Change of Law: Hospital Action Required
To: Hospital CEOs, CFOs, Legal Counsel, Charity Care Contacts, and Government Affairs Staff (please share with Finance Directors)
From: Zosia Stanley, JD, MHA, Associate General Counsel | ZosiaS@wsha.org, (206) 216-2511
Subject: Effective July 28, 2018: Changes to State Law on Consumer and Medical Debt with Charity Care Implications
Purpose
The purpose of this bulletin is to inform hospitals and health systems about recent changes to state law governing consumer debt, including medical debt. Two relevant bills, Substitute House Bill 1531 and Substitute House Bill 1602, were enacted this legislative session. Hospitals and collection agencies will be required to comply beginning on July 28, 2019, when the bills go into effect.
This bulletin contains information and resources to help hospitals comply with the new laws.
Applicability/Scope
The new requirements relating to consumer and medical debt will most directly impact debt collection agencies. However, these new laws will also impact the business practices of health care providers and facilities, including hospitals.
Hospitals subject to state charity care law requirements (acute care hospitals licensed under chapter 70.41 RCW and psychiatric hospitals licensed under chapter 71.12 RCW) will need to provide additional information to contracted collections agencies regarding charity care. WSHA advocated on behalf of hospitals to make sure the medial debt legislation was consistent with existing charity care law.
Recommendation and Next Steps
- Know the law: Review this bulletin and the changes enacted in SHB 1531 and SHB 1602. with finance staff and legal counsel to determine the impact on your hospital and any resulting change to policies, practices, or external contracts.
- Attend WSHA webinar – “What You Don’t Do Can Hurt You: Charity Care and Medical Debt”: WSHA will host a members-only webinar on Monday July 1, 9:30am – 11:00am. This webinar will provide important information on recent developments in state law, including actions hospitals need to take to comply with the new law regarding medical debt and what we have learned through a recent Attorney General settlement on charity care. You can register here.
- Develop procedures for communicating about charity care with collection agencies: Because collection agencies are prohibited from collecting on a hospital debt during pendency of a charity care application or appeal, hospitals should develop procedures to communicate that information about account status with collection agencies. In addition, hospitals will need to provide collection agencies with information for inclusion in itemized statements, such as the services provided to the patient and charity care information. (See below for more detail).
- Ensure 120 day waiting period before sending accounts to collections is honored: Hospitals should ensure that they do not sell or assign medical debt to a collection agency until at least 120 days after the initial billing statement is sent to the patient or responsible party. Most hospitals already wait four or more billing cycles before considering an account for collections, but this new time restriction may be a change for some provider groups.
- Review contracts with collection agencies and renegotiate or add addendums as needed: Hospitals should review and renegotiate contracts with collection agencies to ensure that any contracted agencies comply with the new requirements, including requirements related to notices to debtors, collection during pendency of a charity care application or appeal, itemized statements, reporting of adverse information, post-judgment interest, and exemptions from garnishment. (See below for more detail).
- Assess the impact of the reduction in prejudgment interest and post-judgment interest from the current rate of 12% to the new rate of 9%: All existing medical debt as of the effective date of the new laws (July 28, 2019) will have a reduced interest rate of 9%.
Overview
The legislature passed two bills in 2019 that impact medical debt. SHB 1602 addresses consumer debt generally and changes requirements for post-judgement interest and garnishment. SHB 1531 addresses medical debt more specifically and changes requirements for pre-judgement interest, information collection agencies must provide to debtors, and when a medical debt can be assigned or sold to a collection agency.
Medical debt is a subset of consumer debt, so the provisions of both bills apply to medical debt. Under the new laws, “medical debt” is broadly defined to include debts related to the provision of medical, surgical, dental, chiropractic, hospital, optometric, podiatric, pharmaceutical, ambulance, custodial, mental health, and other therapeutic services.
- Medical debt cannot be assigned or sold to a collection agency until at least 120 days after the initial bill. A health care provider or facility may not sell or assign medical debt to a collection agency until 120 days after the initial billing statement has been transmitted to the patient or responsible party.
This requirement applies to hospitals, clinics, laboratories, offices, and similar facilities where a health care provider provides health care to patients. This requirement also applies to any person who is licensed, certified, registered, or otherwise authorized by the law of this state to provide health care in the ordinary course of business or practice of a profession.
Most hospitals already wait over 120 days from the first bill to consider an account for collections. In addition, 501(c)(3) nonprofit hospitals have additional limitations on billing and collections.
