Critics say UK abused power by having state collect debts. Judge orders it to stop.

A judge recently ruled that UK HealthCare can no longer use the state Department of Revenue as a collections agency.
A judge recently ruled that UK HealthCare can no longer use the state Department of Revenue as a collections agency. Herald-Leader

A few years back, Sarah Moore got behind on some bills from University of Kentucky HealthCare because of a late reimbursement from Medicaid.

Eventually, UK referred the matter to the Kentucky Department of Revenue, and they began to take money out of Moore’s wages to the tune of $3,800. About 80 percent of that money went to UK to pay the debt — including interest —while the revenue department kept 20 percent as a “collection fee.”

Moore went to attorney Douglas Richards, who was shocked to hear that a local hospital used the state’s taxing authority to go after debts, instead of civil actions. He sued, and Fayette Circuit Court Judge James Ishmael agreed, ruling on Feb. 8 that UK is not eligible to use the revenue department as its collection agency.

UK officials said they have not decided if they will appeal the decision. They have 30 days from the date of the judge’s ruling.

Ishmael’s decision was based on a narrow slice of the law: whether UK is part of the executive branch of state government. He agreed with Richards, who cited two recent cases between Gov. Matt Bevin and Attorney General Andy Beshear over university finances and organization, in which the Supreme Court found that while universities are a state agency, they are not directly part of the executive branch because they are operated separately by their governing boards.

“When I first heard about this, I found it hard to believe that nobody had ever attacked it,” Richards said. “I’m really happy with the ruling.”

Moore was not available for comment.

In his research, Richards found that since 2010, the revenue department had collected about $47 million for UK HealthCare, including principal and interest. Then, the department tacked on another 20-25 percent for its collection fee, about $9.4 million. He believes many of the people affected are low-income.

The collection started in 2006, two years after the General Assembly passed a law expanding the revenue department’s collection powers that were used for child support and judicial fees. Currently, revenue does collections for 18 state agencies, said spokesman Glenn Waldrop, and revenue has collected about $28 million in collection fees since it started. If that fee was 20 percent of the total collections, the total would be $120 million.

The University of Louisville health care system uses private collection agencies, not the revenue department, for late collections, officials said. Most businesses use private collection agencies, but if those don’t work, they must sue the customer in court to begin the civil process to get their money.

UK has a collections agency, an affiliated non-profit called Central Kentucky Management Services. But when those letters are ignored, UK refers debtors to the department of revenue instead of the local court system, said UK General Counsel William Thro. Before the referral, UK sends the person a letter telling them their debt will be referred to revenue, and if they have a dispute, they can appeal with administrative hearings at the Attorney General’s office.

“Referring to the department of revenue is a last resort,” Thro said.

Cara Stewart, a health law fellow at the Kentucky Equal Justice Center in Lexington, said the center has been fighting this practice since it began. Most of the time, she said, her group represents people at state administrative hearings, which can be complicated to arrange.

“I think it’s an abuse of power,” Stewart said. “This is a university using the state government to do their debt collection.”

Stewart said this disproportionately affects low-income people, who may lose some of the earned income tax credit as their wages are garnished, even though many people depend on that tax refund to live.

“This has been an existing miscarriage of justice and state resources in my opinion,” Stewart said. “I am grateful for the protection of consumer rights for all Kentuckians.”

Hawaii is America's healthiest state, Californians keep their smoking to a minimum and Kansas saw the largest increase in obesity in the 2016 America's Health Rankings Report from The United Health Foundation.

Linda Blackford: 859-231-1359, @lbblackford