bill- Calls for Hospitals to Implement Hospital Association's Voluntary Charity Care Guide­ lines, DAVIS, WRIGIIT, 'TREMAINE,LLP,HEALmL.ADVISORYBuLL., Sept2004, at l,available at http://www.dwt.com/practclhealthcrlbulletins/09-04 _ CharityCare.htm. 2007] NONPROFIT HOSPITALS & UNINSURED PATIENTS hospital debt collection activities during the first 150 days after a patient's discharge. 80 189 Historically, California had been a community benefit state. By compari­ son, this legislation seemed an attempt to move toward a charity care standard through the imposition of specific requirements on California's nonprofit hospi­ tals. Governor Schwarzenegger, however, chose to ask for the hospitals' volun­ tary compliance with guidelines proposed by the California Healthcare Association rather than to require them by statute. 81 Senate Bill 379 was, at least in part, an acknowledgment that the nonprofit litigation discussed in this Note could potentially persuade unsympathetic juries to find in favor of the pa­ tients if nonprofit hospitals continued to appear unresponsive to the commu­ nity's concern over their charitable health services. 82 C. State Attorneys General Act on Their Role of Supervising Charitable Organizations Several state attorneys general brought claims against, or initiated investi­ gations of, nonprofit hospitals regarding their charity care practices. 83 Gener­ ally, a state attorney general supervises charitable organizations, as well as individuals that solicit charitable funds, administer charitable assets, or both. The attorney generals for Connecticut, Minnesota, Wisconsin, and lllinois have taken investigative action, brought suit, or proposed legislation in an effort to ensure that nonprofit hospitals within their respective states were meeting tax­ exempt obligations. 84 For example, Illinois Attorney General Lisa Madigan proposed legislation she believed would make certain that nonprofit hospitals were meeting their 80 /d. 81 /d. ("The 'voluntary guidelines' mentioned by Governor Schwar:zenegger are, in fact. the 'Voluntary Principles and Guidelines for Assisting Low-Income and Uninsured Patients' ... adopted on Feb. 6, 2004 by CHA [the California Healthcare Association]. The Guidelines pro­ pose, among other items, that hospitals adopt and communicate policies whereby patients with incomes at or below 300 percent of the federal poverty limit be eligible to apply for financial assistance under charity care policies, and that hospitals should limit expected payments from these patients to 'amounts that do not exceed the payment the hospital would have received :from Medicare, other government-sponsored health programs, or as otherwise deemed appropriate by the hospital."') (quoting California Healthcare Association's "Voluntary Principles and Guide­ lines for Assisting Low-Income Uninsured Patients"). 82 /d. 83 Leo T. Crowley, Charity Care Cases: Further Developments, N.Y. L.J., Apr. 27, 2005, at 6 [hereinafter Crowley IT]. 84 /d. See also Boulton, supra note 9 (discussing complaints filed by the Wisconsin Attorney General "accusing nonprofit hospitals of charging uninsured patients much higher prices than they charge managed care companies."). 190 INDIANA HEALTH LAW REVIEW [Vol. 4:173 obligations as a tax-exempt organization.85 Attorney General Madigan ex­ plained, Hospitals, when they decide to be nonprofits, they strike a deal with the state. The deal is that you don't have to pay property taxes, you don't have to pay sales taxes, you don't pay income taxes, and you get tax-exempt bonds when you do construction. For that multibillion­ dollar benefit, they have to provide charity care for peo­ ple. It's not a revolutionary idea out there. The hospitals know that is the deal they have struck. 86 Whether this truly is the essence of the "deal struck" is a subject for another discussion because the standards and requirements for tax-exempt status vary from state to state and are not always as simple as free or discounted medical care in exchange for tax-exempt status. Madigan's efforts were at least an at­ tempt to ensure hospitals were doing their part even within the broader commu­ nity benefit context. The lllinois Hospital Association, however, reports that hospitals in lllinois are currently providing more than one billion dollars annu­ ally in free medical care and some have even proposed that "a hospital's benefit to its community cannot simply be measured by the amount of free care (charity care) it provides. "87 This disparity highlights the tension between proponents of the federally adopted community benefit standard and proponents, particu­ larly those at the state level, of a charity care standard. D. Advocacy Groups Acting on behalfpfUninsured Patients Certain nonprofit organizations have been working as advocates on behalf of uninsured patients and have proved to be highly effective not only in per­ suading hospitals to reduce or forgive patient debt but also in keeping the issue of hospital pricing in the national spotlight. The coordinated efforts of these organizations have also pressured hospitals to examine their pricing. If a hos­ pital assesses and consequently reduces the list prices for its services, then pri­ vate health insurance companies unable to negotiate lower rates on their own can also benefit. For example, Consejo de Latinos Unidos, which is a national nonprofit organization based in Los Angeles, California, works to educate and represent uninsured Latinos and others dealing with allegedly inflated hospital 85 Matt Adrian, Illinois AG outlines proposal to increase hospital charity, QuAD-CITY TIMEs, Jan. 24, 2006, available at http://www.qctimes.com/articles/2006/0l/24/news/state /doc43d5b7e440e48455965lll.txt. 86 Id. 87 Aaron Chambers & Andrea Preston, Plan seeks stepped-up charity care: Officials at Rockford's three hospitals are cool to the attorney general's proposal, ROCKFORD REGISTER STAR, Jan. 24, 2006, at 6. 