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Medical Debt becoming Highly Regulated among State Legislatures and Federal Regulations

Medical debt collection has become a trending topic among state legislatures and federal regulators alike. New legislation and regulations are systematically eroding asset value for healthcare providers. In the past year, we have seen California, Maryland, Nevada, and New Mexico enact new laws. Colorado and New York appear to be on the path to do so as well. To add insult to injury, the Consumer Financial Protection Bureau (CFPB) continues to aggressively focus on medical debt as well.
Below is an overview of the legislation and regulations that are dictating change in the world of healthcare collections today. While challenging, the new landscape is not impassable.
California
Effective as of January 1, 2022, California Assembly Bill No. 1020 (amending California Civil Code Section 1788.14) requires, among other things, that general acute care hospitals licensed pursuant to Health & Safety Code Section 1250 to send a notice to debtors as required by Health & Safety Code Section 127425(e). This notice is to contain:
The date or dates of service of the bill that is being assigned to collections or sold.
The name of the entity the bill is being assigned or sold to.
A statement informing the patient how to obtain an itemized hospital bill from the hospital.
The name and plan type of the health coverage for the patient on record with the hospital at the time of services or a statement that the hospital does not have that information.
An application for the hospital’s charity care and financial assistance.
The date or dates the patient was originally sent a notice about applying for financial assistance, the date or dates the patient was sent a financial assistance application, and, if applicable, the date a decision on the application was made.
California Civil Code Section 1788.14 now prohibits debt collectors from collecting hospital debts without including, in the first written communication with a consumer, a copy of the notice that the hospital is required to send its patient prior to assigning the debt for collections or selling the debt to a debt buyer. In addition, debt collectors must include in their first written communication with consumers a statement that the debt collector will wait at least 180 days from the date the consumer was initially billed for the hospital services that are the basis of the debt before reporting adverse information to a credit reporting agency or filing a lawsuit against the consumer.
The new law also raised the income level for hospital charity care eligibility to 400% of the federal poverty level, allows patients with high medical costs to get some form of charity care or discount, and requires hospitals to prominently display a notice of the hospital’s financial assistance policy for patients on its website.
Maryland
Maryland (Senate Bill 514 and House Bill 565) now requires hospitals to submit its policy on the collection of patient debts each year to the Health Services Cost Review Commission. Hospitals are also restricted from taking certain actions – such as charging interest or fees on debts incurred by certain patients – when attempting to collect their past due accounts. Hospitals are further prohibited from reporting a debt to the credit reporting agencies or filing a lawsuit to collect the debt within 180 days after the initial bill is provided.
Nevada
Nevada Senate Bill 248 (amending Chapter 649 of the Nevada Revised Statutes) became effective July 1, 2021. It requires collection agencies to send a certified letter to the consumer with certain disclosures prior to the commencement of collection efforts. There can be no collection or credit reporting for 60 days thereafter.
The statute, in part, reads:
Sec. 7.
1. Not less than 60 days before taking any action to collect a medical debt, a collection agency shall send by registered or certified mail to the medical debtor written notification that sets forth:
(a) The name of the medical facility, provider of health care or provider of emergency medical services that provided the goods or services for which the medical debt is owed;
(b) The date on which those goods or services were provided; and
(c) The principal amount of the medical debt.
2. The written notification required by subsection 1 must:
(a) Identify the name of the collection agency; and
(b) Inform the medical debtor that, as applicable:
(1) The medical debt has been assigned to the collection agency for collection; or
(2) The collection agency has otherwise obtained the medical debt for collection.
The statute also prohibits suing on medical debts less than $10,000 and prevents charging any fee of more than 5% of the amount of the medical debt.
New Mexico
New Mexico enacted the Patients’ Debt Collection Act (Senate Bill 71) which prevents health care providers from sending medical bills to collections or filing medical debt lawsuits against individuals whose household income is at or below 200% of the federal poverty level. Health care facilities must take certain steps before seeking payment for emergency or medically necessary care (including offering certain information and assistance to patients).
Colorado
Colorado House Bill 1285 is moving closer to becoming a reality as it is seeing strong bipartisan support. The bill would prohibit hospitals that are not in compliance with a price transparency rule that went into effect in January 2021 from placing debts with third-party collection agencies, filing lawsuits to collect on unpaid debts, and reporting debts to credit reporting agencies. Published reports indicate that most hospitals in Colorado are currently not in compliance with the price transparency rule.
New York
New York passed an anti-garnishment and anti-lien bill (Senate Bill S.6522A) for certain medical debts. The bill prohibits nonprofit hospitals and healthcare providers from imposing and enforcing liens on a patient’s primary residence to satisfy judgments in medical debt lawsuits. It also prohibits nonprofit hospitals and healthcare providers from securing wage garnishments to satisfy such judgments. The governor is likely to sign it into law shortly.
CFPB and Credit Reporting
The CFPB has also been making waves by issuing bulletins, reports, and press releases criticizing medical debt collections and credit reporting.[1] [2] [3]
In response, the three major credit reporting agencies (Equifax, Experian, and TransUnion) announced that they will:
As of July 1, 2022, remove medical debts paid by consumers. Furnishers are still expected to report paid medical collections with a status code 62 (and the removal will be done directly by the credit reporting agencies).
As of July 1, 2022, extend the waiting period before furnishing medical debt from 180 days to one year (past the date of first delinquency). Furnishers will have to wait until this time period expires before reporting the debt.
As of March 30, 2023, stop reporting medical debts under $500. Furnishers will have to suppress such reporting.
The credit reporting agencies may have preemptively taken this approach to avoid more draconian regulatory action by the CFPB.
Conclusion
Collecting medical debt has become more difficult in the past year. Increased regulation of medical debt has prevented many providers from receiving adequate value on their past-due accounts receivable. Utilizing a patient-centric approach to recoveries and complying with all applicable laws can help ensure the effective liquidation of nonperforming receivables.
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