Medical Debt--Who Knew?!

​NAELA News Home - NAELA News July/August/September 2019Health Care Section
Medical Debt and Older AmericansBy Josh Ard, Esq.

Most elder law attorneys have little training and little experience in counseling clients about medical debt. There are certain things we ought to know and communicate to clients, preferably to avoid problems before they arise.

Medical debt is a major problem for Americans in general and older Americans in particular. Some of Sen. Elizabeth Warren’s research while on the faculty at Harvard Law School demonstrated the role of medical debt in bankruptcy filings.1 Older Americans are even more likely to file for bankruptcy over medical debts. Forty percent of those filers had trouble paying Medicare premiums and co-pays.
Most elder law attorneys have little training and little experience in counseling clients about such problems. There are certain things we ought to know and communicate to clients, preferably to avoid problems before they arise.
The National Center on Law and Elder Rights https://ncler.acl.gov/Resources.aspx), the National Consumer Law Center (https://www.nclc.org/issues/debt-collection.html), and other organizations have created materials and trainings that are very helpful in this regard.
The Affordable Care Act and Nonprofit Hospitals
Perhaps the most important recent changes in medical debt come from provisions regulating nonprofit hospitals included in the Affordable Care Act. These are a part of the Internal Revenue Code and administered by the IRS. Nonprofit hospitals have to report their activities on Form 990, Schedule H, and violations could lead to loss of nonprofit status. The final regulations were released on December 29, 2014, and apply to tax years beginning on December 29, 2015. The IRS overview, “Requirements for 501(c)(3) Hospitals Under the Affordable CareAct—Section 5019(r),” is available at https://tinyurl.com/ycggyp2p.
Nonprofit hospitals must have a written Financial Assistance Policy (FAP) that applies to all emergency and medically necessary care provided by the hospital and by a substantially related entity. The FAP must be widely publicized and include:
• Eligibility criteria for financial assistance and whether such assistance includes free or discounted care,
• The basis for calculating amounts charged to patients,
• The method for applying for financial assistance,
• For a hospital facility that does not have a separate billing and collections policy, the actions that may be taken in the event of nonpayment,
• If applicable, any information obtained from sources other than an individual seeking financial assistance that the hospital facility uses, and whether and under what circumstances it uses prior FAP-eligibility determinations to presumptively determine that the individual is FAP-eligible, and
• A list of any providers, other than the hospital facility itself, delivering emergency or other medically necessary care in the hospital facility that specifies which providers are covered by the FAP and which are not.
The FAP must describe the eligibility criteria. These eligibility criteria are not specified by the IRS, except that they must be reasonable for the community. Thus, unlike Medicaid, there is no nationwide or local source where one could simply look up to see if a person is eligible.
The FAP regulations place further requirement on plain language, usability (e.g., internet information must be available without a fee), and translation into other language when there are a significant number of speakers of that language in the community.
There are limits on the charge that can be made to FAP-eligible patients, even if they have not yet applied for financial assistance. In particular, nonprofit hospitals cannot charge FAP-eligible patients more than the “amount generally billed,” a technical term fleshed out in the IRS regulations. In essence, this prevents charging more than the amounts typically billed to insurance companies. Before this law went into effect, some nonprofit hospitals were notorious for charging very high rates to indigent patients in part to discourage them from seeking medical care.
Nonprofit hospitals are also required to make reasonable efforts to determine whether an individual is FAP-eligible before engaging in extraordinary collection actions (ECA). ECAs are defined as actions taken by a hospital facility against an individual related to obtaining payment of a bill for care covered under the hospital facility’s FAP that:
• Involve selling an individual’s debt to another party,
• Involve reporting adverse information about an individual to consumer credit reporting agencies or credit bureaus (collectively, “credit agencies”),
• Involve deferring or denying, or requiring a payment before providing, medically necessary care because of an individual’s non-payment of one or more bills for previously provided care covered under the hospital facility’s FAP, or
• Require a legal or judicial process.
Examples of actions that may require a legal or judicial process include, but are not limited to:
• Placing a lien on an individual’s property,
• Foreclosing on an individual’s real property,
• Attaching or seizing an individual’s bank account or any 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, and
• Garnishing an individual’s wages.
Hence, persons in financial difficulty should always seek care at nonprofit hospitals. For-profit hospitals are not subject to these requirements.
A state may place further requirements on nonprofit hospitals. Nonprofits also receive major state tax benefits on both sales and property taxes and a state may require certain behaviors to retain those benefits.
Other Important Laws
There are other laws that are helpful in dealing with medical debt. The three largest credit reporting agencies — Experian, Equifax, and TransUnion — agreed in a settlement with state attorneys general to no longer report medical debts that are less than six months past due and to remove any debts that are later paid by insurance.
The Fair Debt Collection Practices Act forbids a debt collector from taking steps to collect debts that are unenforceable. Note that it only applies to debt collectors. In particular, it does not apply to hospitals, doctors, or other medical providers attempting to collect their own debts. It applies to any debt collector trying to collect after a demand isn’t paid, including lawyers. Prevailing plaintiffs can obtain statutory damages if actual damages are hard to prove or negligible plus attorney fees.
Medical Debt and Spouses
A special consideration is when one spouse is billed for the medical debts of another under the doctrine of necessaries. Some states have overturned that common law rule by statutes and in others courts have rejected it. Note that the federal Equal Credit Opportunity Act expressly forbids creditors from requiring one spouse to cosign for the sole debts of the other. That act has even higher statutory damages than the Fair Debt Collection Practices Act.
Even if there is no actual violation of the law, persons faced with medical debt have rights of appeal and the right to negotiation over amounts.
Citation
1 David U. Himmelstein, Deborah Thorne, Elizabeth Warren, and Steffie Woolhandler, Medical Bankruptcy in the United States, 2007: Results of a National Study, Am. J. of Med., Vol. 122, Issue 8, 741-746 (Aug. 2009). The results have been challenged as being exaggerated. See, for example, https://www.pymnts.com/healthcare/2018/bankruptcy-medical-debt-hospital-bills-elizabeth-warren/ where some of the competing research is summarized. According to that site, “What both the new research and Ms. Warren’s original paper agree on is that it’s not just medical bills that push sick people toward bankruptcy, but the lost income due to illness that disrupts consumers’ financial lives to the point that they are pushed to complete insolvency by a medical emergency.

About the Author
Josh Ard, JD, is principal of The Law Office of Josh Ard, Delaware, Ohio. He is a member of the NAELA News Editorial Board.