Are Nonprofit Hospitals Betraying Their Mission?

Dec. 16, 2004 -- -- Charles Rehberg, a business manager at a small surgery clinic in Albany, Ga., was leaving the office one evening last August when he says he was suddenly confronted by two men.

They said they were ex-FBI agents who had been hired to investigate him, Rehberg said. He said they told Rehberg they wanted him to go with them, but didn't say where.

When he refused, Rehberg said one of them told him: "If you're not smart enough to do this for yourself, you should think about your wife, Wanda, and your lovely family."

Rehberg knew why they had come. He and another physician at the clinic, John Bagnato, had been investigating the finances of Phoebe Putney Memorial Hospital, a local nonprofit institution. Now the two men were there to investigate him on behalf of the hospital.

Nonprofit hospitals get a tax exemption for helping the community, but critics say some are instead engaging in "uncharitable practices." The probe Rehberg and Bagnato began would eventually open hundreds of other nonprofit hospitals across the country to scrutiny.

What they found was that at the same time as Phoebe charged uninsured patients -- often working poor -- full and extremely high prices for care received, and then used legal but aggressive collection practices to collect their debts, the hospital was sitting on millions of dollars of cash reserves and made tens of millions in profits.

The men alleged that Phoebe's actions were more common among nonprofit hospitals than most people think -- that the hospitals were taking advantage of the uninsured.

Phoebe is in many ways the crown jewel of the small city in which Rehberg and Bagnato live. It's widely recognized for its community service and its first-class care.

Bagnato is Phoebe's chief of surgery. Several months ago, he asked his office manager, Rehberg, to research a business plan for his practice. They discovered the hospital was flush with millions of dollars, and they say the hospital was often victimizing those people it was supposed to help.

Uninsured patients who entered Phoebe Putney would be called upon to sign a form guaranteeing payment in full when they left. And then when they couldn't pay, the hospital would pursue even the poorest patients with aggressive collection practices.