James Choi’s ambulance trip from Northside Hospital across the street to Saint Joseph’s Hospital cost $500.
Choi, an insurance agent, thought his insurance company should pay the whole cost, so he disputed the bill and believed it was resolved in his favor.
Six years later, he applied to refinance his mortgage and discovered his credit had dropped 92 points because Capio Partners, a Duluth-based company that purchases patient debt from medical providers, reported the bill to a credit rating agency.
“It hurts my pride real bad because I’m hard-working and I abide by the law, but I’m still penalized,” he said.
Increasingly, patients are receiving collection notices not from the doctors or the hospitals who treated them, but from companies who bought their unpaid bills.
Some hospitals, physicians’ groups, ambulance services and other medical providers in Georgia and across the country sell patients’ unpaid bills to debt buyers like Capio for pennies on the dollar. As the volume of medical debt grows, health care providers are under increasing pressure to recover even a fraction of delinquent patient bills.
That’s where debt buyers come in. They purchase overdue patient bills from health care providers and collect the debt themselves. They need only collect a portion of the debt to make a profit.
It’s common for businesses to use collection agencies to go after unpaid debts. But patient advocates argue that medical debt is unlike any other obligation. Buying a car or a TV on credit represents a choice the buyer makes, but most patients do not choose to need medical care and can’t shop for affordable costs. Compounding the issue, medical bills are often incorrect and complicated beyond comprehension, they say.
As the nation struggles with the rising cost of health care, the sale of medical debt adds to the overall cost, policy experts say.
That’s because aggressive collection techniques used by many debt buyers discourage patients from seeking additional care, said Gerard Anderson, director of the Center for Hospital Finance and Management at the Johns Hopkins School of Medicine.
Health care experts say preventive care and timely treatment of chronic illnesses are important in controlling overall costs. The failure to provide such care to indigent patients transfers the financial burden to taxpayers and insured patients.
“When you have medical debts, you’re going to say, ‘You know I’m not going to get my diabetes checked,’ and once you don’t, you’re going to end up getting your foot amputated or losing your eyesight,” Gerard said.
Some states are beginning to see the sale of medical debt as a problem and are moving to address it, but Georgia has yet to react.
The middle ground, patient advocates say, is for medical providers to work with patients to collect a fair price for the services rendered.
The collection industry emphasizes that patients should pay for the services they receive.
The amount of bad debt accumulated by hospitals across the country is estimated at $40 billion to $60 billion a year, according to TriCap Technology Group, a firm that matches hospitals with medical debt purchasers and debt servicing companies.
Rural/Metro Corp., the owner of EMS Ventures, the Roswell ambulance company that transported Choi in 2005, sells debt for a few cents on the dollar, but only after the company’s in-house collection agency has tried for 18 months to obtain payment and failed, said Liz Merritt, director of corporate communications for Rural/Metro.
Last year Rural/Metro racked up $123.4 million in unpaid patient debt, 13 percent of its total revenue, she said.
“It’s a big number and it’s significant, but at the same time we understand medical collection can be very sensitive and personal and we try to be respectful,” Merritt said.
As the costs of health care shifted from employer-funded insurance programs to consumers over the past decade, medical providers discovered “self-pay equals no pay,” as the saying in the industry goes. In an attempt to collect at least a fraction of the unpaid bills, medical providers started selling the right to collect the debt to companies specializing in debt buying and collection.
Medical debt is sold in at least 19 states and the District of Columbia, according to federal court records.
No state agency or industry group quantifies how many Georgia medical providers sell debt.
Some Atlanta physicians sell debt, but hospital administrators for the 27 hospitals in the area said they do not currently sell overdue bills.
Many medical policy experts agree, however, it’s only a matter of time before hospitals consider the option.
Gwinnett Medical Center does not sell debt now, but “we are constantly looking for ways to improve our hospital’s performance, and may re-examine this practice in the future,” said Beth Okun, Gwinnett Medical Center public relations coordinator, in an email.
Saint Joseph’s Hospital of Atlanta prefers to maintain control of unpaid patient bills, said chief financial officer Kevin Brenan.
“That [process] has the opportunity to become heavy-handed once we sign away the rights to that patient account,” Brenan said.
Another concern of patient advocates is that federal law allows debt buyers access to patient medical records. The 1996 Health Insurance Portability and Accountability Act, which protects patient privacy, allows health care providers to share medical records with debt collectors who provide the same safeguards the medical provider would.
