The pressure to offload bad debt is increasing in health care, say industry advisors.

May 18—The U.S. Supreme Court ruled that debt collectors and debt buyers don’t violate federal law when they pursue debts in bankruptcy that exceed state time limits on collection.

On May 15, the high court issued a 5-3 decision in Midland Funding, LLC v. Johnson that filing of a proof of claim that is obviously time-barred “is not a false, deceptive, misleading, unfair, or unconscionable debt collection practice within the meaning of the Fair Debt Collection Practices Act,” as Justice Stephen Breyer wrote in the majority opinion.

Breyer was joined in his decision by Chief Justice John Roberts, Jr. and Justices Anthony Kennedy, Clarence Thomas, and Samuel Alito, Jr.

The dissenting opinion was authored by Justice Sonia Sotomayor.

“It takes only the common sense to conclude that one should not be able to profit on the inadvertent inattention of others,” Sotomayor wrote in her dissent, joined by Justices Ruth Bader Ginsburg and Elena Kagan. “It is said that the law should not be a trap for the unwary. Today’s decision sets just such a trap.”

Several industry experts anticipated that the decision will boost collection efforts on old healthcare debts.

Edgars (Edz) Sturans, president and CEO of BillingTree, said in a written statement to HFMA,, “We can certainly see there being some increased litigation specifically involving debt buyers that purchase old healthcare debt portfolios.”

Karen Scheibe Eliason, corporate counsel for ACA International, an association of credit and collection professionals, agreed that more cases in all areas of unsecured debt—including in health care—are likely.

“In an abundance of caution, particularly now having this ruling, I would think that debt collectors and creditors would file these proofs of claim on debt that is owed because they may or may not be time-barred,” Eliason said.

A proof of claim is a court filing that states the amount owed by a debtor to a creditor.

Eliason hailed the court decision as “driven by the rule of law” because it was consistent with statutory definitions of claims as simply “the right to payment.”

“It’s still owed, even if it is beyond the statute of limitations,” Eliason said in an interview.

In the 48 states where debt does not expire after the time limit on enforceable collections, the collection limit is generally six years, she said.

Attorneys for debtors were even more adamant about its impact.

“This opinion blows a hole wide open for debt buyers to use the bankruptcy process in a completely unique way,” Thad Bartholow, a partner with Kellett & Bartholow, PLLC in Dallas, said in a webinar on the decision. “We could see some very old debt reappearing for people in bankruptcies.”

Among those who thought the decision could reduce claims on old debt was Stephen Sather, an attorney at Barron & Newburger, where he represents debt buyers and debt collection firms.

“If anything, it will deter plaintiff’s lawyers who are bringing more cases, but it may be that it just makes them be more creative,” Bartholow said in an interview.

Increasing Significance in Health Care

The temptation to offload bad debt is increasing in health care, industry advisers say.

“There certainly is more pressure to collect the patient liability—no doubt about it,” said Terry Allison Rappuhn, formerly leader of HFMA’s Patient Friendly Billing project. “The high-deductible plans [HDHPs] are creating a huge amount of pressure on patients and also on the hospitals and the physicians.”

In 2006, just 5 percent of employer health plans had members enrolled in HDHPs. Last year, nearly one out of three covered employees was in an HDHP, according to the Kaiser Family Foundation.

The $55.8 billion in hospital bad debt expenses in 2015 ranged from 1.63 percent of revenue for not-for-profit hospitals to 3.78 percent of revenue for low-volume hospitals, according to a recent Medicare S-10 cost report analysis (HFMA member login required) by American Hospital Directory Inc., Louisville, Ky.

A Moody’s Investors Service outlook issued in March concluded that for-profit hospitals’ bad debt expenses as a percentage of revenue will continue to increase over the next 12 to 18 months.

If hospitals move to sell more of the uncollected portions of their total patient debt, they should use caution.

“Patient satisfaction is a top priority with a lot of hospitals because they lose revenue if they get poor scores on patient satisfaction with Medicare,” said Tom Brekka, CEO of VestaCare. “So they are going to be very concerned with chasing patients with bad debt aggressively.”

Hospitals looking to pursue increasing amounts of older debt should first ensure they have a board-approved policy and a comprehensive set of predefined circumstances in which such actions are appropriate, said Chad Mulvany, director of healthcare finance policy, strategy and development, HFMA. Such steps may prevent potentially adverse publicity from unpopular debt collection cases.

“If a hospital is going to have someone else contact their patient about their debt, they should have a process in place on how they treat the patient, [ensuring] that there is respect and that if the patient contests the bill, they have some sort of recourse—which frankly is not going to happen with a 10-year-old debt,” Rappuhn said in an interview.

She urged hospital CFOs considering turning over old debt to collection agencies to first read the industry guidance and recommendations for protecting their patients.

An HFMA and ACA International medical debt task force developed consensus practices, updated in April 2016, to “bring clarity, fairness, and consistency to medical account resolution.”

Other Impacts

The ruling could have an unintended benefit for healthcare providers targeted over unintentionally disclosing identifiable personal information or unredacted healthcare records as part of court filings, according to Sather.

“While this decision doesn’t directly speak to that, it could have some encouraging language to try to beat back some of those lawsuits,” Sather said.

The case also may bring attention to the need to change hospital billing from a chase model to more of a prearranged payment agreement, Brekka said.

“If you shift the focus with patients from chasing them to engaging them on the financial question and getting them enrolled in some type of financial program when they are being treated, they are much less likely to avoid paying their bill and force you into a position to have to go after them in collections,” Brekka said.


Rich Daly is a senior writer/editor in HFMA’s Washington, D.C., office. Follow Rich on Twitter: @rdalyhealthcare

Publication Date: Friday, May 19, 2017