Credit bureau reporting continues to be a tool of recovery within the ARM industry that is the subject of much debate. With the growing demand from clients across the country for the agencies to handle all aspects of their credit reporting it has become vital for agencies to know, understand and execute their processes, without error, because the consequences of the alternative can be devastating. The financial burden on the agency, the open liability and the potential for regulatory consent orders makes credit reporting a frightening proposition. On the other end of that equation, there are indeed positives. Credit reporting continues to be an effective means of recovery by boosting contacts from consumers who otherwise may not have intent to communicate with the collection agency, but the negative collection tradeline commands their attention. I have conducted many studies and, in almost every instance, internal testing has proven that reporting does increase liquidation versus the alternative. I have received feedback from multiple large agencies who have conducted similar tests and have found similar results.
The process of credit bureau reporting is defined and standard for almost every type of debt…and then there’s medical. Which begs the question, if given the opportunity to choose, should you or should you not report your medical debt to the credit reporting agencies?
As mentioned above, I think it is fair to say that the operational view would be that it boosts contacts and recoveries, while the compliance perspective would be that it encourages disputes and therefore carries the risk of litigation. Regardless of the departmental perspective, it appears that many agencies have settled into reporting delinquent debts through the credit reporting agencies. The conversation becomes more muddied when discussing the type of debts being reported. Credit cards, installment loans and others receive little discussion as those accounts have previously been reported in a “current” status, follows a timeline of declination and, when severely delinquent, reports on an individual’s credit as a charge-off by the original creditor. The frustration for consumers appears to stem from the type of accounts, such as medical, where positive history is never reported, but as soon as delinquency appears, they are adversely impacted and thus seems unfair to many consumers. The question has even been asked as to whether or not medical debt should be considered an extension of credit in the first place or is it just a “bill” and, therefore, even be able to be reported?
With all of these considerations, along comes an outlier with medical debt. We have all experienced the frustrations of non-approved medical claims, incorrect medical coding, billing for procedures that may have never taken place, disagreements about deductibles, unauthorized procedures and on and on. The consumer’s frustrations generally result in dispute after dispute. When the dispute is received, the agency has the responsibility to conduct a reasonable investigation, but with medical debt the definition of reasonable can be very broad and result in furnishers settling dispute lawsuits, impacting the organization’s bottom line.
The frustrations resulting from incorrect reporting have piqued the interest of the legislators and regulators. The previous practice was that hospitals, doctor’s offices and many other types of medical debt owed would not be reported by the “first party” owner of the debt and would only be added to the bureau as a collection by the agency. Based on the common billing problems mentioned previously, it was determined that it was unfair for consumers to not have a voice in the review of the medical bill for which they were judged to owe. In 2016, all three major credit reporting agencies implemented a rule that would not release the reporting to the consumer’s bureau for 180 days after the first reporting. There is no doubt that this was put into play to stem the overwhelming tide of disputes, complaints and lawsuits levied against the credit reporting agencies and, by default, the collection agencies. Many of these decisions were the result of the 2015 settlement agreement between the New York Attorney General with all three credit reporting agencies. It is important to note, however, that these rules were not retroactive.
The latest development in the world of healthcare reporting is the introduction of the FICO 9 score, ultimately deeming medical debt less impactful to the consumer’s overall score while completely removing any medical debt that has been paid. This development has proven huge to the recovery of medical debt as it provides positive leverage for the debt collector while bolstering the incentive for the consumer to pay the outstanding debt. While the debate will rage on as to whether or not reporting medical debt produces greater recovery opportunities or just manufactures disputes/lawsuits, it is certainly clear that if the agencies are given the right negotiating tools such as leveraging the removal of the debt for payment, it can and will be a drastic change in course for those that have decided not to report. Yes, the challenge will continue as to whether or not the consumer owes the debt in the first place, but with the pressure on the providers to provide accurate data to the bureaus and less errors reaching the agency, I think it is a fair assessment to conclude that with the proper internal investment, rock solid procedures and a solid collection strategy it will be very hard to compete with those agencies that determine reporting medical debt will be an arrow in their operational quiver.
Gordon C. Beck III has been in the collection industry for over 20 years and was most recently the CEO of Diversified Consultants Inc.