Medical debt is a contentious topic within the US, due largely to its prevalence. Its true scope is hard to assess, but by any measure the sum total of medical bills sent to collections is significant. The billions of dollars owed for medical services impact consumers, healthcare providers, and the larger economy alike.
Medical debt’s importance to the collections industry is also noteworthy, with the Congressional Research Service estimating it at roughly one-third of all industry revenues. Yet medical debt is protected in ways that other forms of debt aren’t, which can increase the difficulty of successful collections. This article outlines seven modern strategies that can help keep medical debt collections profitable despite regulatory headwinds.
A Quick Survey of the Medical Debt Market
As we mentioned at the outset of this article, arriving at an accurate estimate of the total value of outstanding medical debt in the United States is a difficult proposition. The Consumer Financial Protection Bureau (CFPB) cites a figure of $88 billion in consumer medical debt, drawn from the major credit bureaus, but this almost certainly understates the total. Recent changes in reporting have removed all medical debts under $500, all fully paid medical debts, and any debts less than one-year-old from credit reports, so none of these should be included in that $88 billion figure.
Additionally, many consumers simply use their existing credit vehicles such as credit cards or lines of credit to pay medical debt, or borrow from family. A survey conducted by Peterson/KFF suggests that the true figure may be closer to $220 billion, and broke out that figure on several axes including the range of dollar amounts, totals owed, insurance status, and income range.
The passage of the No Surprises Act in 2022 gave consumers many new protections against flawed or inaccurate medical billing. Medical services providers must now meet new transparency requirements, including a “good faith estimate” of the cost of procedures, and a bill that deviates significantly from that estimate can be challenged. Many have responded by proactively tightening and improving their own billing and collections practices, but a substantial stream of medical debt still makes its way to the third-party collections industry.
7 Modern Strategies for Medical Debt Collections
Medical debt has always occupied its own unique niche within the industry, but these recent developments have impacted the industry. The recent changes in credit reporting for medical debt and the No Surprises Act itself have complicated the collections process in several ways.
The removal of medical debt from the credit-reporting system, for example, takes away a strong incentive for consumers to pay: If the debt’s impact on their credit rating is erased, so is much of their motivation to clear the debt. A proposal announced in the summer of 2024 would go further, expunging all medical debt from the credit reporting system. Similarly, the No Surprises Act gave consumers protection when they challenge a medical bill, and collections activity on a disputed bill can’t proceed until the dispute is resolved.
The impact of Regulation F’s limits on communications for debt collection purposes is not unique to medical debt, but represents another limiting factor. Collections strategies oriented around traditional telephone calls and voicemail messages, for example, have been disproportionately affected. The net result is a need for more modern collections strategies, to address these challenges. Here, we offer seven examples that may be used to guide your own in-house discussions and planning.
1. Segment Your Portfolio for Targeted Collections Strategies
The Peterson/KFF study cited earlier provided some useful insights into consumer medical debt. The vast majority of that debt (78% of the total) represented the 14% of consumers whose debts totaled $10,000 or more. At the opposite end of the scale, debts of $1000 or less accounted for 29% of consumers but only 5% of total debt. Between those extremes lie the remaining 43% of consumers, with debts of $1000 to $5000.
Your healthcare clients’ bad debt portfolios may skew heavily to one extreme or the other or span multiple dollar amounts and debtor demographics. Using a single broad-brush strategy across all debtors is unlikely to produce optimal results.
Instead, segmenting medical debtors by the amount they owe — and the age of the delinquency — may help you better hone in on the right communication strategy to successfully recover more debt. (You can find more tips for how to go about doing this in our article, Early-, Mid- and Late-Stage Collections: Tailoring Your Debt Recovery Process Accordingly)
2. Provide Self-Service Payment Options
Medical debt is innately a lower priority for many consumers for a number of reasons. One is simply that, in many cases, the service has already been rendered and, therefore, is now a lower priority. Most consumers rightfully prioritize shelter, food, transportation, and utilities; and unlike credit cards and other debts, medical debt is interest-free. Consumer finance sites often explicitly advise debtors to prioritize other debt over medical bills.
With the impact of medical debt on the consumer’s credit rating now mitigated, that lever is no longer useful with informed consumers. An alternative strategy, when medical debt is less urgent than other debt, is to make it the easiest debt to pay. Marketers speak of this as “removing friction” from the payment process. Amazon’s one-click payment option, for example, offers much less friction than competing retailers with a complicated shopping cart system that requires multiple steps.
