CFPB warns of illegal tactics by medical debt collectors

Photo: Luis Pelaez Inc/Getty Images

The Consumer Financial Protection Bureau has issued guidance clarifying that debt collectors are violating federal law when they collect on inaccurate or legally invalid medical debts.

Illegal practices from these debt collectors – which may include third-party "revenue cycle management" companies – include double-dipping to get paid for services already covered by insurance, hounding consumers to pay fake or exaggerated charges, misrepresenting consumers' rights to contest bills and collecting on debts without documentation that the amount is actually owed, according to the guidance.

The CFPB said its action aims to protect consumers from predatory practices that can lead to inflated healthcare costs.

WHAT'S THE IMPACT?

About 100 million Americans owe over $220 billion in medical debt, the CFPB said. It said it has received complaints from people receiving collections notices for debts they don't owe, that were already paid by the consumer or insurance, or that should have been covered by insurance, government programs or hospital financial assistance.

Among the illegal practices identified in the report is double billing. According to CFPB, companies cannot attempt to collect on medical bills that have already been paid by the consumer, insurance or a government program such as Medicare or Medicaid. This practice can coerce consumers into paying twice for the same service, causing significant financial harm, the group said.

Companies must not attempt to collect amounts that surpass federal or state caps, such as those set by the federal No Surprises Act or state laws on "reasonable" rates, with CFPB saying these violations can saddle consumers with unjustifiably high medical debts, burdening their finances and deterring them from seeking future care.

Also, debt collectors must not collect on bills that include "upcoded" or exaggerated services, or charges for services the consumer did not receive. This deceptive practice can drastically inflate consumers' medical debts, said CFPB, potentially leading to long-term financial distress or even bankruptcy.

Debt collectors must not attempt to collect medical debts unless they're substantiated, which may include having documentation of payments or financial assistance eligibility. Collecting unsubstantiated bills, according to the guidance, can result in consumers being harassed for debts they do not owe or for which they qualify for financial assistance.

Lastly, companies must not misrepresent to consumers that the amount being collected is fully settled, when the payment obligation may be uncertain. The guidance suggested that misrepresenting the status of the amount may pressure consumers into paying disputed or negotiable debts.

The CFPB also published a consumer advisory with practical information about the steps consumers can take if they have received collection notices for medical bills.

THE LARGER TREND

This summer the CFPB proposed a rule intended to remove medical bills from most credit reports, increase privacy protections, help to increase credit scores and loan approvals, and prevent debt collectors from using the credit reporting system to coerce people to pay.

The proposal would attempt to stop credit-reporting companies from sharing medical debts with lenders and prohibit lenders from making lending decisions based on medical information.

In December 2014, the CFPB released a report showing that medical debts provide less predictive value to lenders than other debts on credit reports. Then in March 2022, it released a report estimating that medical bills made up $88 billion of reported debts on credit reports. In that report, the CFPB announced that it would assess whether credit reports should include data on unpaid medical bills.

Since the March 2022 report, the three nationwide credit reporting conglomerates – Equifax, Experian and TransUnion – announced they would take many of those bills off credit reports, and FICO and VantageScore, the two major credit scoring companies, have decreased the degree to which medical bills impact a consumer's score.

Despite these voluntary industry changes, 15 million Americans still have $49 billion in outstanding medical bills in collections appearing in the credit-reporting system. The complex nature of medical billing, insurance coverage and reimbursement, and collections means that medical debts that continue to be reported are often inaccurate or inflated, CFPB said.

Jeff Lagasse is editor of Healthcare Finance News.
Email: jlagasse@himss.org
Healthcare Finance News is a HIMSS Media publication.