Health

Hospital Debt Collection Practices Require Urgent Reform

Medical debt is perhaps the largest financial burden facing Americans today. On March 1, 2022, the Consumer Financial Protection Bureau (CFPB) released a report finding $88 billion in medical debt on consumer credit records as of June 2021—an astounding figure the CFPB suggests is an underestimate. Medical debt accounted for the majority of third-party debt collections listed on credit reports, at 58 percent, followed by telecommunications debt at a mere 15 percent.

Individuals carrying medical debt are often subjected to a downward financial spiral including lawsuits, wage garnishment, home liens, and other aggressive debt collection practices. Medical debt collections included on credit reports can adversely impact an individual’s ability to rent a house, buy a car, and secure employment, and may determine patients from seeking health care while leading to adverse consequences for physical and mental health. Each year, hospitals around the country sue tens, if not hundreds, of thousands of patients to collect medical debt. Most of these collection practices are legal under current federal and state regulatory frameworks. However, some rare enforcement actions, such as the state of Washington’s recent lawsuit against Providence Health and Services, allege sweeping violations of consumer protection statutes. And, as both the CFPB report and a recent Health Affairs study concerningly demonstrate, medical debt collection disproportionately harms people of color and lower-income individuals.

Despite the increasing burden of medical debt and rising number of debt collection lawsuits by hospitals, a commensurate amount of data and empirical study is lacking, and legislative reform proposals are relatively rare. Improved data collection and transparency is necessary to better understand medical debt litigation and to inform urgent legislative reform. It is currently difficult to delineate necessary and/or appropriate debt collection from abusive practices. This makes it challenging to prohibit collections for certain types of care, classes of patients, or by certain hospitals, for example. To make targeted reform possible, a broad understanding of the number and types of lawsuits filed across the United States, variation in hospital ownership/finances, types of care resulting in debt, demographics of individuals sued, and qualitative debt collection practices is essential. Once such data are available, they should be used to inform urgent state and federal legislative reforms to eradicate abusive debt collection practices and reduce the burden of medical debt in the United States.

Data Transparency Is Necessary To Better Understand Medical Debt Litigation

Tracking medical debt litigation on a large scale is at best arduous and at worst impossible. To date, there have been no robust, nationwide empirical studies of hospital lawsuits. Media outlets account for a large share of coverage of the issue, calling attention to disproportionate impacts on communities of color and frequent lawsuits during the height of the COVID-19 pandemic. Such reporting is mostly limited to a single state or set of hospitals and tends to be confined to well-resourced media outlets and states with easily accessible court records. Unfortunately, future regulatory and health policy efforts to reduce financial toxicity require more comprehensive data and analysis to ensure reforms are correctly targeted to the areas of greatest need.

Although consumer debt lawsuit information is generally publicly available (that is, not confidential), only a small minority of states maintain online court dockets. Of those that do, only a handful are useable for research purposes. In the absence of accessible electronic dockets, one of the only alternatives is a manual search of thousands of physical court records, which is precisely what the Mississippi Center for Investigative Reporting did over a period of two months for its recent study of medical debt lawsuits. The Center noted that another recent, large-scale study performed using New York State’s electronic docket would be impossible to replicate in Mississippi, which has over three times the number of residents with medical debt in collections, despite the need for policy reform. As a further example, West Virginia has no electronic civil docket, despite having the highest percentage of individuals with medical debt on the CFPB’s Consumer Credit Panel. As such, analyzes of medical debt litigation may overlook those states with the most need for legislative reform and underreport the extent of the issue.

Unsurprisingly, most academic studies of medical debt lawsuits are confined to the small number of states with accessible electronic court dockets, including those in Wisconsin and New York referenced above. Other recent studies have used the electronic dockets of Missouri, Marylandand Virginia. These works illuminate the immense scale of the issue and would be prohibitively difficult to conduct without electronically searchable data. Virginia study identified 20,000 warrant-in-debt lawsuits and 9,200 garnishment cases involving medical debt in 2017 alone. In New York, hospitals sued 4,000 patients in just 10 months, during the height of the COVID-19 pandemic. Highlighting the potential impact of this work, a follow-on study of the initial Virginia paper found that, in the year after publication, hospitals filed 59 percent fewer lawsuits, and 11 banned the practice altogether. In 2021, the University of Virginia Health System canceled tens of thousands of outstanding debt collection lawsuits, and VCU Health, its sister system, promised to stop suing patients altogether. Unfortunately, these examples are few and far between, and thousands of hospitals across the country remain prone to aggressive debt collection practices.