Following the path of least resistance is a well-recognized aspect of human nature. Offering a range of self-serve digital payment options places your agency squarely in that position with modern consumers, especially among the younger demographic segments. Aside from credit and debit card processing, your offerings should, at a minimum, include popular mobile payment wallets from Apple and Google as well as payment processing apps such as Paypal and Zelle. Making those payment options self-service represents a further reduction in friction by eliminating the need for interaction with a human agent. This has the additional benefit of keeping staffing requirements low, which has a positive impact on ROI.
3. Automate High-Volume but Low-dollar Collections
Medical debt in low dollar amounts of $500 or less accounts for 13 percent of the total if measured by the number of debtors, according to the Peterson/KFF research cited earlier. While a significant percentage of individual medical debts, they cumulatively account for a small percentage of the total dollar amount. Nevertheless, these small debts may represent a significant part of some medical practices’ overall debt portfolio. Some sources report that two-thirds of debts over $200 go unpaid in medical practices, a surprisingly low bar.
Cumulatively, this represents a significant burden for care providers, and it ensures that low-dollar debts are likely to form a predictably high percentage of medical debt sent to collection. The small dollar amounts involved prohibit spending significant time, money, or staffing on recovering these debts.
Automation is key to maximizing ROI on these debts. If your software stack is capable of sifting those debts from the larger portfolio, a predefined collections message can be sent to the debtors en masse via an appropriate software product or a third-party email or SMS text messaging service. If the messaging is well-tested before being used in volume, and if self-serve payment options are provided, and an AI-powered chatbot is available to answer questions, the need for higher-cost personal service and follow-up from live agents can be sharply reduced.
4. Use All of the Contact Methods at Your Disposal
Although Regulation F imposed a sharp limit on the use of phone calls for collections purposes, this modernization of the Fair Debt Collection Practices Act (FDCPA) also provided long-awaited guidance on the use of digital communications channels such as emails, text messages, and even social media messaging services. While that guidance has not yet been completely tested in the courts, and compliance requirements will vary by jurisdiction, it means collections professionals can now be proactive in expanding their communications efforts.
Data provided to third-party collections teams from the original creditor or from legacy data vendors is often incomplete. A phone number or email address may be included, but may not be up to date or necessarily the best number or address to use for contact purposes. Social media information will be entirely lacking.
Maximizing the use of these new communications channels will require additional sources of data which can furnish additional or alternative phone numbers and email addresses, as well as identifying the debtor’s social media accounts. Spokeo for Business can help on both fronts (we’ll explore how in more detail at the end of this article).
5. Position Your Agency as “Helping A Friend in Need”
The relationship between consumers and collections agencies has historically been perceived as adversarial by consumers and often by collections professionals themselves. This is frequently counterproductive. Heavy-handed collections efforts can inspire negative publicity for the healthcare provider or even draw the attention of legislators and regulators. On an individual level, debtors may make an emotional decision to stonewall the collection of a debt if they feel that the company or agent they’ve dealt with has been abusive or hostile.
Reversing that perception through an empathy-driven, consumer-focused model is an increasing priority for many professionals in the collections industry. This can be especially impactful in the case of medical debt. While some medical care is routine, other debts may result from traumatic accidents or illnesses that impose an emotional burden as well as a financial one.
Communications with medical debtors, however they’re delivered, should be positioned as a service-oriented intervention to help them get back on their feet. The emotional impact of medical debt can be crushing, even when the debt itself is not large — after all, most people want to repay their debts, and not being able to do so takes a toll on mental health. By using empathetic language and casting the issue as one of helping the consumer escape from their burden of debt, collections professionals can potentially achieve better outcomes with less resistance.
6. Build Some Flexibility Into Payment Plans
A reality of medical debt is that it often originates in an illness or injury that impacts the debtor’s ability to pay. In many cases, that loss of earnings may leave households unable to meet even their basic obligations, and those debts may ultimately need to be written off.
This is not universal, however. If you’re able to reach the debtor, you may be able to help them work out a payment plan that accommodates the debtor’s situation. The success of these payment plans depends in large part on the debtor’s ability to plan and follow a budget and their continued avoidance of any other unexpected financial setbacks or emergencies. These conditions are not necessarily reliable, and the prospect of another default may cause the debtor to opt for bankruptcy proceedings.
Proactively building some degree of flex into your payment arrangements can help avoid this no-win scenario. Setting out the parameters for that flexibility is a management responsibility, but individual agents should have some leeway to take steps such as postponing payments, allowing partial or incremental payments, or renegotiating terms after specific milestones (measured by the number of payments made, or a percentage of the actual debt) within those parameters.
