By Leslie Bender, Senior Counsel, Clark Hill
Since 2019, the National Consumer Law Center (“NCLC”) has worked in a well-organized manner to develop grass roots support throughout the fifty states for legislation to impose restrictions on a wide range of activities related to medical debt collections.[1] NCLC reports that “[d]espite historic reductions in the numbers of uninsured, the problem of medical debt remains.”[2]
Some of the medical debt protection laws focus on hospitals (as opposed to all types of healthcare providers) and a little history related to challenges to the way in which hospital bills are collected may be helpful here. Challenges to non-profit hospitals and their responsibility for medical debt are nothing new – although taking the issue to state legislatures instead of to the courts or Internal Revenue Service appears to be. Over a decade ago a large number of lawsuits were filed throughout the states by well-known trial lawyer, Richard Scruggs, formerly known as the “King of Torts”. In his class action lawsuits against non-profit hospitals, Scruggs alleged, among other things, that medical debt arose because the hospitals they were not fulfilling their charitable missions adequately in the communities in which they operated by providing reduced or no-cost care to patients with limited means.[3] These lawsuits had a ripple effect on healthcare collections because many hospitals examined whether and to what extent collection agencies should continue to offer consumers information about low and no cost care even long after dates of service.
Some years later in March, 2010, Section 501r of the Internal Revenue Code was enacted, requiring charitable hospitals to develop formal financial assistance policies (FAPs) and billing and collection policies (BACs).[4] The new “medical debt protection laws” potentially complicate things because they may impose the same or additional responsibilities on hospitals for billing and collections activities – while Section 501r already holds hospitals responsible for monitoring and enforcing their contractual relationships as they relate to “extraordinary collections activities” or “ECAs.” It is these ECAs and notice about them which are the very activities on which the medical debt protection laws seem to focus. Given this existing regulatory scheme, it is unclear how the activities of collection agencies (and debt buyers) and/or the hospitals for whom they collect would be examined or supervised. The Internal Revenue Code provides that a hospital’s tax exempt status can be in jeopardy if it does not act reasonably and in good faith to supervise and enforce 501r obligations in its contracts with debt collectors or debt buyers as to ECAs, requiring them to take immediate corrective action for any violations detected.[5] Where then would state laws governing the same turf come in? If these state medical debt protection laws only focus on hospitals – would there be different standards for collecting other types of medical debt?
In a Washington Post fact-check about whether medical debt either “contributes to” or “causes” personal bankruptcies, the Post confirmed that while illness itself or medical bills “contributed to” bankruptcies, medical debt does not cause bankruptcies. A more likely root cause for medical debt is lack of adequate health insurance to pay for preventive care and for needed care and treatment. Although the Affordable Care Act (“ACA”)[6] offered significant insurance benefits for more Americans thus dramatically reducing “the uninsured,” it may have created a new category of “underinsured” persons who cannot afford the care and treatment they need (or care or treatment that can prevent more serious medical circumstances down the road). Despite the ACA, Americans’ medical debt appears to have risen,[7] but no data has emerged demonstrating that the manner in which debt collectors service that debt for their healthcare creditor clients needs further restriction or statutory oversight. Some experts report that because thirteen states did not fully implement the ACA that may explain some of the increases in medical debt.[8]
The first sweeping state law to make substantive changes to how hospitals and collection agencies treat medical debt was enacted in the State of Washington, effective date on July 28, 2019.[9] Like the law recently passed in Maryland, Washington’s law affected the business practices of hospitals as well as their collection agencies and required them to begin providing additional information to their collection agencies regarding charity care and financial assistance.[10] In Maryland, the new medical debt protection law was championed by a broad coalition of nearly five dozen unions, churches, consumer groups, and other organizations working with a nurses’ union to “expose the crisis of medical debt in Maryland.” The nurses’ union (NNU) reported its initiative was based upon its study of 145,000 lawsuits against Maryland patients over the span of a decade.[11] Although study after study has debunked the assertion that medical debt “causes” personal bankruptcies, the NNU press release asserts that “medical debts are a major cause of personal bankruptcies” and that “as many as a third of Americans are burdened with medical debt.” The NCLC’s data does not conclude that out medical debts “cause” bankruptcies. A recent study reported last week determined that one fifth of Americans have medical debt[12] (but without detail on whether that debt reflects pre-negotiated patient pay portions of bills like copays or deductibles or large uncovered charges).[13] Meanwhile in June, 2021, with a July 1, 2021, effective date, Nevada passed SB 248. The litigation challenging Nevada’s law resulted in the State requesting an opportunity to promulgate regulations interpreting its law. New Mexico also passed a Patients’ Debt Collection Practices Act this year also with a July 1, 2021, effective date – imposing a number of requirements on healthcare providers, collection agencies and debt buyers – some of which are also covered but not necessarily in the same manner as Regulation F which takes effect on November 30, 2021.[14]
Among the “possible solutions” the NCLC is seeking in the states are “stronger consumer protection rules for medical debt protection.” The NCLC’s initiative began shortly before the Consumer Financial Protection Bureau published its final versions of “Regulation F” interpreting the Fair Debt Collection Practices Act and the NCLC has not adapted or modified its medical debt protection initiative to reflect the pendency of the Reg F “go live” date less than 100 days from now. When earlier drafts of Reg F were published, NCLC’s April Kuehnhoff, one of the architects of the medical debt protection initiatives, released a comment in a press release stating that Reg F “doesn’t go far enough to protect consumers and make sure that consumers are not abused or harassed or subject to unfair collection practices in debt collection.”[15]
So as the credit and collection industry works to implement the various features of Reg F, the years of NCLC well-planned and executed grassroots’ organizing has garnered the support of healthcare workers’ unions, community groups, and other local public interest groups. As a result, medical debt collection bills continue to emerge at state legislatures — and out of the gate appear to be well supported. Two quick observations are important: first, there is no evidence to support the inference that the consumer protections in place now or coming with Reg F that relate to debt collection are insufficient; and second, there is no evidence showing that collections activities are the root cause of consumers’ issues related to medical debt. Debt collectors do not create medical debt, they service it on behalf of healthcare providers. A decade ago a study was done on access to healthcare in the state of Arizona demonstrating that the lack of adequate health insurance left consumers unprotected from accruing medical debt and worse impeded their access to adequate healthcare and treatment.[16]
As reported by AccountsRecovery.net on Friday, August 20, 2021 a group called the “Arizonans Fed Up with Failing Healthcare (Healthcare Rising AZ)” has opened a website and begun submitting news pieces supporting an as yet unpublished law, “The Predatory Debt Collection Protection Act.”[17] Although the credit and collections industry is focusing considerable energy on the upcoming Reg F deadline, the credit and collections industry will have to keep paying attention to these medical collections bills proposed in state legislatures in order to shine light on these key questions for state lawmakers: first, are additional restrictions as fashioned in these medical debt bills going to yield any positive results for consumers; and second, do the provisions in these laws miss the mark by focusing on medical debt instead of offering consumers what they need to get to affordable and necessary medical care and treatment.
