“It needs oversight”: South Carolina law allows hospitals to garnish paychecks and tax refunds to collect medical debt

CHESTER, S.C. (WBTV) - Hundreds of millions of dollars have been taken from South Carolinians paychecks and tax refunds by hospitals collecting on unpaid medical bills but a WBTV Investigation shows only a fraction of patients are filing a protest against one of the most invasive activities allowed by state law.

The findings of the WBTV Investigation raise more questions about whether healthcare facilities are complying with state law to notify patients of garnishments and their right to protest and whether more oversight is needed for the program.

Previous reporting from WBTV revealed more than $390 million was garnished by hospitals, medical facilities and drug rehabilitation centers from 2018-2021.

Jim Mayhugh was one of those patients and reached out to the WBTV Investigates Team for help.

“I got a bill for roughly $8000 saying they were going to send me the collection,” Mayhugh said.

Mayhugh had an unpaid bill from Atrium because of a mix-up between the hospital and his insurance. He paid the bill but he still received a letter from Atrium apologizing that his South Carolina income tax refund might be garnished anyway.

That’s exactly what happened.

“I got a letter from the State of South Carolina saying we sent all your money to Atrium Health,” Mayhugh said.

In its letter, Atrium provided Mayhugh with a phone number to call to get refunded. He said he called numerous times but no one at Atrium ever picked up the phone.

Atrium eventually reimbursed Mayhugh for his garnished tax refund after WBTV started asking questions, but the journey Mayhugh took to get his money back is completely divergent from how the law is supposed to work for patients and debtors.

Fred Pfeil is an attorney with South Carolina Legal Services and focuses on clients with federal tax issues. He told WBTV tax garnishments from hospitals seems to come up again and again.

“It is insane to think that much South Carolina money is going towards debt,” Pfeil said.

South Carolina has two programs that allow hospitals and government agencies to garnish money from residents. ‘Setoff’ allows agencies to garnish tax refunds. ‘GEAR’ gets them access to garnish people’s wages and even file tax liens.

The South Carolina Department of Revenue and South Carolina state law requires hospitals using Setoff to send debtors a specific form notifying them of their ability to file a protest against the tax garnishment. Mayhugh said he never received that form.

“I should have gotten a notice that there was something wrong in the system long before they went after the money,” Mayhugh said.

Pfeil said many of his clients aren’t receiving the proper notification either.

“They never receive any type of letter from the agency that is claiming that they have a debt and then, all of a sudden, they have a tax refund and then it’s gone,” Pfeil said.

“Our clients are low income, so they really are banking on that.”

New data obtained by WBTV from SCDOR reveals how few people protest medical debt garnishments and raises more questions about the legally required notifications.

Since 2020 there have only been 14 protest hearings filed by people who had their tax refunds garnished through the Setoff program. More than $140 million has been garnished through the program over that same time.

Beaufort Memorial is one of the only hospitals in the state to utilize the GEAR program, which allows the hospital to garnish peoples’ wages. There have been 252 protests filed against those garnishments and 66 of the hearings found there was no amount owed by the debtor.

“I was appalled at how many people actually won and there was no debt associated with it,” Pfeil said.

“I would imagine there are others, and why are those people not appealing? Because they’re likely not getting the notices to appeal.”

Hospitals submit unpaid bills for garnishments to the South Carolina Department of Revenue. Most hospital systems actually contract with the South Carolina Association of Counties to submit the debts on their behalf.

SCAC receives fees from the hospitals for submitting the debt and SCDOR receives a fee for collecting it.

“It appears that there’s only one side being heard here and the other side seems to be thrown away or not given their due process,” Pfeil said.

WBTV reached out to SCDOR about their oversight of the Setoff and GEAR programs.

A spokesperson noted their oversight is limited to what’s allowed in state law, which includes enrolling eligible agencies and collecting and adjusting debts.

“Any additional oversight would be determined by the South Carolina General Assembly,” the spokesperson wrote.

The General Assembly last updated the Setoff Debt Collection Act in 2003.

“I just feel that someone needs to take responsibility for this and right now, it doesn’t seem that there is any oversight,” Pfeil said.

If you have had your paycheck or tax refund garnished for an unpaid medical bill the WBTV Investigates Team wants to hear from you. You can email David at investigates@wbtv.com.

Copyright 2022 WBTV. All rights reserved.