Lawyers Attack Charity Hospitals: Labs Beware!

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HOSPITAL-BASED LABORATORIES FACE A NEW THREAT—from an unexpected source! On June 17, 2004, a group of lawyers filed federal class action suits against 11 health systems or hospitals in eight states. These lawyers claim the hospitals named are in violation of their charitable or not-for-profit charters because they overcharge uninsured patients and use extreme collection tactics against poor patients.

Lead attorney in the group is Richard Scruggs. That’s bad news for the hospital industry. He is the Mississippi attorney credited with engineering the tobacco industry settlement of 1998. In that case, the major tobacco companies agreed to pay $206 billion over 25 years. This money would compensate the money spent by 46 states to treat Medicaid patients for cigarette-related illnesses. I would like to point out that the settlement calls for 300 lawyers from 86 firms to pocket as much as $30 billion during the 25-year pay-out period. Scruggs’ law firm, in Pascagoula, Mississippi, will receive $1.4 billion!

Now you know why I think this class action suit against charity hospitals is a threat. These lawyers have an incredibly rich war chest. They can afford to go fish for another whale. That describes the hospital industry. Remember the numbers: healthcare spending represents about 14% of our economy, estimated at about $1.4 trillion last year. The nation’s 5,000 hospitals account for about half of that spending, or $700 billion.

So it should be no mystery why Scruggs and his cronies now want to target the nation’s hospital industry. A successful class action suit has the potential to generate, with no exaggeration, billions of dollars in lawyers’ fees. Most pathologists would agree that aggressive lawyers have destroyed medical malpractice insurance as a viable method of compensating legitimately injured patients and protecting the physicians who treated them in good faith.

It now appears that Scruggs and his gang want to shake down the hospital industry. I believe this will impact hospital laboratories in two ways. First, it will require hospitals named in the lawsuit to divert management time and money into their legal defense. That will squeeze the budgets for clinical services, like laboratories. Second, if these lawyers can win this case, the amount of money hospitals will be forced to pay will definitely squeeze all services. It’s another potential blow to the long-term financial stability of hospital-based laboratories.

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