Should medical debt be bought and sold in America?
Some of those trying to help, including local and state governments, have to resort to debt buying companies.
“We understand that what we do is a band aid on a broken system,” Allison Sesso, president and CEO of RIP Medical Debt, says. “What we do is, you know, we’re helping people today.”
This debt buying market is a multi-billion-dollar industry. And often those wrapped up in it are the ones least able to pay.
“This is something you take care of to keep them alive. And now they’re facing debts years later that are compounding with interest,” Keith Hagan, a defense attorney who litigates medical debt, says.
Today, On Point: How does the debt buying industry work — who wins and who loses?
Leticia Garcia, who was sued for medical debt.
Jan Steiger, the executive director of Receivables Management Association International.
Allison Sesso, president and CEO of RIP Medical Debt.
Keith Hagan, defense attorney who litigates medical debt.
MEGHNA CHAKRABARTI: Leticia Garcia’s back was giving her trouble. She was 21 at the time, and her back hurt so badly, eventually she went to the hospital where she lived in Orange, California.
LETICIA GARCIA: My back was hurting a lot. I think I had just got, like, had an infection, like a UTI infection, but, they did all these scans or whatever. They, like, they didn’t even say anything to me or like, “Oh, talk to your Medi-Cal or if you don’t have anything, here’s help,” or something, you know?
CHAKRABARTI: Hospital staff gave her some medication for the urinary tract infection. And then sent her home, without giving her a bill. That’s fairly standard practice in the U.S. Medical treatment first, no discussion of costs, receive bill later. Leticia was familiar with that process – she’s been on Medi-Cal, the state’s public health insurance, her entire life.
The back pain resolved in a few days. Leticia believed she’d put the problem behind her, especially because, she says, she never received a statement or bill for that visit.
But then, years later, a brand-new problem emerged, in the form of a knock on the door. When Leticia was informed she was being sued.
GARCIA: I never saw anything. I never, the only paper I saw was when I got sued. It’s like an $8,000, $7,000 bill and I tried calling them because I don’t even like owing money or anything and I call them and I was like, still trying to figure out how does this work? And she’s like, “You can pay a payment up to $3,000 now and then the rest in 15 days.” and I was like, “That’s a lot of money. I can’t afford that.” You know, they didn’t they didn’t care. They were like, “You need to pay us.”
CHAKRABARTI: The “they” wasn’t the hospital. “They” were a private company, who’d purchased what Leticia owed from the hospital. They purchased that from the hospital, and they were now suing her to collect the debt.
CHAKRABARTI: This is On Point. I’m Meghna Chakrabarti.
At the time, Leticia didn’t even remember what the hospital visit had even been about. It’d been two years. She was also confused. She was on California’s public health insurance, which should have covered most, if not all, of her hospital bills.
After being informed she was being sued, she first called the hospital. That was fruitless. They told her that once they’d sold it to the debt buyer, the problem was no longer theirs.
Leticia didn’t understand. She’d never received a bill from the hospital, never received any notification that the hospital sold her debt to someone else.
So, Garcia reached out to Medi-Cal — the state’s public health insurance — they said they couldn’t help either, because claim disputes must be filed within 18 months of the claim date. She was past two years.
Leticia was out of options. She had to fight the suit against her — in court.
GARCIA: I didn’t feel like I was there, pretty much. I just remember like throwing up in the restroom and like falling asleep and like coming back and falling asleep, like was still awake.
CHAKRABARTI: Medical debt buying is a fully legal, common practice in the United States. Buyers often buy bundled payments owed to hospitals, and they get it on the cheap. Often paying about a dollar for every $100 of medical debt they buy. So the hospitals get paid – we’ll untangle that complexity in a moment – and the debt buyers make a lot of money, because they demand payment from the patient for the full cost of their medical care, not the discounted rate paid by the debt buyer.
Leticia couldn’t believe this was happening. She thought — how could the hospital have sold all her information to an outside company without her consent?
GARCIA: I think it’s disgusting and disrespectful that they do that. Because no one should know other people’s businesses. And that should be illegal, I feel. Because, like, I don’t know. It was really personal. Everyone was, like, hearing my situation. And they were, like, “Oh. Like this person this.” And like I’m still getting accused and like getting called a liar and I’m like, “Oh, I don’t like that.” (LAUGHS)
CHAKRABARTI: Health privacy laws – most notably HIPAA – protect medical history and specific health information, but it doesn’t necessarily protect information about how much you might owe a hospital. But not all hospitals participate in this market — estimates show it’s about 25% of them.
So, since medical debt is fair game to sell and because Leticia did actually go to the hospital that day and use those services, the judge in her case ruled against her. She had to pay.
