Medicare Advantage and commercial claims denials have spiked across the country, leaving hospitals increasingly financially strapped, according to research published Nov. 17 by the American Hospital Association and Syntellis.
The report analyzed data from a national sample of 1,300 hospitals and health systems. From January 2022 to July 2023, revenue reductions related to Medicare Advantage denials increased 55.7% for the median hospital. During the same period, denial-related revenue reductions rose 20.2% for commercial plans. For denials relative to net patient service revenue for the median hospital, Medicare Advantage plans saw an increase of 63.3% and commercial plans rose 20%.
“[Hospitals] must take larger revenue reductions to account for those lost reimbursements from commercial payers and Medicare Advantage plans, which cover more than 31 million Americans and make up about half of all Medicare beneficiaries,” the report said. “The challenges will only worsen as Medicare Advantage enrollment continues to grow.”
In November 2022, an AHA survey found that half of hospitals and health systems reported having more than $100 million in unpaid claims that were more than 6 months old. As of June 2023, health systems had a median of 124 days cash on hand, down from 173 days in January 2022.
The new data coincides with recent reporting from Becker’s about hospitals across the country that have ended some or all Medicare Advantage contracts. The reasons behind contract terminations vary by system and by payer offering the plan. Some systems have cited steep losses amid excessive prior authorization denial rates and slow payments from insurers. Others have noted that most MA carriers have faced allegations of billing fraud from the federal government and are being probed by lawmakers over their high denial rates.
“It’s become a game of delay, deny and not pay,” Chris Van Gorder, president and CEO of San Diego-based Scripps Health, told Becker’s in September.
According to data shared with Becker’s by FTI Consulting, among the 64 contract disputes reported in the media this year through Sept. 30, 37 involved Medicare Advantage plans, and 10 disputes exclusively involved MA plans. In the third quarter alone, 15 disputes involved MA plans, compared to seven in the third quarter of 2022, a 115% increase year over year.
Hospitals and health systems are seeing some signs of stabilization in 2023 following an extremely difficult year in 2022. Workforce-related challenges persist, however, keeping costs high and contributing to issues with patient access to care. The percentage of respondents who report that they have run at less than full capacity at some time over the past year because of staffing shortages, for example, remains at 66%, unchanged from last year’s State of Healthcare Performance Improvement report. A solid majority of respondents (63%) are struggling to meet demand within their physician enterprise, with patient concerns or complaints about access to physician clinics increasing at approximately one-third (32%) of respondent organizations.
Most organizations are pursuing multiple strategies to recruit and retain staff. They recognize, however, that this is an issue that will take years to resolve—especially with respect to nursing staff—as an older generation of talent moves toward retirement and current educational pipelines fail to generate an adequate flow of new talent. One bright spot is utilization of contract labor, which is decreasing at almost two-thirds (60%) of respondent organizations.
Many of the organizations we interviewed have recovered from a year of negative or breakeven operating margins. But most foresee a slow climb back to the 3% to 4% operating margins that help ensure long-term sustainability, with adequate resources to make needed investments for the future. Difficulties with financial performance are reflected in the relatively high percentage of respondents (24%) who report that their organization has faced challenges with respect to debt covenants over the past year, and the even higher percentage (34%) who foresee challenges over the coming year. Interviews confirmed that some of these challenges were “near misses,” not an actual breach of covenants, but hitting key metrics such as days cash on hand and debt service coverage ratios remains a concern.
As in last year’s survey, an increased rate of claims denials has had the most significant impact on revenue cycle over the past year. Interviewees confirm that this is an issue across health plans, but it seems particularly acute in markets with a higher penetration of Medicare Advantage plans. A significant percentage of respondents also report a lower percentage of commercially insured patients (52%), an increase in bad debt and uncompensated care (50%), and a higher percentage of Medicaid patients (47%).
Supply chain issues are concentrated largely in distribution delays and raw product and sourcing availability. These issues are sometimes connected when difficulties sourcing raw materials result in distribution delays. The most common measures organizations are taking to mitigate these issues are defining approved vendor product substitutes (82%) and increasing inventory levels (57%). Also, as care delivery continues to migrate to outpatient settings, organizations are working to standardize supplies across their non-acute settings and align acute and non-acute ordering to the extent possible to secure volume discounts.
Survey Highlights
98% of respondents are pursuing one or more recruitment and retention strategies
90%have raised starting salaries or the minimum wage
73%report an increased rate of claims denials
71% are encountering distribution delays in their supply chain
70%are boarding patients in the emergency department or post-anesthesia care unit because of a lack of staffing or bed capacity
66% report that staffing shortages have required their organization to run at less than full capacity at some time over the past year
63% are struggling to meet demand for patient access to their physician enterprise
60% see decreasing utilization of contract labor at their organization
44%report that inpatient volumes remain below pre-pandemic levels
32% say that patients concerns or complaints about access to their physician enterprise are increasing
24%have encountered debt covenant challenges during the past 12 months
None of our respondents believe that their organization has fully optimized its use of the automation technologies in which it has already invested
Medicare Advantage provides health coverage to more than half of the nation’s seniors, but a growing number of hospitals and health systems nationwide are pushing back and dropping the private plans altogether.
Among the most commonly cited reasons are excessive prior authorization denial rates and slow payments from insurers. Some systems have noted that most MA carriers have faced allegations of billing fraud from the federal government and are being probed by lawmakers over their high denial rates.
