Medical Debt, Collection Practices Targeted in New Laws

Maryland, New Mexico, Washington, and Nevada are among the states making efforts to help patients out of medical debt.

Thirty-five percent of American adults carry medical debt, according to HealthCare.com, but new state laws are aiming to limit how aggressively—or even whether—hospitals can collect that money.

For instance, on January 1, the Medical Debt Protection Act of 2021 went into effect in Maryland, which prohibits hospitals from putting liens on patients' homes over medical debt and from garnishing wages of patients who qualify for free or reduced-cost care.

The law also requires a state agency to develop guidelines for hospitals to establish income-based payment plans, and until those guidelines are created, hospitals can't sue patients for any medical debt.

Research shows aggressive medical debt collection efforts are on the rise among hospitals. For instance, a new Health Affairs study published in December revealed that in Wisconsin, hospital lawsuits over medical debt increased 37% from 2001 to 2018.

Maryland is only one example of states making efforts to help patients out of medical debt. Others already have or are working on similar measures, including:

New Mexico: The Patients' Debt Collection Protection Act went into effect on July 1, 2021, which prevents healthcare facilities and medical debt collectors from continuing collection actions (including lawsuits and wage garnishment) against low-income patients who earn less than 200% of the federal poverty level (FPL).

It also puts into law some revenue-cycle best practices, requiring healthcare facilities to verify whether the patient has health insurance, screen for all available public insurance and financial assistance, and help patients apply for such programs, before they can collect a bill.

In addition, last month, the state's Office of Superintendent of Insurance issued final medical debt rules that require medical providers and hospitals to check whether a patient has a low income before suing them or sending them to collections and guarantees that a patient with a low income is protected from being sued or sent to collections for two years.

Washington: Patients at the FPL already get their out-of-pocket medical debt forgiven.

House Bill 1616 would broaden those protections to patients who exceed the FPL by as much as 300%. Patients who earn 400% above the FPL would be able to get partial write-offs.

Nevada: Nevada's senate bill 248 went into effect July 1, 2021, and includes rules about how collection agencies can go after medical debt. For instance, under the new law, collection agencies must notify patients by certified letter at least 60 days before taking action to collect a medical debt.

The letter needs to include the names of the medical facility and provider, the date of service, and the principal amount of the medical debt, as well as the name of the collection agency.