In a move that could be good for patients but bad for hospitals, the Consumer Financial Protection Bureau (CFPB) on Tuesday proposed regulation that would wipe medical debt from many consumers’ credit reports.
The rule is meant to help the 15 million people in the US who creditors say still have a combined $49 billion of medical debt that negatively affects their credit scores, Rohit Chopra, director of the CFPB, said during a June 11 press briefing. About 100 million people in the US have some amount of medical debt, which totals roughly $220 billion, according to data from the Peterson-KFF Health System Tracker.
The proposed regulation comes after three credit-reporting conglomerates—Equifax, Experian, and TransUnion—removed paid-off medical debt and medical debts under $500 from credit reports in 2022 and 2023, respectively.
But some experts worry the proposed regulations would have “unintended consequences” for hospitals, such as making collections harder because patients would be incentivized to not pay medical bills.
“In the short run, [the rule] sounds good and can…reduce the barriers for low-income patients by removing their medical debt from credit reports,” Ge Bai, a professor of health policy and management at Johns Hopkins Bloomberg School of Public Health, told Healthcare Brew. “But in the long run, it can backfire and hurt the very patients the rule intends to help.”
Potential repercussions
Hospitals already struggle to recoup unpaid debts—the overall patient responsibility claim dollar collection rate was 47.6% in 2023, down from 54.8% in 2021, according to data from healthcare analytics firm Kodiak Solutions.
According to Bai, the rule—which a senior Biden administration official said in a press call is expected to be finalized sometime in 2025—would “definitely” make the collections process harder for hospitals because patients may think, “‘Even if I have the money to pay, I won’t pay because it won’t show up on my credit report.’ The concern or the fear of having medical debt show up on credit score is one of the main reasons people pay medical debt.”
Hospitals are likely to create preemptive risk responses like making it harder for patients to access care without prepaying, Bai projected. It’s also possible they would become “more aggressive” with debt collection.
“Once hospitals know that the chance for them to collect debt becomes lower, they will have to take other actions to remedy,” Bai said. “That actually will make it harder for low-income patients to access care.”
Hospitals could also raise prices on services in an attempt to recoup revenue, Bai said. If hospitals find it more difficult to collect payments from low-income patients, they may pass the cost on to privately insured patients, she said.
Navigate the healthcare industry
Healthcare Brew covers pharmaceutical developments, health startups, the latest tech, and how it impacts hospitals and providers to keep administrators and providers informed.
Scott Purcell, CEO of trade group the Association of Credit and Collection Professionals, voiced similar concerns in September 2023 when CFPB first announced it would start the rulemaking process.
“There’s too much at stake for Americans’ access to quality healthcare by taking actions that only negatively affect the cash flow to the healthcare community without finding ways to replace those funds,” Purcell said in a statement.
Purcell added that the CFPB needs to conduct “robust and data-driven research” to prove that the rule would not “harm the ability to access medical services or the ability to offer and be compensated for medical care provided.”
Chopra argued the rule would not disincentivize patients to pay their medical bills, telling ABC News that consumers “will still be subject to collection actions, lawsuits, and more.”
The affected parties
The rule would mostly affect hospitals that have a high proportion of low-income patients, as this demographic tends to accrue the most medical debt, according to Bai. According to data from the Peterson-KFF Health System Tracker, about 10% of adults (or 19 million people) whose incomes fall below 400% of the federal poverty level reportedly have medical debt.
On the other hand, Dan D’Orazio, CEO of healthcare consulting firm Sage Growth Partners, told Healthcare Brew he doesn’t think the rule would be “the proverbial straw that breaks the camel’s back” for smaller, rural health systems struggling to collect unpaid debts and stay in business.
“I don’t know that [those hospitals] are collecting that money anyway,” D’Orazio said. “I think if you look at rural health, it’s already in crisis. I don’t think this is the moment that breaks the system.”
Half of rural hospitals operated on negative operating margins between February 2023 and February 2024, according to a report from healthcare advisory firm Chartis.
Private equity (PE) firms have taken over an increasing number of rural hospitals—of the 460 PE-owned hospitals in the US, 26% are in rural areas, according to the nonprofit Private Equity Stakeholder Project. In 2023, at least 21% of the 80 healthcare companies that filed for bankruptcy were PE-owned.
Ultimately, the intention behind the rule is positive, according to Bai. But “in policymaking, small changes can lead to a lot of unintended consequences…so, I think we should have more consideration or debate or deliberation regarding the consequences.”