“It’s become a game of delay, deny and not pay,” Chris Van Gorder, president and CEO of San Diego-based Scripps Health, told Becker’s.
“Providers are going to have to get out of full-risk capitation because it just doesn’t work — we’re the bottom of the food chain, and the food chain is not being fed.”
In late September, Scripps began notifying patients that it is terminating Medicare Advantage contracts for its integrated medical groups, a move that will affect more than 30,000 seniors in the region. The medical groups, Scripps Clinic and Scripps Coastal, employ more than 1,000 physicians, including advanced practitioners.
Mr. Van Gorder said the health system is facing a loss of $75 million this year on the MA contracts, which will end Dec. 31 for patients covered by UnitedHealthcare, Anthem Blue Cross, Blue Shield of California, Centene’s Health Net and a few more smaller carriers. The system will remain in network for about 13,000 MA enrollees who receive care through Scripps’ individual physician associations.
“If other organizations are experiencing what we are, it’s going to be a short period of time before they start floundering or they get out of Medicare Advantage,” he said. “I think we will see this trend continue and accelerate unless something changes.”
Bend, Ore.-based St. Charles Health System has taken it a step further and is not only considering dropping all Medicare Advantage plans, but is also encouraging its older patients not to enroll in the private Medicare plans during the upcoming enrollment period in October.
The health system’s president and CEO, CFO and chief clinical officer cited high rates of denials, longer hospital stays and overall administrative burden for clinicians.
“We recognize changing insurance options may create a temporary burden for Central Oregonians who are currently on a Medicare Advantage plan, but we ultimately believe it is the right move for patients and for our health system to be sustainable into the future to encourage patients to move away from Medicare Advantage plans as they currently exist,” St. Charles Health CFO Matt Swafford said.
“I feel terrible for the patients in this situation; it’s the last thing we wanted to do, but it’s just not sustainable with these kinds of losses,” Mr. Van Gorder added. “Patients need to be aware of how this system works. Traditional Medicare is not an issue. With these other models, seniors need to be wary and savvy buyers.”
Here are six more recent examples of hospitals dropping Medicare Advantage contracts:
1. Adena Regional Medical Center is terminating its contract with Anthem BCBS’ Medicare Advantage and managed Medicaid plans in Ohio, effective Nov. 2. The flagship facility of Chillicothe, Ohio-based Adena Health System said rate negotiations between the organizations “have not been productive,” leading it to terminate its agreement with Anthem, whose parent company is Elevance Health.
2. Corvallis, Ore.-based Samaritan Health Servicesended its commercial and Medicare Advantage contracts with UnitedHealthcare. The five-hospital, nonprofit health system cited slow “processing of requests and claims” that have made it difficult to provide appropriate care to UnitedHealth’s members, which will be out of network with Samaritan’s hospitals on Jan. 9. Samaritan’s physicians and provider services will be out of network on Nov. 1, 2024.
3. Cameron (Mo.) Regional Medical Center stopped accepting Cigna’s MA plans in 2023 and plans to drop Aetna and Humana in 2024. It plans to continue Medicare Advantage contracts with UnitedHealthcare and BCBS, the St. Joseph News-Press reported in May. Cameron Regional CEO Joe Abrutz previously told the newspaper the decision stemmed from delayed reimbursements.
4. Stillwater (Okla.) Medical Centerended all in-network contracts with Medicare Advantage plans amid financial challenges at the 117-bed hospital. Humana and BCBS of Oklahoma were notified that their MA members would no longer receive in-network coverage after Jan. 1, 2023. The hospital said it made the decision after facing rising operating costs and a 22 percent prior authorization denial rate for Medicare Advantage plans, compared to a 1 percent denial rate for traditional Medicare.
5. Brookings (S.D.) Health System will no longer be in network with any Medicare Advantage plans in 2024, the Brookings Register reported. The 49-bed, municipally owned hospital said the decision was made to protect the financial sustainability of the organization.
6. Louisville, Ky.-based Baptist Health Medical Group went out of network with Humana’s Medicare Advantage and commercial plans on Sept. 22, Fox affiliate WDRB reported.
Issue: Medical debt negatively affects many Americans, especially people of color, women, and low-income families. Federal and state governments have set some standards to protect patients from medical debt.
Goal: To evaluate the current landscape of medical debt protections at the federal and state levels and identify where they fall short.
Methods: Analysis of federal and state laws, as well as discussions with state experts in medical debt law and policy. We focus on laws and regulations governing hospitals and debt collectors.
Key Findings and Conclusion: Federal medical debt protection standards are vague and rarely enforced. Patient protections at the state level help address key gaps in federal protections. Twenty states have their own financial assistance standards, and 27 have community benefit standards. However, the strength of these standards varies widely. Relatively few states regulate billing and collections practices or limit the legal remedies available to creditors. Only five states have reporting requirements that are robust enough to identify noncompliance with state law and trends of discriminatory practices. Future patient protections could improve access to financial assistance, ensure that nonprofit hospitals are earning their tax exemption, and limit aggressive billing and collections practices.
