Can I Stop My Bill From Being Sent to Collections?

A Credit.com reader recently asked about when a hospital can send a bill to collections, and how that could affect one’s ability to pay the bill.

The reader had a $4,200 bill that was outstanding for more than 120 days. After calling the hospital to make payment arrangements, the hospital informed the reader that the account had just been turned over to collections. Trying to avoid a negative mark on a credit report, the reader offered to make a payment, but the hospital told the reader to instead wait to hear from the collection agency, and that perhaps the agency could make a payment arrangement to avoid a bad credit mark.

The reader had a number of questions:

If I have not been officially informed that the bill was turned over to collections, what happens if I send the hospital a payment?
Does the hospital report this account to the credit bureaus?
Is the hospital required to inform me in writing that the debt will be turned over to collections?
Is there a way to avoid having this bill go to collections, at this point, if I am unable to make a $4,200 lump sum payment?

This reader is, unfortunately, not alone. A December report from the Consumer Financial Protection Bureau (CFPB) found that half of all collection accounts on credit reports are medical-related. It also found that 43 million Americans have medical collections on their credit reports.

At the time of the report’s release, CFPB Director Richard Cordray stated, “What we discovered is that medical debt amplifies many of the problems generated by debt collection and the credit reporting system. When people fall ill and end up at the hospital with unexpected bills, far too often they have entered into a financial maze.”

Finding Your Way Out

For anyone with questions similar to those posed by the reader, here are some ways to navigate this “maze.”

If you owe a hospital – or any healthcare provider — money, there is no reason for them not to accept payment. However, if they ask for payment in full and you are unable to resolve the account, they may send it to collection.

Whether it will end up on your credit report depends on the hospital and their arrangement with the collection agency. Virtually no hospitals report directly to the credit bureaus. Typically, the collection agencies they work with do this. Since hospitals are facing criticism for ruining people’s credit, many are now reconsidering this approach.

For patients of nonprofit hospitals, federal regulations issued this past December include strong consumer protections. They require hospitals to wait at least 120 days from the date of the first patient invoice before taking “extraordinary collection actions.” Credit reporting is included in these collection actions. And the patient must be given a 30-day notice prior to initiating these actions.

During this time the hospital must also inform the patient of its financial assistance or charity care policy. Once a patient applies, all collection actions must cease until an eligibility determination is made. If approved for free care or a partial discount, any money paid over what the patient is responsible for must be refunded. This is the case whether you have paid the hospital and/or any agency to which they have referred or sold your account.

Many hospitals also offer payment plans. They are required in some states for certain patients. If a patient complies with the plan, the hospital generally will not send the bill to a collection agency. Why would they? Doing so would result in a decrease in the amount that they collect on the bill.

The details of payment plans are often included in hospitals’ financial assistance, or billing and collection policies. Remember, some hospitals may require payment in full within a short timeframe. But keep in mind that most hospitals want satisfied patients. If you communicate and let them know you are working to pay off a bill, most will try to make mutually acceptable arrangements.

Ask the hospital not to send the bill to collections, stressing that you do not want it to appear on your credit report. Especially if you are paying on it.

All nonprofit hospitals are required to have written policies that they make available to their patients and the community. If you have outstanding bills from a nonprofit hospital, call and ask them for copies of their financial assistance and billing and collection policies. You are entitled to this under federal law.

Ask for ‘Best Practices’

The situation with for-profit hospitals may be different. Though some have financial assistance policies (ask whether they offer financial assistance or discounts), they are not required. However, many different types of healthcare providers follow the Healthcare Financial Management’s Medical Account Resolution Best Practices. They call on providers to wait 120 days prior to taking extraordinary collection actions – including credit reporting — and to provide 30 days notice prior to initiating actions.

In the hospital industry, it is becoming a leading practice for hospitals and their agencies not to report medical debt to the credit bureaus. Ask your hospital if they allow this.

In the end, if you feel you’ve unfairly had a medical bill sent to collections and then it appeared on your credit report, contact the CFPB to submit a complaint.

You won’t be alone. The CFPB reported that debt collection is the number one complaint they’ve received and that medical collections make up 52% of collection actions on credit reports.

Oh, yes — back to our reader. My advice is to send the hospital your payment; they are likely to process it. If not, ask them to explain why.

[Editor’s note: If you’re dealing with medical debt issues, it’s important to check your credit reports regularly for signs that your debt may have been sent to collection. You can get your credit reports for free every year from the major credit reporting agencies. Credit.com also provides a free credit report summary, updated every 14 days, which can alert you to changes in your credit reports and scores.]