Beyond the Byline: New debt collection strategy raises legal, ethical questions

Modern Healthcare Hospital Operations Reporter Alex Kacik and Finance Reporter Tara Bannow talk about a new medical debt collection strategy. Specifically, a company that takes a more indirect route to collect the medical debt on behalf of some hospitals.

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Music Credit: Coffee by Cambo

Alex Kacik: Hello and welcome to Modern Healthcare’s Beyond the Byline, where we offer behind the scenes look into our reporting. I’m Alex Kacik. I write about hospital operations. Finance reporter, Tara Bannow is joining me today to talk about her story on debt collection. Thanks for joining me Tara.

Tara Bannow: Thanks for inviting me Alex. Excited to be here.

Alex Kacik: All right. So you came out with this really interesting story this week that hadn’t seen anywhere else. You found out about a company that takes more indirect route to collect the medical debt on behalf of some hospitals. Can you tell us about the Center for Consumer Recovery?

Tara Bannow: Yes. It is a complicated web, just going to warn you. But I’m going to try to explain this in the simplest way possible. CCR, not the band, is a nonprofit that’s based in Tulsa, Oklahoma. And it convinces hospitals to donate old medical debt that they’ve already run through collections. CCR says that it then contacts those patients and says, “What do you need to get in a better place financially or just generally?” And then it connects them with local social service agencies, like The Salvation Army or rent relief groups. And then they help them with whatever they need. CCR does not pay for the actual work, like if they rebuild a wheelchair ramp or something, it’s The Salvation Army or the other group that would do that. CCR makes the connection. So then once that happens, allegedly once that happens, CCRS for-profit partner, a debt collector called Nobel Financial Solutions, contacts those patients and asks them to pay on their bill.

I was told that they use a “White Glove Approach.” They said it’s very gentle and kind. They’re hoping that the gratitude the patients feel will translate into generosity into payment on that bill. I think it’s important to note here that I don’t know how much of that social service work happens. They were able to connect me with one patient who got help, but they said they work with hundreds of patients and thousands of Social Service Agencies. So that’s the part of this I don’t know. You know, how much of that case management is part of this? I talked to leaders at the Social Service Agencies that CCR said they work with the most. And they had not heard of CCR, they didn’t know what it was. That could be because they just refer the patients and it stops there. But I think that’s important to know that, that is a kind of an unclear thing about this.

Alex Kacik: And the scope of it sounds pretty small as of now. When I was going through your story it reminded me, I had not go coincidentally of your story a few years ago on rural hospitals that had this lab billing tactic, where they could charge higher than normal rates for testing and certain lab processes. It sounds like one of those hospitals that you talked to a few years ago is connected to the Center for Consumer Recovery. So if you could tell us about how you learned about CCR.

Tara Bannow: That’s correct. Yeah, you’re right in making that connection. So I learned about this because the CFO of Stephen’s Memorial Hospital, a critical access hospital in Breckenridge, Texas. I knew him from writing that story in 2018. That’s how I met this hospital. They had gotten kind of wrapped up in this lab billing scheme. But he called me a few months ago and said, “I have a good news story now. We have this partnership with CCR and we’re doing really great work for patients in our community.” And by the way, I don’t know. I mean, he seems like he really genuinely wants to do good things in his community and he feels like this is a good thing for them. And so this hospital was CCRs first donor. They told me they’ve donated $13 million in unpaid debt since 2019. And I know they’ve gotten at least $5,000 back to their foundation, I think by now it’s more than that. But yeah, so that’s how that connection was made.

Alex Kacik: So when they’re making this pitch to hospitals, what’s the incentive for them to participate in these services? And then where’s the patient left in this if they do decide to go through CCR, what could the consequences for them be?