Introduction
Medical debt, or personal debt incurred from unpaid medical bills, is a leading cause of bankruptcy in the United States. As many as 40 percent of U.S. adults, or about 100 million people, are currently in debt because of medical or dental bills. This debt can take many forms, including:
past-due payments directly owed to a health care provider
ongoing payment plans
money owed to a bank or collections agency that has been assigned or sold the medical debt
credit card debt from medical bills
money borrowed from family or friends to pay for medical bills.
This report discusses findings from our review of federal and state laws that regulate hospitals and debt collectors to protect patients from medical debt and its negative consequences. First, we briefly discuss the impact and causes of medical debt. Then, we present federal medical debt protections and discuss gaps in standards as well as enforcement. Then, we provide an overview of what states are doing to:
strengthen requirements for financial assistance and community benefits
regulate hospitals’ and debt collectors’ billing and collections activities
limit home liens, foreclosures, and wage garnishment
develop reporting systems to ensure all hospitals are adhering to standards and not disproportionately targeting people of color and low-income communities.
(See the appendix for an overview of medical debt protections in all 50 states and the District of Columbia.)
Impact of Medical Debt
More than half of people in medical and dental debt owe less than $2,500, but because most Americans cannot cover even minor emergency expenses, this debt disrupts their lives in serious ways. Fear of incurring medical debt also deters many Americans from seeking medical care. About 60 percent of adults who have incurred medical debt say they have had to cut back on basic necessities like food or clothing, and more than half the adults from low-income households (less than $40,000) report that they have used up their savings to pay for their medical debt.
A significant amount of medical debt is either sold or assigned to third-party debt-collecting agencies, who often engage in aggressive efforts to collect on the debt, creating stress for patients. Both hospitals and debt collectors have won judgments against patients, allowing them to take money directly from a patient’s paycheck or place liens on a patient’s home. In some cases, patients have also lost their homes. Medical debt can also have a negative impact on a patient’s credit score.
Key Terms Related to Medical Debt
Financial assistance policy: A hospital’s policy to provide free or discounted care to certain eligible patients. Eligibility for financial assistance can depend on income, insurance status, and/or residency status. A hospital may be required by law to have a financial assistance policy, or it may choose to implement one voluntarily. Financial assistance is frequently referred to as “charity care.”
Bad debt: Patient bills that a hospital has tried to collect on and failed. Typically, hospitals are not supposed to pursue collections for bills that qualify for financial assistance or charity care, so bad debt refers to debt owed by patients ineligible for financial assistance.
Community benefit requirements: Nonprofit hospitals are required by federal law and some state laws to provide community benefits, such as financial assistance and other investments targeting community need, in exchange for a tax exemption.
Debt collectors or collections agencies: Entities whose business model primarily relies on collecting unpaid debt. They can either collect on behalf of a hospital (while the hospital still technically holds the debt) or buy the debt from a hospital.
Sale of medical debt: Hospitals sometimes sell the debt patients owe them to third-party debt buyers, who can be aggressive in seeking repayment of the debt.
Creditor: A party that is owed the medical debt and often wants to collect on the medical debt. This can be a hospital, a debt collector acting on behalf of a hospital, or a third-party debt buyer.
Debtor: A patient who owes medical debt over unpaid medical bills.
Wage garnishment: The ability of a creditor to get a court order that would allow them to deduct a portion of a debtor-patient’s paycheck before it reaches the patient. Federal law limits how much can be withheld from a debtor’s paycheck, and some states exceed this federal protection.
Placing a lien: A legal claim that a creditor can place on a patient’s home, prohibiting the patient from selling, transferring, or refinancing their home without first paying off the creditor. Most states require creditors to get a court order before placing a lien on a home.
Foreclosure or forced sale: A creditor can repossess and sell a patient’s home to pay off their medical debt. Often, creditors are required to obtain a court order to do so.
Perhaps what is most troubling is that the burden of medical debt is not borne equally: Black and Hispanic/Latino adults and women are much more likely to incur medical debt. Black adults also tend to be sued more often as a result. Uninsured patients, those from low-income households, adults with disabilities, and young families with children are all at a heightened risk of being saddled with medical debt.
Causes of Medical Debt
Most people — 72 percent, according to one estimate — attribute their medical debt to bills from acute care, such as a single hospital stay or treatment for an accident. Nearly 30 percent of adults who owe medical debt owe it entirely for hospital bills.
Although uninsured patients are more likely to owe medical debt than insured patients, having insurance does not fully shield patients from medical debt and all its consequences. More than 40 percent of insured adults report incurring medical debt, likely because they either had a gap in their coverage or were enrolled in insurance with inadequate coverage. High deductibles and cost sharing can leave many exposed to unexpected medical expenses.
The problem of medical debt is further exacerbated by hospitals charging increasingly high prices for medical care and failing to provide adequate financial assistance to uninsured and underinsured patients with low income.
Key Findings
Federal Medical Debt Protections Have Many Gaps
At the federal level, the tax code, enforced by the Internal Revenue Service (IRS), requires nonprofit hospitals to broadly address medical debt. However, these requirements do not extend to for-profit hospitals (which make up about a quarter of U.S. hospitals) and have other limitations.
Further, the IRS does not have a strong track record of enforcing these requirements. In the past 10 years, the IRS has not revoked any hospital’s nonprofit status for noncompliance with these standards.