So, she’s on the hook for an $8,000-dollar debt she never knew she had until that knock on the door.
GARCIA: Like I constantly feel like I’m going to get sued or any court paper that I get I save. I save them all. I have a whole cupboard of all my paperwork because one day I have to jump back. You know, I’m ready. And you take very importance in all those little papers that come in and you want to show proof of everything and I’m saving every little thing just in case.
CHAKRABARTI: Leticia is appealing her case. So, she hasn’t had to begin her payments yet. But the thought that she still might end up having to pay, really weighs on her.
GARCIA: I don’t even want to go to the hospital ever again. Like for me after that, like that really like messed me up because that’s just going to put me in another situation like, “Oh. If I go to the hospital, like, is that going to happen to me again?” You know, I’m just so afraid, like, like, I’m just going to wait to die and not go to the hospital. And that’s what, like, probably a lot of people do, you know?
CHAKRABARTI: That’s Leticia Garcia. She lives in Orange, California where she’s a barista.
Garcia is not alone – according to a KFF Health News investigation, more than 100 million people in America have medical debt they cannot pay.
That’s why over 30 state and local governments are hoping to erase some of that debt. Places like Cook County, Illinois, Toledo, Ohio, Washington, D,C., Pittsburgh and New Orleans. And many are doing so by using extra dollars they received from federal pandemic relief funding.
But it’s not for all residents – just people who are up to 400% of the federal poverty level. And the debts are not being paid directly to the individuals but rather to the hospitals or to the debt buyers, companies like the one who sued Garcia.
So, this is well intended, we should say. But when federal funds are being used to buy medical debt from debt buyers, is that just fueling the very market that profits off people who can’t pay their medical bills in the first place? In the end – who really wins and who loses? That’s what we’re going to talk about today.
And we’re joined now by Noam Levey. He’s a Senior Correspondent at KFF Health News. He joins us from Washington. And he also is author of a major investigation that KFF Health News did called “Diagnosis: Debt.” Noam, welcome to On Point.
NOAM LEVEY: Nice to be here, Meghna.
CHAKRABARTI: So we’re going to get into how this industry works in just a minute, but I’d like to go through some of the numbers about who’s being impacted by this more with you to get a real, accurate sense. I mentioned that fact from your study, about 100 million Americans, which is, we’re approaching a third of the population, but when we focus on adults specifically, how many Americans are we talking about?
LEVEY: We’re talking 41% of adults in the U. S. have some form of health care debt, and that could be a bill that’s not paid that goes on a credit report. It could be a bill that someone puts on a credit card, and they don’t pay it off. It could be a payment plan that somebody’s on with a hospital or a dental office or some other provider, could be a loan that someone’s taken out.
From friends, family, payday lender, et cetera. When you put all that together, you get 100 million people, which, is four in ten adults in the U. S.
CHAKRABARTI: Oh, wow. And I’m looking here at the diagnosis information right on the KFF Health News website. And if you break it down by age, we’re looking at people ages 30 to 49, 69% of Americans in that age bracket have some form of health care debt.
LEVEY: It’s pretty stunning. And I’ve been covering health care in this country for 15 years. Anybody who’s been around health care certainly knows I’m sure someone who’s had trouble with a medical bill.
But when you think about the scale of this problem. And when you think about this is being generated, excuse me, by a health care system that is ostensibly supposed to be taking care of people and instead is creating the kinds of problems that the patient whom you profiled earlier described, it’s pretty stunning.
CHAKRABARTI: Wow. And again, just to get a really accurate shape of the sense of this crisis, we heard earlier from Leticia, who had insurance through Medi-Cal, California’s state sponsored health care insurance, so she was covered, but still got found herself immersed in this terrible situation.
For others of this 100 million, I’m seeing that it’s not, that it’s exclusively uninsured people, right? It’s 61% of them have insurance of some kind.
LEVEY: No, most people who are in medical debt in this country have health insurance. And I think that’s probably something that people might not realize at first, because historically, when we talked about medical debt in America, we talked about people who didn’t have health insurance.
This was before the Affordable Care Act, before Obamacare, expanded health insurance coverage. But now, because so many people in this country have health insurance that comes with a large deductible, they have to pay thousands of dollars before their insurance kicks in.
A trip to the hospital is going to cost thousands of dollars, even for a little headache, usually. Or there’s a billing issue that comes up like Leticia’s. We don’t know exactly what happened. Why didn’t medical cover her emergency room visit? There are all manner of complexities and problems and inaccuracies with medical billing today that oftentimes send people on these terrible journeys down into medical debt.
