A longtime healthcare collections leader, Jack Brown recently served on the 2023 Small Business Review Panel that provided expert advice to the Consumer Financial Protection Bureau on possible new rules and rule changes, including a proposal to bar credit reporting agencies from furnishing creditors with consumer reports that contain delinquent medical bills.
In this blog, Jack explains the key issues and ramifications for U.S. healthcare. To help shape the final outcome, submit comments by August 12.
CFPB proposal to ban medical debt credit reporting
On June 11, 2024, the CFPB announced a proposed rule to stop credit reporting companies from sharing medical debts with lenders and prohibit lenders from making credit decisions based on medical information.
The notice of proposed rulemaking is to amend Regulation V, which implements the Fair Credit Reporting Act. According to the government announcement, “The proposed rule is part of the CFPB’s efforts to address the burden of medical debt and coercive credit reporting practices.”
The rule would impact the 15 million Americans with more than $49 billion in outstanding medical bills in collections on credit reports as well as future unpaid medical bills.
Medical debt credit reporting already curtailed
In 2022 and 2023, the three credit reporting agencies—TransUnion, Experian and Equifax—stopped accepting reports of delinquent medical bills of less than $500 and removed any reports of medical bills that had been paid and any that were less than a year old. These moves eliminated nearly 70% of all medical debt included in consumer credit reports.
Substantial financial hit to healthcare – $82 billion to $655 billion
Former CFPB Economist Andrew Nigrinis, PhD, estimates that unpaid medical services will reach $24 billion in year one of the regulation—$17.6 billion of existing outstanding debt plus $6.44 billion in new medical debt for that year.
Over five years, as healthcare spending grows, Nigrinis calculates the regulation will cost healthcare at least $82 billion assuming no growth in medical debt and $143.6 billion assuming an increase in medical debt. It could cost as much as $655 billion assuming growth in healthcare spending and medical debt and using the present treasury rate for interest and the average capital cost of 10%.
Impact of overdue patient payments in credit reports
Credit reporting has long been a tool used by providers, revenue cycle management companies and collection agencies to persuade patients to pay overdue medical bills. Delinquent bills negatively impact a person’s credit score, which in turn affects that person’s ability to rent housing, borrow money for cars or mortgages and qualify for credit cards. From our perspective, including medical debt in credit scoring incentivizes consumers to pay their medical bills and offers important information to lenders that could affect a person’s ability to pay back loans and other credit offers.
Troubling trends in collecting patient payments
Healthcare is already having an increasingly difficult time collecting from patients after insurance as their financial share of their medical bills has soared in the past two decades.
Patient collection rates have dropped from 54.8% in 2021 to 47.8% in 2023, according to Kodiak Solutions, which analyzed patient financial transactions from more than 1,850 U.S. hospitals and 250,000 physicians.
The proposed rule’s unintended consequences
Providers will be forced to retrench and cut costs due to unpaid medical services. If providers can’t get a return on their investments, they will reduce those investments.
- Worsens health care disparities. This rule will exacerbate the disparate health outcomes between wealthier communities and rural and disadvantaged communities. It will lead to less access to care which in turn will drive poor health outcomes, including premature death.
- Reduces access to credit. Lenders will rely on income-driven algorithms to determine creditworthiness vs. a history of paying bills on time. This approach disadvantages lower-income folks who are good at managing their bills.
- Sets a troubling precedence. It’s likely that fewer patients will pay their medical bills because of the lack of consequences for not doing so. It establishes a slippery slope. If there’s no penalty for not paying medical bills, why should consumers buy medical insurance?
Small Business Review Panel narrows CFPB rule scope
We on the panel served as expert advisors about the possible effects that a series of proposed rules would have on small businesses and if there were less costly ways to move forward. Although there were no representatives from healthcare or insurance, when it came to the proposal to eliminate medical debt from credit reporting, we were able to narrow the rule’s scope.
In particular, we called for a definition of medical debt. Does it include veterinarian bills? Physical therapy? Credit card bills with OTC purchases such as aspirin? Elective procedures such as cosmetic surgery?
The CFPB agreed to clarify and narrow the scope of the rule to medical services provided to humans and owed to a party with the primary purpose of providing medical services. This definition excludes medical credit card debt and vet bills but includes cosmetic surgery and PT.
Take action to shape final rule
Certainly, there will be legal challenges to this proposed rule, especially following the U.S. Supreme Court striking down the Chevron deference that gave federal agencies final say in interpreting applicable laws. The presidential election also will undoubtedly have an impact.
Before then, the CFPB is moving ahead to finalize the rule. The bureau is accepting comments until August 12. Now is the time to speak up to influence the rule.
Jack Brown III, is the President of Gulf Coast, a Revenue Cycle Management company based in Sarasota, Florida.
Connect with Jack on LinkedIn.
