Five unexpected things about medical debt

Debt is a subject that so many of us dread. It is a drain not only on our wallets but also on our minds, leaving us with the sense that our lives and our freedom are being slowly drained away. The consequences of medical debt, which is held by 100 million Americans, are even worse. Medical debt causes people to forgo (or be denied) necessary medical care, harms people’s credit, and leaves their property (including their bank accounts and even their homes) vulnerable to foreclosure.

In Your Money or Your Life: Debt Collection in American Medicine, I detailed some odd particularities about medical debt. Here are five:

1. Your medical debt can land you in jail

Debtors’ prisons have been illegal in the United States for centuries, but Americans are still jailed because of medical debt. If hospitals and their debt collectors decide to sue a patient for medical debt and win the judgment, a patient might be summoned to court for a hearing to “discover” where their assets are located. If a patient fails to appear in court for an oral examination as part of this process of discovery, the creditor can request that the court issues a “body attachment” directing the sheriff to arrest the debtor. Technically, the debtor is being arrested for contempt of court, not the debt itself, but the debt is the fundamental cause of the arrest.

The American Civil Liberties found that in 2020, 44 states still allowed the arrest of a debtor for failing to appear in court or failing to provide information to creditors after a judgment against them. Medical debtors are frequent victims of this practice. In Idaho, for instance, Medical Recovery Services LLC sought and obtained the arrest of more debtors than any other collector in the state between 2010 and 2016. In one case, a judge set bail at more than twice the amount of the debt. After being arrested for failing to appear for a hearing in Utah for unpaid debt for an ambulance ride, Rex Iverson was arrested and brought to the county jail. Later that day, when the police went to check the holding cell, they found Iverson dead; a subsequent investigation determined that Iverson had committed suicide by strychnine poisoning.

2. Hospitals can wipe away your bill before you see the doctor

To receive a tax exemption, every nonprofit hospital in the United States must have a financial assistance policy. These policies specify income qualifications for free and discounted care. But even if patients qualify for this “charity care,” they are usually made to complete onerous and detailed applications. But there is an easier way. Hospitals can use existing “presumptive eligibility” software to determine, at the point of care, whether a patient is likely to qualify for financial assistance. This is relatively easy to determine; for instance, if a patient is enrolled in food stamps, they meet eligibility criteria for most hospitals.

At Oregon Health and Sciences University in Portland, Oregon, the billing department started this using this software in 2017. Since instituting this process, patients have been offered free care earlier in the process, and the billing department no longer has to deal with as many incomplete applications.

Still, this effort to bring some efficiency and equity to billing is still not common practice. Hospitals must pay every time they use proprietary software to screen a patient. Most hospitals would rather not bother with the expense, so they leave the onus on patients to apply for financial assistance.

3. Medical debt is bought, sold, and collected by some of America’s wealthiest and most powerful people

The medical debt collection industry includes some of the world’s richest and most powerful people. In 2014, medical debt collector Transworld Systems was sold to a private equity firm called Platinum Equity. This firm was headquartered in Beverly Hills and owned by billionaire Tom Gores. As of July 2022, Gores was the 424^th richest person in the world, just behind Twitter founder Jack Dorsey and Star Wars creator George Lucas. Gores is best known as owner of the NBA’s Detroit Pistons, and as a philanthropist. He is a member of the Board of Directors of the UCLA Medical Center, a donor to Children’s Hospital Los Angeles and to various causes Detroit and Flint, Michigan, where he grew up. He is a giant of industry, and a fixture in the civic life of two great American cities.

Under Gores’ stewardship, Transworld Systems Inc. was not nearly so charitable as his public image. By 2017, it was the company with the most medical debt collection complaints on the CFPB’s database. One person in Georgia claimed that TSI had called a friend to find him (which is allowed), but during that call had said it was in regard to a medical debt that he owed (which is not). A resident of Illinois complained that a negative action had been filed on his credit report by TSI for a medical debt that he had never heard of, and was sure he did not owe. He said he had tried to call TSI numerous times to settle the matter but could never get anyone on the other end of the line.  Another in Missouri claimed that TSI called his work cell phone so often, and despite his pleas to them to contact them at home instead, that his supervisor became annoyed and passed him over for a pay raise.

