The Elephant in the Operating Room — Medical Debt Squeezing U.S. Patients

Health care is fast becoming the necessity that many Americans can’t afford. An estimated 77 million people—37 percent of the adult population in the U.S.—have difficulty paying their medical bills, according to a recent study by The Commonwealth Fund, a nonpartisan, nonprofit health care research foundation. Half of the two million people who declare bankruptcy every year in the United States cite medical debt as a principal reason for their financial ruin, a Harvard University study revealed last year. The Commonwealth Fund also found that two-thirds of people caught in medical debt go without needed medical care, and that people without insurance are more than twice as likely to rack up medical bills that they cannot afford to pay.

Jen Flory, an attorney at the Western Center on Law & Poverty, discusses how her organization, headed by Syd Whalley, is helping California’s under-privileged residents cope with increasingly aggressive collection practices within the medical community.

Patients Forgo Care to Avoid Debt

For the last six months, Miguel Nunez has been walking around his high school on a broken leg. It hurts, a lot. He doesn’t use a wheelchair because he’s trying to pass as a normal teenager, even though he was born sixteen years ago with a rare degenerative disease that’s eating away at his bones.

Nunez hasn’t sought treatment for his leg because of medical debt. A surgery to partially straighten his left leg in December, 2004 cost his family $28,000, because his parents missed the annual deadline to re-apply for health insurance from California Children’s Services.

Nunez’s family couldn’t make the payments, and soon hospital employees began calling the house, threatening that the bill would increase thousands of dollars every month until they began to pay. The hospital offered a payment plan costing $800 a month, much more than Nunez’s step-father could afford as a construction worker.

Meanwhile, Rothman-Thomson Syndrome was curling Nunez’s bones, and eventually caused his left leg to snap just below the knee. The syndrome also causes various types of skin and bone cancer, so Nunez needs to be checked for cancer every six months. He went without testing for a year, however, because without insurance the tests cost $5,000 apiece.

After six months of pain, Nunez finally has an appointment to set his broken leg and get checked for cancer –after his stepfather refinanced the family home to pay the hospital bill. “Nobody gave us any other options,” says Rolando Fernandez, Nunez’s stepfather. “The hospital made it very, very difficult.”

Medical Debt More Common Today
Medical debt is a large and growing problem in America for low- and moderate-income people. Even in states like California, where state Medi-Cal and Medicare programs exceed federal minimums to cover more people and more medical procedures, growing numbers of people are becoming trapped under mountains of debt from which they may never escape, says Jen Flory, a researcher at the Western Center on Law & Poverty in Los Angeles. Medical debt not only threatens their financial livelihoods, it may prevent them from seeking further medical care, which in some cases endangers their lives.

 “The impact that a large medical bill has on a low-income person’s life can be devastating,” says Flory.

In 2004, the California state legislature passed Senate Bill 379, which attempted to address the problem of medical debt by requiring hospitals to offer financial assistance to anyone living within 300 percent of the federal poverty level. To crack down on the industry-wide practice of charging uninsured patients more for the same procedure than people with insurance, the legislation would have required hospitals to bill the uninsured at the same rates as they charge Medicare. The law also would have required hospitals to provide more prominent notification of their assistance programs to people who can’t afford to pay. Governor Arnold Schwarzenegger vetoed the bill, however, after the California Hospital Association promised to create a similar set of voluntary rules regarding “charity care” for all hospitals to follow. Non-profit hospitals are obligated to provide such care in order to maintain their non-profit status. Senate Bill 379 would have required all hospitals to adhere to a strict set of rules about treating patients within 300% of the poverty level.

Many Not Forthcoming About Assistance
In 2006, the Western Center on Law & Poverty joined with California’s Health Consumer Alliance (HCA) to find out whether the hospitals are following their own rules, and whether these voluntary guidelines are helping to reduce medical debt. The executive summary: They’re not. HCA sent 34 volunteers to investigate hospitals in 11 California counties. The investigators phoned and visited each hospital, posing as relatives of uninsured, low- to moderate-income people who needed medical care.

With only a few exceptions, hospital employees either failed to respond to their inquiries, or responded with misinformation or intimidation, according to the report. A manager in the finance office of a Los Angeles hospital told one surveyor that people wanting financial assistance had to live within a five-mile radius of the hospital, pay $30 to apply and then wait up to six months to see if they qualify. In the meantime, patients must pay their bills. When HCA finally received a written copy of the hospital’s guidelines, they discovered there was no application fee or waiting period.

Another surveyor called a patient services representative at a county hospital and said that her relative did not qualify for Medi-Cal, the state’s Medicaid program. The hospital worker said there were no other programs that could help pay for the surgery. But in fact, the county has multiple programs for the uninsured, and the hospital itself offers a sliding fee scale based on income.

