North Carolina hospitals sue thousands of patients, families to collect debts, analysis finds

Across a five-and-a-half-year period, North Carolina hospitals seeking payments brought nearly 6,000 lawsuits against roughly 7,500 patients and their family members, according to a recent analysis of courthouse records.

Nearly half of those cases ended with judgments favoring the hospitals, translating to a total of $57.3 million in medical debt collection, researchers from Duke University School of Law and North Carolina’s Office of State Treasurer found. On average, the courts awarded hospitals $16,623 per judgment.

“Our findings raise first-order questions about the efficacy of our legal system in resolving financial debts with notice and fairness, and they require direct discussions about the roles we expect hospitals, especially nonprofit hospitals, to play in our economy, health policy and society,” they wrote in the report detailing their findings.

The analysis spanned 5,922 lawsuits filed in the North Carolina civil court system from Jan. 1, 2017, to June 30, 2022.

Much of the volume was driven by “a small subset” of the state’s hospitals, with the researchers noting that 96.5% of the study period’s collection actions were filed by just five hospital systems that controlled 18.5% of the state’s total hospital beds as of 2021: Atrium Health (2,482 lawsuits), CaroMont Health (1,783 lawsuits), Sampson Regional Medical Center (659 lawsuits), Community Health Systems (538 lawsuits) and Mission Health (250 lawsuits).

Each of those systems with the exception of Community Health Systems is registered as a nonprofit organization, the researchers wrote. More than 9 in 10 of the study’s total lawsuits against patients were filed by nonprofit hospitals.

The authors also noted that Atrium, which was responsible for 41.9% of all cases, has a “unique legal status” due to its origin as a municipal hospital corporation that exempts it from both operational taxes as well as property taxes for land it isn’t using for medical or charitable purposes. The status has also shielded the organization from certain state and federal antitrust laws, they wrote.

“Litigious hospitals,” or those that filed more than 40 lawsuits, generally spent less than average on charity care and enjoyed higher-than-average net profit margins, according to the report. They also logged an average 480.5% charge-to-cost ratio, which was above the national average markup of 417% as of 2018.

North Carolina hospitals also embraced a state allowance permitting an 8% annualized interest charge on medical debt, the authors wrote. Nearly a third of the total debt owed by patients, or $17.7 million, was attributable to the assessment of interest, they found. Adding other fees associated with the judgments, such as attorney fees and court fees, bumped the total up to $20.3 million.

“More than two thousand families owed more than $1,000 in interest charges alone, and some patients face more than a decade’s worth of accumulated interest,” according to the report.

Nearly 3 in 5 of the judgments in district court were default judgments, "which usually means a judgment was entered in favor of the hospital even though the defendant did not respond to a court summons or appear in court," according to the report.

Although the racial demographics of defendant patients and family members “largely mirrored the racial makeup of North Carolina,” a slightly higher proportion of those who received a default judgment were Black, researchers wrote. Additionally, Black and Hispanic defendants were “disproportionally represented” among those incurring large amounts of interest, per the report.

The authors noted that they were unable to access default judgment information for 2,920 cases filed in small claims courts (where hospitals can sue to collect principals smaller than $10,000) but cited past literature demonstrating “high rates of default judgments and disparities across racial groups.”

The study also only captured lawsuits filed by the hospitals and health systems themselves, researchers acknowledged, thereby excluding those from third-party debt collectors as well as private medical practices, ambulance companies or other provider types.

Accompanying the report data were various statements from defendants either recorded in the court cases or interviewed by the Office of State Treasurer. These generally outlined cases where the lawsuits stemmed from failed charity care policies, surprise bills and unknown out-of-network care, and painted a picture of individuals facing financial, shelter and care insecurity due to the judgments.

“The worst is what this does to a person emotionally from anxiety and stress. It aggravates any illness that a person has … I worry I won’t be able to make my payments and keep my home,” a defendant said in a legal judgment cited in the report.

The report puts new numbers on hospital practices that—particularly in regard to nonprofits—are facing widespread critique from advocacy groups, lawmakers and government prosecutors.

Just this week, Minnesota Attorney General Keith Ellison announced that his office is investigating Minneapolis-based nonprofit system Allina Health over a prior policy to cancel outpatient appointments for patients with at least $4,500 in unpaid medical debt. Allina said it suspended the policy shortly after a New York Times report detailing the practice.

Early August also saw a bipartisan group of influential senators tap federal tax regulators for more detailed information on nonprofit hospitals’ community benefits and reported medical debt billing procedures—an escalation the lawmakers said was spurred by reports that “certain nonprofit hospitals may be taking advantage of this overly broad definition of ‘community benefit’ and engaging in practices that are not in the best interest of the patient.”