The process of selling medical debt has improved over the past few years, said Jim Zadoorian, president of TriCap Technology Group. Debt buyers are now more transparent about their collection methods and more accountable to medical providers.
TriCap lists health care providers’ patient accounts, ranked by collection potential. Medical providers detail the collection techniques that can be used and debt buyers and collection agencies can then submit bids.
This allows hospitals, physicians and other providers to ensure their patients are treated fairly while also collecting their bills, Zadoorian said.
He disputes the notion that the sale of medical debt discourages patients from obtaining needed treatment more than any other kind of debt.
“The process works when patients are educated as to their rights and hospital executives are educated on how to more safely control the entire debt sale process,” Zadoorian said.
Capio Partners describes itself as the “premier health care debt purchaser in the industry” and is one of the biggest players in the debt buying market.
Since its creation in 2008, Capio has purchased more than $7 billion in patient debt, according to insideArm, a debt buying trade publication.
On its website, Capio says its “Complaintless Collection” system provides health facilities with a predictable cash flow and treats patients with “respect and dignity.”
“We are reasonable people to deal with and we know times are tough,” reads one letter from Capio to a debtor.
But the company’s collection techniques have detractors.
In the past two years, Capio has been sued 15 times in federal court alleging violations of the Fair Debt Collection Practices Act.
Unlike Choi, who for unknown reasons didn’t hear from Capio for years before finding his credit rating had dropped, plaintiffs in nine states accused the company of trying to collect on bills already discharged by bankruptcy filings, reporting bills to a credit rating agency past the legal time limit, using profanity and harassing relatives of suspected debtors, the complaints say.
Some Capio targets alleged they were not the people the debt collector was looking for, but they still received multiple phone calls daily with no way of correcting the problem.
Others, like Sherry Bates of Conroe, Texas, disputed the validity of the bill, according to her complaint against the company.
“[Capio] informed [Bates] that the debt was only about $80 and she should just pay it and not worry about whether or not she really owes the money,” Bates’ complaint says.
When she refused, Capio reported the debt to a credit agency, even though it was too old to report, and called Bates so often she changed her phone number, her complaint says.
Bates, like almost all of the plaintiffs, settled her case with Capio, according to court records. The details were not publicly available.
Capio chief financial officer Mark Detrick said the company would not discuss its business.
He released this statement: “Capio Partners provides a valuable service to health care providers. We add value by supplying much needed cash flow, which allows the providers to concentrate on what they do best — providing quality care to their patients.”
Millions in bad debt
Four years ago, the medical debt buying industry was poised to explode.
Tenet Healthcare Corp., owner of three Atlanta hospitals and dozens of others across the country, sold $1.2 billion of debt for $16 million in 2006. Tenet says that was a one-time sale and now all bills are collected through a subsidiary that specializes in the collection of medical debt.
The recession and soaring unemployment made medical debt collection difficult and some companies left the business.
But as the economy improves and medical debt continues to accrue faster than any other form of bad debt, medical debt buyers, backed by some of the largest investment firms in the country, are investing hundreds of millions in unpaid patient bills, Zadoorian said.
Atlanta hospitals reported $662 million of bad debt in 2009, according to an analysis by The Atlanta Journal-Constitution of the most recent hospital financial disclosure data collected by the Georgia Department of Community Health.
States take notice
The sale of medical debt is beginning to gain the attention of legislatures and attorneys general across the country.
Maryland outlawed the sale of medical debt by hospitals in 2009. The Massachusetts attorney general issued a set of guidelines for the collection of medical debt by nonprofit hospitals that went into effect in 2009.
Georgia, like many other states, has yet to address the issue.
The Governor’s Office of Consumer Protection regulates the collection of debt by third parties in most cases, but does not set specific protections or guidelines for medical debt, said Shawn Conroy, a spokesman for the agency.
The Affordable Care Act does not address the sale of patient debt, but some health policy experts hope provisions in the bill will reduce the number of unpaid bills by making insurance more affordable.
But even supporters of mandated insurance, like Mark Pauly, a health economist at the University of Pennsylvania’s Wharton School, agree the Affordable Care Act’s approach of assessing small penalties for failure to buy government-subsidized insurance addresses the sale of debt at least theoretically.
“So if you don’t pay up, it means you chose not to have insurance and it’s OK to go after you,” Pauly said.
“In real life, there will still be sad stories, but as a concept we’ve taken away the claim that ‘I incurred this medical debt [because] I couldn’t afford medical care.’ ”
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