CFPB no longer supports the final rule on medical debt reporting

The Consumer Financial Protection Bureau (CFPB) has formally withdrawn its support for a Biden administration rule that would keep medical debt from appearing on consumer credit reports.

The rule has been staunchly opposed by the credit-reporting and debt collector industries and also has generated concern among provider advocates who think it could remove an incentive for patients to pay their bills. Some stakeholders have argued that patients may even be less motivated to acquire health insurance.

Those concerns appear likely to be rendered moot after the CFPB and two challengers to the rule jointly requested that a court vacate the regulations.

It is not yet a certainty that the rule will be quashed, with consumer advocacy groups seeking the court’s authorization to defend the rule in place of the Trump administration. Judge Sean Jordan of the Eastern District of Texas federal court sounded skeptical that intervention, if granted, would sway the case, writing, “Because this case presents purely legal questions that have already been subject to vigorous adversarial briefing, intervenors can add little to the arguments already submitted.”

Still, the court will consider the request to intervene, with motions due this week.

Federal support wanes

The regulations initially were scheduled to take effect March 15 after being finalized Jan. 7, less than two weeks before the change in presidential administrations. After two consumer-data reporting groups sued to stop implementation, the judge pushed back the effective date to June 15 so the Trump administration could consider next steps.

In an April 30 court filing, the CFPB said it now agrees with the plaintiffs — the Consumer Data Industry Association and the Cornerstone Credit Union League — that the rule is illegal because it violates the Fair Credit Reporting Act. The relevant part of the FCRA states that consumer credit reports can include medical debt as long as the information does not specify the underlying condition, procedure or provider, the parties wrote.

The landscape of medical-debt reporting has already shifted to a degree. Over the past few years, all three major credit-reporting agencies have opted to voluntarily leave medical debt off credit reports if the debt has been paid or is for less than $500. However, those policies lack the force of a statute or regulation.

Even with the voluntary changes, the Biden administration had said the drag on credit reports remained substantial: Per projections, the new final rule would mean the removal of $49 billion in medical bills from the credit reports of 15 million Americans. Credit scores of those individuals would be expected to rise by 20 points, on average.

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Before you report a patient’s medical debt

HFMA’s guidance to providers for promoting an optimal patient financial experience can be found at our Healthcare Dollars and Sense page. One resource, Best Practices for Resolution of Medical Accounts, includes recommended steps before initiating an extraordinary collection action such as credit reporting.

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Daunting for providers

Following the release of the CFPB’s proposed rule in mid-2024, ACA International, the advocacy group for credit and collection professionals, commissioned a study by an economist who formerly worked at the CFPB. That report said there would be a $24 billion impact on provider cash flow in year one of the new rule.

The figure was cited in a March letter signed by HFMA and a dozen other trade associations calling on Congress to nullify the rule through the Congressional Review Act. Another reference in the letter was to a Georgetown University study about medical debt. That report states that “unless hospitals and healthcare providers can recoup a larger portion of uncompensated revenues, their ability to invest in equipment, provide necessary services and maintain rural facilities may be severely impaired.”

In addition to the estimated impact on cash flow, concerns include the possibility that collection processes would have to rely more extensively on up-front payments and litigation.

If the rule were to take effect, “Now we’re going to have people that aren’t paying for insurance, aren’t paying their medical bills, and we’re just going to load the courts full of litigation on medical debt,” Tim Haag, president and CEO of State Collection Service, said in a February interview.

The focus shifts

As the likelihood of federal regulations diminishes, policymaking with respect to medical debt reporting is centered on state legislatures. In September 2023, a Commonwealth Fund report included the finding that at least 10 states (California, Colorado, Connecticut, Idaho, Maine, Maryland, Minnesota, Nevada, Utah, Washington) had some form of restrictions on reporting medical debt. At least five more states (Illinois, New Jersey, New York, Rhode Island, Virginia) had enacted such measures by mid-2024, and they’re unlikely to be the last.

“The exact same legal issues that we saw with the CFPB do apply to the states,” Scott Purcell, CEO of ACA International, said in February.

Similar outcomes can be expected, he added.

“Doctors are implementing cash upfront [requirements] for the copay and deductible,” Purcell said. “And not everybody in our community has 150 bucks spare in the checking account.”

With the key questions now likely to be settled at the state level, providers can consider advocacy efforts through their state hospital association, he added. Providers may be wary, however, given their reliance on government payers for revenue.

Said Purcell, “I’ve had senators tell me to my face, ‘We went to the four largest providers in our state. They absolutely confirmed everything you’re talking about, but they are so afraid [that] they will not go on the record and protest this, because they fear they have too much to lose.’”

Providers also may assume they are shielded from major impacts of regulations if they already have a policy of not reporting medical debt. If consumer behavior shifts, however, the ripples could be felt at any provider in the jurisdiction.

“There’s still that subliminal message [about bill payment] because the media was so into this issue,” said Steve Beard, chief business development officer with State Collection Service.

More pushback

A separate but related development at the CFPB during the last several months of the Biden administration was the issuance of an advisory opinion prohibiting debt collectors from engaging in medical-debt collection practices involving potentially deceptive or unfair statements about consumer obligations.

ACA International sued to stop implementation, expressing concern that collectors would be required to assess the validity of a patient’s bill based on an intricate knowledge of coding and billing practices.

In April, the CFPB said it planned to revoke the guidance.

The advisory opinion “implied that a debt collector should know the 90,000 ICD-10 codes and whether or not there was any error in [applying] those, which is utterly ridiculous,” Purcell said.