The Consumer Financial Protection Bureau and the Federal Trade Commission have additional oversight authority over credit reporting and debt collectors. The Fair Credit Reporting Act regulates credit reporting agencies and those that provide information to them (debt collectors and hospitals). Consumers have the right to dispute any incomplete or inaccurate information and remove any outdated, negative information. In some cases, patients can directly sue hospitals or debt collectors for inaccurately reporting medical debt to credit reporting agencies. In addition, the Federal Debt Collection Practices Act limits how aggressive debt collectors can be by restricting the ways and times in which they can contact debtors, requiring certain disclosures and notifications, and prohibiting unfair or deceptive practices. Patients can directly sue debt collectors in violation of the law. This law, however, does not limit or prohibit the use of certain legal remedies, like wage garnishment or foreclosure, to collect on a debt.
Many states have taken steps to fill the gaps in federal standards. Within a state, several agencies may play a role in enforcing medical debt protections. Generally speaking:
state departments of health are the primary regulators of hospitals and set standards for them
state departments of taxation are responsible for ensuring nonprofit hospitals are earning their exemption from state taxes
state attorneys general protect consumers from unfair and deceptive business practices by hospitals and debt collectors.
Fewer Than Half of States Exceed Federal Requirements for Financial Assistance, Protections Vary Widely
Federal law requires nonprofit hospitals to establish and publicize a written financial assistance policy, but these standards leave out for-profit hospitals and lack any minimum eligibility requirements. As the primary regulators of hospitals, states have the ability to fill these gaps and require hospitals to provide financial assistance to low-income residents. Twenty states require hospitals to provide financial assistance and set certain minimum standards that exceed the federal standard.
All but three of these 20 states extend their financial assistance requirements to for-profit hospitals. Of these 20 states, four states — Connecticut, Georgia, Nevada, and New York — apply their financial assistance requirements only to certain types of hospitals.
Policies also vary among the 31 states that do not have statutory or regulatory financial assistance requirements for hospitals. For example, the Minnesota attorney general has an agreement in place with nearly every hospital in the state to adhere to certain patient protections, though it falls short of requiring hospitals to provide financial assistance. Massachusetts operates a state-run financial assistance program partly funded through hospital assessments. Other states use far less prescriptive mechanisms to try to ensure that patients have access to financial assistance, such as placing the onus of treating low-income patients on individual counties or requiring hospitals to have a plan for treating low-income and/or uninsured patients without setting any specific requirements.
Enforcement of state financial assistance standards.
The only way to enforce the federal financial assistance requirement is to threaten a hospital’s nonprofit status, and the IRS has been reluctant to use this authority. Among the 20 states that have their own state financial assistance standards, 10 require compliance as a condition of licensure or as a legal mandate. These mandates are often coupled with administrative penalties, but some states have established additional consequences. For example, Maine allows patients to sue noncompliant hospitals.
Six states make compliance with their financial assistance standards a condition of receiving funding from the state. Two other states use their certificate-of-need process (which requires hospitals to seek the state’s approval before establishing new facilities or expanding an existing facility’s services) to impose their financial assistance mandates.
Setting eligibility requirements for financial assistance.
The federal financial assistance standard sets no minimum eligibility requirements for hospitals to follow. However, the 20 states with financial assistance standards define which residents are eligible for aid.
One way for states to ensure that financial assistance is available to those most in need is to prevent hospitals from discriminating against undocumented immigrants. Four states explicitly prohibit such discrimination in statute and regulation. Most states, however, are less explicit. Thirteen states define eligibility broadly, basing it most frequently on income, insurance status, and state residency. However, it is unclear how hospitals are interpreting this requirement when it comes to patients’ immigration status. In contrast, three states explicitly exclude undocumented immigrants from eligibility.
States also vary widely in terms of which income brackets are eligible for financial assistance and how much financial assistance they may receive.
At least three of the 20 states with financial assistance standards allow certain patients with heavy out-of-pocket medical expenses from catastrophic illness or prior medical debt to access financial assistance. Many states also require hospitals to consider a patient’s insurance status when making financial assistance determinations. At least six states make financial assistance available for uninsured patients only, while at least eight others also make financial assistance available to underinsured patients.
Standardizing the application process.
Cumbersome applications can discourage many patients from applying for financial assistance. Five states have developed a uniform application form, while three others have set minimum standards for financial assistance applications. Eleven states require hospitals to give patients the right to appeal a denial of financial assistance.
States Split in Requiring Nonprofit Hospitals to Invest in Community Benefits
Federal and state policymakers also can require nonprofit hospitals to invest in community benefits in return for tax exemptions. Federal law requires nonprofit hospitals to produce a community health needs assessment every three years and have an implementation strategy. Almost all states exempt nonprofit hospitals from a host of state taxes, including income, property, and/or sales taxes. However, only 27 impose community benefit requirements on nonprofit hospitals.
Community benefits frequently include financial assistance but also investments that address issues like lack of access to food and housing. In the long run, these investments can reduce medical debt burden by improving population health and the financial stability of a community. Most states that require nonprofit hospitals to provide community benefits allow nonprofit hospitals to choose how they invest their community benefit dollars. This hands-off approach has given rise to concerns about the lack of transparency in community benefit spending as well as questions about whether hospitals are investing this money in ways that are most helpful to the community, such as in providing financial assistance.
Applicability of community benefit standards.
