State Healthcare Reform and the Collection Industry

October 10th, 2007

Several states have recently enacted healthcare legislation that directly affects hospital creditors and the ARM industry.

Bills passed in three states – California, Nevada, and North Dakota – address hospitals’ late payment and interest fees, charity care and discount payment policies, property liens, and governance under the federal Fair Debt Collection Practices Act (FDCPA). In almost all cases, new legislation that applies to hospital creditors also regulates collection agencies, debt buyers, and collection law firms, if existing state or federal laws do not already apply.

Of the three bills passed, Nevada AB 247 is perhaps the most invasive. It establishes a strict statute of limitations for collections, prohibits hospitals from assigning fees for contingency collections onto a debtor’s account, and prohibits the transfer of a real property lien to a debt buyer following the sale of a healthcare portfolio. This will appreciably reduce inflows of cash to hospitals in the recovery of bad debt. According to the Las Vegas Sun, the amendments in AB 247 were driven, at least in part, by some Assembly members’ notions that hospitals should be held accountable for “some of the alleged abuses after the debt is sold [sic] to a collection agency.”

Under federal law, creditors are generally exempt from FDCPA, but states have the authority to require businesses that operate within their jurisdiction to comply with the federal law or – as is the case in many states – enact their own FDCPA legislation. Nevada’s AB 247 and other recently enacted laws envelop healthcare creditors under federal FDCPA regulations.

These regulatory changes offer challenges, but also service opportunities for ARM companies. Hospital creditors unfamiliar with the particulars of the federal law may seek consulting services or outsource a greater segment of their delinquent receivables to ARM industry companies, as ARM firms have more wide-ranging FDCPA expertise.

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