UCHealth named in lawsuit for alleged illegal tactics to sue for medical debt, says it would be "optically bad" to use company name

As state legislators debate new regulations in the session this week aiming to hold accountable some of Colorado's major nonprofit hospitals — with a state agency claiming some of these tax-exempt hospitals are raking in profits and not giving enough back — CBS News Colorado has learned one of those hospitals is also the subject of a lawsuit for allegedly illegal tactics to collect medical debts from low-income patients.

"I hope no one ever has to go through what I've been through, because it was really hard for me," said Cathy Woods Sullivan, a former patient of UCHealth's University of Colorado Hospital in Aurora. 

A few years ago, Woods Sullivan's husband died after spending several days at the Aurora hospital with critical kidney failure. Shortly after, she and her children went back for their own care. 

"Just having a really rough time; I had just recently lost my husband, and had a lot of medical bills," she recalled. "The kids were going back and forth into the hospital, and myself, just having a difficult time dealing with the death of my husband, and that became this situation."

She says when she was a patient there, she wasn't given any information about financial assistance, which was also something she didn't know to ask for. 

"I just started getting a lot of bills due to my husband being sick, we were getting tons and tons of medical bills, because he was on life support for like six days," Woods Sullivan recalled. "I had seen other letters, because my husband passed away, they were telling me to disregard it."

She says a year later, collections knocked on her door, serving her minor child with papers on the debt.  

"They came to the door one night and served my daughter paperwork," Woods Sullivan said. 

Once she realized the collections were for her medical bills, she tried to go back to the hospital for help, but claims she was turned away. 

"I just felt hopeless due to the fact that I couldn't get any help from the hospital," Woods Sullivan said. 

Ultimately, Woods Sullivan sold her late husband's wedding ring to pay for the $1,200 debt she owed. Now, years later, she is fighting back. 

Woods Sullivan is one of the named plaintiffs on a class action lawsuit claiming UCHealth used a collections agency called Credit Service Company to sue potentially thousands of patients for medical debt over recent years. The suit alleges this is an illegal way for the nonprofit hospital system to avoid having to put its name on the debt lawsuits.

"If it's your debt, and you want to sue them for it, you've got to put your name in the lawsuit," says Woods Sullivan's attorney, David Seligman. "You've got to be the one engaging with the consumer... You've got to be the one to show up in in court."

Seligman, who is also the executive director of the legal nonprofit Towards Justice, says in the suit that the practice causes confusion among patients. 

"The medical debt collector in this case is deceiving people like Cathy, by putting their own name on the lawsuit, even though they say that the debt actually belongs to UCHealth," Seligman said. "That makes it appear to UCHealth patients like somebody else has the problem with them, it confuses them, and and it creates this unfair and illegal layer of separation between UCHealth and its patients."

According to a motion filed in the suit, obtained by CBS News Colorado, UCHealth admitted in a deposition that suing patients itself would be "optically bad."

"It came as a surprise to me, insofar as UCHealth is a pillar of our community," Seligman said. "They have benefits from a tax-exempt status, and they are suing their patients... from my perspective, they shouldn't be suing people for this debt."

Asked about the lawsuit, CEO of UCHealth's University of Colorado Hospital Tom Gronow said, "there's still a cost of doing business, in any organization, that is not the preferred path that we want to take, nor is it a way that we want to relate with our patients, particularly having gone through traumatic injury, traumatic events or traumatic injuries, or coming to seek our care that, to me would leave a bad taste in anyone's mouth if they're going through that process, but I can say very fairly in instances and letters that have come across my desk, when we refer them to patient relations, the business office, they often get resolved at that level, because we're connecting them with a team that's willing to help them out."

The hospital system did not comment specifically on Woods Sullivans' lawsuit. 

The collections company, named as the defendant in the suit, calls the allegations "factually incorrect and contrary to well established Colorado case law." 

The company, Credit Service Company, Inc., also says it "vigorously denies the claims and allegations made by the Plaintiffs."

State criticisms over lack of benefit to the community

This year, UCHealth and some other major nonprofit hospitals have faced harsh criticism from the state for a lack of sufficient contributions to their communities. Because these hospitals are nonprofits, they are required to provide significant benefits to the communities they serve to make up for not paying taxes.  

This report from the Colorado Department of Health Care Policy and Financing says UCHealth is sending nearly half of its community benefit investments to the University of Colorado School of Medicine. HCPF says that's something UCHealth should reconsider.

"We want to work with them to say when you're investing in the community in lieu of taxes, because you're not for profit, how do we make sure that you're listening to the community, and those monies are going in the right way," said Kim Bimestefer, HCPF's executive director. "Because, it's not a small amount of money."

Bimestefer says UCHealth has nearly $5 billion in reserves and has a net income of $1.6 billion a year. She says even though UCHealth pays the most in community benefits of any nonprofit hospital in the state, less than 1% of its benefits go to free or discounted services. Meanwhile, UCHealth has continued to grow and acquire smaller hospitals. 