And I should add that one other thing that we found that I think that’s worth noting that it’s just heartbreaking is that more than half of the people who have medical debt in this country report having to make some difficult sacrifice, cutting back on food or other essentials, taking on extra work, moving out of their homes and having to move in with friends and family draining their retirement accounts and in some cases this has very real health consequences.
You heard about the stress that Leticia has gone through having to deal with this debt collection process. It doesn’t take a medical degree to realize that’s not great for your health.
CHAKRABARTI: So Noam, you said something a little earlier that caught my attention, that people go to the hospital for all sorts of things, both big and little.
You don’t really know at the time when you’re walking into the emergency room, if it’s going to be a major or minor fix. So that means that people can end up in the debt buying market for all manner of hospital visits. You found a woman, for example, whose medical debt ended up with a debt buyer because of the cost of a rape kit?
Can you tell us more about that?
LEVEY: Sure, yeah. This was a particularly disturbing case. We interviewed hundreds of patients around the country and Edie Adams was one of them. And I think she’s an indication that even a small medical debt can just create headaches and heartache for people.
She was a college student in Chicago 10 years ago when she was sexually assaulted, and she went to the emergency room there and was examined, as is pretty standard procedure. And then she went on with her life. They never ended up finding the person who was responsible. She’s now a medical student in Texas, but several years after this happened, and she got a call from what turned out to be a debt buyer saying that she owed about $131 for this exam, and she was stunned.
She had been told by the hospital that rape victims are in Illinois and in many states barred from being billed for these exams. And but the debt buyer said, “Okay.” They said, “We’ll look into this.” Then she thought that was the end of it. Six months later, a year later, another call this time.
It’s from another debt buyer, says the same rigmarole. She’s trying to explain what happened, why she shouldn’t be charged. They say, “We’ll take care of this.” That’s the end of it. Six months later, another call. And this goes on for years. She said sometimes she would become frantic. She was forced to relive this trauma that she had gone through because this debt kept being sold from one buyer to another.
And like Leticia was explaining earlier, once the debt is sold, there’s no recourse for dealing with the original provider. It turned out the medical group that had taken care of her was actually no longer in business. Just heartbreaking.
CHAKRABARTI: Wow. It sounds a lot like when mortgages get sold between one bank and another.
Doesn’t it? What’s different about medical debt buying?
LEVEY: I think this gets at what the difference is between medical debt and other kinds of debt. Mortgages, nobody sort of falls into buying a house by accident. It’s usually something that people make a decision about.
You’re clearly making a contract with your lender. Same thing with even signing up for a credit card or getting student loans. But for medical bills, this is a different kind of a quote-unquote contract between the patient and the medical provider. Most people don’t choose to do it. They are seeking care oftentimes when they’re in an emergency or under some duress.
There’s no discussion at the front end how much it’s going to cost. Nobody says, “Okay here’s going to be your monthly payment before you come in here to have your heart looked at because you may be in cardiac arrest. Let’s go through what the monthly payments are going to be.” That’s just not the way it works.
CHAKRABARTI: So you don’t even know how much you owe until it’s too late. That’s what you’re saying in most circumstances. Whereas for a house, you know how much you owe even before you sign that mortgage, right? Because it’s clear.
LEVEY: That’s right, and the laws have actually been tightened around mortgages, since the mortgage crisis, to make it absolutely clear.
There is no, there’s virtually no equivalent in health care for that kind of arrangement.
CHAKRABARTI: And as far as I understand, again, using the mortgage comparison, when mortgages get sold and resold on the secondary market, the principal cost of that mortgage stays the same, right? But it’s the interest that might fluctuate up and down.
But it seems like it’s very different for medical debt, because as we mentioned earlier, when the medical debt buying company or bank or private equity firm, what might have you, what might you have. You go to the hospital and say, “I’m going to buy this debt off of you.” They buy it for a radically discounted rate.
Now, is that discounted rate, does it end up being the same as the hospital might have been paid if insurance had paid? I just don’t understand. I don’t understand how that works. Like, why would the hospital be willing to sell medical debt at a 99% discount?
LEVEY: So as patients have been required to pay more and more out of pocket when they go seek medical care, this has become a problem, obviously, for medical providers, right?
The old adage is if I owe you $100, it’s my problem. If I owe you $10,000, that’s your problem. So for hospitals, it’s a challenge to collect particularly large balances, and they end up having to write off a large amount of the bills that patients owe them. Because patients aren’t paying and most often because they can’t pay.
