Unpaid Medical Bills Wound Hospitals and Patients

Julie Basem was 20, living in New York, and pursuing her dream of becoming a Broadway dancer when a knee injury knocked her off stage. She had insurance, but it barely covered her treatment, and her savings were meager. The bills piled up—some $40,000 worth—and ultimately, bankruptcy became her only option. "Emotionally, it was very hard, because I didn't think that at that age anything was ever going to happen," Basem says. "I didn't really know how to deal with it."

If her story sounds familiar, that's because you've probably seen it on TV: she's part of a series of AARP ads that use real and wrenching bankruptcy stories to shed light on America's medical-debt crisis. The AARP campaign launched in July, but four months later it's resonating more than ever, as the economic meltdown deepens. The mortgage crisis may have dominated the front pages lately, but people strapped for cash are likely to stop paying their medical bills long before their homes go into foreclosure. A rise in this often-unavoidable debt has threatened the health of patients and hospitals alike, and both constituencies are taking drastic new measures to survive.

For many people, the struggle with rising health-care costs has already reached a critical point. More than two in five American adults under 65 had trouble paying their medical bills last year, according to a recent study by the Commonwealth Fund, a New York-based health policy research group. Of those people, 39 percent had used up all their savings, 30 percent had racked up credit-card debt and 29 percent said medical bills left them struggling to pay for basic necessities like food and heat.

Doctors and hospitals are also struggling to survive the health-care credit crunch: they endure some $60 billion in unpaid medical bills each year, according to a report last year from the consulting firm McKinsey & Co. With out-of-pocket health costs rising (the $250 billion price tag in 2005 is expected to exceed $420 billion by 2015), the percentage of unpaid bills will likely increase as we head into a new year and a new economic reality. A report released by the American Hospital Association (AHA) last week shows that over the last three months, elective medical procedures have dropped 6 percent below projected levels, while admissions are down 9 percent. Unpaid care is up by 8 percent.

With their own solvency at stake, hospitals are doing everything in their power to collect on unpaid bills. That, according to the Boston-based advocacy group the National Consumer Law Center, can mean suing patients and their spouses, failing to explain charity care options, offering credit or loans and using collection agencies and the threat of bad credit to coerce patients into settling up. A number of big banks now offer credit cards exclusively for medical procedures—and a growing number of hospitals have started checking patients' credit scores while they sit in the waiting room.

All of those tactics are perfectly legal, as long as hospitals comply with a federal law that requires them to treat anyone who comes in with an emergency—regardless of their ability to pay, says Carol Pryor, a senior policy analyst with the Access Project, a nonprofit health-advocacy organization. But how the law defines an emergency—something that could be potentially life-threatening—can be different from the way many Americans would define it when it comes to their own health. Like, for example, Dearfield, N.H., resident Maria McNamara, who suffers from a degenerative eye condition called retinal dispigmentosa and is uninsured. Her disease caused blindness in one of her eyes, but until recently she could still see and get around with a set of eyeglasses.

A year ago, however, she started losing sight in her other eye, too. Doctors discovered a retinal tear, and she underwent two surgeries at a local hospital to repair it. The hospital waived the $17,000 fee because McNamara and her husband are both retired.

But the surgeries didn't work, and McNamara was referred to a specialist in Boston, where she had two more procedures, totaling some $30,000. When McNamara showed up at Tufts Medical Center for her third surgery appointment, she was told she would only be treated if she paid up front—because she still owed for the prior treatments. Her family held a fundraiser to pay for the procedure, but during the surgery, doctors discovered another tear. Now she needs another procedure. "It's sad, because you work your whole life just trying to stay ahead of the game," says the 55-year-old. "Without my sight, I can't work. And paying off a $30,000 medical bill is just not possible."

Massachusetts does have a $448 million state financial-aid program, officially called the Healthcare Safety Net, that patients can apply for, to help reimburse hospitals for some of the cost for uncompensated care. But because McNamara is a New Hampshire resident, she doesn't qualify. And though Tufts said in an e-mail to NEWSWEEK that they've provided nearly $159 million in medical charity care over the last five years, McNamara says she hasn't been offered a dime. A Tufts spokeswoman told NEWSWEEK that patient privacy laws barred them from confirming McNamara as a patient or providing details about her care. "The issue of the uninsured is a matter of great concern for our country, and we and other hospitals are committed to finding long-term solutions," the hospital said by e-mail (See Editor's Note).

McNamara, meanwhile, has started getting collection notices in the mail, and she worries she might lose her home. The Fair Credit Reporting Act allows medical providers to report medical debts to credit reporting agencies but forbids them from indicating what treatments were involved. But rather than report delinquent accounts to credit agencies outright, hospitals often send them—or, ever more frequently, sell them—to outside collection agencies, which are more than happy to do the dirty work for them. That means threatening phone calls, lawsuits—and, in some states, agencies even going after spouses or grown children. (According to a 2003 Federal Reserve study, 52 percent of collection records that appear on credit reports are related to medical debts.)