- If the medical debt relates to a hospital bill, information about charity care must be included in the first written notice from a collection agency to a debtor. Currently, state charity care law (which remains unchanged) requires hospitals to include notice about the availability of charity care in billing statements and written communication concerning billing or collections of a hospital bill by a hospital. The new medical debt law places a similar, but not identical, obligation on collections agencies. Collection agencies must include a notice that the debtor may be eligible for charity care, along with contact information for the hospital, in the first written notice to the debtor.
Hospitals should work with contracted collection agencies as the agencies adopt notices about charity care. This will help make sure the information provided in collections notices is accurate and provides the correct contact information for the hospital’s charity care program. State charity care law provides a helpful model for the information that should be provided:
“You may qualify for free care or a discount on your hospital bill, whether or not you have insurance. Please contact our financial assistance office at [web site] and [phone number].”
Collection agencies bear the obligation to provide notice about charity care under the new medical debt law. Hospitals should consider how information provided by collection agencies aligns with each hospital’s own obligations to make information about charity care publicly available.
- Collection agencies must cease collections activities during the pendency of a charity care application or during an appeal or a final charity care determination. Collection agencies may not collect hospital debt while a charity care application is pending or during an appeal of a final determination regarding charity care eligibility, so long as the collection agency has received notice of the pendency of the application or appeal. The obligation to cease collections activities is already a requirement under the state charity care law for hospitals and is now explicitly also an obligation on collection agencies.
Hospitals should assess their existing structures for notifying collections agencies about charity care applications and pausing collections while a charity care application or appeal is outstanding. Hospitals should also review existing agreements with collection agencies to make sure this process and procedure is explicitly included.
- No adverse credit reporting for at least 180 days. Collection agencies may not report adverse information to consumer credit reporting agencies or credit bureaus until at least 180 days after receipt of the original obligation. The restriction on reporting to collections agencies is consistent with existing requirements on 501(c)(3) nonprofit hospitals under 501(r) regulations relating to the use of extraordinary collection activities.
- Collection agencies must provide debtors with itemized information, some of which hospitals will need to provide. Collection agencies must include in the first written notice to the debtor a statement regarding the debtor’s right to request certain information, including an itemized statement. Upon request, collection agencies must provide the debtor with an itemized statement and may not pursue collection efforts until they provide the itemized statement.
The itemized statement must include:
- The creditor’s name and address;
- The date or date range of services;
- The health care services provided to the patient, as indicated in a statement by the health care provider;
- The principal amount of the debt;
- Any adjustments to the bill, payments received, any interest or fees; and
- Whether the patient was found eligible for charity care or other reductions and the amount due after application of charity care or other reductions.
Hospitals should review contracts with collection agencies and renegotiate or add addendums as needed to provide a process to provide information required in an itemized statement. Since collections activities cannot proceed until the itemized statement is provided, hospitals should consider what information can be provided to collection agencies in advance and how to provide updated information regarding charity care applications. Note that the required information about charity care is whether the patient was found eligible for charity care and the amount due thereafter. This is not an obligation to attest to notice or other charity care processes.
- Interest rates are lowered, garnishment exemptions increased, and debtors may not be arrested related to a judgment for medical debt. As of July 28, 2019 prejudgment and post-judgment interest rate on medical debt may not exceed 9 percent. For existing medical debt that is currently accruing prejudgment interest, the interest rate is limited to 9 percent beginning July 28, 2019, when the legislation goes into effect. Similarly, post-judgment interest on judgments for unpaid consumer debt are limited to 9 percent from the date the judgment is entered, unless otherwise specified by written contract.
Exemptions from garnishment for consumer debt are increased as follows: (1) for bank accounts and securities, to $2,000; and (2) for the debtor’s earnings, to 35 times the state minimum wage, or 80 percent of disposable earnings, whichever is greater. A statement regarding these exemptions must be included on the notice of garnishment and debtor’s rights, and a writ for a continuing lien on earnings must include a statement that the garnishment is for consumer debt.
A debtor may not be arrested for failing to pay medical debt, unless the person’s act or failure to act constitutes a crime.
Hospitals should assess how these changes will impact finance and business operations.
WSHA’s 2019 New Law Implementation Guide
Please visit WSHA’s 2019 implementation guide online, where you will find a list of the high priority laws that WSHA is preparing resources and information on to help members implement the new laws, as well as links to resources such as this bulletin. In addition, you will find the Government Affairs team’s schedule for release of upcoming resources on other laws and additional resources for implementation.
Background and References
Substitute House Bill 1531 (Medical debt bill)
Substitute House Bill 1602 (Consumer debt bill)
RCW 70.170 (Charity care statute)
WAC 246-453 (Charity care regulations)
Title 6 RCW (Enforcement of judgments)
Chapter 19.16 RCW (Collection Agency Act)
Chapter 19.52 RCW (Interest rates)
Chapter 308-29 WAC (Collection agency rules)
