Tip Moody trusted the University of Kentucky. He worked there, and since 2001 he had visited UK’s Albert B Chandler hospital every three months for HIV treatment.
Even when the university sent him a bill for $5,604 for treatment in 2008 despite his income-eligibility for financial assistance, Moody thought things would work out.
But that trust dissipated by 2009, after the university sent his debt to the Kentucky Department of Revenue for collection. The state demanded payment for a bill he had been contesting for years, started withholding his tax returns and in 2010 placed a lien on the house his mother lived in.
“State sponsored bullying is what it amounts to,” Moody said. “I was being extorted to pay a bill that I had disputed for years that the University of Kentucky never allowed me to (formally) dispute and that the Department of Revenue never gave me an opening to dispute.”
As Moody learned, UK HealthCare has powerful debt collection tools at its disposal thanks to its partnership with the Department of Revenue, which can garnish wages, levy bank accounts or intercept tax returns to get at money allegedly owed to the university — all without a court order.
In recent weeks, extensive detail about those debt collection practices has been filed in the United States District Court for the Eastern District of Kentucky, in a class action lawsuit filed by Moody and four other named plaintiffs in 2020. The defendants, who are officials from UK and the state revenue department, and the plaintiffs all filed motions for summary judgment in late February, each asking Judge Gregory F. Van Tatenhove to rule in its favor without a trial. In support of the motions, witness testimony and many documents produced in discovery are considered part of the public record for the first time.
In the suit, the plaintiffs allege the UK healthcare system and the Commonwealth of Kentucky collect unpaid medical debts without giving patients a meaningful chance to appeal, seek a hearing or otherwise exercise due process rights guaranteed under the U.S. Constitution. Evidence submitted by the plaintiffs indicates that once the UK hospital has decided that a patient owes it money, there’s little chance the patient will ever see an appeal hearing, let alone succeed in challenging their obligations to the hospital. The plaintiffs, among other things, are seeking an injunction preventing UK HealthCare and the revenue department from collecting until patients have been granted a clear right to a hearing to challenge their debts.
Lawyers for the university and the state argue that the current process more than meets the standard for due process well before debts are sent to the revenue department for collection.
“Our role at the University is to take care of the sickest patients in our state and help them heal and return home. We feel like it’s our responsibility to make sure we generate the resources necessary to support that mission,” UK spokesperson Jay Blanton said. “Our filings in this case point to the extensive steps we have taken to ensure that patients are communicated with consistency and fairly regarding payment for treatment and procedures.”
The Department of Revenue has not responded to a request for comment.
UK HealthCare lawyers told Moody during court proceedings that his debt to the hospital has been cleared. The university also claims that four of the five named plaintiffs are making claims that are past the statute of limitations. What’s more, a little-noticed provision in Kentucky lawmakers' proposed tax plan, currently moving through the legislature, bars the state from collecting medical debt. So the central question of the lawsuit may ultimately be deemed moot for future patients.
But the collection practices have been lucrative for both the university and the state for years. By the time the Kentucky Center for Investigative Reporting first wrote about UK HealthCare’s debt collection practices in 2020, the Department of Revenue had collected $76 million in medical debt since 2009, including $14 million in fees and interest added to state coffers.
So lucrative, in fact, that when the state determined in 2012 that it had been violating patients’ constitutional rights by collecting medical debt for UK HealthCare without meeting basic standards of due process, they decided to keep collecting older debts, despite the acknowledged due process violations. According to evidence uncovered during the discovery process, the decision to continue collecting was made due to the amount of money at stake.
Karina Tefft, an attorney from the National Center for Law and Economic Justice who is representing the plaintiffs, said UK HealthCare and the Department of Revenue have abused the trust people like Moody put in the institutions.
“It's about making money,” Tefft said. “No part of this is about serving patients and their needs. It's a flagrant disregard for people's constitutional rights. It's extremely predatory, especially preying on low income families that don't have a lot of options, resources or other information.”
'State sponsored bullying'
Moody was diagnosed with HIV in 2001, and he started appointments at the University of Kentucky hospital shortly after, undergoing expensive lab tests at least every three months.
Moody worked as an administrative staff associate at the university, first at the college of agriculture then the college of dentistry, but wasn’t covered by the university’s employee insurance program. For years, his treatments had been paid for mostly by UK HealthCare’s financial assistance program and federal funding meant to help uninsured people pay for HIV treatment.
Moody says he typically met with a financial counselor at the end of every visit.