2007) NONPROFIT HOSPITALS & UNINSURED PATIENTS 191 bills.88 Mr. K.B. Forbes founded this group in 2001 and has been successful in assisting overcharged patients to reduce or eliminate their hospital bills. Mr. Forbes and his group have also worked closely with plaintiffs' attorneys in­ volved in the for-profit and nonprofit hospital pricing litigation to secure set­ tlements from defendant hospitals and generally keep this issue in the national spotlight. 89 Although some commend Mr. Forbes's efforts, others note that in addition to his victories on behalf of the uninsured, at least some private insurance ex­ ecutives are also benefiting. One such executive is Mr. J. Patrick Rooney who has operated various successful insurance companies in Indianapolis, Indiana, while at the same time maintaining a prominent political presence in the health care sector. Mr. Rooney's company, Medical Savings Insurance, a relatively small health insurance provider, at one time benefited from Mr. Forbes's ef­ forts. When for-profit Tenet Healthcare Corporation, the nation's second­ largest hospital chain, finally yielded in 2003 to Mr. Forbes's pressure and agreed to implement discounts for the uninsured, Tenet applied the discounts to Medical Savings Insurance, which, unlike the much larger players in the indus­ try, could not negotiate significant discounts on its own.90 As a result of this pressure, Tenet forgave at least $2 million in bills that Rooney's company had refused to pay in protest over inflated prices and additionally agreed to accept reduced payments from Rooney's company on future claims.91 In addition to his significant GOP political contributions, Mr. Rooney pledged seed money to Consejo de Latinos Unidos and hired a Washington public relations firm to draw attention to its cause.92 A second national advo­ cacy group known as the Hospital Victims Project, an effort of the Fairness Foundation, appears to have ties to Mr. Rooney as well. 93 The Fairness Foun- 88 See generally Consejo de Latinos Unidos, About Us, http://hospitalpricing.com /aboutus.asp (last visited Mar. 12, 2007). 89 Tamar Lando, Pocket Protector: K.B. Forbes is defending uninsured patients. Never mind why, MoTHER JONES, May 1, 2005, at 22; see also 60 Minutes: Hospitals, Is the Price Right? (CBS television broadcast Mar. 5, 2006), available athttp://www.cbsnews.com/stories /2006/03/02/60minutes/main 1362808.shtml?source=search _story. During the House Committee on Ways and Means May 26, 2005 hearing on the tax-exempt hospital sector, Mr. Forbes submitted a statement that made the following allegation: "Although non-profit hospitals do wonderful life-saving work and give away millions in charity care and uncompensated care, the truth is after all the spin and all the public relations: the uninsured are still being charged three or four times more for the exact same care, executives are still being paid excessively, sometimes in the millions of dollars, the non-profits are still siphoning off billions in off-shore accounts." House Hearing on Tax-exempt Sector, supra note 63, at 136. 90 Lando, supra note 89. 91 Lorraine Woellert, Making Hospitals Cry Uncle, Bus. WK., June 7, 2004, at 112 (dis­ cussing how Mr. Rooney has not only used the power of his ideas and political connections to make his company profitable but also to back Consejo de Latinos Unidos, which uses hardball tactics to get hospitals to cut prices). 92 !d. 93 See generally Hospital Victims, http://hospitalvictims.com (last visited Mar. 12, 192 INDIANA HEAL'IH LAW REvmw [Vol. 4:173 dation is cited as the source of statements and statistics appearing on Consejo's Web site regarding the hospital industry's alleged practice of overcharging the uninsured.94 The Fairness Foundation maintains a Web site and operates out of the same address as Medical Savings Insurance in Indianapolis, Indiana.95 The pressure coming from organizations like Consejo and the Hospital Victims Pro­ ject is troubling for hospitals because "[n]obody wants these cases where some­ one was sick and the big, bad hospital is suing them [to collect payment]," says Mr. Richard Morrison, a vice president at Orlando's Adventist Health System, who also said Rooney's Medical Savings Insurance owes Adventist an esti­ mated one million dollars. 96 Despite protests to the contrary, some industry insiders view the relation­ ship between advocacy groups and insurance companies as the means to an end that has directly benefited not only for the uninsured patients seeking relief from their hospital bills but also insurance executives wanting to challenge and reduce rates hospitals charge for their services.97 "Rooney, who has led two insurance companies that specialize in selling both the health savings accounts and the catastrophic insurance policies, has lobbied hard for this 'consumer­ driven solution' to health care."98 The profitability of his company and the success ofhis initiatives depends, at least in part, on hospitals charging reason­ able rates for the services they provide. Therefore, when Consejo successfully pressures a hospital to reduce its rates, other interested parties stand to receive corresponding benefits. 2007). 94 See Consejo de Latinos Unidos, How to Defend Yourself, http://hospitalpricing.com /Wlinsured/defend.asp (last visited Mar. 12, 2007) (citing the Fairness Fom1dation as the source of a report containing allegations of hospital billing practices). 95 See Medical Savings Insurance, http://www.medicalsavings.com (last visited Mar. 12, 2007); Hospital Victims, Contact Us, http://www.hospitalvictims.com/contactus.asp (last visited Mar. 12, 2007). Each of these Web sites lists the same mailing address for their respective headquarters. 96 Robert Dreyfuss & Peter H. Stone, Medikill, M01HER JONES, www.motherjones.com/news/feature/1996/01/medikill.html (last visited Mar. 29, 2007).