Workers in some private hospitals seemed offended when the surveyors asked about financial assistance programs, even when the hospitals had one, the report found. Some surveyors were curtly told to leave the building and find a public hospital. When one surveyor asked a worker in a hospital admissions department over the phone for more information, the worker yelled “No!” and hung up loudly.

Even though the state association’s voluntary guidelines require all hospitals to make their financial assistance policies readily available to the public, volunteers could only obtain written copies of the policies at 34 percent of the 163 hospitals surveyed. More than a third of hospitals did not have their financial assistance policies posted anywhere in the building. At 22 percent of the hospitals surveyed, staff reported unequivocally that they had no financial assistance program, even though further investigation proved that many of them did. Another 10 percent of hospitals refused to give out any information at all, despite repeated phone calls, mailed queries and in-person visits.

“Many hospital staff just don’t know their own rules,” Flory says. “They’d say one thing, and then when you actually read the written policy it said the exact opposite.”

Some Do Offer Assistance – Sort Of

When hospitals disclosed their policies, they frequently offered insufficient help to moderate-income people. According to the state association’s guidelines, hospitals should offer financial assistance to patients whose incomes fall bellow 300 percent of the federal poverty level. The survey found that 69 percent of the hospitals surveyed met this threshold. One hospital in Los Angeles County offered charity care to patients up to just 110 percent of the poverty line. Another offered a 25-percent discount off total charges, but required that uninsured patients pay as soon as they’re medically stabilized. That hospital also required substantial deposits for outpatient surgeries, the study found.

The hospital association also agreed that hospitals should stop charging uninsured patients more for procedures than people with insurance, and instead cap bills to the uninsured at the same rates they charge Medicare for similar procedures. According to the HCA survey, only one third of hospitals have implemented such a cap. Which means that, on average, uninsured patients in California still pay five times more than people with insurance, says Flory.

As medical debts rise, hospitals have become more aggressive about collections, Flory says. Three-quarters of the hospitals that responded to HCA’s written survey reported that they use lawsuits to collect unpaid bills, 52 percent of them garnish wages, and 25 percent put liens on patients’ houses. Most hospitals that responded said they have written contracts with their collections agencies barring overly abusive or intimidating practices.

A Common Misconception
Many individuals still believe, incorrectly, that medical debt will not affect their credit score.  However, once a medical debt is sold to a collection agency—a practice now widely employed by hospitals—it does appear on a consumer’s credit report; and it stays there for seven years. Furthermore, it’s common for individuals to rack up high credit card debts to pay off their medical bills, which clearly influences a consumer’s credit score. 

Robbing Peter to Pay Paul
What may be surprising are the great lengths to which low-income, uninsured people often go to pay their medical debts, Flory says. Especially if they receive high quality care, many patients feel a moral obligation to the doctors who performed the procedure, Flory says, not understanding that in most cases the physicians already have been paid and the debt is actually owed to the hospital. Faced with the largest bill they’ve seen in their lives, some low-income people forgo mortgage payments or scrimp on food and medicine to repay their medical bills. “We have to explain to them that they can’t go to jail for this,” says Flory. “They have to buy food and pay their rent before paying this hospital bill.”

In this panicked situation, some people try paying off their medical debt with a credit card. A growing number of health care professionals, including some dentists and chiropractors, offer medical credit cards to would-be patients before a procedure (Flory says she hasn’t yet seen any hospitals embrace this tactic). Medical credit cards make sense for the physician, who gets paid instantly. But it might be the worst possible situation for low-income and uninsured patients, since it gives them a double burden of the inflated medical bill plus high monthly interest of 18 to 22 percent.

“It’s truly frightening,” Flory says. “Most low-income people live in a cash economy. They’re not savvy about credit. A credit card for medical debt is the last thing they need.”

The Push for Reform

The preliminary results from HCA’s report on medical debt came out just in time for Flory and others to use in the lobbying push for Assembly Bill 774. The bill, which was signed into law and became effective Jan. 1, makes some of the hospitals’ promised voluntary changes mandatory. Under the law, hospitals in California must do the following:

• Offer assistance to anyone at or below 350 percent of the poverty level.
• Publicly post their assistance policies.
• Publicly post information for how patients can dispute a charge every time they mail out a bill.
• Wait at least 150 days before reporting a bill to a credit-reporting bureau or filing a lawsuit.
• Follow new regulations on when they're allowed to garnish wages or place liens on houses to collect unpaid bills.

The new law accomplishes much of what Flory and her group have been advocating for years. But uninsured patients in the other 49 states have no such protections. And even in California, as medical costs continue to skyrocket and more low-income people fail to qualify for public insurance, Flory predicts that the problem of crushing medical debt will continue to get worse. Says Flory: “The bottom line is that lots of people will continue to rack up lots of medical debt.”

See Credit.com’s Tips for Dealing with Hospital Costs and Medical Debt for more information on best practices to consider next time you go to the doctor.