A California Dermatologist recently filed a class action lawsuit against the three major credit reporting agencies (CRAs), alleging the CRAs' decision to stop reporting medical debt below $500.00 has caused him and other medical professionals nationwide irreparable financial harm. Further, he claims that removing medical debt below $500.00 from credit reports will diminish access to medical care by driving providers out of certain markets.
In March 2022, the three major CRAs announced they would be changing how medical debt is included in credit reports. As part of these changes in April 2023, the CRAs stopped including medical debt of less than $500.00 on credit reports. On July 11, 2023, in prepared remarks to kick off the CFPB's hearing on Medical debt, CFPB Director Chopra appeared to take credit for these changes, stating, "The CFPB's work has led to major changes in the way medical bills are reported to the three credit reporting conglomerates: Equifax, Experian, and TransUnion. Consumer credit reports should not be used as a tool to coerce patients into paying bills that they already paid or may not even owe."
The Lawsuit and the Harm Claimed
On August 22, 2023, California Dermatologist Derrick Adams filed a class action lawsuit against the three CRAs, alleging that they conspired with one another and violated anti-trust laws by deciding together to stop credit reporting medical debt below $500.00. Dr. Adams claims that this change has caused him financial harm and will cause similar financial harm to doctors, optometrists, dentists, chiropractors, and other medical professionals across the country. Further, he claims that removing medical debt below $500.00 from credit reports will diminish access to medical care by driving providers out of certain markets.
To illustrate his current and future damages, Dr. Adams states that the majority of bills he sends to patients are below $500.00. When patients do not pay their bills, he uses third-party accounts receivable services (i.e., collection agencies) to attempt to collect the unpaid balances. In Dr. Adams' experience, the threat that an unpaid bill could end up on a credit report incentivized patients to pay their bills. Now, however, credit reporting is "rendered pointless," since the CRAs have agreed not to include debt in these amounts in credit reports. Since he has no other feasible means of reporting unpaid bills less than $500.00, fewer of his bills will be paid, causing significant financial harm.
The financial damage is not limited to Dr. Adams or his practice. Using figures published by the CFPB, he claims that this will affect the repayment of tens of millions of dollars of medical bills nationwide. By deciding to stop reporting medical bills below $500.00, Dr. Adams claims that the CRAs have eliminated a valuable tool that medical providers use through their third-party agencies to incentivize patients to pay their bills. Consequently, medical providers will have to resort to more costly methods, such as employing more staff and third-party companies, adding to the financial harm and causing others to leave the market.
You can read the full lawsuit here.
It's important to look at the full picture here and recognize that the CFPB seemed to publicly take credit for this change. Though the CFPB has spent considerable time and effort touting its opinion regarding how these changes to credit reporting will help consumers, it does not seem there has been much research into how changes to medical debt credit reporting will affect those on the other side of the equation- small physician practices, like the one run by Dr. Adams.
Small doctor's offices are crucial to our healthcare system. Industry associations have made the points raised in Dr. Adams's suit repeatedly, but those cautionary words yielded little to no results. It's unfortunate that Dr. Adams and other doctors across the country may have been harmed by removing medical debt below $500.00 from credit reports, but perhaps this lawsuit will cause the CFPB to pay attention to some of the real-world consequences of its initiatives. This is especially important in light of the CFPB's new proposed rulemaking, which makes it clear that it wants all medical debt removed from credit reports. Though the outline of the proposed rulemaking covers more than medical debt, the actual title of the press release was "CFPB Kicks Off Rulemaking to Remove Medical Bills from Credit Reports."
The ARM industry and the medical community should continue to be vocal with the CFPB and remind them that harm to consumers is not just limited to financial issues. Harm and collateral damage from unintended consequences can occur on many fronts- including reduced access to healthcare. Hopefully the CFPB will pay attention to warning bells sounded by Dr. Adams in this suit.