Alexis Lewis was a 22-year-old trying to do everything correctly.
She was enrolled in a local community college in Knoxville, Tennessee, with the goal of becoming a nurse while working two jobs and earning just enough to get by.
“I was taking care of myself at the time,” she told me.
But, like thousands of Americans each year, Lewis’ path was derailed by a single visit to the emergency room.
“I would have panic attacks and pretty much have to go to the emergency room,” Lewis told me. “And at the time, I didn’t have insurance.”
Lewis said she was pleased with the medical care she received at east Tennessee’s largest nonprofit hospital in 2018, but the $6,500 bill devastated her finances.
“I’m still behind on everything, trying to catch up,” said Lewis, who is now a licensed practical nurse.
Lewis’ story isn’t unique.
Although America’s approximately 3,000 nonprofit hospitals are required by law to provide free or reduced-cost medical care to those who cannot afford it, a CBS News investigation discovered that hundreds of these hospitals continue to bill the lowest-income Americans.
According to Johns Hopkins University researchers, hospitals receive an estimated $37 billion in annual state, federal, and local tax breaks in exchange for caring for the poor.
However, a CBS analysis of IRS tax data revealed that over 400 nonprofit hospitals attempted to collect more than $800 million per year from patients who would otherwise qualify for charity care.
The practice of hospitals receiving massive tax breaks and then billing patients who should have received free care “is not something that really should be allowed,” said Vikas Saini, president of the Lown Institute, a think tank that studies the nonprofit hospital industry.
“For nonprofits, it really should not be about maximizing the bottom line,” he told me.
Most hospitals do not choose to bill low-income patients. According to CBS’ analysis, the majority of nonprofit hospitals do not bill low-income patients who are eligible for charity care. They claim to want to treat all patients without jeopardizing their finances.
The American Hospital Association told CBS News that hospitals and health systems “take seriously their responsibility to provide care for everyone, regardless of ability to pay,” and that inadequate health insurance coverage is the true driver of medical debt.
“Too many patients either do not have adequate coverage or their coverage imposes cost-sharing requirements that they cannot afford to pay,” the Alzheimer’s Association stated. “Hospitals continue working to close this insurance gap, but can never completely close that gap while also covering the high costs associated with maintaining around-the-clock, high-quality hospital care.”
However, in a medical system that can be difficult to navigate even in the best of circumstances, the 26 million Americans without health insurance face financial ruin from a single treatment.
Healthcare debt is the leading cause of bankruptcy in the United States, affecting an estimated 41% of all adults.
A growing debt
On a cold autumn morning in late 2024, the Knox County General Sessions Court was packed to capacity.
Among the attendees were defendants in civil cases, many of which were filed by a debt collection agency on behalf of the University of Tennessee Medical Center. Judge Patricia Long worked quickly through the docket.
“If you breach the payment arrangement, then [the debt collector] can do things like get money out of a bank account or garnish wages,” Long told the team.
It was the same court where Lewis had been summoned months before to deal with the financial consequences of her 2018 emergency room visit at the University of Tennessee Medical Center. Lewis claimed she did not have insurance at the time.
According to federal law, every nonprofit hospital must have a policy in place to determine which patients are eligible for free or reduced-cost care. These policies must be prominently displayed in physical spaces where patients enter, as well as online. The hospital bill should also include information about charitable care. CBS News confirmed that UTMC meets each of these requirements.
However, hospitals are not required to verbally communicate the policy to patients or ensure that those receiving care understand their eligibility for assistance.
Federal law also does not specify what those policies should say. There is almost no penalty for hospitals that fail to follow their own policies.
Lewis, a 22-year-old student at the time of her treatment, claims no one informed her about financial assistance, despite the fact that her income was significantly lower than UTMC’s financial assistance threshold.
The hospital said it gave Lewis a 55% uninsured self-pay discount on her original bill. State law requires providers to offer discounts to uninsured patients.
According to court records, UTMC prepared an affidavit in December 2018 claiming that Lewis owed $3,457 for medical treatment. “This communication comes from a debt collector,” the document states.
“I don’t have the money. But they can come get me, I guess…I just know I don’t have the money.”
Lewis received a civil warrant in July 2019 to appear in Knox County General Sessions Court. She was working for Target at the time.
According to court records, Lewis and UTMC reached an agreement in which she would pay $20 per month on the $3,457 debt, plus 7.5% interest, beginning in October 2019.
