05.07.19 by Andrew Shafer

Memorandum to Clients in the Medical Debt Collection Business

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Memorandum

Background.  During its 2019 legislative session, the Washington legislature enacted sweeping changes to the rules governing collection of medical debts.  The governor signed the bill into law on April 30.  It becomes effective July 28, 2019 (90 days after the end of the current session).

The Good.  The legislature has now conclusively resolved the issue of whether medical debt is liquidated debt, to which prejudgment interest applies.  There are strings attached, however. They are described below.

The Bad.  Interest is now capped at 9%. Interest can only accrue.  If interest has been accruing at more than 9% as of the effective date of the legislation, the rate must drop to 9% on and after July 30.  See, RCW 19.52.020(4) (a) and (4) (b).  Garnishments based on consumer debt judgments must state, “This garnishment is based on a judgment or order for consumer debt.”

The Ugly.  New disclosure requirements will make it virtually impossible to comply with the new disclosures on one piece of paper. The new disclosure requirements create a trap for agencies that omit any of the required information. 

The new, expanded, disclosure requirements are a particular concern regarding the requirement set forth in paragraph (2)(c) below.  Compliance depends on participation by the health care provider.  On the patient’s request, the provider will be required to provide its collection agency with “confidential health care information.” Even though agencies are considered “business partners”  under HIPPA, agencies should anticipate reluctance by your health care clients to provide information that they may fear will result in them violating HIPPA’s privacy rules.

Timing.  Health care providers may not turn over medical debt to collection agencies until the 121^st day after the initial billing statement has been transmitted to the patient or other responsible party. 

New Validation Notices Will Be Required.  RCW 19.16.250 has been amended. Sections 27 and 28 are new. 

In addition to providing the information required by RCW 19.16.250(8), section 27 requires medical debt collection agencies to:

1.      Provide a notice informing the consumer that they have the right to request the original account number (or a redacted original account number – whatever that means. What good is a redacted number, after all.  This may refer to partial redactions. Only time, and litigation, will tell); date of last payment; and an itemized statement of charges.

2.      On written or oral request, provide the consumer an itemized statement of charges, free of charge.  Collection efforts may not proceed until this information is provided.  The itemized statement must include the following:

(A) The name and address of the medical creditor;

(B) The date, dates, or date range of service;

(C) The health care services provided to the patient as indicated by the health care provider in a statement provided by the health care provider;

(D) The amount of principal for any medical debt or debts incurred;

(E) Any adjustment to the bill, such as negotiated insurance rates or other discounts;

(F) The amount of any payments received, whether from the patient or any other party (such as insurance);

(G) Any interest or fees; and

(H) An accounting of any charity care allowed by the health care provider, and if charity care is allowed, the balance due after the charity care is applied to the bills.  The notice must also state whether the health care provider found that the patient was eligible for charity care or credits against the bill.

Section 27 requires that you inform the consumer of his/her right to terminate any voluntary payment agreement to which they agree.  This is really not that much of a change from notice requirements under the Electronic Funds Transfer Act, 15 U.S.C.§ 1693e, for agencies that enter into payment plans with automatic payments.

Section 27 also confirms that if an agency has obtained properly executed post judgment writs, including writs of garnishment and execution, it may continue with the execution process.  A consumer’s requests for information already provided do not require the cessation of collection efforts.

Section 27 also limits credit reporting.  Under the new rules, you may not report medical debt to the CRAs until 180 days after placement with the agency.

An Additional Disclosure for Hospital Debt.  

RCW 19.16.250(28) is new. It only applies to collection of hospital debt.  This section requires:

1.                  Notice that the consumer may be eligible for charity care from the hospital. You must also provide contact information for the hospital.

2.                  An agency may not collect or attempt to collect a claim related to hospital debt during the pendency of an application for charity care or an appeal from a final determination denying charity care.  However, this prohibition is only applicable if the agency receives notice of a charity care application or appeal.   This is another section where agencies are well advised to insure clear communications with hospital clients so that charity care applications are communicated to the agencies.

Comments:  Under HIPPA the hospitals are not permitted to refer collections until they have provided patients with notice of the charity care process and then only after the patient fails to apply for charity care.  However, since there is nothing in the HIPP regulations that prohibits a late charity care application, it is conceivable that once the patient receives the validation notice, she or he will then take the charity care process seriously.

This new section creates a potential trap. If the hospital does not inform its collection agency of the late application, while the agency has no legal duty to stay its collection efforts, there is nothing to prevent an accusation that the agency violated this new section by continuing collections while the charity care process is under way. 

File then Serve.  Under current law, a lawsuit in superior court is initiated by either filing the summons and complaint or serving it.  A common practice is for the plaintiff to serve the summons and complaint before filing it. If the defendant responds, perhaps the case is quickly, and privately resolved. If the defendant ignores the service, common practice has the plaintiff filing the action the same day it obtains a judgment by default.  In the context of debt collection, this practice will no longer be permitted. HB 1066 amends RCW 19.16.250 by prohibiting a debt collector from, “Serv[ing] a debtor with a summons and complaint unless the summons and complaint have been filed with the court and bear the case number assigned by the court.” 

CONCLUSION:  This new legislation will become law within 90 days. Agencies will have to review their medical debt collection practices within a compressed time frame to insure compliance. The law does not provide for any Mulligans.  The best place to start is with a new set of validation notices to accommodate the specific disclosures required by Section 27.  Coordination with health care providers will also be critical to developing communications systems so agencies are aware of charity care processes. Finally, agencies will have to develop information systems to track the final billing date by the health care provider so the 120 day rule is followed.