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Tax-Exempt Hospitals' Practices Challenged

But the term "charity care" can be misleading. In most instances, the figure is based on the sticker price for a procedure rather than the much lower amount it accepts from private insurers and Medicare or Medicaid.

"The biggest gimmick they use is charges versus payment," said Rims Barber, a community activist with the Mississippi Human Services Agenda. "They'll bill $1,000 for something, but if Medicare only pays $600 the hospital will write off $400 as charity."

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)

In 2003, the AHA reported that its hospitals provided $25 billion in "uncompensated care costs," which represents charity care and bad debt, adjusted according to a formula to approximate the actual cost of providing the care.

A former Mississippi tax commissioner, at Scruggs's request, calculated that North Mississippi Medical Center's tax exemption was worth about $29 million. IRS filings for fiscal 2003 show that Wages, then the CEO, was paid more than $600,000, in a state where the average salary was $33,000.

Pollack, of the AHA, said nonprofit hospitals need competitive salaries to attract good managers.

All of that galls state Rep. Jamie Franks Jr. (D), who has experienced firsthand North Mississippi's collection procedures. When his wife gave birth to a son last summer, a clerk told him the family could not leave until he paid $1,200. Although he has insurance, Franks had to hand over his debit card and then spent months trying to get reimbursed by his insurers.

"We see people every day wanting to file for bankruptcy, and the main reason is the medical bills from North Mississippi," he said.

Franks is co-sponsoring a bill to bring in a hospital to compete with North Mississippi.

The business practices of nonprofit hospitals are under attack on several fronts. The IRS is said to be investigating management's compensation, and Congress conducted hearings last summer on price-gouging claims. Scruggs and his team, recognizing the federal cases may not work, have begun refiling the suits in state courts.

Gardner, the cook who is a plaintiff in the North Mississippi suit, was surprised to learn that the hospital where he was born pays no taxes, charges uninsured patients higher rates and then picks on people such as him, "a guppy in the overall picture," as he put it.

"Why do they take somebody who is visibly not having an easy time paying but is trying, and kick them when they're down?" he asked. "It's just wrong."

Research editor Lucy Shackelford contributed to this report.

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