The Big Business That Opposes Wiping Medical Debt From Credit Reports
Peter Whoriskey Washington Post
The amount that Americans pay out of pocket for health-care has been rising. Medical debt collection companies have become big business. (Photo: iStock)
Investors have been buying up medical debt collectors. A proposal championed by Vice President Harris would make their jobs harder.
A federal proposal championed by Vice President Kamala Harris would ease the financial problems of people with unpaid bills by removing medical debts from the credit reports that determine eligibility for home mortgages, car loans and credit cards.
While proponents say the new rules would help people who run into unexpected medical expenses, the nation’s debt collectors say the proposal would make it too easy for patients to shirk their financial responsibilities, and they are joined in opposition by the nation’s bankers, who rely on the credit reports to make decisions.
“If there are no consequences for not paying … then why are you going to pay?” said Jack Brown, former president of the industry trade association ACA International, and president of Gulf Coast, a family-owned debt collector in Florida.
“To ensure their loans will be repaid … banks must have complete information about an applicant’s assets and liability,” Hallee Morgan, an attorney for the American Bankers Association, said in written comments.
The staggering level of Americans’ medical expenses has made collecting it a big business, one that has increasingly drawn investments from private-equity firms and others that have poured millions into acquiring debt collection companies. Working on behalf of hospitals and doctors, the companies specialize in pushing insurers and delinquent patients to pay up. Patients who don’t may face repeated phone calls, adverse credit reports and lawsuits to garnish their wages.
Both sides agree that the issue of American medical debt is a symptom of broader trouble in the U.S. health-care system. As overall medical costs have risen, so have the amounts patients must pay, even if they are insured. Out-of-pocket health spending has risen by about 25 percent in real terms since 2000, according to the Peterson-KFF Health System Tracker.
In all, Americans may owe more than $220 billion in medical debt, according to a Peterson-KFF report based on federal data, and an estimated 15 million people have black marks on their credit reports for medical bills, with an average balance of more than $3,100.
The proposal favored by Harris was announced in June and is undergoing review by the Consumer Financial Protection Bureau.
“Medical debt makes it more difficult for millions of Americans to be approved for a car loan, a home loan or a small-business loan, all of which, in turn, makes it more difficult to just get by, much less get ahead,” Harris said in announcing the proposal. “And that is simply not fair.”
In her presidential campaign, she has made the issue of medical debt a cornerstone of her economic plan.
Republican nominee Donald Trump has said little about the proposal, but 23 Republican members of the congressional committee overseeing financial services have come out against it in a letter to Rohit Chopra, chief of the CFPB.
Removing the threat of adverse credit reports would not necessarily make life easier for consumers, collections industry executives said. They predict that more debt collectors would turn to filing lawsuits against patients, and lenders would lend less because they will know less about an applicant’s financial situation. The debt collectors also warn that the measure would reduce the revenue of struggling hospitals and medical practices.
Health-care providers appear to be divided on the topic. Some favor the proposal, saying the burden of medical debt prevents the sick from seeking necessary treatment; others worry that by shrinking revenue the measure will hurt health-care providers. The American Medical Association, representing doctors, said it applauded the proposal for recognizing the “public health impacts of medical debt.” The American Hospital Association, the lobbying organization for hospitals, refrained from taking a position on the issue. An association representing 15,000 medical group practices, the Medical Group Management Association, warned that it could threaten patients’ access to care.
Hospitals and doctors generally attempt to obtain payments themselves before hiring debt collectors, who are typically paid a percentage of the money that they collect. Currently the firms earn rates of about 10 percent of the collection. Some providers eventually sell the debt to other companies that attempt to collect on it.
In recent years, deep-pocketed private-equity firms have jumped into the collections industry, putting billions of dollars into companies involved in “revenue cycle management,” the term for tracking and collecting payment from patients and insurers.
Since 2019, private-equity firms made more than 300 deals with revenue cycle management companies, according to PitchBook, a firm that provides data on the investment industry.
In 2019, for example, Clarion Capital, a private-equity firm with more than $1 billion in assets under management, bought a stake in debt collector Harris & Harris. In 2021, Tonka Bay Equity Partners invested in Professional, another health-care collection company.
And there may be few private-equity firms that have pursued the potential profits of medical debt more than the private-equity firm NexPhase, which formed its own medical revenue firm, Meduit, by acquiring two firms in 2017, then added another debt collector in 2020, two more in the next year, and two more after that for a total of seven companies in as many years.
Meduit has been one of the most prominent opponents of the proposal and, like other opponents, it has argued that the proposal would have unintended consequences.
“As consumers ourselves, the soundbite idea of medical debt never affecting our overall financial health again sounds great, but it is not accurate,” according to comments the company submitted to the CFPB.
In a corporate memo, Meduit also instructed its employees how to submit their own objections to the CFPB and offered example messages.
“Hopefully these will provide various levels of engagement and data points that you can either copy and paste as your response or pull pieces from the various statements to help tell your own story,” according to the memo, which seems to have been accidentally submitted to the government’s comment portal. “Thank you for taking steps to be heard in this process!”
Dozens have done so.
Some employees said in their letters that they fear for their jobs.
“ON A PERSONAL NOTE, I WOULD LIKELY LOSE MY JOB AND BE FORCED TO GO ON FOOD STAMPS AND SELL MY BLOOD,” according to one. “PLEASE DONT DO THIS.”
Debt collectors like Meduit may play a critical role in the economy, but they also regularly provoke the ire of consumers. On an average day, debt collectors are the subject of more than 100 complaints filed with the CFPB. About 10 percent of those complaints relate specifically to medical debt.
While the complaints are not verified, they present a picture of patients who are confused and frustrated.
The collection companies that Meduit has acquired, for example, have received more than 600 consumer complaints over the last three years.
Sometimes consumers receive repeated calls despite having paid their bills already.
“I have been called by an alleged debt collector … about an old medical bill, with the person calling occasionally taking an aggressive and threatening attitude toward me,” goes one complaint, even though the doctor’s office confirms it has been paid.
Even hiring an attorney doesn’t stop the calls.
The collector was “notified by letter almost a dozen times to provide substantiation for an alleged debt by my attorney,” goes one such complaint. “They failed to do so, yet suddenly added negative information to my credit report. I have tried calling them to no avail.”
Sometimes the collector calls continue after a recent payment.
The collector is “contacting me via telephone call every day, sometimes twice in a row back to back to collect a medical bill debt of {$1700.00}. I answered one of the calls, informed them that I have made a payment and to please stop contacting me. They continue to call daily.”
A spokesman for Meduit did not respond to requests for information about complaints. But in marketing and other materials, it boasts using “compassionate and supportive” collection tactics and approaching patients with “respect and integrity.”
