Hospitals Can Sell Patient Bad Debt to Charitable Orgs, OIG Says
A new advisory opinion says a medical debt forgiveness company would be able to purchase patient bad debt directly from hospitals without triggering the Anti-Kickback Statute.
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By - Charitable organizations like RIP Medical Debt can purchase patient bad debt directly from hospitals and other providers, according to a recent advisory opinion from HHS’ Office of the Inspector General (OIG).
The opinion published last week stated that a proposal from an unnamed company to buy patient debt from healthcare providers and forgive it could potentially violate the Anti-Kickback Statute.
However, OIG decided that it would not impose administrative sanctions on the company since it could forgive patient bad debt only after the provider has attempted and failed to collect it.
Additionally, providers in the proposed arrangement would not be able to publicize the sale and eventual forgiveness of patient bad debt.
“This lowers the risk of unlawful inducements to purchase future items and services paid for by Federal health care programs or influence of the beneficiary’s future selection of the Provider,” OIG stated.
The advisory opinion opens more doors for some charitable organizations that have made medical debt collection their mission.
Medical debt has reached crisis levels, according to the company at the center of the OIG’s recent advisory opinion.
About a quarter of US adults between the ages of 18 and 64 years say they or someone in their household had problems paying or an inability to pay medical bills in the past year, cited data from the Kaiser Family Foundation showed.
This has also led to ripple effects, the report showed, including skipping necessary medical care, foregoing necessities like groceries, and bankruptcy. For this reason, charitable organizations like RIP Medical Debt are purchasing patient bad debt and forgiving it through donations.
“Medical debt isn’t the result of bad decisions. It’s a debt of necessity,” the company said on its website. “By forgiving this debt we strive to give struggling individuals, and their families, a fresh start. We hope to give those affected the ability to seek the continued medical care they need and help them back towards financial stability.”
Hospital bills are a common source of medical debt for patients.
More than a third of hospital leaders responding to a 2018 Sage Growth Partners survey said their organization incurs over $10 million in bad debt annually. Yet half of respondents said they only expect to recover up to 10 percent of their bad debt.
Most hospitals write off the uncollectible accounts as bad debt, the unnamed company told OIG. Meanwhile, about 30 to 35 percent of hospitals sell portfolios of uncollectible accounts to debt purchasing agencies, which attempt to collect from patients.
Charitable organizations have stepped in at this point in the process to buy patient bad debt from the debt collection agencies.
Many of the organizations work with debt purchasing companies to screen for medical debt that meets criteria for forgiveness. RIP Medical Debt, for example, forgives medical debt for individuals earning less than two times the federal poverty level, with debts that are five percent or more of their annual income, and who are facing insolvency.
Once identified, the organizations purchase the bad debt from collection agencies for pennies on the dollar since the accounts have already been written off as uncollectible. The organizations then forgive the account based on donations.
Charitable organizations have shied away from going directly to the source of patient bad debt because of healthcare fraud and abuse concerns.
The Anti-Kickback Statute prohibits the payment of remuneration to induce or reward patient referrals. Organizations have feared that directly purchasing patient bad debt from hospitals could trigger this law since the exchange may encourage more patients to use a provider who has sold medical debt to a charitable organization for the purposes of debt forgiveness.
The new advisory opinion, however, could pave the way for hospitals to work directly with charitable organizations to unload patient bad debt as long as patients have limited or no knowledge of the provider’s role in the forgiveness of debts.
Although OIG warned that its advisory opinion only applies to the proposal as presented by the unnamed company.
