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May 10, 2023

CT hospitals see rise in unpaid medical bills, as new models emerge to erase debt

Montez Carter

Rising costs are pummeling hospitals and healthcare systems in Connecticut from all sides, and one of the culprits is unpaid medical bills.

While hospitals offer financial assistance to those who qualify, many patients — even those with insurance — are facing medical bills they can’t afford, leading to increasing levels of bad debt on hospitals’ balance sheets.

Middlesex Hospital wrote off more than $22 million in bad debt in fiscal 2022, up from $17 million in fiscal 2021, according to CEO Vincent G. Capece Jr. In addition, the Middletown-based hospital pays more than $3 million in charity care annually.

Capece said the drivers of unpaid medical debt include the overall increasing costs of care and the prevalence of high-deductible insurance plans, which typically force consumers to pay thousands of dollars in out-of-pocket medical care costs before coverage kicks in.
“... A lot of people don't even know what their coverage is,” he said.

Middlesex Health President and CEO Vincent Capece Jr.

With more people on high-deductible plans and the overall cost of health care rising, the amount of unpaid medical debt for healthcare systems is expected to rise for the foreseeable future, he said. 

There’s an estimated $195 billion in collective medical debt nationwide, according to the Census Bureau’s 2020 Survey of Income and Program Participation.

In Connecticut, uncompensated care rose by $58.1 million (or 7.5%) to $833.9 million in fiscal year 2021, according to the Office of Health Strategy (OHS). Meanwhile, total statewide bad debt — or unpaid medical bills from individuals who don’t qualify for charity care — increased by $52.5 million (or 13%) to $456.1 million.

As Middlesex and other hospitals figure out ways to deal with bad debt, some innovative models are emerging. 

For example, nonprofit RIP Medical partners with hospitals across the country to abolish patient debt, a problem that afflicts one in five Americans.

The Long Island City, New York-based charity eliminates personal medical debt, with support from celebrity donors such as “Last Weekend Tonight” host John Oliver, who purchased $15 million of medical debt on his show, and philanthropist MacKenzie Scott, who donated $80 million.

The organization says it has relieved $8.5 billion in debt for nearly 5.5 million families — and those numbers are growing. 

It recently partnered with Trinity Health Of New England, parent of St. Francis Hospital in Hartford and several other Connecticut care providers, to erase $32.76 million in patient debt.

RIP Medical was founded in 2014 by two former debt collectors, Craig Antico and Jerry Ashton, who said they were inspired by the Occupy Wall Street movement in 2011.

The pair decided that because medical debt was so cheap, they could buy it, and forgive it, rather than try to collect on debts that people can’t afford to pay. 

How it works

RIP Medical buys portfolios of debt from healthcare systems at a steep discount: It says it can eliminate roughly $100 of debt for every $1 donated.

“It's because the individuals who owe the debt don't have the means to pay it,” said RIP Medical CEO Allison Sesso. “So, while they technically owe it, you can't get blood from a stone, just like you can't get people to pay who don't have the money.”

RIP Medical CEO Allison Sesso.

That means hospitals are able to reduce some of their bad debt, and patients who qualify get their debt wiped away without any tax consequences or impact to their credit score.

Patients whose debt qualifies are within 400% of the federal poverty level and/or have debts that represent 5% or more of their gross annual income.

RIP Medical does not disclose how much it pays for debt, but Sesso said it’s generally “pennies on the dollar.”

“We have standard pricing that's based on the for-profit debt market, and so it's designed to be competitive with that,” she said.

Typically, hospitals attempt to collect debt for a period of time. But a large percentage of bad debt is never collected, and care providers are forced to eat the loss.

Some hospitals will let patient debt sit quietly on their books. They may decide to sell it to a for-profit collection agency or continue trying to collect on it. 

Relieving a burden

Trinity Health is the first healthcare system in Connecticut to partner with RIP Medical. The relationship was partly borne out of Trinity Health’s charitable mission, said President and CEO Montez Carter.

In fiscal 2021, Trinity's three Connecticut hospitals — including St. Francis, Johnson Memorial in Stafford and St. Mary’s in Waterbury — reported $54.6 million in uncompensated care, including $21.7 million in bad debt and $33 million in charity care, according to OHS data. 

“Partnering with RIP Medical Debt allows us to relieve those patients of their medical debt … while recovering a portion of that debt to help us continue providing the care our patients and communities need in a responsible and sustainable manner,” Carter said.

While hospitals can recover about the same amount of money by selling bad debt to RIP Medical as they could transferring it to a for-profit collection agency, the return is only part of the equation.

“It is doing right by the patients,” Sesso said, “and caring about the fact that when patients have medical debt, they avoid getting care that they need, and they feel a financial and emotional burden as a result of it.”

According to an article published in the medical journal AIMS Public Health, studies show that carrying medical debt can actually worsen a person’s health, creating mental anguish and increasing the likelihood that someone will struggle with anxiety or depression. 

Medical debt is also a leading cause of bankruptcy. 

In February, as part of his biennial budget proposal, Gov. Ned Lamont announced a plan for the state to invest $20 million in federal COVID-19 recovery funding to contract with a nonprofit organization that buys medical debt and eliminates it. 

That funding was not included in the General Assembly’s Appropriations Committee budget, but will be part of upcoming budget negotiations, a Lamont spokesman said. The proposed legislation does not name the partner.

“Trinity is the first hospital system that we are working with in Connecticut, but we are happy and eager to work with others,” Sesso said.

Capece said the hospital industry is facing a “perfect storm of rising costs,” but believes RIP Medical could be a potential solution to the problems they’re having collecting debt as costs soar.

Compounding the problem, more people are entering Medicare programs as they reach the age of 65 — at a time when their healthcare needs are increasing, he said.

That means hospitals are providing more care and receiving less money for it, as Medicare and Medicaid provide lower reimbursement rates than private insurers.

“Costs keep spiraling up and spiraling up,” Capece said. “And then when you throw on top of that, inflation that's out of control, supply costs, drug costs, shortages of labor that's driving up the cost of labor. I mean, it's just a perfect storm. … I don't know what the solution is. But everybody seems to think we'll just write it off, and believe me, if we could, we would. And we're trying every day. But it's getting harder and harder and harder to make ends meet.”

Mark Shaefer, vice president of system innovation and financing for the Connecticut Hospital Association, said bad debt usually stems from patients who are not on Medicare or Medicaid, but have inadequate health insurance.

Schaefer said he sees RIP Medical helping to fill the gap.

“We think it's become more important for organizations like RIP to do what they're doing, because there are a lot more high-deductible health plans,” Schaefer said. “If you look at how those have increased from 10 years ago, they dominate the market, and there are many, many more families who are being covered by insurance plans that result in out-of-pocket costs that exceed what those families can afford.”

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