[1] See, NCLC’s publication, “Model Medical Debt Protection Act,” September, 2019 at https://www.nclc.org/images/pdf/medical-debt/model-medical-debt-protection-act-082017.pdf
[2] Ibid.
[3] See, either https://www.wsj.com/articles/SB108741641781739037 or https://seiuexposed.com/terrible-tactics/#.YSFRoIhKiUk; Richard Scruggs eventually was convicted of some unethical behavior in relation to judges and was convicted and was incarcerated. Last year Scruggs was the subject of Curtis Wilkie’s book The Fall of the House of Zeus.
[4] See the IRS requirements right here: https://www.irs.gov/charities-non-profits/charitable-organizations/requirements-for-501c3-hospitals-under-the-affordable-care-act-section-501r and an article describing 501r right here: https://www.reinhartlaw.com/knowledge/are-you-ready-section-501r-final-regulation-deadline-coming-december-29-2015/
[5] What are ECAs? The tax law defines these as any extraordinary actions that involve selling an individual’s debt to another party, reporting adverse information to consumer reporting agencies, requiring payment before providing healthcare services, or taking any legal or judicial action to collect a medical debt. A more detailed list would include these: placing a lien on a patient’s property; foreclosing on a patient’s property; attaching or seizing bank accounts or other personal property; commencing a civil action against an individual; causing an individual’s arrest, causing an individual to be subject to a writ of body attachment; or garnishing wages; See, IRC Section 501(r)(6) right here https://www.irs.gov/charities-non-profits/billing-and-collections-section-501r6
[6] The “Affordable Care Act” formally known as the Patient Protection and Affordable Care Act, signed into law on March 23, 2010, had three primary goals: make affordable health insurance available to more people – offering reduced costs for households with incomes between 100% and 400% of the federal poverty level (“FPL”), expand the Medicaid program to cover adults with income below 138% of the FPL, and incentivize and support innovative medical care delivery methods to lower the costs of healthcare more generally. Note that the law is here and is 974 pages long: http://housedocs.house.gov/energycommerce/ppacacon.pdf
[7] See Washington Post fact check right here: https://www.washingtonpost.com/politics/2019/08/28/sanderss-flawed-statistic-medical-bankruptcies-year/
[8] See, https://jamanetwork.com/journals/jama/fullarticle/2782187
[9] See excellent compliance bulletin on Washington’s law published by Washington’s State Hospital Association in June, 2019, and readable right here: https://www.wsha.org/articles/effective-july-28-2019-changes-to-state-law-on-consumer-and-medical-debt-with-charity-care-implications/
[10] Maryland’s new medical debt protection law is set to take effect in full on January 1, 2021, and was championed by the National Nurses United (NNU) and a broad coalition of other Maryland activists. See relevant news coverage here: https://www.nationalnursesunited.org/press/nurses-praise-maryland-bill-to-protect-patients-with-medical-debt The law itself can be found in the Maryland General Assembly’s resources right here: https://mgaleg.maryland.gov/mgawebsite/Legislation/Details/hb0565
[11] From the NNU’s press release, the information is here: https://www.nationalnursesunited.org/press/nurses-praise-maryland-bill-to-protect-patients-with-medical-debt
[12] See, The Hill, https://thehill.com/opinion/healthcare/568734-americans-burdened-with-medical-debt-the-government-needs-to-step-up?rl=1 and the underlying research can be downloaded from here: https://jamanetwork.com/journals/jama/fullarticle/2782187
[13] See resource cited at footnote 1.
[14] You can read New Mexico’s law right here: https://www.nmlegis.gov/Sessions/21%20Regular/final/SB0071.pdf
[15] See, the NCLC’s press release right here: https://www.nclc.org/media-center/consumer-watchdogs-proposed-debt-collection-rule-bites-consumers-authorizes-harassment-by-debt-collectors.html
[16] The study, published in 2011, is right here: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3134508/
[17] See new website at https://www.healthcarerisingaz.org/about-our-ballot-initiative/. The website describes itself as a “new statewide grassroots healthcare advocacy organization announced at a news conference” on August 26, 2019, backed by the SEIU-UHW, one of the largest unions of hospital workers with over 95,000 members. The SEIU-UHW reports it has funded “The Fairness Project” that helps run ballot initiatives in Utah, Idaho, Nebraska, Maine, Arizona, California, Colorado, Washington, Washington, D.C., Massachusetts, Missouri, Michigan, Oklahoma and Arkansas