The Consumer Financial Protection Bureau (CFPB) has announced that it wants to ban the inclusion of medical debt data in credit reports to lessen the negative impact of medical debt on credit scores and improve financial outcomes for consumers.
Though well-intentioned, the CFPB’s medical debt credit reporting ban would severely inhibit the activities of medical collection companies who partner with healthcare providers to collect outstanding medical accounts. It also could have unintended negative consequences for both healthcare providers and patients, making an already complex issue even more challenging to navigate.
It is important to note that these proposed changes were provided first by the CFPB after convening an SBREFA panel in 2023 and without any input from healthcare providers. The ban has been opposed by ACA International, the Healthcare Financial Management Association (HFMA), the Medical Group Management Association (MGMA), and the American Hospital Association (AHA). In a late bid for feedback in the Summer of 2024, the CFPB received over 1,000 comments opposing the change and outlining the reasons many of which were submitted by healthcare providers and medical collection companies.
A Big Change
There’s no question that the healthcare industry is experiencing a medical debt crisis. One in five adults in the US is burdened with medical debt, and medical bills are a leading cause of bankruptcy and financial hardship. Per US News and World Report, over 100 million Americans owe around $220 Billion in medical debt presently. Patients suffer the negative impacts of accumulating medical debt when it’s reported, such as restricted access to loans and increased risk of bankruptcy, all the while working to coordinate billing and payment balances due with insurance companies and providers.
What isn’t noted by the CFPB is that there are already limitations in place that limit the reporting of medical debt. Only balances above $500 are reported and only after one year from the date of the first delinquency of the account. Additionally, all paid medical accounts are deleted from the patient’s credit report. States have also passed laws to prohibit medical debt reporting for their States. Colorado, California, Rhode Island, New York, Minnesota, Connecticut, New Jersey, and Illinois are among those that have passed legislation prohibiting medical debt credit reporting. So why a national ban?
The proposed ban would remove medical debt as a factor in all consumer credit evaluations. In addition, debt collectors are placed on notice by the CFPB. Those who attempt to collect inaccurate or invalid medical debts would violate federal law. The CFPB sees Collection Companies who credit report medical debt as leveraging the threat of a credit report to coerce consumers into payment. They also believe that Collection companies misrepresent consumers’ rights to contest bills.
The ban is also aimed at healthcare providers who the CFPB believes unlawfully bill patients by double billing, exceeding legal limits, falsifying or fake charges,and collecting unsubstantiated medical bills. They also contend that some not-for-profit healthcare providers are limiting access to financial assistance and provide less charity care than their for-profit counterparts.
The ban would:
- Prohibit reporting of medical debts
- Aim to shield consumers from the financial harm of medical bills impacting their credit
- Prevent credit reporting companies from sharing medical debts with lenders
- Prohibit lenders from using medical bills to make lending decisions
- Stop debt collectors from using the credit reporting system to force people to pay
- Remove exceptions that allow lenders to use medical debt information to make credit eligibility determinations
- Bar lenders from using medical devices as collateral for loans or repossessing them if someone can’t repay the loan
Potential Negative Impacts
To assess the repercussions of the CFPB medical debt ban, it’s important to understand the role that credit reporting plays in healthcare and how instituting this ban would impact the industry, healthcare providers, and patients.
Significantly reduce payments. Credit reporting often serves as a notice for patients that a medical debt exists. It’s easy to believe that an account was paid by insurance and not check the Explanation of Benefits to see if there was a balance due. It also helps consumers who may have moved since their care was provided and did not receive their statements from the provider. Medical collection companies currently see approximately 10-12% of their payments from consumers who found the debt on their credit report. With a greater portion of receivables coming from patient balances, this change will also have a marked impact on a provider’s bottom line.
Financial Strain on providers. The CFPB ban would financially strain healthcare providers, particularly small practices operating on thin margins. Those in rural areas would be significantly impacted. Smaller practices rely on timely payments from patients; if they are unable to use credit reporting as notification and leverage, it could lead to serious cash flow issues.
Increase healthcare costs for patients. As costs go up for providers, so do they for patients. If providers can’t make ends meet, they will have to raise healthcare costs, shifting the burden to patients and insurance companies, which could result in higher premiums.
Increase litigation to collect. The ban could ultimately increase the number of lawsuits filed by medical collection companies to enforce the collection of outstanding accounts. This would have a marked impact on the patient who faces possible garnishment of wages and increased costs of court costs, attorney fees and interest. The healthcare provider faces higher fees to collect due to the use of an attorney.
A Better Path Forward
To protect consumers from the impact of collections and financial hardship, a more effective solution would be to improve patient financial communication and education at the point of care. If patients better understand their financial obligations and the assistance options available to them, they could avoid many of the pitfalls that come with medical debt.
Another solution is to enhance financial assistance programs and access to apply. Rather than removing credit reporting across the board, the government could do more to help providers to expand and improve access to financial assistance and charity care for patients who cannot pay their medical bills.
Conclusion
Protecting consumers from aggressive debt collections is important and offers many benefits for patients. For example, imposing a ban, such as the one proposed by the CFPB, could help patients’ anxiety about medical debt and improve patient trust and satisfaction, thereby enhancing patient loyalty. However, an outright ban on credit reporting could swing the pendulum too far in the other direction, leaving providers and patients in dire financial straits.
With the recent election results and an anticipated change in leadership at the CFPB, it is very possible this proposed rule may be frozen or if finalized may be repealed by a new Administration. There are similar rulings, such as what the States are doing individually to curb medical debt credit reporting. Healthcare billing remains challenging and confusing in spite of efforts by providers to help simplify the information and process. It remains critical that healthcare organizations prepare for more of these kinds of legislative changes and explore alternatives to maintain financial stability while supporting patients.
About Karie Bostwick
As VP of People and Compliance at Revenue Enterprises, Karie Bostwick oversees People functions including recruiting, training, onboarding, engagement and satisfaction. Additionally, she is responsible for compliance training, oversight and monitoring. Karie has a long history of working in the revenue cycle support industry. Her skills span leadership, operations start up, policies and procedures development, operations workflow, budgeting and client management.