Exactly three years ago (2/23/2012), NL Insider published a blog titled “Collecting Medical Debt — How Aggressive Should You Be?” That blog continues to get hits every week, totaling over 1,800 in all. Our readers’ continued interest in the subject has prompted us to report on some new developments in Medical Debt Collection and how these changes could affect your actions in the future.
Top Source of Consumer Complaints
In the past, several states have passed laws curbing hospitals’ pursuit of unpaid bills, including NY, IL, CA, & MN. Hospitals are not legally barred from seeking judgments or liens, but must first offer an aid application, help the patient complete it, and not act while it is pending. Instead, many hospitals turn to collection agencies, and sue when that fails. Medical debt collection practices have long been a source of frustration for many consumers and they continue to be a top source of consumer complaints to the Consumer Bureau and to the Federal Trade Commission. Many of those complaints center around medical debt that shows up on credit reports, sometimes erroneously.
CFPB Field Hearing
On December 11, 2014, the CFPB conducted a field hearing in Oklahoma City on medical debt collection practices and the relationship between them and consumer credit reporting in general. Author Rozanne Andersen , J.D., recently published a blog in which she called the results of the hearing “The healthcare collections crystal ball that no one’s looking at.” She sees the results of the hearing as a warning. “[CFPB Director Richard] Cordray’s prepared remarks should be a wakeup call to any medical debt collection agency owner.” She and the staff at NL encourage you to study carefully what Cordray said.
Some statistics from the study, reported by Cordray, might surprise you:
- One in five consumers with a credit report has a medical collections item on their report
- About half of the overall debt collection “black marks” in credit reports are from medical bills.
- Fifteen million consumers’ medical debt collections are the only items on their credit reports, and many of them have no other seriously delinquent accounts.
A panelist at the hearing, Mark Rukavina, sympathetically noted one way health care costs are unique: “Sometimes people are actually unconscious when they incur these bills.” Medical debt is different from other forms of debt, because it is usually incurred accidentally or faultlessly. People do not plan to get sick or hurt themselves, and medical bills are often unavoidable. Medical debt is often treated with more sympathy than other kinds of debt, resulting in advice to patients that they should not try to convert it to credit card debt, which will not be treated so sympathetically.
Cordray said, “Interestingly, most medical debts that end up on a consumer’s credit profile are for small amounts. The average is $579 and the median is $207. By contrast, products like credit cards or student loans that become delinquent or are subject to debt collection efforts are usually for several thousand dollars apiece.”
Major New Development in Credit Reporting
A major new development was revealed by Cordray at the hearing. “As part of [the CFPB’s] ongoing efforts to improve the credit reporting system…we will now require the largest credit reporting companies to provide us with regular, standardized accuracy reports as part of our ongoing examinations about key risk areas for consumers….Most notably, these reports will specify the number of times consumers dispute information on their credit reports during that period. It will also list furnishers with the most disputes, industries with the most disputes, and furnishers with particularly high dispute rates relative to their peers. We will also see how those disputes get resolved.”
As a result of these new requirements, Andersen warns, in part, that those in medical debt collection would be wise to:
- Learn more about the CFPB’s view of medical debt collections and the risks it poses to consumers.
- Be aware of the IRS’s 501(r) requirements for nonprofit, tax exempt hospitals and the final rules that are now available.
- If you report medical debt, register with the credit reporting agencies as a medical debt data furnisher. Reconcile direct payments to the medical providers on whose behalf you collect debt on a daily basis.
- Revisit your dispute investigation work flow. It is the highest area of risk when it comes to credit reporting.
- Don’t allow collectors to barter removal of a medical debt from a credit report in exchange for payment.
Are you among those collecting medical debt who are making an effort to avoid being caught in an excessive number of credit reporting errors? Cordray concludes his remarks optimistically. “We are pleased to see the recent efforts that some in the industry are making to differentiate medical debt from non-medical collections when generating consumer credit scores. Consistent with the research we have made public, this improves the true predictive quality of credit scores…. As for medical debt, in particular, the basic principle is that getting medical care should not make your credit report sick.”