And so a medical provider may be confronted with a choice. How aggressively are we going to try to go after Meghna to try to get this bill from her? Are we going to sue her? Are we going to try to garnish her wages? Maybe we’ll just report her to the credit bureau, and once she sees this show up in her credit report, maybe she’ll feel like she has to pay us.
For some hospitals and other medical providers, it may be tempting to sell the debt. And this is debt that they have essentially concluded, “We cannot collect this, so it’ worth zero for us.” If somebody comes around and let’s say I have a hundred million dollars in unpaid medical bills, someone comes up, they have a couple, they come up and they say, you know what, “I’ll give you $1 million or $2 million for that debt, if you give it to us.”
Well if my calculation is I’m not going to get anything from the patients, maybe I say, “Sure.” Somebody who’s working in the financial office of a hospital may say, “Sure, I’ll take that couple million dollars. It’s better than nothing.” And then I’m done with this problem. It’s somebody else’s problem. This medical debt collector will do whatever they’re going to do and we’re going to go on our merry way.
CHAKRABARTI: Okay, so but then the way you explained it then Noam, that’s what leaves the door wide open for a giant profit margin. If the debt buyers are able to eventually collect from the patients.
LEVEY: That’s right, but with a small caveat. So again, if the debt buyer is buying a certain amount, in my example, $100 million dollars worth of medical debt, their calculation is they’re only going to collect some of that stuff. Some of that medical debt is going to be virtually impossible to get. If Mrs. Smith is on there and she owes the hospital $10,000 and she’s barely above the federal poverty line, she’s not insured.
She has a job at, a low paying service job that debt. The debt buyers have all kinds of algorithms that they use to calculate the quote-unquote propensity of a debtor to pay. And they’re going to look at that bundle of debts and they’re going to say, “Okay, we think we can collect from maybe, 20% of the people on this, of the files that we’ve bought.” Now, if they can collect even 50% of what’s owed by 20% of the people who owe that money, they’re going to make a lot of money.
They’re not going to collect it from everybody, and they’re probably not going to collect everything from even the small people that they can collect from. But remember, they’ve only spent a couple million dollars to get this stuff. So if they can collect $4 million dollars, that’s 100% profit right there.
CHAKRABARTI: Yeah. Okay, so it’s time to ask Noam, who are these companies? I mentioned banks and private equity, maybe some other just exclusive debt buying firms. Do patients even know that’s who’s coming for the money or that’s who they have to pay?
LEVEY: I think 99.99% of patients have no idea that this is going on.
Even people who are contacted by a debt buyer sometimes won’t know that the debt has been sold. They may think the hospital still owns it. This is an industry. So there are special, there are companies that specialize in what they call the secondary market for debt. And some of them, most of the secondary market is credit card debt.
There’s some mortgage debt. Mortgage debt has a lot of value, because think about it. There’s an asset, right? Medical debt, it’s typically among the least valuable pieces of debt to buy. There are a few companies that specialize in buying the medical debt, and they go out there, they buy it, and then they run it through their process of tracking people down and calling them. Some of them will sue. Some of them don’t sue. One of the larger medical debt collectors actually doesn’t sue patients. That’s a marketing, a combination of a marketing strategy where they can go to the hospital and say, “We’re not going to sue your patients. Don’t worry.” Because hospitals have some concern about the reputation that they have. These are not credit card issuers, right? These are institutions that oftentimes care about their reputation in a community. So there’s a whole, there’s a soul.
It’s secret, frankly. There’s no accountability. The hospitals don’t report. What they buy, the debt buyers are often private companies that don’t publicly report any information. So it all happens, I’m sorry to say, in the shadows.
CHAKRABARTI: Yeah, and you say, and you show in your reporting that profit margins in what’s can also sometimes be called the patient financing industry, if they create a financing plan for the patient to pay off their debt, those margins can be close to 30%, which is way higher than a hospital might expect.
LEVEY: That’s right. And I want to make a distinction between debt buyers and patient financing companies.
CHAKRABARTI: Okay. Okay.
LEVEY: So debt buyers are a subset of the people who are profiting off of this huge problem of medical debt. They are buying the medical debt that we talked about. Patient financing companies, which are more frequently linked to private equity type groups, they will come to a hospital, and they will say, “We will take this debt and finance it for you.”
CHAKRABARTI: I see.
LEVEY: So maybe the hospital still owns the debt, but the financing company is saying, “We will essentially administer the loan to the patient. We will charge interest that can range 15%, 20%, 30% on these payment plans.” It’s a different form of debt. Sometimes the debt isn’t sold, per se.
CHAKRABARTI: I see.
LEVEY: But again, patients are subjected to a whole financing arrangement that sort of complicates their ability to understand what they owe and to whom.