Improved data transparency in state court systems and reporting by health care entities is crucial to understanding medical debt litigation and guiding health care reform. First, each state must build an easily searchable electronic trial court docket, in partnership with researchers, using common data models reporting key information such as judgment amounts, garnishments, home liens, attorney representation, and defendant demographic information. Although the granularity of state court data is likely to be limited due to resource constraints, electronic dockets are updated regularly and provide timely information. In addition, federal regulation and guidance can promote uniformity and interoperability between systems. Such efforts dovetail with longstanding access to justice advocacy calling for increased court transparency and would have benefits and support far beyond medical debt litigation reform.

Second, state and federal legislation should require enhanced public reporting of medical debt information by hospitals and providers themselves. Such reporting may be more granular and better tailored to the public welfare than court-provided data and may be more achievable given the multitude of current reporting requirements. However, many states that require reporting of medical debt information and regulate debt collection do so only for nonprofit hospitals, and reporting is often annual or quarterly rather than real time. Given the potential benefits, recent reforms in Maryland and Colorado requiring hospitals to report debt collection actions alongside demographic data such as race and ethnicity, should be widely adopted. Furthermore, improved transparency related to the sale of debt to third-party debt collectors, debt collection by provider groups and other health care entities, and qualitative debt collection procedures should also be required.

State And Federal Health Care Reform Is Needed To Target Abusive Debt Collection Practices And Decrease The Burden Of Medical Debt

Reforms related to medical debt collection are a natural extension of recent federal legislation designed for the financial protection of healthcare consumers. Although modest, the Affordable Care Act of 2010 (ACA) required tax-exempt nonprofit hospitals to have written financial assistance policies and limit collection actions against eligible individuals. In recognition of the limited consumer control over health care spending, starting this year the No Surprises Act bars hospitals from charging more than in-network rates in most cases where surprise out-of-network billing occurs, and established an arbitration process for disputes. Although better data may distinguish necessary debt collection from abusive practices, reform is urgently needed given the scope of the problem.

At the federal level, the Fair Debt Collection Practices Act (FDCPA), which currently applies only to “debt collectors,” (that is, typically not health care entities) should be amended to cover any health care provider engaged in debt collection. The FDCPA requires itemized debt statements to be provided to consumers, thereby increasing transparency, and prohibits misleading representations in connection with debt collection. These requirements, and the ACA’s requirement for written financial assistance policies, should in particular be expanded to cover for-profit hospitals, which represent 24 percent of all hospitals and are responsible for a large share of medical debt litigation. The National Consumer Law Center’s Model Medical Debt Protection Act contains a host of additional recommendations that should be adopted, in particular a minimum income threshold at which certain hospitals must provide free care. Finally, further expansions of Medicare and Medicaid, which have been shown to reduce medical debt burden, would be beneficial, although less politically feasible.

States play an important role in building on the “floor” set by federal statutes, including broader scope of application, higher-income thresholds, stricter regulation of collection practices, and more frequent enforcement actions. For example, New Mexico and Colorado recently extended requirements applicable to nonprofit hospitals to urgent care clinics, freestanding emergency departments, and outpatient departments. Maryland requires hospitals to provide free care to individuals with incomes below 200 percent of the federal poverty level and bars hospitals from securing liens on patients’ homes. California prohibits debt collection for 180 days, regardless of financial status. All-of-the-above examples are recent reforms that should be broadly considered; such actions may not necessarily be economically disadvantageous for the regulated entities, given the eliminated administrative burdens and litigation expenses. Finally, expanded private rights of action for individuals targeted by abusive debt collection practices, as alleged in the Washington lawsuit above, would augment the variable enforcement capabilities of state attorneys general.

Conclusion

Millions of Americans with medical debt are subjected to lawsuits, wage garnishment, home liens, and other aggressive debt collection practices. Despite the prevalence of this problem, studies of medical debt litigation are limited by the difficulty of obtaining relevant data, which is necessary to guide urgently needed reform. To better understand medical debt litigation, uniform, searchable electronic dockets should be adopted by all state courts, and standardized reporting requirements should be instituted for all health care entities. At the federal level, the FDCPA and the ACA’s written financial assistance policy requirement should be broadened to all health care entities engaged in debt collection. The National Consumer Law Center’s Model Medical Debt Protection Act should be adopted in its entirety. State governments may then build on this federal floor through higher-income thresholds for free care requirements, stricter regulation of collection practices, and by encouraging enforcement actions by individuals and state regulators against abusive debt collectors.

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