Tara Bannow: So part of CCRs pitch is that it will donate 20% of the proceeds from its collections back to a charity of the hospital’s choice. So that can include the hospitals own foundation. And in fact, the hospitals that I talked to said, we are going to put the money to our foundation. So it might not be a lot of money, but these are small hospitals and anything counts. It’s a tough business. So I think the hospitals view it as a win-win, because they’re told that patients in their communities that need help with things like housing, food insecurity, credit counseling. They can help those patients and get their foundation some extra cash. So that sounds like a great deal. But these patients have probably already been through the debt collection process. They’ve been contacted by debt collectors, they’ve been threatened with lawsuits, they’ve had their debt reported to Credit Bureaus. That is a very stressful thing and it probably dissuades them from getting other medical care. So it just kind of begins the cycle again for those patients.

By the way, CCR told me that their debt collector does not sue patients. And actually, I learned in most cases that’s probably because the legally they can’t, the debt is too old and the law forbids it. But they do report the debt to Credit Bureaus. They were pretty open in saying that, actually the guy leading all of this told me that, I thought this was an interesting argument. He said that, “When we report the debt on their credit report, it encourages those patients to come back and work with us. Because now you’ve got this ding in your credit and you’re more likely to accept help from a group that will help you clean up your credit.”

Alex Kacik: Well, and then you get into that cycle of lower credit ratings, and how that could keep people in these lower socioeconomic statuses and prevent them from getting cars, or loans or houses. I imagine this perpetuates a cycle of sorts.

On the conflict of interest front, you reported on community benefit and not-for-profits “Charitable giving.” And there’s been some conflict of interest issues when it comes to some of these nonprofit boards. They often have community leaders on their boards like construction for managers and finance executives. And it doesn’t seem like a coincidence that the construction firm that these board members represent in these relatively smaller towns wins the bid for requests for proposals, for like a new patient tower. So it’s interesting, just that connection where you mentioned where potentially this could get siphoned back into a hospital’s own not-for-profit. And it also sounds like they aren’t too transparent on the calls with patients on like who they are, what they’re representing. How does that coincide with the Fair Debt Collection Practice Act?

Tara Bannow: So again, I think I have to caveat that I was only able to speak with one patient, so this is limited. But when you transfer ownership of a debt, federal law says you’re supposed to contact that person and say, “I now own your debt and I’m going to collect on it.” CCR told me they do that every time. So the one patient I spoke with, her name is Amy Garner. She lives in Breckenridge. She had not received that letter. And actually she really was really grateful for the work that CCR connected her with. It was a local area agency on aging. They built a new deck or set of stairs leading up to her mom’s house, they fixed her mom’s roof. So anyway, that entailed multiple phone calls over a couple months with CCRs representatives. It was not a small process, there was a lot of conversation. And no one in that process ever told her they owned her debt. She had no idea. She was not aware of how this situation works, until I talked to her about It.

Alex Kacik: Let’s level set a bit on how hospitals traditionally collect unpaid bills. I remember when you went to Tennessee to learn about Ballad Health. That was a story from also a couple of years ago. You found out that Ballad files more than 5,000 lawsuits a year, to recoup money from its patients. Many of whom are from low-income families.

Tara Bannow: Yeah. Of course there’s a range of approaches. I think some systems are just have a policy of being more aggressive on this collection process, some are less. But we’ve been reading news articles for years about hospital systems that routinely file lawsuits against patients over unpaid bills. Everything has to be done in accordance with the Fair Debt Collection Practices Act. But you know they’ll try collecting on the ability turnout internally. They’ll send it to one, maybe two collection agencies. They might sue the patient. They might garnish wages. So after it has gone through all that, it kind of just sits there in this metaphorical box in the basement. And it is this unpaid debt that is basically worthless to them.

I think one interesting thing about Ballad is that they actually have donated all of their debt. Well, they have donated a portion of their unpaid debt to RIP Medical Debt, which is a New York-based non-profit. That is interesting because it actually forgives the debt. It accepts donated debt or buys debt from hospitals. And that’s just really interesting concept.

But I think one important point when it comes to bad debt is, how many of these patients would have qualified for financial assistance under the hospital’s policies? So hospitals vary with respect to how much they’re making patients aware of their policies. Often they’re sending people to collections who should have qualified for charity care. So that could be happening in a lot of these cases. And in fact, with Ballad we found out that that was the case with a lot of these debts that were donated to RIPs, that a lot of these patients should have qualified for charity care.

