Allina Hospitals and Clinics said Tuesday it will refund at least $1.1 million to patients who were charged high interest rates on medical debt.
Under terms of a settlement with Minnesota Attorney General Lori Swanson, Allina will reimburse patients who paid more than 8 percent annual interest on medical debt between Jan. 22, 2007, and Jan. 31, 2009.
Thousands of patients might be up for reimbursement, at a time when rising medical debt is crimping patients and hospitals.
Allina, a nonprofit, did get a reprieve of sorts. The refunds apply to existing balances. However, if a patient's refund is bigger than the balance, Allina will hold the difference in the credit accounts and apply it to future medical charges. If a patient doesn't use that up after 24 months, he or she will get the money back.
"I realize that hospitals are facing their own financial pressures as a result of the bad economy and lack of adequate insurance coverage for patients," Swanson said Tuesday. "I commend Allina and its president, Ken Paulus, for constructively resolving a problem in a way that helps patients."
Dispute over rates
Swanson sued Allina in January, alleging unlawfully high interest rates charged by its for-profit MedCredit Financial Services unit. The Twin Cities' biggest hospital and clinic chain charged patients interest rates as high as 18 percent on medical debt, even though, Swanson asserted, state law caps rates on such debt at 8 percent.
Swanson wanted Allina to drop its interest rates and make refunds to patients. She also said she was pursuing civil penalties of up to $25,000 per violation.
Allina maintained its interest rates were legal. But at the time, it said it had already decided to cap the interest rate on all current and future MedCredit accounts at 8 percent.
Tuesday's settlement fell somewhere in between.
Both sides acknowledged tough economic times and rising unemployment were affecting patient and hospital finances.
"More and more people are without insurance, and those who are insured have to pay an increasing share of their health care costs from their own pockets," Paulus said.
Out of pocket
MedCredit, around since 1988, has about 8,000 open accounts with an outstanding total balance of $11 million.
Since she filed the lawsuit, Swanson said, she has heard from patients from two clinic groups who said they were charged interest rates above 8 percent. The clinics "backed off after we brought it to their attention," she said.
So far, no other hospitals have crossed her radar, she said.
Insurance once paid all but a small portion of hospital bills, but that has changed with rising copays and coinsurance and the popularity of new, high-deductible policies.
Enrollment in high-deductible plans has soared in recent years as patients and employers traded higher risk for lower premiums.
Like other metro hospitals, Allina has struggled with rising unpaid bills. Last year, Allina provided $90.8 million in free care, up 56 percent from a year earlier. Almost 80 percent of patients who got some free care also had insurance coverage.
All patients eligible for a refund under the settlement will receive a letter within 60 days from Allina.
Chen May Yee • 612-673-7434