More than 400 nonprofit hospitals chase down patients eligible for free care
Alexis Lewis was a 22-year-old trying to do everything right.
She was enrolled at a local community college in Knoxville, Tennessee, with dreams of being a nurse while working two jobs, earning just enough to get by.
"I was taking care of myself at the time," she said.
But, like thousands of Americans every year, Lewis' path was derailed by one trip to the emergency room.
"I would have panic attacks and pretty much have to go to the emergency room," Lewis said. "And at the time, I didn't have insurance."
Lewis said she was satisfied with the medical care she received at the largest nonprofit hospital in east Tennessee in 2018, but the $6,500 bill wrecked her finances.
"I'm still behind on everything, trying to catch up," said Lewis, who is now a licensed practical nurse.
Lewis' story is not unique.
Although America's approximately 3,000 nonprofit hospitals are required by law to provide free or discounted medical care to those who cannot afford it, a CBS News investigation found hundreds of those hospitals continue to bill the lowest-income Americans.
In return for caring for the poor, the hospitals are exempt from an estimated $37 billion in state, federal and local taxes every year, according to researchers at Johns Hopkins University.
Yet a CBS analysis of IRS tax data found over 400 nonprofit hospitals attempted to collect more than $800 million dollars in a year from patients who otherwise would qualify for charity care.
The practice of hospitals receiving massive tax breaks and then billing patients who should receive free care "is not something that really should be allowed," said Vikas Saini, president of the Lown Institute, a think tank that studies the nonprofit hospital industry.
"For nonprofits, it really should not be about maximizing the bottom line," he said.
Billing lower-income patients is not a choice most hospitals make. CBS' analysis found most nonprofit hospitals do not bill low-income patients eligible for charity care. They say they aim to treat all patients without putting them in financial jeopardy.
In a statement to CBS News, the American Hospital Association said hospitals and health systems "take seriously their responsibility to provide care for everyone, regardless of ability to pay," and said the true driver of medical debt is inadequate health insurance coverage.
"Too many patients either do not have adequate coverage or their coverage imposes cost-sharing requirements that they cannot afford to pay," the AHA said. "Hospitals continue working to close this insurance gap, but can never completely close that gap while also covering the high costs associated with maintaining around-the-clock, high-quality hospital care."
But in a medical system that can be difficult to navigate under the best circumstances, the 26 million Americans who lack health insurance risk financial devastation from a single treatment.
Health care debt is the number one cause of bankruptcy in the United States, and affects an estimated 41% of American adults.
A growing debt
On a cold autumn morning in late 2024, it was standing room only at the Knox County General Sessions Court.
Among the crowd were defendants in civil cases, many of them brought by a debt collection agency on behalf of the University of Tennessee Medical Center. Judge Patricia Long moved quickly through the docket.
"If you breach the payment arrangement, then [the debt collector] can do things like get money out of a bank account or garnish wages," Long instructed them.
It was the same court that Lewis had been summoned to months ago to deal with the financial legacy of her 2018 visit to the emergency room at the University of Tennessee Medical Center. Lewis said she didn't have insurance at the time.
Federal law requires each nonprofit hospital to have a policy to determine which patients are eligible for free and discounted care. Those policies must be prominently posted in physical spaces where patients enter and must be posted online. Information about charity care is also supposed to be on the hospital bill. CBS News confirmed UTMC satisfies each of these requirements.
But there is no requirement that hospitals verbally communicate the policy to patients, or ensure those receiving care understand that they could be eligible for assistance.
Federal law also does not specify exactly what those policies need to say. There is almost no penalty if hospitals fail to live up to their own policies.
Lewis - who was a 22-year-old student at the time of her treatment - doesn't remember anyone telling her about financial assistance, even though she said her income at the time was far lower than UTMC's threshold for financial help.
The hospital said it provided Lewis with a 55 percent uninsured self-pay discount on her original bill. Providing discounts to uninsured patients is required by state law.
In December 2018, court records show UTMC produced an affidavit stating that Lewis owed $3,457 for her medical treatment. "This communication is from a debt collector," the document states.
In July 2019, Lewis was served with a civil warrant to appear at the Knox County General Sessions Court. She was working at Target at the time.