According to the terms of the agreement, Lewis would have been in debt to UTMC for the rest of his life. According to CBS News calculations, $20 monthly payments will never pay off a $3,457 debt with 7.5% interest because the amount of accrued interest added to the debt each month exceeds the monthly payment.
As a result, the amount of debt she was paying increased.
By 2022, the balance had risen to $4,524, and she had fallen behind. Working with a debt collection firm, the hospital filed a court order to forcibly deduct payments from Lewis’ paycheck from a nurse staffing company in the Knoxville area.
Lewis owed UTMC nearly $5,000 in July 2024. She claimed her wages were garnished for approximately $2,200 over two months. In September, Lewis agreed to a $150 monthly payment plan.
“I don’t have the money,” explained Lewis, who is now a mother of two. “But they can come for me, I suppose… I just know I don’t have any money.”
A UTMC spokesperson stated that the hospital made multiple phone and mail outreach attempts to Lewis to discuss payment arrangements for patient-responsible balances before transferring her account to a third-party vendor for payment remediation.
According to a statement, UTMC takes several steps to proactively identify and support patients who may be eligible for financial assistance.
“We also recognize that medical expenses can be challenging and complex, especially in situations where severe or specialty needs are being treated,” the university’s hospital said. “Each patient’s situation is unique, and there are numerous factors that can lead to financial assistance gaps, such as incomplete applications, missing documentation, or missed communications. We work with patients to address these issues to the best of our ability, and we plan to provide more than $190 million in financial assistance discounts by 2023.”
According to the hospital’s tax returns, since 2020, it has attempted to collect more than $6 million, including $1.4 million in 2023, from patients who were known to be eligible for charity assistance.
‘No transparency’
For decades, efforts have been made to compel nonprofit hospitals to be more transparent about their community benefits, which include free and discounted care for those in need.
When the Affordable Care Act was signed into law in 2010, it imposed new federal tax requirements on nonprofit hospitals.
The ACA requires hospitals to provide a community benefit plan that includes a policy to provide free charity care to those who cannot afford it.
However, the ACA’s requirements did not specify exactly what those policies must say, and it provided little enforcement or oversight. What the ACA did require was a new effort to collect data on nonprofit hospitals’ financial practices for low-income patients, also known as charity care.
As part of the updated IRS nonprofit tax return form, hospitals must report “bad debt” incurred by patients who would have been eligible for free or reduced-cost care but did not receive it for whatever reason. In such cases, hospitals try to collect money from low-income patients and then write it off as “bad debt” if they fail.
“It is immoral to sue patients who cannot afford their bills as a tax-exempt hospital.”
Keith Hearle, a healthcare finance consultant hired by the IRS to assist with the implementation of the ACA’s tax provisions, was in the room for preliminary discussions about the new tax return forms.
The ACA reforms increased public disclosure, he said, but did not go far enough in requiring nonprofit hospitals to explain their charitable care spending.
“More transparency is better than less transparency,” according to Hearle. “The hospitals shouldn’t be embarrassed about shedding light on these policies and how they’re carried out,” the doctor said.
However, experts believe the IRS should be doing more with the newly reported information.
Although the IRS reviews hospitals’ tax-exempt status every three years, the Government Accountability Office found in a 2023 report that the agency “had not revoked a hospital’s tax-exempt status for failing to provide sufficient community benefits in the previous 10 years.”
Jessica Lucas-Judy, the GAO’s Director of Strategic Issues and the report’s author, stated that nonprofit hospitals’ tax returns, as well as the IRS’ oversight of them, need to be improved.
“We found 30 in one year that reported no spending at all on community benefits,” according to Lucas-Judy. “That does not imply that the hospitals were not providing community benefits. It’s just that there was no openness.
When nonprofit hospitals seek payment from low-income patients, they are generally acting within their rights and are not in violation of federal law.
However, there are moral and ethical reasons why hospitals should not pursue people in court for medical debts they cannot pay, according to Eli Rushbanks, general counsel and policy advocacy director at Dollar For, an advocacy group that assists patients in determining whether they are eligible for help.
“It is immoral to sue patients who cannot afford their bills as a tax-exempt hospital,” Rushbanks pointed out.