Nineteen states impose community benefit requirements on all nonprofit hospitals in the state, but three states further limit these requirements to hospitals of a certain size. At least six states have extended these requirements to for-profit hospitals as well. Of these six, the District of Columbia, South Carolina, and Virginia have incorporated community benefit requirements into their certificate-of-need laws instead of their tax laws. As a result, any hospital seeking to expand in these states becomes subject to their community benefit requirement.
Interaction between financial assistance and community benefits.
The federal standard allows nonprofit hospitals to report financial assistance as part of their community benefit spending. Most states with community benefit requirements also allow hospitals to do this. However, only seven states require hospitals to provide financial assistance to satisfy their community benefit obligations.
Setting quantitative standards for community benefit spending.
Only seven states set minimum spending thresholds that hospitals must meet or exceed to satisfy state community benefit standards. For example, Illinois and Utah require nonprofit hospitals’ community benefit contributions to equal what their property tax liability would have been. Unique among states, Pennsylvania gives taxing districts the right to sue nonprofit hospitals for not holding up their end of the bargain, which has proven to be a strong enforcement mechanism.
Fewer Than Half the States Exceed Federal Standards for Billing and Collections
Hospital billing and collections practices can significantly increase the burden of medical debt on patients. However, the current federal standard does not regulate these practices beyond imposing waiting periods and prior notification requirements for certain extraordinary collections actions (ECAs), such as garnishing wages or selling the debt to a third party.
Requiring hospitals to provide payment plans.
Federal standards do not require hospitals to make payment plans available. However, a few states do require hospitals to offer payment plans, particularly for low-income and/or uninsured patients. For example, Colorado requires hospitals to provide a payment plan and limit monthly payments to 4 percent of a patient’s monthly gross income and to discharge the debt once the patient has made 36 payments.
Limiting interest on medical debt.
Federal law does not limit the amount of interest that can be charged on medical debt. However, eight states have laws prohibiting or limiting interest for medical debt. Some states like Arizona have set a ceiling for interest on all medical debt. Others like Connecticut further prohibit charging interest to patients who are at or below 250 percent of the federal poverty level and are ineligible for public insurance programs.
Though many states do not have specific laws prohibiting or limiting interest that hospitals or debt collectors can charge on medical debt, all states do have usury laws, which limit the amount of interest than can be charged on any oral or written agreement. Usury limits are set state-by-state and can range anywhere from 5 percent to more than 20 percent, but most limits fall well below the average interest rate for a credit card (around 24%). At least one state, Minnesota, has sued a health system for charging interest rates on medical debt that exceeded the allowed limit in the state’s usury laws.
Interactions between hospitals, third-party debt collectors, and patients.
Unlike hospitals, debt collectors do not have a relationship with patients and can be more aggressive when collecting on the debt. Federal law neither limits when a hospital can send a bill to collections, nor does it require hospitals to oversee the debt collectors it uses. Most states (37) also do not regulate when a hospital can send a bill to collections, although some states have developed more protective approaches.
For example, Connecticut prohibits hospitals from sending the bills of certain low-income patients to collections, and Illinois requires hospitals to offer a reasonable payment plan first. Additionally, five states require hospitals to oversee their debt collectors.
Sale of medical debt to third-party debt buyers.
Hospitals sometimes sell old unpaid debt to third-party debt buyers for pennies on the dollar. Debt buyers can be aggressive in their efforts to collect, and sometimes even try to collect on debt that was never owed. Federal law considers the sale of medical debt an ECA and requires nonprofit hospitals to follow certain notice and waiting requirements before initiating the sale. Most states (44) do not exceed this federal standard.
Only three states prohibit the sale of medical debt. Two other states — California and Colorado — regulate debt buyers instead. For example, California prohibits debt buyers from charging interest or fees, and Colorado prohibits them from foreclosing on a patient’s home.
Reporting medical debt to credit reporting agencies.
Federal law considers reporting medical debt to a credit reporting agency to be an ECA and requires nonprofit hospitals to follow certain notice and waiting requirements beforehand. Most states (41) do not exceed this federal standard.
Of the 10 states that do go beyond the federal standard, a few like Minnesota fully prohibit hospitals from reporting medical debt. Most others require hospitals, debt collectors, and/or debt buyers to wait a certain amount of time before reporting the debt to credit agencies (Exhibit 8). Two states directly regulate credit agencies: Colorado prohibits them from reporting on any medical debt under $726,200, while Maine requires them to wait at least 180 days from the date of first delinquency before reporting that debt.
States Vary Widely on Patient Protections from Medical Debt Lawsuits
Federal law considers initiating legal action to collect on unpaid medical bills to be an extraordinary collections action and also limits how much of a debtor’s paycheck can be garnished to pay a debt.
In most states, hospitals and debt buyers can sue patients to collect on unpaid medical bills. Three states limit when hospitals and/or collections agencies can initiate legal action. Illinois prohibits lawsuits against uninsured patients who demonstrate an inability to pay. Minnesota prohibits hospitals from giving “blanket approval” to collections agencies to pursue legal action, and Idaho prohibits the initiation of lawsuits until 90 days after the insurer adjudicates the claim, all appeals are exhausted, and the patient receives notice of the outstanding balance.
Liens and foreclosures.
