Series: Unforgiven The Transformation of Consumer Debt

This story was co-published with NPR.

Sen. Charles Grassley said nonprofit hospitals could be breaking the law when they sue poor patients over unpaid bills and issued a stern warning to one Missouri hospital that he hopes reverberates nationwide.

Citing a ProPublica and NPR report, Grassley, R-Iowa, sent a letter Friday to Heartland Regional Medical Center, a nonprofit hospital in St. Joseph, Missouri, that has seized the wages of thousands of lower income workers who were unable to pay their medical bills.

Under federal law, tax-exempt hospitals are supposed to provide care to those who can't afford it, but the requirements are fairly vague. Even so, Grassley said the hospital, which recently rebranded as Mosaic Life Care, had, at a minimum, stretched the law to the breaking point. In his letter to Mosaic's CEO, Grassley wrote that the hospital "may not be meeting the requirements to be a nonprofit, tax exempt hospital." He also asked a battery of questions about the hospital's treatment of lower-income patients, its debt collection practices, and how it administers financial assistance.

"Reports detail a number of instances where Mosaic failed to identify patients who would qualify for financial assistance and who have since been subject to abusive billing and collection practices," Grassley wrote. "The practices appear to be extremely punitive and unfair to both low income patients and taxpayers who subsidize charitable hospitals' tax breaks."

As ProPublica and NPR reported, the hospital has its own for-profit debt collection subsidiary, Northwest Financial Services, which files thousands of lawsuits each year. From 2009 through 2013, the company garnished the pay of about 6,000 people and seized at least $12 million.

In response to the story, the hospital announced a review of its debt collection practices. Tama Wagner, chief brand officer for Mosaic, said the hospital expected that new recommendations would be presented to the hospital's board next month. "Our goal is to do the right thing," she said.

In an interview, Grassley said the issue of nonprofit hospitals dodging their charitable responsibilities is not a new one. About a decade ago, as the chair of the finance committee, he launched an investigation into just what these hospitals were doing to warrant their valuable tax exemptions.

Grassley, now chair of the judiciary committee, said he was "astounded" that, years later, some hospitals continued to aggressively pursue the debts of poor patients who should have qualified for financial assistance. He'd hoped that Congressional focus on the issue would have persuaded hospitals to fulfill their mandate, he said, but "some hospitals, you hit them over the head with a two-by-four, and they still don't get the message."

The 2010 Affordable Care Act contains a provision, co-authored by Grassley, which requires hospitals to make "reasonable efforts" to determine whether patients qualify for financial assistance before taking an aggressive step like filing a lawsuit. It didn't appear that Mosaic had made such efforts, said Grassley. As ProPublica and NPR reported, the hospital said it had publicized its financial assistance policy in a number of ways. But Mosaic put the onus on patients to actively seek assistance and said those that didn't, and had their wages garnished as a result, were truly at fault.

Mosaic Life Care has its own for-profit debt collection subsidiary, which files thousands of lawsuits each year. (Steve Hebert for ProPublica)

"It seems like Mosaic turned [the law] on its head," said Grassley. The primary responsibility for identifying patients who need assistance lies with the hospitals, he said.

The IRS recently issued new rules for nonprofit hospitals. They provide more specific guidance on what steps hospitals must take, at a minimum, to evaluate patients for financial assistance. But like all laws and rules governing nonprofit hospitals, they provide hospitals wide latitude in how to interpret the law.

Grassley acknowledged this, but said he hoped his focus on Mosaic's debt collection practices would remind other hospitals of "their humanitarian responsibilities" and "the responsibilities they have as a nonprofit."

If they don't change their behavior voluntarily, Grassley said, their responsibilities may have to be spelled out in law.

"If they don't get the message now," he said, "we'll have to work towards getting the ideal language in the legislation."