She belives these kind of high profit practices are driving up health care prices for all Coloradans.

"At the end of the day, Coloradans are hurting, and employers are hurting, and it's right in our grasp that we can lower health care costs together, and save people money on health care," Bimestefer said.

But UCHealth says the state's numbers are inaccurate, and don't include Medicaid services.  

"UChealth is the largest Medicaid provider in the state of Colorado," Gronow said. "I think that's important to call out in terms of our commitment to the mission to treating those that may have limited access to care. What we see in the community often is that others who do not have has high of a percentage of a Medicaid population will see that those patients will get referred over to us."

Gronow says they provide $1.1 billion in community benefit investments and $338 million in uncompensated care, and he says sending money to the University's medical school is absolutely a benefit to communities across the state, because it ensures qualified doctors for the future, and increases income for a taxpayer-funded institution. 

"We often get conflated as one entity, but we are two separate entities, and we provide direct benefit and support to the school to further research education missions, help with physician recruitment, and continue to build on the excellence that's here on this campus, specifically at University of Colorado Hospital," Gronow said. "Without that benefit, we would find the school severely limited in their ability to advance science and research and clinical care, all those components that we think are really important for us to be a differentiated health system, and an academic health system, and our investments, because we're a Colorado-based entity, they stay in Colorado."

He also says UCHealth total community benefit exceeds its tax exemption value by $400 million. 

"We feel that we're providing additional benefit into the community than what we would just pay in taxes if we were viewed as a for-profit and behaved as a for-profit," Gronow said. "It's really critical to our mission to provide care to our patients, to improve their lives is core to our mission, and to realize our vision as a health care organization."

The Colorado Hospital Association also says there were several inaccuracies in HCPF's report, pointing out that many nonprofit hospitals have seen a significant drop in revenues due to the poor economy in 2022. Read CHA's statement by clicking here. Read more about community benefits from other Colorado hospitals by clicking here. 

Asked if the billions in reserves is normal, Gronow said, "I do think it's normal, and when you're looking at aggregate numbers, again, talking about the cost of running hospitals, the cost of running a health system, we're talking billions, so large dollars, and when you look at reserves, we like to translate this into more of the day's cash in hand figure that is far more relatable and compare it to comparator that's recognized across multiple industries, so we're about 300 days cash on hand, so a little bit less than a year."

But some lawmakers aren't convinced. 

Calls for legislative changes

"As policymakers, we just need more information to see really what's going on in the state of Colorado's health care market," said state Rep. Matt Soper (R-Delta). 

Soper is sponsoring this bill, which would require more financial transparency from nonprofit hospitals like UCHealth.

"I don't want hospitals to be Fortune 500 companies. I want them to be true nonprofits that are about affordability and accessibility to quality health care," Soper said. "That's why having better data is really important to see how those values are reflected in C-suite compensation, for example."

The bill has bipartisan support.

"Speaks volumes," Soper said. "To see all of us coming together to say transparency is important enough that we're willing to put our names on the bill, and we're willing to run this legislation, and ask for a little bit more data from hospitals so that we as policymakers can make better decisions."

In a rare move, the bill is something even the state has supported. 

"As a state we need to hold each other accountable for good policies that protect people," Bimestefer said. "If we have good policies, then folks can afford to go get care... we need to hold each other to be more healthy."

Another bill she supports, which is also still up for debate in the legislature, aims to install more requirements around community benefit investments for nonprofit hospitals. 

"This will be a transformational year on hospital affordability, community benefit, helping rural hospitals collaborate together," Bimestefer said. "We are so close to a better tomorrow, and we're asking all the communities to engage in these bills."

The bills — and Bimestefer's office — have faced criticisms, however. Some believe HCPF has been wrongly collaborating with lawmakers to get the bills passed. Gronow says HCPF needs to take a closer look at the other players in the health care industry. 

"When you look at the health care ecosystem, it is very complex... I think when you when you throw a numbers around without context, it can sound like that's a lot of money going into a hospital... it can look like we're not doing enough, or that we have too much money, and I can say in the context of the broader business, that's just not the case," Gronow said. "We need to have others at the table to help solve this problem... we're not seeing price reductions from pharma; we're not seeing price reductions from device companies... I think there's a better way to go about this to get at the cost of health care. We agree that the cost of health care is a problem nationally, it has to come down, it is not sustainable... but to say that only one piece of this is going to fix it is where the narrowmindedness comes into play, and there has to be a better way for us to come at this together."

UCHealth says it won't support either of the hospital regulations proposals this session until more amendments are made. 

While the legislature finishes up the session, HCPF is also working on a new database to give Coloradans more information about hospital prices and costs. Bimestefer says it will be a helpful tool for people to navigate cheapest costs based on their coverage in any hospital in the state. It should be available by the end of June.