Five years ago, credit bureau reporting (CBR) was a powerful tool in a hospital’s bad debt program collection toolkit. Today, it has less of a positive impact on a hospital’s overall cash collection results due to stronger consumer protections enacted in recent years. The Bureau of Consumer Financial Protection (BCFP), for one, has stepped up its oversight of healthcare debt that is reported on consumer credit reports by collection agencies. In fact, the BCFP has pushed the three credit bureaus harder than ever to expand and enforce Fair Credit Reporting Act (FCRA) requirements and hold debt information furnishers to a much higher standard.
For example, a collection agency may not mention anything about credit reporting in initial patient letters, as such language is deemed to overshadow the Fair Debt Collection Practices Act’s (FDCPA) 30-day validation period in which consumers are allowed to request proof of their debt. Over the last few years, many more stringent guidelines that govern how records can be reported to the credit repositories have been established, making it harder to comply and participate in the reporting programs.
Recognizing Patients Increasing Knowledge of CBR
In addition to increased government oversight, the internet, social media, and consumer advocacy groups are helping consumers become more informed, educated, and technically savvy on how to challenge items on their credit report. A simple Google search can quickly reveal how to dispute the collection process regardless of whether the debt is known to be valid by the consumer.
Also, many consumers have signed up for credit reporting alerts, allowing them to quickly and automatically dispute a debt as soon as it hits their credit report. We receive thousands of electronic CBR disputes each month, prompted by these consumers, through our automated alert platform.
Our research shows that in many cases, consumers who dispute a debt do not intend to pay that debt even if it’s valid. Rather, the consumer wants to clean up their credit report to ensure healthcare debt collection items do not negatively impact their credit scores.
Understanding the Role of CBRs in a Changing Industry
Credit reports are also becoming less effective as hospital bad debt programs evolve. For example, consumer accounts used to stay with the primary collection agency for longer periods of time—2 plus years versus 180 days today. This allowed the healthcare debt to be reported and the consumer’s financial situation to perhaps positively change. For example, consumers might be urged and motivated to pay off their debts after longer periods of time have passed. In some cases, medical debt that blocks financing for a new purchase such as a home, car, or other household goods may prompt consumers to clear up unpaid bills.
However, hospitals and their collection agencies are moving accounts to second placement programs much sooner to maximize their collection results and cash returns on their bad debt programs. As a result, the only consumers making payments or paying off accounts during that short placement period in primary bad debt programs are those with fair to good credit. These consumers typically make an assumption that because the debt was sent to a collection agency, it will be reported and affect their credit score if it is not paid quickly. Thus, the actual credit reporting process does not impact them as they usually pay off their debt before it is reported.
Redesigning CBR Strategies
Credit report disputes are increasing and are becoming more challenging to address. These disputes require a significant amount of staff overhead and technical support to manage due to complicated CFPB and FCRA rules. Hospitals cannot rely as heavily on CBR reporting to strengthen their collection results because of those factors.
For example, even if the hospital or its agency provides highly accurate information to the credit reporting bureaus, new regulations require the reporting organization to send two additional letters to the consumer when a dispute is received. The first letter notifies the consumer that their dispute has been received and is in review, while the second provides an update of the findings to the consumer related to the validity or non-validity of the disputed debt and the next action they can expect.
These efforts are timely and costly for hospitals and agencies, which are forced to increase administrative and technical oversight for compliance and support teams.
As a result of increasing consumer protections and other industry changes, hospitals should consider implementing the following CBR guidelines to reduce administrative and legal burdens.
Wait longer to report bad debt. Healthcare organizations may not report any bad debt defaulted account to the three credit bureaus until a minimum of 31 days have passed since the consumer received an initial validation statement by mail. We recommend waiting 75 days after the bad debt placement date before reporting bad debt to the credit bureau. Reporting any earlier will only increase the number of unnecessary disputes sooner in the process that have to be addressed. By implementing this delay, you will allow those consumers that have intent on paying to properly address their concerns and ultimately an appropriate payment arrangement. This will also decrease the amount of consumer disputes that simply come as a result of the automated electronic credit bureau alert notifications most consumers are signed up to get due to heightened awareness around credit fraud.
Provide a patient-friendly payment program. Hospitals should not credit report those consumers who have agreed to participate in an approved payment arrangement as long as the consumer continues to pay down the account under the original terms. It is also a more patient friendly approach to allow those who have the good intention of paying a bad debt account in full, or with a payment plan, to make those arrangements without having their credit impacted. Reporting the consumer could lead to more unnecessary work efforts prompted by a dispute and unnecessary patient complaints.
Consider a small balance threshold. Finally, only report individual balances greater than a specific predetermined amount to credit repositories to reduce the number of small-dollar disputes and patient complaints as consumers attempt to clean up the number of reported credit items on their credit history. This will help prevent a backlog of reviews if you are struggling in keeping up with the volumes of disputes that come in on small balance accounts as a result of those automated credit alerts many consumers are signed up to immediately receive. In a healthcare program with a more patient friendly focus, this will also help support that program by limiting the amount of small dollar credit items hitting that consumer’s credit report.
Using a Prudent Approach
New consumer credit guidelines and requirements for collecting unpaid healthcare bills require hospitals and health systems to use caution. By developing a plan to follow current guidelines and education patients on their financial responsibilities, hospitals and health systems can increase patient satisfaction and improve revenue.