University of Kentucky bill collection feud heads to Kentucky Supreme Court

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The Kentucky Supreme Court will hear arguments Thursday on whether the University of Kentucky should be allowed to use the state Department of Revenue to collect unpaid medical bills, a practice that can lead to patients’ bank accounts being garnished and state refund checks being withheld.

Several legal groups that represent low-income Kentuckians charge that the practice is unfair to economically vulnerable residents and have filed briefs in support of Sarah R. Moore, a Lexington woman who was billed more than $21,000 for services that she and her family received from UK HealthCare in 2011 and 2012.

“UK HealthCare subjects its patients to a collections process on steroids,” the nonprofit Kentucky Equal Justice Center says in its brief. That includes “surprising UK HealthCare’s patients with extrajudicial levies of both their wages and bank accounts, liens on their properties, and seizure of their state tax returns.”

Taking action to stop the practice, which involves seizing people’s money without a court judgment, would “protect current and future debtors from a two-tiered collection scheme where people in one tier find themselves pursued out of court by the state while people in the other tier enjoy the protections of a collections process overseen by judges and juries,” according to the center.

The practice is before the Kentucky Supreme Court because the University of Kentucky and the Kentucky Department of Revenue each are appealing a 2018 lower-court judgment in favor of Moore, a single mother of four children, according to her attorney, Doug Richards.

“To me, UK’s lost its soul,” he said in a phone interview.

But UK spokesman Jay Blanton said it tries to do its bill collecting “in as sensitive and compassionate a manner as possible.”

“UK HealthCare, for example, as a matter of policy, reaches out to try to contact someone several times when a bill is late,” he said. “There are multiple appeals built into the process, too. Also, if someone can’t pay and has need, we work with them on a payment schedule that, we hope, can work for them.”

The debt in question, including thousands of dollars for two emergency room visits related to the treatment of a migraine or virus, is something that should have been covered by regular Medicaid or a program known as the Disproportionate Share Hospital program, according to court documents filed on Moore’s behalf.

But UK attempted to collect the money through its debt collector, Central Kentucky Management Services, which eventually turned the matter over to the Department of Revenue.

UK and the Department of Revenue maintain that they have statutory authority to collect on unpaid medical bills in this manner.

But James D. Ishmael, a now-retired Fayette Circuit Court judge, sided with Moore in February 2018, saying the University of Kentucky isn’t part of the executive branch of state government and is therefore ineligible to refer debts to the Department of Revenue for collection.

Ishmael cited two statutes, KRS 45.237 and KRS 12.010, in ruling for Moore. But UK argues that “Moore and the trial court ignored other statutes and case law cited by the University.”

UK also argues that — although the University of Kentucky is independent of the governor — “as a matter of Kentucky Constitutional law, the University is part of the executive branch of government.”

That is the question that the Supreme Court should focus on, UK argues in court documents, since Ishmael “did not address other questions raised by Moore on appeal,” such as whether UK followed proper procedures.

In court records, the Department of Revenue makes various arguments, including citing a statute that it says allows it to enter into debt collection contracts with any state organization, not just executive branch agencies, and says that Moore failed to exhaust her administrative remedies.

It also warns that “If not reversed, the Fayette Circuit Court’s decision will have repercussions that will reverberate throughout the Commonwealth.”

“Perhaps most significantly, the decision threatens to disrupt the operations of Kentucky’s public universities that rely on the Department for debt collection,” the department says.

“The Department has collected debts for state universities and other state entities for more than a decade,” it continues. “The amount collected for UK Healthcare alone from July 2009 through June 2017 is in the tens of millions of dollars, and counsel for the Appellee has already filed two separate putative class actions in Franklin Circuit Court against the Commonwealth and several state universities seeking the repayment of that money — and perhaps more. … If left to stand, the Fayette Circuit Court’s decision could have disastrous consequences on UK and other state universities.”

But Richards maintains that the collection process is not supported by the law.

“Collecting their bills this way is illegal because you’ve got to give somebody a right to a jury trial” in which a neutral judge determines whether the patient is liable for the debt, he said.

Richards also disputes the right of the Department of Revenue to add a 25 percent collection fee to patients’ debts. “There is no statutory basis at all for the Department to impose the collection fee,” he argues in court documents.

Richards has filed a potential class-action lawsuit in Franklin Circuit Court that’s on hold until the Supreme Court weighs in on the Moore matter. The Franklin case began with five plaintiffs challenging UK’s billing practices, but the request to make it a class action says that the member class exceeds 10,000 people and involves millions of dollars.

“Through fiscal year 2017, the Department has collected in excess of $48,000,000 from Plaintiffs and class members on the University’s health care accounts. Of that amount, the Department has retained approximately $9,600,000 for itself, and remitted more than $38,000,000 to the University,” according to the 2018 lawsuit, which seeks restitution for affected patients.

Some of the collections involve bills, generated by physicians and providers at UK, that were assigned to the Kentucky Medical Services Foundation, which is controlled by employees or agents of the university, according to the Franklin lawsuit. The foundation then turned the provider accounts over to Central Kentucky Management Services.

UK said it must have a process for collecting bills — either internally or through a third party like the state — because “unpaid bills can impact the cost of care for everyone.”

But several groups that work with low-income Kentuckians have criticized UK’s collection practices.

In the Moore case, a friend of the court brief joined by several legal-aid organizations, such as the Appalachian Research and Defense Fund of Kentucky (AppalReD), Legal Aid of the Bluegrass and the Legal Aid Society of Louisville, says UK’s “abusive collections practices disparately impact our clients and economically vulnerable Kentuckians statewide.”

The groups say that “in addition to the depletion of emergency savings for families, the non-judicial garnishments to bank accounts, paychecks, and tax returns have obstructed patrons from complying with their judicially ordered legal obligations, including maintenance payments to former spouses and child support.” The collection practices also may jeopardize food-assistance benefits, they say.

The Kentucky Equal Justice Center, a nonprofit law firm in Louisville, said, “Permitting UK HealthCare to use the Department of Revenue’s superpowers to aggressively collect the run-of-the mill medical debt of UK HealthCare’s patients without court supervision can shatter any fragile security Kentucky’s poorest residents have been able to establish for themselves and their families.”

It also noted that patients often are unaware of the costs of services rendered and don’t necessarily get adequate notice of the opportunity to challenge debts before their money is seized.

“UK HealthCare’s failure to inform patrons of how to challenge any alleged charges is systematic and egregious,” according to the center’s brief. “… Moreover, even in the rare instance that a patron was informed of future collections actions against them, the entire review board at UK HealthCare is composed of internal representatives, thereby absolving any semblance of impartiality or fair consideration.”

But UK maintains in court documents that Moore was given opportunities by the university and the Department of Revenue to challenge her debt but failed to do so. Because of that and other reasons, the Fayette Circuit Court decision should be reversed or vacated, the university argues.