CHICAGO - Minneapolis-based Allina Hospitals and Clinics expressed surprise late last week at the Minnesota attorney general's decision to file a lawsuit against the system over the credit-card like interest rates it charges on medical debts, saying it had already decided to lower those rates.

Attorney General Lori Swanson filed the lawsuit in Hennepin County District Court, alleging that the health care system has violated state usury laws by levying an interest rate of up to 18% on the unpaid bills of patients. The state's usury law caps interest rates at 8% on such debts, according to the attorney general.

"Allina has dug a deeper financial hole for patients facing tough economic times by charging usurious interest rates of up to 18% on medical bills," Swanson said in a statement.

The complaint lists as defendants Allina and its subsidiary Accounts Receivable Services LLC, a debt collection company that does business as MedCredit Financial Services.

The lawsuit alleges that Allina has also violated the state's consumer fraud laws. The attorney general contends the system fails to fully disclose various credit terms, including the interest rate, offered if patients opt to pay their bills not covered by insurance through MedCredit.

Patients can also pay bills immediately or pay in three equal monthly installments to avoid dealing with the collection agency, which charges 18% on bills up to $4,999 and 12% on bills between $5,000 and $9,999. The lawsuit seeks to force Allina to abide by the state laws and seeks refunds for patients that have paid the high rates.

In a statement, Allina countered that it "had made the decision to reduce the interest rate on all current and future MedCredit accounts to 8%, regardless of the size of the balance. Allina communicated this to the attorney general in December of 2008." Allina called the allegations in the complaint "without merit" and argued that MedCredit complies with state law.

The move on the attorney general's part is the latest in a series of crackdowns hospitals across the country face in both their billing practices and charity care levels from local and state officials.

In nearby Illinois, hospitals agreed to compromise legislation that set new billing standards several years ago and they continue negotiations with Attorney General Lisa Madigan on charity care levels.

Also in Illinois, several hospitals are in ongoing litigation challenging the loss of their property tax exemptions because of charity care and billing practices.

Two Chicago-area systems, Advocate Health Care and Resurrection Health Care, earlier this month agreed to refunds and discounts for uninsured patients that were allegedly overcharged as part of a settlement of class action lawsuits against the two. Industry officials have warned that the crackdowns will further hurt hospitals already struggling in the current economy.

Allina, with 11 hospitals, is the largest health care system operating in Minnesota. The system carries ratings in the single-A category from all three rating agencies. The system previously had come under scrutiny from a former state attorney general who recommended a corporate restructuring in which the system split from Medica Health Plans following a critical audit alleging inappropriate spending practices.

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