4. Aggressive debt collection earns hospitals very little money

Not all hospitals are in financial trouble. In 2019, America’s hospitals recorded their highest average profit margin ever, at 6.7%. And while many hospitals struggled during the early days of the COVID pandemic, massive federal support led them to finish the year with similar profit margins as in 2019. Of course, there are many hospitals that do not operate with such comfortable margins; many struggle to stay afloat, and each year, some close.

But hounding patients who cannot afford to pay does precious little to help. TransUnion Healthcare reports that in 2016, 68% hospital bills of bills under $500 were not paid in full. Heftier bills were even less likely to be paid; 99% of hospital bills over $3,000 were not paid in full in 2016. This meager repayment is the reason why when hospitals sell their debt to outside buyers, they receive mere cents on the dollar. Most patients in arrears just don’t have the money to pay without risking their financial health, a problem that has given rise to a saying long in use among hospital administrators: “self-pay equals no pay.”

Suing patients does not meaningfully contribute to a hospital’s financial well-being. A study of Virginia hospitals that garnished the wages of patients found that they collected, on average, 0.1% of hospital revenue through this practice. Even the hospital that sued the most patients in the state, Mary Washington Hospital in Fredericksburg, gained only 0.2% of its revenue from wage garnishments. And most often it is not the struggling safety-net or rural access hospital filling the court dockets. Institutions that pursue patients as aggressively as possible frequently have comfortable operating margins and very well-paid executives.

5. Widows and widowers are being held responsible for repaying the debts of their late spouses

This strange fact is the result of a tangled legal history. Every state law includes a “doctrine of necessaries,” which makes parents liable for the support of their children; they must, in other words, provide what is “necessary for the health and well-being” of their children. In some states, however, this doctrine is also held to make spouses liable for the financial support of one another. This does not exist everywhere: in some states, such as Georgia, the spousal doctrine of necessaries has been repealed by the legislature, while in others, such as Florida, it has been ruled unconstitutional by the courts. But in states where the spousal doctrine remains, hospitals have used it to sue spouses when the patient has died before paying their bills. In fact, medical debt is the predominant kind of debt for which the doctrine of necessaries is invoked.

The doctrine of necessaries is a relic of early English common law in which women had no right to own property or assume debts independent of their husbands, so husbands were deemed to have an obligation to pay the necessary expenses of their wives. In an ironic interpretive move, given the burden it places on widows and widowers, the very fact that medical care is so necessary is what makes it so easy for hospitals to invoke the doctrine in court.

Widows have even been made to do manual labor to pay off the debts of their late spouses. Grieving the recent death of her husband after a prolonged hospitalization, Ms. Wilson faced medical debt she could never hope to repay on her fixed income. In 1995, Danville Regional Medical Center in southern Virginia gave her the option of entering a “Service-Credit” program, where patients owing between $300 and $20,000 were put to work typing, filing, housekeeping, lawn care and working in the print shop. For their labor, they earned $5 per hour toward settling their debts.  “Net pay is applied directly to the bill, so no cash changes hands,” explained a rather upbeat front-page article in the Richmond Times-Dispatch. Nowhere in the article was the possibility mentioned that the medical center, a non-profit, might just write off the unpaid debts of low-income patients as charity care. The journalist called the program a “working cure,” without a hint of irony.

The road ahead

The history recounted in Your Money or Your Life shows how medical debt transformed from a personal negotiation between doctor and patient into an impersonal financial instrument, bought and sold by people with no role in patient care and no social bonds to patients. Hospitals and their debt collectors have become aggressive in pursuing debts, threatening patients’ physical and financial health. There have long been people working to alleviate the suffering caused by medical debt, as well as abolitionists who aim for an America where such debt is a thing of the past. By better understanding how medical debt came to be so pervasive and so harmful to patients, we might help that day come sooner.

_{Featured image by camilo jimenez on Unsplash (public domain)}