Proposed ban on medical debt reporting faces an unfavorable political climate

Regulations essentially prohibiting the reporting of medical debt appear to be on shaky ground heading into 2025.

Litigation brought by trade groups representing the accounts receivables industry has stalled the advancement of regulatory language issued by the Consumer Financial Protection Bureau (CFPB), and a bigger threat is impending with the upcoming transition of power in Washington, D.C.

Most recently, Elon Musk, who is leading an initiative to identify ways to streamline federal government spending as President-elect Donald Trump prepares to take office, called for abolishing the bureau. Even if the Republican majorities in Congress do not pursue that strategy, the Congressional Review Act provides a mechanism to rescind recently issued rules.

Beyond Congress, there is an apparent lack of enthusiasm for the regulations among conservatives. Trump’s appointed leadership at the bureau could choose to waive enforcement of the medical-debt rule if the Biden administration finalizes it before Jan. 20. The CFPB in the next administration also could back away from defending against any lawsuit filed over the regulations.

It remains to be seen whether political and consumer-facing policy considerations change in the wake of the Dec. 4 shooting death of UnitedHealthcare CEO Brian Thompson. The incident touched off a slew of online vitriol toward health insurance companies, along with complaints about healthcare affordability and accessibility more generally. In the aftermath, Anthem Blue Cross Blue Shield essentially walked back a newly announced policy that would have capped coverage of anesthesia during surgical procedures.

The medical debt regulatory picture

A proposed rule published in June technically would allow medical debt to appear on credit reports. However, it would render such information unusable in most cases by preventing credit-reporting agencies from sending it to creditors for credit eligibility determinations. Similarly, creditors would be prohibited from obtaining and using such information, unless a specific exception applies.

As it sifted through nearly 75,000 stakeholder comments in advance of an early 2025 target date for finalizing the rule, the CFPB wrote in an advisory opinion that collectors “are violating federal law when they collect on inaccurate or legally invalid medical debts.” Advisory opinions are sub-regulatory guidance setting forth directives that regulated entities must follow or risk being subject to enforcement actions.

The advisory opinion specifically calls out practices such as double billing, exceeding legal collection limits (e.g., those set by the No Surprises Act), collecting on unsubstantiated medical bills or falsified or fake charges (e.g., charges generated through upcoding), and misrepresenting consumers’ rights to contest bills.

It states, “The CFPB has received complaints from people receiving collections notices for debts they do not owe, that were already paid by the consumer or insurance, or that should have been covered by insurance, government programs or hospital financial assistance.”

More recently, on Oct. 31, the CFPB and CMS issued a joint statement affirming that providers, Medicare Advantage health plans and debt collectors must avoid improperly billing and collecting payments from qualified Medicare beneficiaries (QMBs). The QMB designation applies to low-income beneficiaries and those with disabilities.

“CMS and CFPB continue to receive reports and complaints of Medicare providers or suppliers inappropriately billing QMBs for Medicare cost sharing and sending unpaid bills to debt collection,” the statement says.

Legal pushback intensifies

The Oct. 1 advisory opinion triggered a lawsuit filed one month later in Washington, D.C., federal court by ACA International and Collection Bureau Services, which jointly said the CFPB did not follow federal administrative requirements in drafting the opinion.

Among other provisions in the guidance, the plaintiffs were concerned that debt collectors would have to review account-level documentation before beginning the collection process. They would have to make a legal determination that the debt is reasonable in ways that would require auditing the medical services provided and the associated medical billing codes, per the lawsuit.

As a result, the advisory opinion “would insert debt collectors into the private healthcare decisions made between patients and their providers,” the lawsuit states, later adding that debt collectors “are not medical professionals and do not have the requisite education or experience to second-guess the prices their healthcare clients establish.”

A subsequent motion filed by the plaintiffs sought to stop the advisory opinion from taking effect on its scheduled date of Dec. 3. The CFPB said it would delay the effective date until Jan. 2 while it formulates a response.

Providers express alarm

Hospitals and their collection partners have warned that the June proposed rule could have substantial and adverse financial implications, if finalized. They say consumers would have less incentive to pay medical bills.

An analysis commissioned by advocates for the collections industry and prepared by a former economist with the CFPB projects a $24 billion year-one impact from nonpayment for services. In turn, hospitals could be forced to change longstanding procedures by requiring upfront payment for nonemergency services.

Patients who do not feel compelled to pay their bills also may decide to avoid buying health insurance, some stakeholders said in comments on the proposed rule. That would raise uninsured and underinsured rates and leave hospitals to provide more uncompensated care, while also posing a risk that health insurance markets would be undermined.

In theory, “An individual would no longer need medical coverage or have to pay for medical services,” wrote Terre Haute, Ind.-based Union Health. “Hospital providers would then be required to restrict services until payments are received in advance of services rendered.”

A representative of Rockford, Ill.-based Mercyhealth said the proposed rule would have a $60 million impact on the organization’s accounts receivables.

Mankato Clinic, a multispecialty medical group in Minnesota, said the rule would “result in a significant decrease in payment of outstanding balances for services received,” estimating a $10 million annual impact on the organization. “Our margins are tight; we will close in six months [after incurring such an impact].”

Other developments of note

Voluntary actions by companies have addressed the issue of medical debt reporting to a degree, meaning the landscape looks different than it once did regardless of the fate of the CFPB’s rule.

For example, the three primary credit-reporting companies no longer include medical debt in a consumer’s credit history if the debt has been paid or is for less than $500. They also exclude medical debts for larger sums if the debt was incurred less than a year prior.

Tim Haag, president and CEO of State Collection Service, said the company decided more than five years ago to abstain from reporting medical debt unless contractually required to do so by a client.

“The reason for [that change] is it’s the number one source for us to get sued by a consumer,” Haag said in June after issuance of the proposed rule. “But the difference then was you expected you were going to get credit reported as soon as you got a collection letter in the mail.”

Meanwhile, some states have implemented laws that mirror or surpass the protections proposed in the CFPB’s rule.