The case was resolved when Lewis and UTMC agreed she would pay $20 a month starting in October 2019 on the $3,457 in debt, plus 7.5% interest, according to court records.
The terms of that agreement would have left Lewis in debt to UTMC for life. According to CBS News calculations, $20 monthly payments would never pay off a debt of $3,457 at 7.5% interest because the amount of accrued interest added to the debt each month is more than the monthly payment.
And so, the debt she was paying grew.
By 2022, the balance had increased to $4,524 and she had fallen behind. The hospital, working with a debt collection firm, began pursuing a court order seeking to forcibly take the payments out of Lewis' paycheck from a Knoxville-area nurse staffing company.
In July 2024, Lewis' debt to UTMC neared $5,000. She said her wages were garnished about $2,200 in two months. Eventually, Lewis agreed in September to a payment plan of $150 per month.
"I don't have the money," said Lewis, now a mother of two. "But they can come get me, I guess...I just know I don't have the money."
A UTMC spokesperson said the hospital made multiple outreach attempts by phone and mail to discuss payment arrangements for patient-responsible balances with Lewis before her account was transferred to a third-party vendor for payment remediation.
In a statement, UTMC said it takes several steps to proactively identify and support patients who may qualify for financial assistance.
"We also recognize that medical expenses can be challenging and complex, especially in situations where severe or specialty needs are being treated," UTMC said. "Each patient's situation is unique and there are many factors that may contribute to financial assistance gaps, such as incomplete applications, missing documentation or missed communications. We partner with patients to remediate these factors to the best of our ability and provide more than $190 million in financial assistance discounts in 2023."
The hospital's tax returns show that since 2020 it has tried to collect more than $6 million - including $1.4 million in 2023 - from patients who the hospital knew would have been eligible for charity assistance.
'No transparency'
Efforts to compel nonprofit hospitals to increase transparency about their community benefits - including free and discounted care for those who need it - have been ongoing for decades.
When the Affordable Care Act was signed into law in 2010, its reforms included new requirements for nonprofit hospitals in the federal tax code.
Hospitals, as a result of the ACA, are required to provide a community benefit plan and it must include a policy to provide free charity care to those who cannot pay.
However, the ACA's requirements stopped short of spelling out exactly what those policies must say - and provided little in the way of enforcement or oversight. What the ACA did require is a new effort to collect data on the financial practices of nonprofit hospitals regarding low-income patients - often referred to as charity care.
As part of the updated IRS nonprofit tax return form, hospitals must report "bad debt" stemming from patients who would be eligible for free or reduced care - but for some reason did not receive it. In those cases, hospitals attempt to collect money from low-income patients and write it off as "bad debt" if those collection efforts fail.
Keith Hearle, a healthcare finance consultant tapped by the IRS to help implement the tax provisions of the ACA, was in the room for formative early conversations about the new tax return forms.
The reforms enacted under the ACA helped increase the level of public disclosure, he said, but did not go far enough in asking nonprofit hospitals to explain their charity care spending.
"More transparency is better than less transparency," Hearle said. "The hospitals shouldn't be embarrassed about shedding light on these policies and how they're carried out," he said.
But experts say the IRS should be doing more with the newly-reported information.
Although the IRS reviews the tax-exempt status of hospitals every three years, a 2023 report by the Government Accountability Office found the agency "had not revoked a hospital's tax exempt status for failing to provide sufficient community benefits in the previous 10 years."
Jessica Lucas-Judy, Director of Strategic Issues at the GAO and the author of the report, said the tax returns filed by nonprofit hospitals - and IRS' oversight of them - need to be improved.
"We found 30 in one year that reported no spending at all on community benefits," Lucas-Judy said. "That doesn't mean that the hospitals weren't providing community benefits. It's just that there was no transparency."
Nonprofit hospitals are generally acting within their rights and are not violating any federal law when they seek to collect payment from low-income patients.
But there are moral and ethical reasons why hospitals should not pursue people in court for medical debt they cannot pay, said Eli Rushbanks, general counsel and policy advocacy director at Dollar For, an advocacy group that helps patients find out if they qualify for assistance.
"It is immoral to sue patients who cannot afford their bills as a tax-exempt hospital," Rushbanks said.