Most states (32) do not limit hospitals, collections agencies, or debt buyers from placing a lien or foreclosing on a patient’s home to recover on unpaid medical bills. However, almost all states provide a homestead exemption, which protects some equity in a debtor’s home from being seized by creditors during bankruptcy. The amount of homestead exemption available to debtors varies from state to state, ranging from just $5,000 to the entire value of the home. Seven states have unlimited homestead exemptions, allowing debtors to fully shield their primary homes from creditors during bankruptcy. Additionally, Louisiana offers an unlimited homestead exemption for certain uninsured, low-income patients with at least $10,000 in medical bills.
Ten states prohibit or set limits on liens or foreclosures for medical debt. For example, New York and Maryland fully prohibit both liens and foreclosures because of medical debt, while California and New Mexico only prohibit them for certain low-income populations.
Wage garnishment.
Under federal law, the amount of wages garnished weekly may not exceed the lesser of: 25 percent of the employee’s disposable earnings, or the amount by which an employee’s disposable earnings are greater than 30 times the federal minimum wage. Twenty-one states exceed the federal ceiling for wage garnishment. Only a few states go further to prohibit wage garnishment for all or some patients. For example, New York fully prohibits wage garnishment to recover on medical debt for all patients, yet California only extends this protection for certain low-income populations. While New Hampshire does not prohibit wage garnishment, it requires the creditor to keep going back to court every pay period to garnish wages, which significantly limits creditors’ ability to garnish wages in practice.
Many States Have Hospital Reporting Requirements, But Few Are Robust
Federal law requires all nonprofit hospitals to submit an annual tax form including total dollar amounts spent on financial assistance and written off as bad debt. However, these reporting requirements do not extend to for-profit hospitals and lack granularity. States, as the primary regulators of hospitals, would likely benefit from more robust data collection processes to better understand the impact of medical debt and guide their oversight and enforcement efforts.
Currently, 32 states collect some of the following:
financial data, including the total dollar amounts spent on financial assistance and/or bad debt
financial assistance program data, including the numbers of applications received, approved, denied, and appealed
demographic data on the populations most affected by medical debt
information on the number of lawsuits and types of judgments sought by hospitals against patients.
Fifteen states explicitly require hospitals to report total dollar amounts spent on financial assistance and/or bad debt, while 11 states also require hospitals to report certain data related to their financial assistance programs. Most of these 11 states limit the data they collect to the numbers of applications received, approved, denied, and appealed. However, a handful of them go further and ask hospitals to report on the amount of financial assistance provided per patient, number of financial assistance applicants approved and denied by zip code, number of payment plans created and completed, and number of accounts sent to collections.
Five states require hospitals to further break down their financial assistance data by race, ethnicity, gender, and/or preferred or primary language. For example, Maryland requires hospitals to break down the following data by race, ethnicity, and gender: the bills hospitals write off as bad debt and the number of patients against whom the hospital or the debt collector has filed a lawsuit.
Only Oregon asks hospitals to report on the number of patient accounts they refer for collections and extraordinary collections actions.
Discussion and Policy Implications
In 2022, the federal government announced administrative measures targeting the medical debt problem, which included launching a study of hospital billing practices and prohibiting federal government lenders from considering medical debt when making decisions on loan and mortgage applications. Although these measures will help some, only federal legislation and enhanced oversight will likely address current gaps in federal standards.
States can also fill the gaps in federal patient protections by improving access to financial assistance, ensuring that nonprofit hospitals are earning their tax exemption, and protecting patients against aggressive billing and collections practices. States also can leverage underutilized usury laws to protect their residents from medical debt.
Finding the most effective ways to enforce these standards at the state level could also protect patients. Absent oversight and enforcement, patients from underserved communities continue to face harm from medical debt, even when states require hospitals to provide financial assistance and prohibit them from engaging in aggressive collections practices. Bolstering reporting requirements alone would not likely ensure compliance, but states could protect patients by strengthening their penalties, providing patients with the right to sue noncompliant hospitals, and devoting funding to increase oversight by state agency officials.
To develop a comprehensive medical debt protection framework, states could also bring together state agencies like their departments of health, insurance, and taxation, as well as their state attorney general’s office. Creating an interagency office dedicated to medical debt protection would allow for greater efficiency and help the state build expertise to take on the well-resourced debt collection and hospital industries.
Still, these measures only address the symptoms of the bigger problem: the unaffordability of health care in the United States. Federal and state policymakers who want to have a meaningful impact on the medical debt problem could consider the protections discussed in this report as part of a broader plan to reduce health care costs and improve coverage.
Hospital and insurer contract negotiations are often framed as an industry gauntlet, a defined period of time with an objective outcome where big talk does not translate to money. But reimbursement rates secured in new contracts are only one piece of hospitals’ payer-induced headaches.
Traditionally, a health system and commercial insurer would occasionally run into a wall in the contract negotiation process. This could play out into a dispute palpable enough to consumers that it warranted headlines. These impasses generally lasted a matter of weeks with no significant disruptions before outside pressure drove the parties to compromise.
Over the past five years or so, the nature of provider-payer conflicts intensified and may be on the cusp of unprecedented severity given health systems’ financial pressures. At the same time, agreed-upon reimbursement rates are only the tip of the iceberg when it comes to payment health systems can expect from commercial insurers, who have many more defensive plays in their playbook.
They boil down to a classic line from a 1968 movie: deny, deny, deny.
