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Tax-Exempt Hospitals' Practices Challenged

46 Lawsuits Allege That Uninsured Pay the Most

By Ceci Connolly
Washington Post Staff Writer
Saturday, January 29, 2005; Page A01

TUPELO, Miss. -- When Tim Gardner was born at the hospital here 53 years ago, it was just "one little building on the hill" in a town best known as Elvis Presley's birthplace.

From those humble beginnings, North Mississippi Medical Center has grown into the largest non-metropolitan hospital in the country, a booming enterprise with a complex of glass and marble buildings and 40 satellite clinics stretching into Alabama and Tennessee. The company, incorporated in Delaware, has nearly $300 million in the bank and "exceptional profitability," according to one Wall Street rating agency.

The nonprofit North Mississippi Medical Center in Tupelo is exempt from federal, state and local taxes by providing care to "charity patients." (C. Richard Cotton For The Washington Post)

And it pays no taxes. As one of 4,800 nonprofit U.S. hospitals, North Mississippi Medical Center is exempt from federal, state and local taxes in return for providing care to "charity patients."

But when Gardner, who is uninsured and suffers from heart trouble, asked for more time to pay off a $4,500 bill, the response came in the form of a summons. The hospital sued him for the balance plus $1,100 in legal fees.

Now Gardner and hundreds like him are at the center of a nationwide battle over whether nonprofit hospitals -- often flush with cash, opulent buildings and high-paid executives -- are fulfilling their mission as charitable institutions. Since last spring, a phalanx of trial lawyers who made millions suing asbestos makers and tobacco companies have been targeting tax-exempt hospitals, accusing them of gouging the poor.

"I was paying the best I could," said Gardner, who on his $18,000-a-year cook's salary had managed to pay $1,000. "I'm not trying to run. At the end of that week I was going to pay them some more."

Forty-six suits have been filed in 22 states, including one against Virginia's Inova Health System, alleging the hospitals violate their tax-exempt status by charging uninsured patients the highest rates and employing abusive tactics to collect.

"Their goal is to discourage these uninsured patients from returning," said Richard F. Scruggs, the lead attorney. "If they paid taxes, I couldn't complain. But these hospitals are given freedom from taxation for doing something."

Included in the cases is a California hospital with $1 million in an offshore bank account, another in Louisiana that owns a luxury hotel and health clubs, and a Georgia hospital that flew its executives on private jets to meetings in the Cayman Islands and Florida's Amelia Island. Because private insurers and the government negotiate deep discounts for their clients, the uninsured are usually the only ones charged the list price -- up to six times as much as for insured patients.

The American Hospital Association (AHA), which is a co-defendant in many suits, says hospitals are among the most generous businesses in the nation and it is unfair to blame them for a larger societal problem.

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