7. Provide Even-handed Guidance on Medical Debt Consolidation
Consumers frequently find themselves owing money to multiple healthcare providers, which in turn — if those go unpaid — can mean dealing with multiple collections agencies. For those debtors whose resources afford them that option, carrying out a medical debt consolidation may be an attractive prospect. It frees them from the necessity of dealing with multiple creditors, each jockeying for priority over the others, and the corresponding emotional stress.
This is also an attractive option from the collections perspective because it means that the medical debt is satisfied immediately, and the responsibility for future payments reverts to the consumer. Some may advocate forcefully for this option, for exactly that reason. However, many consolidation options do not work in the consumer’s favor, often because they’ll now typically pay interest on a debt that previously attracted none. This, in turn, raises difficult questions about the principle of informed consent, and the CFPB is actively soliciting consumer feedback about some of these products.
It’s perfectly legitimate to raise the option of a consolidation with the consumer or to respond to an inquiry about consolidation from the consumer, provided that the consumer is given accurate, even-handed guidance about the pros and cons of each consolidation option.
Scripts can be created in advance for this specific purpose to ensure consistent messaging in verbal communications, or you may opt to use prepared documents or a web page for that purpose. In the case of verbal communications, especially if your agency refers debtors to a specific consolidation vendor or product in exchange for compensation, the debtor should be asked to sign off on a disclosure form verifying that they’ve been informed of the potentially negative repercussions of a consolidation.
New Strategies May Require a New Toolkit
Many of these strategies require advanced search and data analysis capabilities that may not be in your agency’s current toolset or available from the industry’s legacy data providers. Spokeo for Business boasts a set of capabilities that can fill many of those gaps in your current software stack.
Among other things, Spokeo searches can fuel these novel strategies by:
- Drawing on its billions of data points to link individual debtors to additional active phone numbers and email addresses, as well as suggesting which of these are the most current or most used. Each additional number or email represents another possible avenue for establishing contact.
- Searching 120+ social media platforms to locate the debtor’s accounts, even if they are anonymous or pseudonymous. On any platform that supports private messaging, this provides an additional channel for communicating with the debtor. It may also uncover friends, coworkers, workplaces, and family members who could subsequently be approached to help establish contact with hard-to-find debtors (though agents must be careful to avoid revealing that the subject you are attempting to get in contact with is in debt).
- Enabling collections professionals to build a fuller picture of a given debtor’s life and circumstances. Much of this information is returned by the Spokeo search itself, and viewing the debtor’s public social media posts — made possible by Spokeo’s powerful social search capability — can fill in any remaining blanks. Skilled collections professionals can draw on this information to construct an informed and empathetic approach that’s personalized to the debtor.
It should be noted that Spokeo’s search and analysis capabilities create specific concerns around debtor privacy. Establishing clear policies and guidance around the use of data gleaned from Spokeo or similar tools is essential for compliance purposes. Management should also provide some form of active oversight or accountability to minimize the risk of civil or criminal liability. The easy-to-use administrative Dashboard in Spokeo for Business simplifies this process, recording your team’s search history for later review as needed.
Securing the Tools for the Job
Medical debt is and will remain a significant generator of revenue for the collections industry despite the ongoing challenges it represents. The strategies cited here represent just a small handful of the possible approaches to this task. Settling which strategies are the likeliest to bear fruit for a given agency with its own unique set of healthcare clients and in-house capabilities is ultimately a matter for management to address.
No matter which set of strategies should be adopted, the need for appropriate and upgraded tools will remain. For a more detailed explanation of Spokeo for Business’s capabilities and how you can harness its power, reach out to our team through our Skip Tracing/Collections page. They’ll be happy to answer your questions, schedule a demonstration, or arrange a no-cost, hands-on trial of the product.
Sources
Congressional Research Service: An Overview of Medical Debt Collection, Credit Reporting, and Related Policy Issues
US Consumer Financial Protection Bureau: CFPB Estimates $88 Billion in Medical Bills on Credit Reports
Peterson/KFF Health System Tracker: The Burden of Medical Debt In the United States
US Consumer Financial Protection Bureau: What Is a “Surprise Medical Bill” and What Should I Know About the No Surprises Act?
Applied Medical Systems: 5 Medical Billing Tips to Improve Collections
Centers for Medicare and Medicaid Services: Dispute a Medical Bill
Kiplinger: What You Can do About Medical Debt
Forbes: Removing Friction from Payments is Good for Customers – and Your Business
Healthcare Dive: 4 Strategies for Providers to Collect on Outstanding Patient Balances
Debt.org: How to Consolidate Medical Bills
US Consumer Financial Protection Bureau: Ensuring Consumers Aren’t Pushed Into Medical Payment Products
InCharge Debt Solutions: Medical Bill Consolidation