"These are by definition low and middle income patients who received a bill that they couldn't pay, which is unlike almost any other type of bill," he said. "A medical bill is not like a credit card bill. This is almost never something that you took on willingly or knowingly, and it's almost always a thing that happened to you."
Nonprofit hospital debt is one piece of a national health financial system that advocates say is badly in need of reform. Early this month, the nonprofit group Undue Medical Debt announced that it had made a private deal to buy $30 billion of medical debt belonging to an estimated 20 million individuals and wipe it away. But the group said its move merely puts a Band-Aid on a broken system.
"This deal underscores that the way we finance healthcare in the U.S. is fundamentally broken," Undue Medical Debt president and CEO Allison Sesso said in a statement.
'Abusive collection practices'
Across the country, federal and state lawmakers have spent decades on reforms to the nonprofit hospital system. Change has been slow.
Some states require hospitals to use software that determines whether a patient is eligible for free or reduced care - reducing the burden on patients to fill out paperwork proving their need. This method of screening patients is called "presumptive eligibility."
In Oregon, state law requires financial screening of all patients with bills over $500 dollars to assess their need for assistance. One year after Oregon's law took effect, Oregon Health & Science University Hospital in Portland saw its charity care eligibility rates jump dramatically -- from 12% to 64%.
"Making use of presumptive eligibility software at the point of care standard practice could limit the toll of medical debt on low-income patients," researchers wrote in a 2024 article in Inquiry: The Journal of Health Care.
But such drastic changes have been rare, and patients at many nonprofit hospitals are still left to navigate a complex paperwork maze.
Hearle, the healthcare consultant who helped the IRS draft new rules following the passage of the ACA, said there are a range of reasons that patients eligible for charity care fall through the cracks.
"One end of the spectrum, patients aren't being told about financial assistance, that charity care is available," Hearle said. "On the other hand, though, you've got patients who just simply will not apply. This is like, 'I don't want to, I don't want to apply for charity, even though I technically would be eligible for it.'" Elsewhere on the spectrum, he added, are patients who are confused or daunted by the paperwork requirements needed to apply.
In a 2023 survey by Dollar For, the Washington state-based advocacy group, more than half of charity-care eligible patients said they didn't get any information about financial assistance from their hospital. Fewer than half reported filing an application for free or reduced-cost care.
"These are patients who, by and large...cannot afford the bill that they've been given," said Rushbanks. "They were happy with their treatment. Sometimes it was life-saving. They want to pay the hospital or their doctor what they can, but they can't."
A steady drumbeat of media coverage has uncovered hospitals aggressively suing patients in Missouri, Virginia and elsewhere, with the reports often followed by reforms by individual hospitals.
The IRS announced in 2024 that it was auditing 35 nonprofit hospitals - a vast expansion of existing efforts. But for many policymakers, that review does not go far enough.
And in a bipartisan effort last November, Sens. Elizabeth Warren, D-Mass., and Chuck Grassley, R-Iowa, sent a joint letter to the IRS urging them to crack down on nonprofit hospitals that are not fulfilling their mandate.
Some nonprofit hospitals benefit from tax breaks while "shirking their responsibility to provide charity care and engaging in abusive collections practices that harm their patients and communities," Grassley and Warren wrote.
Among the senators' requests was for the IRS to clarify standards for nonprofit hospitals' financial assistance policies and practices.
"A standardized approach would facilitate consistent protection for patients and transparency in the hospital billing and collections process," Warren and Grassley said, "ensuring that patients who qualify for financial assistance under existing hospital policies receive it."
Nothing has changed since the senators sent their letter. Meanwhile, lawmakers are making some progress enacting charity care policies state by state. In New York, Governor Hochul signed a law prohibiting hospitals from reporting medical debt to credit agencies. California now requires hospitals to provide charity care to eligible patients and reimburse those who were wrongly billed. Earlier this year, Texas, lawmakers introduced a bill that would bar hospitals from pursuing debt collection until they confirm a patient is ineligible for charity care.
For patients like Lewis--now working as a nurse in the Knoxville area--those reforms haven't come soon enough. According to UTMC, she is current on her payments.
From her perspective, the nonprofits aren't holding up their end of the bargain.
"They call themselves nonprofits, but they're profiting off sick people who don't realize they could be getting help," she said.