He qualified for assistance for years without a hitch until 2008, when the hospital altered procedures and he wasn’t aware he needed to reapply every six months, he said.
His financial assistance ended without his knowledge and the hospital suddenly started sending him bills for thousands of dollars.
Moody brought the issue up with management and the financial counselors at the hospital's infectious disease clinic. They sent him a financial assistance renewal application in September 2008 and Moody was able to prove his income placed him well within the program’s limits that whole year, including at the time of appointments he was billed for.
But the bills kept coming. Moody learned from then-state Sen. Tom Buford, whom Moody had contacted about the debt, that financial aid can’t be retroactively applied to debts that are older than three months, so he would have to pay that money back. (Buford died last year.)
Moody, like other plaintiffs in this lawsuit, claims that at no point in this process did the university let him know he was entitled to a hearing to formally challenge this debt.
Although the university regularly denies patients access to the financial assistance program, usually because patients fail to sufficiently prove their income, lawyers for the plaintiffs claim “no patient has ever requested, and UK HealthCare has never heard, a hearing to dispute the denial of a patient’s financial assistance application.”
The application for financial assistance used to include language informing patients that they are entitled to a formal hearing to appeal the decision should the hospital deny their request for financial aid, although Moody doesn’t remember seeing that language.
But the new application form used since August 2021 and offered by the plaintiffs as evidence includes no such notice. The hospital also doesn’t tell patients they can appeal a denial once the hospital has made a decision on their financial aid eligibility.
Patients who did manage to formally contest a bill from the hospital between the years 2012 and 2016 would come before hearing officer Marcy Deaton.
Deaton served as both hearing officer and UK HealthCare’s legal representative in hearings that, the plaintiffs argue, violated Kentucky’s administrative hearing laws because they were not held in front of a neutral party and didn’t allow patients to present evidence, as required.
A patient referred to in the plaintiffs’ Statement of Material Facts as “Mr. K” was in a hearing with Deaton when it became apparent that the hospital had the wrong address for him and as a result he never received an application for financial aid.
Deaton still denied Mr. K’s debt relief, arguing that it wasn’t her job to determine whether the patient would have qualified for assistance, and said the patient should have been more diligent about following up on his application, according to the plaintiffs’ Statement. This is one of three examples in the lawsuit filings of notices being mailed to the wrong address.
In deposition testimony, Deaton couldn’t recall if she’d ever granted an appeal of a decision regarding financial assistance.
Ultimately, hearing responsibility was shifted from Deaton’s office to the office of Attorney General, but no hearings were held during the long 2016 to 2019 transition period, according to court documents.
Moody considers himself pretty savvy when it comes to navigating byzantine administrations like those found in hospitals. If he wasn’t able to get help with his bill, he can’t imagine other, more vulnerable people would have much luck.
“I worked at UK. I knew where my doctor's offices were, I knew where the administrator's office was,” Moody said. “I didn't have any trouble trying to navigate the system, but I was stonewalled at every turn.”
Pipeline debt
After a decision regarding financial assistance is made, UK HealthCare starts billing patients.
UK’s description of its debt collection process offered to the court says that if bills remain unpaid after a series of invoices, the hospital transfers the debt over to Central Kentucky Management Services (CKMS), the third-party debt collection agency affiliated with UK HealthCare.
CKMS first sends patients a letter informing them their debt is past due. The letter tells patients they can contact the organization about the debt, but doesn’t mention a formal appeals process.
CKMS then sends another series of letters with more information. If those letters fail to elicit payment, CKMS then sends the debt to the state Department of Revenue for enforced collection.
The revenue department has authority to collect debts for all state agencies, and the defendants claim the University of Kentucky qualifies as a state agency. The lawmaker who wrote the statute UK HealthCare points to for justification said that wasn’t lawmakers’ intention.
For years, the letters sent by CKMS didn’t mention the right to an appeal or hearing at all. This prompted the revenue department to stop collecting UK medical bills in April of 2012 because – as internal emails produced in discovery expressly say – the state believed the hospital’s debt collection practices didn’t comply with due process requirements.
The U.S. Constitution’s 14th amendment guarantees the right to due process, meaning essentially that the government can’t take a person’s life, liberty or property without a chance to be heard before a neutral arbiter. The state paused collection efforts in 2012 until CKMS could modify the letters sent to patients, adding language about the right to protest the bill and to request an audience with a UK HealthCare hearing officer.
