Patients in California county may see refunds, debt relief from charity care settlement

California's largest public hospital plans to start notifying 43,000 former patients Monday that they may be eligible for refunds or billing corrections, part of what advocates called a major legal settlement that will help force the hospital to fulfill its charity care obligations.

Santa Clara Valley Medical Center, along with other units of county-owned Santa Clara Valley Healthcare, will also adopt procedures to ensure patients are informed of their eligibility for charity care, which nonprofit and public hospitals must provide.

"This is huge," said Helen Tran, a senior attorney with Western Center on Law & Poverty, which joined another California-based legal group, the Consumer Law Center, in a lawsuit against the hospital. "It's so important that the hospital is stepping up to take corrective action. That’s something we haven't seen many hospitals do."

Filed in 2019 and settled in June, the lawsuit alleged that Santa Clara Valley Medical Center billed patients and sent them to collections for charges they should not have been required to pay. Emily Hepner, one of the plaintiffs, was a full-time student, raising two children alone,and uninsured in 2014 when she needed urgent surgery, according to the lawsuit. The hospital never followed up after telling her she might be eligible for charity care and, nearly a year later, she received a $34,884 bill. The hospital later sued her for that amount plus attorney fees.

The Santa Clara settlement comes at a time of mounting scrutiny of charity care around the country. A number of nonprofit hospitals have been found skimping on their obligations to provide free and discounted care, and failing to inform patients about their eligibility as more Americans struggle with medical debt.

"Santa Clara Valley Healthcare prides itself on delivering quality healthcare for individuals and communities that face significant socioeconomic hurdles to receiving this basic benefit," said Paul Lorenz, the system's chief executive, in a press release. "These newly implemented outreach efforts, combined with our current programs, multilingual approaches, and recent state-initiated efforts, will allow us to better serve those most in need." The health system and the county declined further comment.

The federal Affordable Care Act requires nonprofit hospitals to provide charity care, known officially as "financial assistance policies," to maintain their tax-exempt status. California requires it of all acute care hospitals. California patients whose income is below 400% of the federal poverty level can be eligible, meaning a single person earning less than $58,320 can qualify for financial assistance. A family of three, like Hepner's, could qualify today if the household makes less than $99,440. Factors such as a person's assets and the amount of medical expenses can also be considered.

In 2020, Santa Clara County raised the eligibility threshold for discounts from 350% of the federal poverty guidelines to 650%, and patients can qualify for free care if they make below 400%.

Under the settlement, the county agreed to give former patients at SCVMC the opportunity to apply for financial assistance retroactively, seek refunds, and have court judgments corrected. The entire Santa Clara Valley Healthcare system, which includes SCVMC and two other hospitals, also now must inform patients in eight languages about its charity care program and discount payment options in a timely manner.

A 2019 KFF Health News investigation found that St. Joseph Medical Center in Takoma, Washington, for example, settled a similar lawsuit in 2019 and agreed to pay more than $22 million in refunds and debt forgiveness. Tax-exempt hospitals around the country sent $2.7 billion in bills over the course of a year to patients who probably qualified for free or discounted care, the investigation found.

Tran said it's the first charity care settlement in California that provides restitution for a large group of patients since the Hospital Fair Pricing Act, which aims to protect patients from unaffordable hospital costs, took effect in 2007.

Emma Dinkelspiel, a senior attorney at Bay Area Legal Aid, said many hospitals obfuscate, making it difficult for patients to access financial aid.

"When you call in, they'll tell you that charity care doesn't exist and instead suggest payment plans," Dinkelspiel said. "There are some hospital systems who maybe advertise with posters but don't include information when they send out their debt collection letters."

According to a December report by KFF Health News, 1 in 5 hospitals that were scrutinized didn't post aid policies online.

In California, more than 4 million families could be income-eligible for free or discounted care, according to the 2022 American Community Survey.

Tran credits the county for addressing the issue and said private hospitals should follow their example.

"It's really setting the bar for what hospitals are able to do," Tran said. "We're hoping that other hospitals throughout California will too."

This article was produced by KFF Health News, which publishes California Healthline, an editorially independent service of the California Health Care Foundation.