Russ Johnson is CEO of LMH Health, a 102-year-old, independent, nonprofit health system based in Lawrence, Kan. The $350 million organization is anchored by a 174-bed hospital. As he puts it: “We’re not tiny, but we’re not very big.”
Mr. Johnson has spent 37 years working in healthcare, holding senior leadership positions in hospitals and health systems in rural communities and large cities. It’s difficult to identify many things going well when it comes to provider-payer relationships, but Mr. Johnson told Becker’s that it’s the payer movements beneath the reimbursement rates that are worsening and causing greater pain today.
“The part that’s getting worse is the practices behind and underneath the contracts — the sophistication and implementation of pay practices, information systems, artificial intelligence and computer algorithms that are just denying claims by the thousands every month,” he said.
The reimbursement rates secured in contracts are what you can see above water. Beneath, health insurers are moving faster and kicking harder. Throughout the first three months of 2023, about one-third of inpatient and outpatient claims submitted by providers to commercial payers went unpaid for more than 90 days, according to an analysis from Crowe.
“So many more claims are now surfacing with some kind of a fallout on a denial, a downcoding or a pre-authorization — you know, the proverbial dotting the i’s and crossing the t’s, sometimes. But what is abundantly clear is it is not fundamentally about a clinical difference,” Mr. Johnson said.
Denials were once reserved for a sliver of expensive treatments and have now become common occurrence for mundane, ordinary medical care and treatments such as inhalers or familiar medications for chronic conditions a patient has managed for years. The administrative burden is something close to a requirement to prove residency every month to receive electricity or verifying eligibility to work in the U.S. every week for a paycheck — redundant, time-wasting activity for ordinary, essential things.
“For our business office to keep up with what I frankly think is mischief by the payers in terms of denials, pre-authorization, DRG downcoding and a completely unengaged experience trying to negotiate — or to have our physicians call in and do a peer-to-peer conferences about clinical necessity — it’s demoralizing, frankly,” Mr. Johnson said. “Dealing with denial from our payers is one of the biggest dissatisfiers our physicians face.”
Authors of the 2010 Affordable Care Act worried that provisions to expand health insurance access — such as barring health insurers’ refusal to cover patients with preexisting conditions — could cause them to ratchet up other tactics to make up for the change. With this in mind, the law charged HHS with monitoring health plan denial rates, but oversight has been unfulfilled, leaving denials widespread.
Data and numbers on denial rates are not easy to find, but some examination paints a picture rich with variation. An analysis of 2021 plans on Healthcare.gov conducted by KFF found nearly 17 percent of in-network claims were denied, with rates varying from 2 percent to 49 percent. The reasons for the bulk of denials are unclear. About 14 percent were attributed to an excluded service, 8 percent to lack of pre-authorization or referral and 2 percent to questions of medical necessity. A whopping 77 percent were classified as “all other reasons.”
Adding to the inconsistency is the fact that health plan denial rates fluctuate year over year. In 2020, a gold-level health plan offered by Oscar Insurance in Florida denied 66 percent of payment requests; in 2021 it denied 7 percent.
There is much to learn about the ways AI will shape healthcare, and its potential to further expedite and increase denials is concerning. Cigna faces a class-action lawsuit alleging it bypassed requirements for claim review before denial by having an algorithm — dubbed “PXDX” — complete review before having physicians sign off on batches of denied claims. The lawsuit followed a ProPublica report on the practice, which said Cigna physicians denied more than 300,000 claims over two months in 2022 through the system, which equated to 1.2 seconds of review per claim on average.
AI is often touted as a potential, looming replacement to hardworking healthcare professionals, but in the day to day it exacerbates the administrative burdens that already bring them down.
“Nobody becomes a physician because they hope to feel like a cog in a factory,” Michael Ivy, MD, deputy chief medical officer of Yale New Haven (Conn.) Health, told Becker’s. “However, between meeting the demands of payers for referrals, denials of payment and increased documentation requirements in order to assure proper reimbursement and risk adjustment, as well as an increasing number of production metrics, it can be difficult not to feel like a cog.”
This week, the Centers for Medicare and Medicaid Services (CMS) for the second time suspended the arbitration process, outlined in the No Surprises Act, for new out-of-network payment disputes between providers and payers.
Federal judge Jeremy Kernodle in the Eastern District of Texas once again sided with the Texas Medical Association (TMA) in the lawsuit, which challenged CMS’s 2023 increase in administrative fees for arbitration (from $50 to $350), as well as restrictions on batching claims, which require providers to go through a separate IDR process for each claim related to an individual’s care episode. While CMS said that it made these changes to increase arbitration efficiency, TMA argued that the changes made the IDR process cost-prohibitive for providers, particularly smaller practices.
The Gist: Implementing the No Surprises Act has been a huge headache for CMS. Since it went into effect last spring, the IDR has seen a case load nearly 14 times greater than initially estimated, and has been hampered with delays. Insurers have blamed providers for overloading the system with frivolous claims, while providers have accused insurers of ignoring payment decisions determined by third-party arbiters or declining to pay in full.
The silver lining amid all this infighting is that the No Surprises Act is successfully preventing surprise bills for many consumers, despite the intra-industry turf war over its implementation.
Seniors face more than $50 billion in unpaid medical bills, many of which they shouldn’t have to pay, according to a federal watchdog report.
