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Suit Challenges Sutter Health’s Non-Profit Status

Friday July 02, 2004

Summit Health, the parent company for Alta Bates Summit medical center, was the target of a lawsuit filed in Federal court Wednesday that alleges the company overcharges uninsured patients and does not fulfill its obligations as a non-profit entity under U.S. tax law. 

The case was filed on behalf of Berkeley resident Duane Darr, an uninsured patient who was charged $4,600 for X-rays and other basic care after he slipped and fell in a supermarket last May. As part of the case, lawyers are seeking class action status for others facing what they say is similar treatment. 

According to the complaint, Sutter Health, which operates more than 20 hospitals, “has engaged, and continues to engage, in a pattern and practice of charging unfair, unreasonable and inflated prices for medical care to its uninsured patients who are generally the least able to pay these inflated and unreasonable charges.” 

The complaint also alleges that Sutter uses aggressive collection techniques when they go after the uninsured. 

Additionally, the complaint says Sutter Health does not provide the kind of charity care it should as a not-for-profit business. 

“Sutter has amassed and hoarded billions of dollars in cash and marketable securities which otherwise should be available to provide charity care to the uninsured whose care was contemplated by the provision of the tax exemption,” the complaint states. 

It goes on to charge that Sutter Health has more than $4.4 billion in assets and hauled in more than half a billion dollars in profit in the past two years, but only spent 0.6 percent of its revenue on charity care, or 40 percent less than the statewide average for other private hospitals. 

“I think it is surprising for many to learn that a hospital that enjoys a tax exempt status in fact makes almost half a million dollars in profits and dedicates little to charity and the people who are most vulnerable in our society,” said Kelly Dermody, of Lieff, Cabraser, Heimann & Bernstein, LLP, and the attorney who filed the case. 

Karen Garner, a spokesperson for Sutter Health, defended the company’s bill collection policies saying the company has an obligation to “collect payment from the patients who can pay all or part of their bill,” so the company can “keep its doors open.”  

When asked why the company made a half a billion dollar profit but still filed lawsuits or made negative credit reports against patients who hadn’t paid, Garner said she “could not speak to that,” and that “those are things that will be addressed at the appropriate time.” According to a report cited in the lawsuit, Sutter sued close to 300 patients for collections in Sacramento in 2003, and since 2002 has sued 134 patients in San Francisco.  

Garner did point out that the company prohibits wage garnishment, bench warrants and property foreclosures. She said Sutter Health has a number of community programs including their charity contributions to county indigent funds, support for community clinics, and a policy that allows low-income and the uninsured to apply for discounts or write-offs for their bills. 

“We have a long history of addressing community needs and our commitments are measured by more than charity dollars,” she said. 

Still, said Dermody, Sutter Health charges the uninsured 100 percent of what they call the “sticker” price for hospital bills, while they give private insurance companies and government third party payers (such as Medicare and Medicaid) significant discounts. 

“There are a number of major institutions in the health care industry that have bargaining power and can negotiate prices,” she said. “What is known in the hospital world is that no one pays the sticker price. The price itself is unreasonable. Unfortunately [the uninsured] don’t benefit from that. We believe those prices are illegal and discriminatory and bear no relationship to the cost.”