“These are by definition low and middle income patients who received a bill that they couldn’t pay, which is unlike almost any other type of bill,” the doctor said. “A medical bill does not resemble a credit card bill. This is almost never something you chose voluntarily or knowingly, and it is almost always something that happened to you.”
Nonprofit hospital debt is one component of a national health financial system that advocates believe is in desperate need of reform. Early this month, the nonprofit Undue Medical Debt announced that it had reached a private agreement to buy $30 billion in medical debt from an estimated 20 million people and wipe it away. However, the group claimed that its move is merely a band-aid for a broken system.
“This agreement demonstrates that the way we finance healthcare in the United States is fundamentally broken,” Undue Medical Debt president and CEO Allison Sesso said in a statement.
‘Abusive collection practices’
Across the country, federal and state lawmakers have spent decades working to reform the nonprofit hospital system. Change has been slow.
Some states require hospitals to use software to determine whether a patient is eligible for free or reduced-cost care, which reduces the burden on patients to fill out paperwork proving their need. This method of screening patients is known as “presumptive eligibility.”
In Oregon, state law requires financial screening of all patients with bills greater than $500 to determine their eligibility for assistance. One year after Oregon’s law went into effect, charity care eligibility rates at Oregon Health & Science University Hospital in Portland increased dramatically, from 12% to 64 percent.
“Making use of presumptive eligibility software at the point of care standard practice could limit the toll of medical debt on low-income patients,” researchers wrote in a 2024 article in Inquiry: The Journal of Health Care.
However, such drastic changes have been rare, and patients at many nonprofit hospitals continue to face a complex paperwork maze.
Hearle, a healthcare consultant who assisted the IRS in developing new rules following the passage of the Affordable Care Act, stated that patients eligible for charity care often fall through the cracks for a variety of reasons.
“One end of the spectrum, patients aren’t being told about financial assistance, that charity care is available,” Hearle pointed out. “On the other hand, some patients simply refuse to apply. This is like saying, ‘I don’t want to, I don’t want to apply for charity, even though I’m technically eligible.'” Other patients on the spectrum, he added, are perplexed or intimidated by the paperwork required to apply.
In a 2023 survey conducted by Dollar For, a Washington-based advocacy group, more than half of charity-care eligible patients reported receiving no information about financial assistance from their hospital. Less than half reported applying for free or reduced-cost care.
“These are patients who, by and large…cannot afford the bill that they’ve been given,” Rushbanks told reporters. “They were pleased with their treatment. Sometimes it was life-saving. They want to pay the hospital or their doctor as much as they can, but they can’t.
A steady drumbeat of media coverage has revealed hospitals aggressively suing patients in Missouri, Virginia, and elsewhere, with the reports frequently followed by reforms by the hospitals themselves.
“They call themselves nonprofits, but they’re profiting off sick people who don’t realize they could be getting help.”
The IRS announced in 2024 that it would audit 35 nonprofit hospitals, a significant expansion of previous efforts. However, many policymakers believe that review is insufficiently comprehensive.
In a bipartisan effort last November, Sens. Elizabeth Warren, D-Mass., and Chuck Grassley, R-Iowa, sent a joint letter to the IRS urging them to crack down on nonprofit hospitals that do not meet their mandate.
Some nonprofit hospitals receive tax breaks while “shirking their responsibility to provide charity care and engaging in abusive collections practices that harm their patients and communities,” according to Grassley and Warren.
The senators asked the IRS to clarify standards for nonprofit hospitals’ financial assistance policies and practices.
“A standardized approach would facilitate consistent protection for patients and transparency in the hospital billing and collections process,” Grassley and Warren stated, in addition to “ensuring that patients who qualify for financial assistance under existing hospital policies receive it.”
Nothing has changed since the senators wrote their letter. Meanwhile, lawmakers are making progress in enacting charity care policies state by state. In New York, Governor Hochul signed legislation prohibiting hospitals from reporting medical debt to credit agencies. California now requires hospitals to provide charity care to eligible patients and reimburse those who have been incorrectly billed. Texas lawmakers introduced a bill earlier this year that would prohibit hospitals from pursuing debt collection until they confirm that a patient is ineligible for charity care.
For patients like Lewis, who is now a nurse in the Knoxville area, those reforms have not come soon enough. According to UTMC, she is up to date on her payments.
Nonprofits, in her opinion, are failing to meet their obligations.
“They call themselves nonprofits, but they’re profiting off sick people who don’t realize they could be getting help,” she told me.