Hospital collection agency history remains unclear
A judge has ordered Saint John’s Hospital to pay $70,000 in attorney fees as part of a lawsuit alleging that the hospital set up a fictitious debt collection agency to goad patients into paying their bills.
United States District Court Judge Steven V. Wilson ruled last month that Saint John’s must pay two law firms that represented the 11,000 patients who received letters between June 20, 2001 and Dec. 11, 2002 from Excel Credit Service demanding that the debt allegedly owed to the hospital be paid. The case was filed as a class action lawsuit on their behalf.
Patient David Marco Weber originally filed the suit. He claimed Saint John’s violated the law by concocting a fictitious collection agency name. He alleged the hospital falsely led patients to believe that a third party had been retained to collect the debt.
The suit was settled in early June when Saint John’s admitted no wrongdoing but agreed to pay a minimum of $370,000.
Jeff Koncius, who represented Weber, said settlements in class action lawsuits usually include attorney fees, but in this case he asked that they be added to the award.
“As attorneys, it’s important to get the money for the class and worry about the costs later,” he said. “(Attorney fees) take away from the full award.”
“As attorneys, it’s important to get the money for the class and worry about the costs later.” — — JEFF KONCIUS Attorney
The lawsuit alleged that the debt collection letters violated the federal Fair Debt Collection Practices Act by failing to advise consumers of their rights to dispute the debt.
Tom Papageorge, head of the consumer protection division of the Los Angeles District Attorney’s Office, said his office is interested in the case but hasn’t investigated the allegations.
He said the claims, if true, appear to violate a section of the act that prohibits specific misrepresentations made in communications with the consumer by a debt collector.
The California version of the act forbids a debt collector to use misrepresentations such as phony letterhead or a statement that a third party is seeking payment of a bill, Papageorge said.
“Over the years, debt collectors have used sharp, coercive practices in collecting debts,” he said. “Generally, you cannot lie about the fact that you have referred out to a debt collector for collection.”
Both parties determined that it was in their mutual best interests to settle the lawsuit instead of going through a lengthy and costly trial. Saint John’s likely would have had to pay no more than $500,000 because of limitations on damages set by law. The hospital also had to pay tens of thousands of dollars to hire an outside firm to handle patients’ claims.
According to the law, the payment would be either 1 percent of the net worth of the company or $500,000, whichever is less.
The amount each patient is owed was determined based on what the Fair Debt Collection Practices Act required.
As part of the settlement agreement — which works out to about $40 per patient — Saint John’s offered one of three choices to those eligible to share in the fund. It will either make a charitable donation to a local non-profit organization, credit $40 to the patient’s outstanding balance owed to Saint John’s, or have $40 applied to future services there.
The 11,162 patients had until June 16 to submit their claim forms indicating the payment option they wanted. Koncius said only seven patients chose to opt out of the settlement.
Charitable donations will be made to either the Venice Family Clinic, Westside Family Health Center, Ocean Park Community Center, the Santa Monica-Malibu Unified School District Infant and Family Support Program, St. Joseph Center or Serra Project. Saint John’s will pick the organization based on community need, according to the settlement.
The numbers of patients choosing each option wasn’t known. David Fisher, the attorney who represented Saint John’s, didn’t return phone calls seeking comment.
However, Koncius said if patients didn’t send in the claim or didn’t fill out the form correctly, the charity option was automatically chosen.
Saint John’s didn’t assume liability in the case. Neither side has said whether Excel Credit Service actually was a legitimate business. However, as part of the settlement, Saint John’s agreed to stop using the name when collecting from patients.
It is still unclear how Saint John’s set up its collection agency, how long it acted, how it was discovered, or the ramifications on other health care providers.
The industry has been rocked by recent national disclosures that uninsured patients can be billed several times the amount agreed to by insurance companies for exactly the same procedures. Then, health care providers use the fear power of collection agencies to make patients pay up. And, patients often believe they owe more than what they are contractually obligated to pay based on what their health insurance carriers paid.
“It’s common enough for Congress to write it into law in 1977,” said Thomas Kane, an attorney for the bureau of consumer protection for the Federal Trade Commission in Washington D.C.
Kane said he hasn’t heard of many hospitals manufacturing fictitious credit agencies and that might be because it’s just as easy to hire a third party entity to act as the collector.
Papageorge suggested that consumers call the company demanding payment before paying a bill.
“It’s best to directly communicate with the company that you owe money to,” he said.
Originally published in the Santa Monica Daily Press print edition on July 14, 2003. Read the original PDF.