UK HealthCare improperly used state agency to collect medical debt, judge rules
The University of Kentucky and UK HealthCare improperly used the Kentucky Department of Revenue and state tax statutes to collect unpaid bills from patients, a Franklin Circuit Court judge ruled Aug. 15.
In the class action lawsuit, filed in 2018 in Franklin Circuit Court, UK HealthCare patients said their unpaid bills were turned over to the Kentucky Department of Revenue for collections. The department added interest to the account at tax rate, and a 25% collection fee, taking payment from patients’ wages and tax returns to cover the bills.
In the lawsuit, plaintiffs sued UK, former UK treasurer Susan Krauss and state treasurer Allison Ball for improperly collecting unpaid bills. UK HealthCare could have to return payments to the patients, according to the ruling from Judge Thomas Wingate.
Douglas Richards, attorney for the plaintiffs, said the final amount that will have to be repaid is not yet known, but he estimated it could be upwards of $90 million.
On Aug. 22, UK filed a motion to reconsider two parts of the judgment. One part related to how liquidation of debts was interpreted. The other said that the conclusion is “premature at this stage of the litigation and should be reconsidered” pending additional issues that have not been litigated in the case.
“Aside from the legal issues being clear to me, this is just completely bad public policy and morally indefensible, because these are two of the biggest institutions in the state — UK and the Department of Revenue — and they’re punching down on people who generally make $10 to $12 an hour, trying to pick up a payment every month,” Richards said.
Many of the patients affected by this policy are low-wage earners and did not have the funds to pay their UK HealthCare bills, which is why they fell behind, Richards said.
“It’s a good victory for the little guys,” Richards said.
Wingate’s decision was a partial ruling in an ongoing case, with other questions raised in the lawsuit still to be answered.
UK HealthCare cited three Kentucky laws that are intended for executive agencies to recover funds that were improperly paid, but those laws are “not general debt collection statutes,” according to the ruling. The laws did not allow UK to turn debts over to the Department of Revenue, because those laws only relate to collections for payments that were improperly made because of error, fraud or abuse, Wingate wrote in Monday’s ruling.
“The University disagrees with Mr. Richards’ interpretation, and, in any event, it is premature,” UK spokesperson Jay Blanton said. “There is a state statute, which allows the University to refer debts to the Department of Revenue under the terms of an agreement between the University and the Department of Revenue. That statute was not addressed in this threshold ruling.”
UK HealthCare accounts that were collected are “not the result of a payment,” the ruling says.
“Here, the University does not ‘pay’ the patient anything, and certainly does not do so due to error, fraud, or abuse,” Wingate wrote. “The University is instead referring ordinary debt accounts to the Department of Revenue for collection.”
The Department of Revenue no longer collects UK HealthCare debts because of House Bill 8, passed earlier this year which prevents the department from collecting “any consumer debt owed for health care goods and services.”
Wingate also denied UK sovereign immunity, and funds must be repaid to the plaintiffs, according to the ruling.
Because it is a class action lawsuit, people who were impacted by this policy will have the option to opt in or out of the payout. The process of gathering information from people affected and returning payments to patients could take several years, Richards said.
It has not yet been determined if UK will be required to repay interest on the debts that were collected, which could increase the amount given to patients who are part of the lawsuit, he added.
In February 2018, a Fayette Circuit Court judge ruled that UK was not eligible to use the revenue department as its collection agency, because UK is not part of the executive branch of state government. The Kentucky Supreme Court later overturned part of this ruling, saying that UK was part of the executive branch.
UK uses an in-house collection agency, Central Kentucky Management Services, Inc., to collect unpaid bills. When a patient’s account is unpaid, that agency sends them a final letter, informing them that if the bill is not paid shortly, it will be turned over to the state Department of Revenue.
There have been more than 5,000 referrals from UK to the department for collection since 2008, according to the ruling.
Editor’s Note: This story has been updated with information and response from UK on the lawsuit and judge’s ruling.
This story was originally published August 18, 2022 at 3:05 PM.