According to the Department of Revenue, this met the requirements for due process, but there was still a problem: The revenue department was already collecting money from a lot of people, including Moody, who had not been afforded the minimum standards for due process.
In one email produced in discovery, state lawyers expressed their need to determine what to do with those cases already "in the pipeline" at Revenue, and proposed a follow-up meeting.
Revenue and UK HealthCare then decided, in essence, to not do anything; to go on collecting the “pipeline debt” despite the admission in emails that “the minimum due process was not afforded.”
Asked in a deposition if the “pipeline” cases were not “sent back” for due-process compliance “because there was a lot of money at stake,” Tammy Watts, executive director of the revenue department’s Office of Processing and Enforcement, replied, “Yes.”
Neither UK nor the Department of Revenue responded to specific questions about the pipeline debt. It's not clear how much money was involved, or how many patients, but court records indicate collection continued for years afterwards.
Current notices designed to fail
Plaintiffs in this case argue that even the new language added after 2012 falls short of reasonable due process standards.
The defendants argue their practices go above and beyond the constitutional requirements of due process. They assert they send multiple letters to patients at each step of the collections process, sometimes sending dozens of copies to patients, according to court records.
Few people respond to these letters, however. In 2012, the year CKMS first added language about appealing a hospital bill to letters to patients with current debt, CKMS mailed 23,244 such letters but received only 93 responses and instituted only 13 reviews. CKMS sent out 63,154 notices of debt between 2013 and 2020, but only 65 people followed up to request a hearing and only 17 hearings actually took place, plaintiffs’ court filings state.
According to the plaintiff’s summary of facts, UK HealthCare’s internal records show at least 4,000 disputes with patients over debt since 2017, but only one hearing has been held during that time frame.
An expert witness hired by the plaintiffs analyzed the notice letters sent to patients and found that they were unlikely to be opened if received because the letters did not bear the UK logo and resembled junk mail more than official communication from the hospital. Once opened, the expert witness said it was unlikely that patients would read and comprehend the relevant section about the right to an appeal.
Since 2015, the letter sent by CKMS has told patients they can’t challenge medical debt on grounds that they simply can’t pay or are dissatisfied with the care provided. The letters do warn patients the Department of Revenue can withhold their tax returns to seek payment, but they do not mention some of the other severe debt collection tactics used by the state, including wage garnishments and bank account levies.
Plaintiff’s filings also assert that customer service representatives from CKMS and the hospital aren’t trained to tell patients that they have the right to a hearing. Instead, disputed bills are placed through an independent review process where the patient is not involved until a decision is made.
According to law, the Department of Revenue is only supposed to collect debts when all other appeals and collection efforts have been exhausted. This means that once the revenue department takes over, it is often too late to contest bills they are collecting.
If someone does contact the revenue department to dispute their bills, the department refers them back to CKMS. But according to the plaintiffs, CKMS doesn’t respond to many of these referrals.
The revenue department does not tell people they have the right to appeal their debt and request a hearing. In fact, the revenue department’s website explicitly states there is no dispute process within the department, the 25% collection fee and fluctuating interest applied to the debt cannot be waived and the amount owed can’t be negotiated or settled for a lesser amount.
The revenue department sends a first letter to patients calling for payment within 10 days. If that fails, the department sends patients a notice that the state may begin to garnish their wages or seize assets to pay down the debt.
One of the letters from the revenue department even threatens to publish patients names in debtors lists that appear online or in newspapers, though there is no indication the department has ever taken this step.
The department added $1,400 in fees and interest to Moody’s bill, then garnished his tax refunds for six years between 2012 and 2019 even as he was fighting the bill.
After his father died in 2009, Moody’s mother transferred the deed to her home to Moody and his brother, but it was eventually transferred back. The revenue department placed a lien on the house in 2010, but nobody in Moody’s family knew that until his mother tried to apply for a home equity loan in 2019.
He entered into a $50 a month payment plan with the state to clear the lien on a debt he didn’t think he should have to pay.
“I made a deal with the Devil,” Moody said.
All of this was made possible by the university’s special relationship with the Department of Revenue, a relationship no other hospital in the state enjoys. The University of Louisville, for example, hires private collection agencies to pursue medical debt.
“The University of Kentucky uses this as a short shrift around due process, and procedures that they should allow for any kind of debt in any other setting for any other person,” Moody said.
All parties have filed motions for summary judgment in the case, and the judge may make a ruling before the trial’s scheduled start date in June.
Contact Jared Bennett at jbennett@kycir.org.