The American Hospital Association provides guidelines on debt-collection practices—recommending that each patient receive financial counseling with appropriately trained staff, and that costs be reasonable. A number of states, meanwhile, have taken action to make sure such guidelines are mandatory. In 2007, the Minnesota attorney general signed an agreement with 50 hospitals on debt-collection practices that included a promise to offer discounts to uninsured patients with limited incomes. In New York, a 2006 law allows patients to pay in installments, and prohibits creditors from foreclosing on a patient's home. California hospitals must provide uninsured and underinsured families a 150-day period during which they can negotiate their bills before they can be sent to collection.

Those laws are good, says Chi Chi Wu, an attorney with the National Consumer Law Center, but they're by no means standard. In fact, one NCLC study showed that more than 70 percent of patients with medical debts are never offered financial assistance from their providers. As James Bentley, a senior vice president for the American Hospital Association, points out, growing medical debt and the economy have put hospitals in a situation where they not only have a responsibility for a patient, but to "maintain themselves as viable and operable within the community." "What we worry about," says Bentley, "is that hospitals will find themselves in a position where it's hard to maintain the policy that they've had."

With viability in mind, some hospitals are checking patients' credit scores while they're being treated. They say the credit reports help them determine which patients might qualify for financial assistance, and may even minimize losses. (Last year, nearly 5,000 community hospitals provided uncompensated care costing $34 billion, according to the AHA.) But while the credit checks are legal, they're not always welcome. Many advocates worry they could impact the quality of care—or worse, they say they've heard cases where providers have coerced patients to use available lines of credit they can see from the reports. "Our advice is that [a hospital] should always get [a patient's] permission," says Bentley. "I'd like to say that's happening every place every time, but I can't guarantee that."

Hospital administrators say they've been forced to undertake such steps in part because of the growing cost of caring for so many uninsured Americans—now numbering almost 46 million, according to Census Bureau figures released in August. But it's also the fact that those who do have employer-backed health care—more than half of all Americans—are paying more and getting less. Annual health-insurance premiums for families now average $12,680, according to the Kaiser Family Foundation—more than double the amount in 1999. Of that, families contribute about a quarter out of pocket, not including copays and deductibles.

In April, even before the latest stock meltdown, Kaiser reported that more than a quarter of Americans have faced serious problems paying health insurance or medical bills as a result of recent changes in the economy. To cut costs, some are going to extremes: not filling prescription drugs, cutting pills in half, postponing doctors appointments or skipping them altogether to avoid the extra fees. (According to the results of the Commonwealth Fund's 2007 biennial survey, released in August, 45 percent or respondents said they'd delayed or avoided care for fear of mounting costs.) "People aren't just having trouble paying bills, they're one bill away from economic disaster," says the AARP's Nancy LeaMond, the head of the powerful lobbying group's social impact division and Divided We Fail effort, which helped produce the health-care ads. "The fear of that is just palpable."

In many cases, it's the fear of losing everything that's made putting medical debt on a credit card an increasingly popular last resort. Americans now charge an estimated $45 billion in out-of-pocket medical costs to credit cards, according to McKinsey—a figure that's expected to triple by 2015. With that in mind, companies like Citigroup, GE Money and Capital One—often endorsed by individual physicians' practices and hospitals themselves—are hawking new lines of credit to be used exclusively for medical procedures.

Doctors like the idea of medical credit cards because it allows them to get paid immediately; consumers see them as a quick and easy way to deal with debt. (Many of the cards have no annual fee, and low or no interest if customers pay bills within a certain schedule.) But advocates point out that the cards' low interest rates can jump above 20 percent after an introductory period expires, and if a payment is late, interest rates can sometimes apply retroactively. What's more, advocates say medical staff aren't always doing an adequate job of explaining the card's terms and conditions. And putting bills on a card can lesson a person's leverage to negotiate directly with providers.

In California, the cards caused enough of a stir that state legislators introduced a bill last summer aimed at prohibiting the predatory marketing of high-interest credit for dental care. The bill was vetoed by Gov. Arnold Schwarzenegger, but CareCredit, a GE card, was mentioned in a case where a patient said she was signed up for $8,000 worth of dental work while sedated. "Our biggest concern is that people are making financial decisions at a time when they're feeling scared, vulnerable and concerned," says Mark Rukavina, executive director of the Access Project.

Evanston, Ill., resident Ann Cole doesn't have a credit card, but she's definitely vulnerable. At 57, Cole is five years away from receiving Social Security, eight years from Medicare, and even though she's been diagnosed with multiple sclerosis, her applications for disability have twice been rejected. Her MS makes having a full-time job exhausting, so she's worked out an arrangement with her daughter: she baby sits for her grandkids for 20 hours each week, and her daughter pays her $250.

But between Cole's $750-a-month rent, the $50 monthly student-loan payment, gas costs and rising food prices, "there's nothing extra," she says. "I don't go out, I barely drive and still, at the end of the month, there's barely enough for food. If I need something I normally don't have—like a new Brita or cleaning supplies—it's just outrageous. It's like, 'Oh, my birthday's coming up, maybe I can get shampoo!'"

Cole qualifies for free health care through a local clinic, but she has $5,000 outstanding debt from an emergency hospital visit—the result of a seizure, during a trip to Colorado last year. "When I got sick with MS I declared bankruptcy, and it felt horrible then," Cole says. "Now it's 15 years later and I may have to do it again, and I'm just like, 'Oh my God'."

Unless people like Cole start seeing meaningful reform, a deteriorating economy may force many to choose. Not between medical providers but between their financial health and their physical well-being.