Alex Kacik: I fell into that category when I was my first journalism job. I got hurt and had an overnight stay. And I went through the whole third-party collection processes, but I was only making like $30,000 a year or less.

Tara Bannow: Yeah.

Alex Kacik: And so I didn’t know, I could qualify for charity care. I ended up paying the debt back. But it’s no fun. Like when hospitals don’t get reimbursed, they write off some of the unpaid debt as charity care, some of it gets classified as bad debt. Third party collection agencies can buy the debt for pennies on the dollar. And then you hear the stories of patients being hounded, turning off their phones or whatnot, and avoiding calls to try to get them to pay. And so that rings a bit true for me. Hospitals in the meantime they’re adding to their revenue cycle staff to try to reduce their bad debt. I’m just wondering what you gleaned from the history of CCR? And it sounds relatively new, it doesn’t sound like it’s being used by a lot of hospitals at this point?

Tara Bannow: Yeah. It’s pretty new. The concept was created by this Tulsa businessman named Bill Bartman. He was kind of a giant in the debt collection world. Actually, he became a billionaire by building this company that bought charged off credit card debts. At one time, it was the biggest company of that kind in the country. That company went bankrupt because there was an investor lawsuit into some funny business. And then a federal government investigation eventually sent his business partner to prison. So Bartman was legally cleared. And then after that happened, he turned to medical debt. And he kind of devised this idea that we’re talking about now of having hospitals donate their old debt.

Bartman died in 2016. And then at that point, the operation was taken over by Tom Simonson. He is another Tulsa businessman, former IBM executive. He’s the one who runs it today. The first thing that Simonson did when he took over, was he divided the company into three different companies. Because you actually can’t have the debt collector and the debt owner as a single company. So it’s a little complicated. But there’s this nonprofit, then there’s a for-profit debt collector that they kind of hire. And then a for-profit case management company that they also hired.

Alex Kacik: And when you’re talking to lawyers to see if this is above board, did you get a sense of whether there… It sounds like that there’s some loopholes they could get through, like for in terms of legal liability here. You know where they’re technically that money for instance, that’s being potentially put into their schedule in community benefit is not directly funneled through them, it’s through this third party. So I’m wondering just how this is viewed from the legal experts?

Tara Bannow: In terms of being able to report, one thing that CCR touts is that you can report the proceeds that we donate to a charity as community benefit. So I talked to CCRS lawyers, well, where would they report it on their IRS form? Like, how do you report this as community benefit? They told me which line you could report it on. And I talked to some lawyers and they were like, that doesn’t sound right. We were trying to figure out, well, how exactly would you go about reporting this? And because there is an IRS regulation that you can’t report as a community benefit something that you as the charity would benefit from. And in this case, they told me, CCR said, “Well, there’s a firewall between the hospital and the foundation. They’re technically two separate tax IDs. They’re two separate businesses.”

So anyway, the point is, this is all moot, because the donation itself comes from CCR. It comes from its debt collector. It doesn’t go back to the hospital before it goes to a charity. So essentially when the hospital donates the debt, it’s off their books and they cannot claim after it’s gone through collections. That any proceeds from that are of, they don’t own it anymore. So this conversation about being able to report the donation as community benefit, the lawyers I talked to said that that is absolutely not true.

Alex Kacik: Oh, Tara. Hey, thank you so much for your reporting and sharing this and how the story came together. I’m looking forward to seeing what comes next and appreciate all your hard work on this.

Tara Bannow: Thanks Alex.

Alex Kacik: As you heard, this story was three years in the making. So there’s a lot of legwork that went into this. And if you’d like to subscribe and support our work, there’s a link in the show notes. You can subscribe to Beyond the Byline on Spotify or wherever you listen to your podcasts. You can stay connected with our work by following Tara and I, and Modern Healthcare on Twitter and LinkedIn. We appreciate your support.

Note: At the 10:20 mark, Tara Bannow says that Ballad donated its debt to RIP Medical Debt. They actually sold the debt to RIP (believed to be at fair market value).