What growing medical debt relief efforts mean for providers

By Caroline Hudson / September 13, 2024

Hospitals, health systems and government officials are advancing efforts to eliminate billions of dollars in patients' medical debt, despite some concerns about longer-term implications.

An estimated $7 billion in medical debt is on track to be eliminated by the end of 2026 with support from the American Rescue Plan Act of 2021, according to a White House fact sheet. Multiple proposals using federal ARPA funds, in addition to new programs that draw on state and local resources, could erase billions of dollars more.

Politicians and providers tout medical debt programs as a huge financial benefit to patients, but some industry watchers are worried about the potential effects, including administrative burdens on providers and more debt buildup in the future.

Medical debt is money owed for healthcare services, including surgeries, clinic visits, procedures and prescriptions, and it disproportionately affects low-income and uninsured patients. Unpaid bills can create cash flow issues for all providers, but smaller facilities in low-income rural areas are often hit the hardest.

"We have so many people that are underinsured and can't afford their out-of-pocket costs, and they don't think financial assistance is for them. I think that it really requires all of us to come to the table," said Eva Stahl, vice president of public policy and program management at nonprofit Undue Medical Debt. Undue Medical, formerly RIP Medical Debt, acts as a partner in medical debt elimination programs by buying debt from providers, for which they were unlikely to be reimbursed, at a substantial discount.

Relief efforts have gained support from the Biden administration in recent years. This summer, the administration announced a proposed rule to remove medical debt from individual credit reports. The topic has also become a key point in Vice President Kamala Harris' bid for the presidency.

Illinois Gov. JB Pritzker (D) signed a bill in July that earmarks about $10 million in state funds for purchasing outstanding medical debt through Undue, with a goal of erasing almost $1 billion in debt for residents. The St. Louis Board of Aldermen in Missouri approved a bill in April to use $800,000 in ARPA funds to eliminate up to $80 million in medical debt.

Government officials are also looking to go a step further than one-time forgiveness programs by understanding and addressing the root causes of medical debt.

For example, a new ordinance initially approved by the Los Angeles County Board of Supervisors in August requires hospitals to report debt collection actions to the county’s health department. The new rule brought mixed reactions from providers, including some concerns about the administrative resources needed to comply, said Dr. Naman Shah, director of the division of medical and dental affairs at the Los Angeles County Department of Public Health.

Hospitals that collect information electronically will have the advantage in submitting the required data, Shah said. He said the health department is working with hospitals to minimize the amount of required data and accepting flexible file formats.

The rule complements a pilot program authorized this summer in Los Angeles County that could eliminate $500 million in medical debt for 150,000 lower-income residents. The county pledged $5 million toward a partnership with Undue Medical, which will use the donation to purchase debt for pennies on the dollar.

Seven hospitals in unincorporated areas of Los Angeles County are initially required to report to the health department. The department can then publish the data. Cities in Los Angeles County have the option to adopt similar rules, which would bring dozens more hospitals under the reporting requirement, Shah said.

Dr. Elaine Batchlor, CEO at MLK Community Healthcare, which provides primary, specialty and emergency care in the Los Angeles area, said she supports initiatives like the county's ordinance that seek to better understand what causes medical debt.

“Understanding the problem is a precursor to solving the problem,” Batchlor said. “I think what the county is trying to do is shed light on the problem. I think they’re trying to make the problem more transparent and provide more information on what is actually happening to people.”

Meanwhile, a new program in North Carolina is drawing on Medicaid funds to incentivize hospitals to relieve patient debt.

As part of the program, hospitals will receive enhanced Medicaid payments through the Healthcare Access and Stabilization Program if they meet certain criteria. Providers that opt in agree to relieve medical debt back to Jan. 1, 2014, for all Medicaid beneficiaries, uncollectible debt for patients whose income is at or below at least 350% of the federal poverty level and debt that exceeds 5% of a person’s annual income.

Providers stand to gain hundreds of millions of dollars, prompting all 99 of the state's eligible hospitals to sign on to the incentive program, despite some outstanding questions.

Charlotte, North Carolina-based Advocate Health, which in the past has declined to turn debt over to Undue Medical, opted in to its home state's new relief plan. However, the system also expressed multiple concerns to officials.

The incentive program, which was approved by the Centers for Medicare and Medicaid Services in July, could discourage patients from getting insurance, and it fails to address the role insurers, pharmaceutical companies, pharmacy benefit managers and medical device manufacturers play in rising healthcare costs, Advocate said in an Aug. 9 letter to North Carolina Department of Health and Human Services Secretary Kody Kinsley.

“While we recognize and appreciate the department’s good intentions to address the troubling impact medical debt has on patients and families, we are concerned it does not address the full picture of the root causes, and it could lead to unintended consequences,” Advocate said.

Steve Lawler, president and CEO of the North Carolina Healthcare Association, said the incentive program doesn't leave much choice for providers except to opt in. He said the additional Medicaid dollars could be invaluable to hospitals by supporting operations and investments in new programs and equipment.

Neale Mahoney, an economics professor at Stanford University, said he thinks North Carolina’s plan is the most promising proposal yet because it helps prevent future debt accumulation by allowing providers to implement new policies for medical bill discounts.

Still, academic researchers say debt relief plans could lead to longer-term issues.

A report released in April by Mahoney and three other researchers found debt relief efforts can lead to fewer patients paying their existing medical bills, in part because they may be expecting future relief to come. The report also found relief efforts have no average effect on patients' financial outcomes or mental health.

“We were optimistic that this was a relatively inexpensive way to have a meaningful impact on people who were struggling,” Mahoney said. “The results were largely disappointing.”

Ge Bai, an accounting and health policy professor at Johns Hopkins University, said fewer payments will lead to more unpaid bills for hospitals and drive up commercial rates. Higher rates would ultimately force providers to consolidate, she added.

“Who’s benefiting?" Bai said. "Large hospital systems and then politicians claiming that they have solved an issue.”