SPOKANE — Thousands of former patients at Deaconess and Valley hospitals will have medical debts erased as part of a major legal settlement with a struggling for-profit hospital chain.
Tennessee-based Community Health Systems will forgive as much as $50 million in debt for people who received treatment at the Spokane-area hospitals from Nov. 1, 2008, to June 30, 2017, when the company owned the facilities.
The settlement comes more than two years after the Empire Health Foundation sued CHS, alleging the company failed to provide levels of charity care — free or discounted treatment for low-income patients — that it had promised when buying the hospitals. The foundation formed when the former Empire Health Services sold the hospitals to CHS in 2008.
“It’s been a really tough legal battle, but we always did it because it was the right thing to do for this community,” said Jeffrey Bell, Empire’s interim president.
CHS also agreed to pay $2 million for Empire’s legal expenses, plus $20 million that the Spokane-based foundation will use to create a political lobbying arm, the Empire Health Community Advocacy Fund.
The settlement is expected to affect between 5,000 and 15,000 people who could not afford their health care or lacked insurance. CHS said it was working to determine the precise number as some patients made multiple visits to the hospitals during the 10-year period.
Richard Spoonemore, an attorney for Empire, said some former patients will see debt burdens in the thousands of dollars wiped from their credit reports.
The debt relief is automatic. Those affected should receive notices in the mail by Nov. 30 and will not need to take any action to discharge their debts. Former patients who receive letters can call (844) 787-8822 for a free legal consultation provided by the Northwest Justice Project.
At least $23.5 million of the debt being forgiven is less than six years old, meaning that before the settlement, CHS could still try to collect it under Washington’s statute of limitations.
CHS did not admit liability in the settlement agreement. But in July, U.S. District Court Judge Salvador Mendoza Jr. issued a ruling in Empire’s favor, concluding that CHS had breached its purchasing contract and violated Washington’s Charity Care Act.
Mendoza specifically criticized the company’s policy of asking poor patients to pay deposits before determining whether they were eligible for charity care.
“CHS’s upfront requests for deposits not only constituted a breach of contract and a violation of statutory and regulatory law, it was also unreasonable per se,” Mendoza wrote.
Spoonemore, the Empire attorney, said that legal victory prompted CHS to improve its offer during settlement negotiations.
CHS, which has struggled financially for years, continues to dispute the allegations. But Rebecca Ayer, the company’s vice president of corporate communications, said in an email, “We are pleased to have the burden and expense of this litigation behind us.”
Deaconess and Valley are now owned by MultiCare Health System, a Tacoma-based nonprofit that was not involved in the litigation.
CHS was once the nation’s largest publicly traded hospital company, operating more than 200 hospitals scattered in rural and suburban communities with growing populations.
The company shook Spokane’s health care establishment in 2008, when it purchased Deaconess and Valley for $156 million, and two years later when it bought the Rockwood Clinic for $50 million.
The two hospitals had struggled financially under the ownership of Empire Health Services, Spokane’s century-old nonprofit health system.
As part of the hospital deal, CHS agreed to pour millions of dollars into facility improvements. But the final step in securing regulatory approval was a promise to provide increased levels of charity care.
When the state Department of Health granted a so-called certificate of need, giving CHS permission to do business in Spokane, it required the company to provide charity care equal to 3.35 percent of adjusted revenues. That was the regional average, according to statistics compiled by state health officials.
The Empire Health Foundation contends the sale contract required CHS to meet or exceed that benchmark. And since the foundation filled the shoes of the organization that sold the hospitals, then-President Antony Chiang and board members said they felt obligated to hold CHS accountable.