ensuring fairness in medical account resolution

Congress and the various regulatory bodies that have jurisdiction over medical account resolution efforts have long been interested in ensuring that patient accounts are settled fairly. However, with the economy and consumers still recovering from the "Great Recession," there also has been widespread concern about the impact of medical debt on consumer credit scores and, ultimately, on consumers' access to and the cost of credit financing to purchase homes and other "big ticket" items.

In May, the Consumer Financial Protection Bureau (CFPB) released a white paper, Data Point: Medical Debt and Credit Scores, outlining its analysis of the impact of medical debt on consumer credit scores. The white paper makes it clear that the CFPB will continue to examine medicalaccount-resolution practices, but the analysis also points to opportunities for providers to improve both the operational efficiency and patient friendliness of their revenue cycles.

CFPB Findings

In the white paper, the CFPB seeks to understand whether medical debt reported to credit bureaus improved the predictability of credit scores in determining whether an individual would satisfy future obligations. It also offers anecdotal evidence suggesting why medical debt may be unique-and harmful to a consumer's credit. Providers may find the CFPB's findings instructive as they look for opportunities to improve revenue cycle operations.

The CFPB first assessed whether medical and nonmedical collections are equally predictive of how a consumer's future accounts will perform by comparing credit files in which collections were "more medical" (i.e., the majority of debt is medical debt) with those where the collections were "more nonmedical" (i.e., the majority of debt is nonmedical debt). The findings suggest that the former group of consumers (those with "more medical" current accounts) are no more likely to be delinquent on future accounts than are consumers in the latter group (those with "more nonmedical" accounts), whose credit scores are 10 points higher, on average, than the scores of the former group. These findings imply that the risk that such accounts will be delinquent is overstated by a credit score driven lower by medical collections.

Next, the CFPB evaluated whether paid and unpaid medical collections were equally predictive of consumer delinquency rates. The findings suggest that consumers with more paid than unpaid medical collections have delinquency rates on future accounts similar to the rates of consumers with "more nonmedical" debt, whose credit scores are 20 points higher, on average, than the scores of the former group. Again, the impact of medical collections overstates the risk of delinquency relative to actual consumer performance in satisfying future obligations.

Improvement Opportunities Identified

In its white paper, the CFPB implies but does not openly state that it believes adjusting credit scores for medical collections would both improve accuracy and likely increase scores for many consumers. Obviously, as credit scores improve, so does access to consumer financing at lower interest rates. However, that point alone does not justify the CFPB's potential intervention.

In the white paper and in other public venues, the CFPB asserts that a "unique characteristic" of medical debt is that the consumer may sometimes be unaware of outstanding medical collections. This point is the rationale not only for the study, but also potentially for future regulatory intervention.

In conversations with HFMA, the CFPB underscored this point with an egregious example, gleaned from its interviews with collection agencies, of what it refers to as "parking" of lowdollar medical debt. The CFPB alleges that, with this practice, some collection agencies may be seeking to reduce their collection costs by simply reporting a patient's debt to a credit bureau, without first sending any statement to the patient, and then waiting for the patient to apply for financing to discover the debt and resolve it.

If the practice of "parking" exists, it does not comport with the best practices HFMA and the Association of Credit and Collection Professionals (ACA International) jointly developed last year. The standard collection process for hospitals must comply with Medicare bad debt regulations if the hospital has any intention of claiming reimbursement for bad debt. Further, HFMA's Medical Debt Taskforce found that notifying the patient in advance of reporting an account to a credit bureau is a widely adopted best practice.

In its white paper, the CFPB offers an anecdote of another scenario in which a consumer was unaware of medical collections. Based on the complaint report submitted to the CFPB, an insured patient was reported to a credit bureau by collections agencies on two occasions after hospital bills were denied because they were not properly submitted to the insurer and the denials were not communicated to the patient.

The CFPB's assertion that such practices are common maybe overstated. Nonetheless, HFMA believes providers should address this issue for reasons of both patient satisfaction and efficiency.

In June, HFMA conducted a convenience poll of members of its Payment and Reimbursement Forum and of ACA International members to understand how often accounts in collection were returned to the provider for "found" insurance (when a patient who was thought to be uninsured is discovered to have insurance). Approximately 75 percent of respondents reported having a retumed-to-provider (RTP) rate of 4 percent or less. This RTP rate is in line with anecdotal reports from the field from both providers and collection agencies. Survey respondents cited the following reasons for accounts RTP:

* Inadequate information received from the patient (69 percent)

* Administrative complexity (?3 percent)

* Internal provider process errors and other issues (8 percent)

Although HFMA believes the RTP rate is low relative to the volume of all self-pay transactions, these accounts point to defects in the revenue cycle that drive up the cost to collect and, more important, undermine patient satisfaction. Providers that wish to reduce the error rate in their revenue cycle should look to industry initiatives such as HFMA's Healthcare Dollars & Sense, which offers well-established and well-tested practices that address the major barriers. *

CFPB Oversight and Its Significance for Providers

The Consumer Financial Protection Bureau (CFPB) was created by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank) in the wake of the financial crisis to address perceived issues in the consumer finance system. Its writ extends to businesses that engage in activities such as charging interest, collecting on debts, and providing information to consumer reporting agencies.

Dodd-Frank suggests that businesses engaging in activities such as imposing finance charges and reporting consumers to credit bureaus are subject to CFPB oversight. The act contains an exemption for nonfinancial businesses that do not ''significantly" engage in providing "financial products or services," meaning that the law may not apply to businesses that only occasionally impose finance charges. Therefore, hospitals and other providers should have a strong argument that Dodd-Frank doesn't apply to them as long as patients are not charged additional money to enter into a payment plan.'

However, the CFPB not only has jurisdiction over many of the entities that hospitals partner with to resolve accounts, but also has already extended its regulatory efforts into medical debts. In December 2013, it compelled a healthcare payment card company to refund $34.1 million to patients for allegedly deceptive marketing practices related to deferred interest that was due if the patient didn't satisfy the debt within a given time f rame.b</p>

Given that the CFPB has indicated that it regards medical debt and its impact on credit scores as a major concern, many expect the CFPB to exercise its authority more systematically in the future. The CFPB'sMay 2014 white paper provides a first look at its efforts to understand how medical debt affects consumers' access to credit. Although broader action will likely have only an indirect impact on providers, the report is worth noting because its findings identify potential areas of opportunity for revenue cycle improvement.

a. The Consumer Financial Protection Bureau and Medical Collections: What Hospitals Need to Know, legal advisory, American Hospital Association, May 22,2014.

b. "CFPB Orders GE CareCredit to Refund $34.1 Million for Deceptive Health-Care Credit Card Enrollment," news release, CPFB, Dec. 10,2013.

Healthcare Dollars & Sense

For more than a decade, HFMA has worked with providers to improve the patient's experience with the revenue cycle through its Patient Friendly Billing project. As part of its Healthcare Dollars & Sense initiative, HFMA has spent the past 12 months on three initiatives-price transparency, patient financial communications, and medical account resolution-designed to help providers implement the widely accepted Patient Friendly Billing project concepts. These three projects span the revenue cycle, offering end-to-end best practices to help providers identify and eliminate process defects. Implementing these best practices will lower the cost to collect and improve the patient experience, which will address the CFPB's concerns about the 'unique characteristic' of medical collections and will allow you to serve your communities in a better way.

Chad Mulvany is director, healthcare finance policy, strategy and development, HFMA's Washington, D.C., office and a member of HFMA's Virginia-Washington, D.C., Chapter ([email protected]).