Memphis' Methodist dropped thousands of patient lawsuits and doubled its free-care cutoff

Between 2014 and 2018, Methodist Le Bonheur Healthcare, Memphis' largest health system and a nonprofit, sued more than 8,300 patients over unpaid bills, many of them low-income. After winning judgments it tried to garnish their paychecks, sometimes even when the defendant was a Methodist employee, according to a June 2019 investigation by MLK50 and ProPublica.

Figures the hospital later gave Sen. Chuck Grassley showed it had collected just over $169 million since 2014 from more than 977,000 patients with bills at least 30 days past due, yet only 1% of them received financial assistance during collections.

After the reporting Methodist changed course. It dropped thousands of lawsuits and has filed only two new ones for unpaid bills since July 2019, erased at least $11.9 million owed by more than 5,300 defendants, and announced it would no longer sue its own employees. Households under 250% of the federal poverty guidelines, just over $64,300 for a family of four, now qualify for a 100% write-off of bills, up from 125%, and Methodist will not sue anyone below that line regardless of insurance status.

In December 2020 Grassley wrote that the hospitals' responses showed the tax-code rules for tax-exempt hospitals, Section 501(r), needed strengthening, not softening, since bad press leading to better behavior was an unsustainable way to tell nonprofit hospitals from for-profit ones. Methodist's documents showed about $96.4 million, or 42%, of its $228 million net community benefit in 2018 was discounted or free care for indigent patients.

Thousands of suits dropped (two new ones since July 2019); at least $11.9M owed by 5,300+ defendants erased; free-care cutoff raised from 125% to 250% of poverty.

Collections ran on volume: workers at the now-shuttered collection agency earned a 10.75% commission on amounts collected over $30,000 a month, and only 1% of patients in collections got help.

Under the old cutoff of 125% of the poverty guidelines, patients between 125% and 250% did not qualify for a full write-off, even as the hospital sued them.

Methodist said it used third-party data aggregators to check income before suing, yet low-income patients, such as a grocery clerk earning $13,800, were still sued and their debts grew.

The change was driven from outside: it came in response to the MLK50–ProPublica articles and Grassley's inquiry.

A collections machine built on volume and commissions can be reversed in months once it is exposed, but the reform came from reporting and a senator's inquiry, not an internal audit.

As of December 2020 Methodist had not responded to requests for comment on the new figures. Its CEO told Grassley that providing care regardless of ability to pay is essential to its heritage. In the pandemic, Methodist said elective cutbacks cut patients treated by more than 40% and left it $28 million short of state and federal aid, leading to furloughs and reduced paid time off.