CHAKRABARTI: And as you report, the names of those financing companies are often right on the websites of the hospitals that they work with, and they’re called wonderfully benign names like Atrium Health, right?
LEVEY: Atrium is a hospital system, but there are —
CHAKRABARTI: Oh, sorry.
LEVEY: Companies like Access One.
CHAKRABARTI: That was, sorry, I got it confused.
LEVEY: Care Credit is a market leader. They’re a credit company.
CHAKRABARTI: But they make the money through those really fat interest rates.
LEVEY: Financing plans. That’s right.
CHAKRABARTI: Okay. So let’s get back to, thank you for making the distinction there. Because health care is one giant wasp’s nest of confusion to me sometimes. But so let’s get back to the medical debt buyers themselves. So hang on here for just a minute. Because we spoke with Jan Steiger, Executive Director of the Receivables Management Association International.
It’s the largest trade organization for the debt buying industry. And according to Steiger, about 90% of all debt is being sold to her organization’s 600 members. Steiger says the debt buying industry gets a bad rap, and that’s because when it began in the late 1980s, it was a bit of a Wild West.
JAN STEIGER: They weren’t sure if they were governed by the FTCPA, which is the Fair Debt Collections Practices Act. Were they accreditors? Were they third party? There wasn’t a lot of rules around purchasing, what the purchase and sale agreement had in it and things like that, right? It was a brand new, brand new way to handle defaulted accounts.
And so the industry grew and grew. And as it grew, it became more evident that this was an industry that was here to stay.
CHAKRABARTI: That rapid growth did drive some bad practices, and that’s why the trade association decided that they needed to develop standards. So in 2013, the group started a certification program that would ensure that their members would follow best practices.
STEIGER: With certification and thankfully technology, we were able to put in requirements. Like our buyers cannot buy accounts unless it comes with certain data and documentation. It’s got to have the name, the social security number, the account, the balance. What they need to do is be able to establish with the statements and the terms and conditions, and all of that. That you have the right consumer and you’re collecting the right amount of debt.
CHAKRABARTI: There are over 60 standards now under the certification programs, things such as you cannot restart the statute of limitations if the account has surpassed it, standards on credit reporting, along with education requirements.
Today, a majority of the group’s members are certified. And when it comes to medical debt specifically, companies have even more standards.
STEIGER: And that’s because you can’t dabble in medical debt purchasing, right? You have to be set up to comply fully with HIPAA and work with insurance companies and other charity care programs and things like that.
And so people who purchase medical debt, honestly, I think I have 2 or 3 members that actually do purchase it. They are very specialized, and they know what they’re doing.
CHAKRABARTI: Therefore, Steiger says she thinks the industry in general has done a good job self-regulating. And she says just because the medical debt buying industry may be disliked does not mean it’s illegitimate.
STEIGER: Let’s face it, nobody wants a phone call or an email from a debt collector, right? People generally are not pleased if they have defaulted accounts. And so I think there is a big effort to try and figure out how not to have those people pay back those accounts. We see a lot of it in medical collection, a lot of the wrap I think that we get in medical collections is when you have somebody who was saying.
“Hey, I had cancer.” It’s tragic. It is no doubt tragic, but it’s not the debt collect. Debt collection is a symptom of a large, much larger policy, social issue that we grapple with. Is medical care, a right or a privilege, right? And the debt collector who is collecting for the local dentist or the doctor had provided a service. And it’s sort of not their fault that there’s that debt to collect from.
CHAKRABARTI: That’s Jan Steiger. She’s the executive director of the Receivables Management Association International. It’s the largest trade organization for the debt buying industry. And Noam, I want to add one thing, that Steiger also says that she thinks the system is actually a win for creditors and maybe sometimes even consumers. Because the creditor gets some liquidity back, the consumer gets to pay back their debts, sometimes at a reduced rate. Meaning, she says, the industry plays a vital role in the credit ecosystem. What do you think about that?
LEVEY: I think it’s hard to argue with her. Her observation that the debt market around medical debt is a symptom of a broader issue. There would be no market for medical debt if we didn’t have medical debt to begin with, clearly, and there would be no sale of medical debt if hospitals. didn’t sell patient debt.
I think it’s also true that the industry, particularly around medical debt, is probably a bit more, a little less like the Wild West than it was a couple of decades ago. The problem is that notwithstanding efforts at self-regulation, there’s a fair amount of evidence that there are considerable problems in how debts are being sold, the documentation that exists, the controls around personal information, and maybe we can talk about a little bit more about that later.
This article was originally published on WBUR.org.
Copyright 2023 NPR. To see more, visit https://www.npr.org.