In an all-too-common scenario, medical providers charge elderly patients the full price of an expensive medical service rather than work with the insurer that is supposed to cover it. If the patient doesn’t pay, the provider sends the bill into collections, setting off a round of frightening letters, humiliating phone calls and damaging credit reports.
That is one conclusion of a recent report titled Medical Billing and Collections Among Older Americans, from the Consumer Financial Protection Bureau.
The report recounts a horror story from a patient in southern Pennsylvania over a hospital visit, which should have been covered by insurance.
“I never received a bill from anyone,” the patient said in a 2022 complaint. Then came a phone call from a collection agency. “The woman on the phone started off aggressively screaming at me,” saying the patient owed $2,300.
“I told her there must be some mistake, that both Medicare and my supplement insurance would have covered it. It has in the past. She started screaming, very loud, ‘If you don’t pay me right now, I will put this on your credit report.’ I told her, ‘If you keep screaming at me, I will hang up.’ She continued, so I hung up.”
Nearly 4 million seniors reported unpaid medical bills in 2020, even though 98 percent of them had insurance, the report found. Medicare, the national health insurance program, was created to protect older Americans from burdensome medical expenses.
Total unpaid medical debt for seniors rose from $44.8 billion in 2019 to $53.8 billion in 2020, even though older adults reported fewer doctor visits and lower out-of-pocket costs in 2020.
Medical debt among seniors is rising partly because health care costs are going up, agency officials said. But much of the $53.8 billion is cumulative, they said, debt carried over from one year to the next. Figures for 2020 were the latest available.
Millions of older Americans are covered by both Medicare and Medicaid, a second federal insurance program for people of limited means. Federal and state laws widely prohibit health care providers from billing those patients for payment beyond nominal copays.
Yet, those low-income patients are more likely than wealthier seniors to report unpaid medical bills. The agency’s findings suggest that health care companies are billing low-income seniors “for amounts they don’t owe.” The findings draw from census data and consumer complaints collected between 2020 and 2022.
Many complaints depict medical providers and collection agencies relentlessly pursuing seniors for payment on bills that an insurance company has rejected over an error, rather than correcting the error and resubmitting the claim.
“Many of these errors likely are avoidable or fixable,” the report states, “but only a fraction of rejected claims are adjusted and resubmitted.”
When a patient points out the error, the creditors might agree to fix it, only to ignore that pledge and double down on the debt collection effort.
An Oklahoma senior recounted a collection agency nightmare that followed a hospital stay. After paying all legitimate bills, the patient discovered new charges from a collection agency on a credit report. In subsequent months, additional charges appeared.
The patient assembled billing statements and correspondence, hoping to clear the bogus charges. “I then proceeded to spend every weekday, all day, for two weeks on the phone, trying to find out who was billing me and why,” the patient said in a 2021 complaint.
The Oklahoman eventually paid the bills, “even though I don’t owe them.” Then, more charges appeared.
“Nice racket they have going,” the patient quipped.
As anyone with health insurance knows, medical providers occasionally charge patients for services that should have been covered by the insurer. Someone forgets to submit the claim, or types the wrong billing code or omits crucial documentation. Some providers charge patients more than the negotiated rate, a discounted fee set between the provider and insurer.
Americans spend hours of their lives disputing such charges. But many seniors aren’t up to the task.
“It’s tiring to have multiple conversations, sitting on the phone for an hour, chasing representatives,” said Genevieve Waterman, director of economic and financial security at the National Council on Aging.
“I think technology is outpacing older adults,” she said. “If you don’t have the digital literacy, you’re going to get lost.”
Older adults are more likely than younger people to have multiple chronic health conditions, which can require more detailed insurance documentation and face greater scrutiny, yielding more billing errors and denied claims, the federal report says.
Seniors are also more likely to rely on more than one insurance plan. As of 2020, two-thirds of older adults with unpaid medical bills had two or more sources of insurance.
Multiple insurers means a more complex billing process, making it harder for either patient or provider to file a claim and see that it is paid. With Medicaid, “you have 50 states, plus the territories,” said one official from the federal agency, speaking on condition of anonymity. “They each have their own billing system.”
In an analysis of Medicare complaints filed between 2020 and 2022, the agency found that 53 percent involved debt collectors seeking money the patient didn’t owe. In a smaller share of cases, patients reported that collection agents threatened punitive action or made false statements to press their case.
The complaints “illustrate how difficult it is to identify an inaccurate bill, learn where it originated, and correct other people’s mistakes,” the report states. “Some providers refuse to talk to consumers because the account has already been referred to collections. Even when providers seem willing to correct their own mistakes, debt collectors may continue attempting to collect a debt that is not owed and refuse to stop reporting inaccurate data.”
Rather than carry on a fight with collection agents over multiple rounds of calls and correspondence, many seniors become ensnared in a “doom loop,” the report says, convinced their appeal is hopeless. They pay the erroneous bill.
“I think some people get to the point where they just throw up their hands and give up a credit card number just to make the problem go away,” said Juliette Cubanski, deputy director of the Program on Medicare Policy at KFF.
Debt takes a toll on the mental and physical health of seniors, research has shown. Older adults with debt are more prone to a range of ailments, including hypertension, cancer and depression.
As the Oklahoma patient said, recalling a years-long battle over unpaid bills, “It nearly sent me back to the hospital.”
HENRY KOTULA 