States Toughen Rules on Healthcare Collections

As more Americans lose or can’t afford health care coverage, states are not only adopting their own universal coverage plans, some are passing legislation that will affect how health care service creditors and their collection consultants recover debt, according to a report published today from Kaulkin Media’s Analyst Group.

The report, “Curses or Cures” points out that in 2007 bills passed or became effective in four states—California, Illinois, Nevada, and North Dakota— that address hospitals’ late payment and interest fees. The legislation also addresses charity care, discount payment policies, property liens, and compliance with the federal Fair Debt Collection Practices Act (FDCPA). 

In almost all cases, the new laws apply to hospitals, collection agencies, debt buyers, and collection law firms, if existing state or federal law does not already apply, said Michael Klozotsky, healthcare analyst for Kauklin Media.  

Klozotsky said states are reacting to allegations of abusive collection tactics.  State legislators, impatient with a sluggish federal response to the problem, are taking matters into their own hands, he said.

“State’s have recognized that given the number of uninsured citizens or people under financial kinds of constraints, aggressive tactics to collect debt from people in financial trouble doesn’t do service to citizens of those states,” Klozotsky said. “They want to be sure that medical debt is being collected in appropriate and legal ways.”   

The paper reports that the new state laws range from those that forbid hospitals that offer extended payment plans from charging interest if patients are adhering to a payment schedule, to others that limit interest, fees or collection referrals for a set number of days after an initial billing.

California’s law also forbids hospitals from garnishing wages or placing a lien on a debtor’s primary residence as a way to collect payment if the patient received care under a hospital’s charity care or discount payment policies, according to the report.

Klozotsky said Nevada’s law AB 247 is perhaps the most “invasive”, because it established a strict statute of limitations for collections. For example, it forbids hospitals from assigning fees for contingency collections onto a debtor’s account and transferring a real property lien to a portfolio debt buyer. The restrictions seek to curb some abuses that may occur after the debt is sold.