Healthcare providers and hospital administrators everywhere bare the crushing weight of medical bad debt. And if your practice has been around for longer than several months, you have direct experience with the revenue loss that results from it.
Up until recently, medical debt policy as it relates to credit bureau reporting has greatly discouraged patients from allowing medical bills to go unpaid. But, as you may have heard, there are sweeping changes on the horizon that could negatively impact your practice.
In this article, we’ll outline each of the changes to come and inform you of how they could affect your medical practice’s bottom line. We’ll then share tips on how to position your practice for success despite the new policy updates.
Current Medical Debt Policy
To start, we’d like to remind you of the most significant aspects of the current medical debt policy to provide you with a means of comparison. Under the current policy, here are the rules:
- Medical debts lower than $500 may appear on consumer credit reports.
- Medical debts may be reported on a consumer’s credit file after as little as 6 months.
- Medical debts paid after 180 days may stay on the consumer’s credit report for up to 7 years.
A Rundown on Credit Bureau Reporting Changes
All credit reporting agencies (Equifax, Experian, and Transunion) will be implementing extreme reporting changes to make credit reporting fairer for Americans and help alleviate the woes of unpaid medical debt. Being that millions of families carry thousands of dollars in medical debt, this legislation is poised to change the debt collection and reporting landscape in huge ways. In this section, we’d like to give you an in-depth rundown of what you can expect. Soon, you’ll realize that these changes benefit the consumer over medical entities.
Change 1: Time Period Before Credit Report Consequences
For years, creditors had to wait at least 6 months before reporting unpaid debt to credit bureaus. The new policy will double that time period, giving consumers a whole year to pay their outstanding debts before dealing with the threat of negative credit implications.
With this policy in full force, consumers won’t have to scramble as much to pay their debts – they’ll have an entire year to make payment arrangements and allocate funds to the creditor.
Change 2: Debt Amounts You Can Report
For quite some time, bad debt amounting to less than $500 would show up on consumer credit reports. But that won’t be the case after the new policy is in effect. Following its enactment, medical debts less than $500 will not show up on credit reports. This rule, in essence, excludes medical debts over $500, which account for at least 80% of reported debts (according to a Salary Finance poll conducted in 2020).
Change 3: Paid Debt Reporting
The 7-year rule is one that most consumers dread. It stipulates that if a medical debt is paid off after 180 days, the debt will remain on their credit file for up to 7 years. This rule is going away. Under the new rule, once a debt is paid, it will be dropped from the consumer’s credit report, even if it’s been longer than 180 days.
When Will the Changes Be Effective?
Starting July 1, 2022, two of the three changes mentioned above will go into effect, and they include:
- The provision that gives consumers a year to pay off a debt before it can be included on their credit report.
- The provision that prevents paid medical debt from appearing on credit reports.
In 2023, the rule excluding debts less than $500 from credit reports will take effect.
How the Medical Debt Reporting Changes Will Affect Medical Facilities
As a result of the upcoming policy reforms, consequences for unpaid debts will be considerably more relaxed. This will inevitably cause patients to relax when it comes to paying their outstanding bills. And since there won’t be any rush to keep unpaid medical bills from staining their credit report for seven years, some will ignore their bills indefinitely.
So, it’s reasonable to predict that medical facilities will be sitting on an even higher pile of unpaid debts in the future. This will lead to diminished cash flow. In addition, back-office staff may need to find new, more creative ways to promptly secure payments from patients.
How to Prepare for Medical Bad Debt Challenges
Preparing for medical bad debt challenges won’t be a one-size-fits-all solution for every medical practice, but it may include any of the following steps:
- Review your practice’s debt collection practices and see if there are any areas of opportunity. For instance, if it takes too long for your office to send out statements or follow up with patients about outstanding debts, this is something to look into.
- Take a deeper look at the upcoming policy updates and ensure that your compliance staff knows the new rules. Stay up to date by regularly checking credit bureau newsrooms (Equifax, TransUnion, and Experian). Encourage staff to plan out any necessary process updates so that your medical practice will be ready when the policy changes take effect.
- Get in touch with a medical AR vendor that focuses on compliance and stays on top of evolving regulations. But that’s not all – you need one that utilizes effective, tried-and-tested collections tactics to secure outstanding payments. A seasoned vendor with decades of experience and over $1 billion in recovered funds is bound to provide exceptional results. The quicker you collect outstanding debts from your patients, the better.
We encourage you to seek out more information about the medical debt reporting updates and take steps to prepare for them sooner rather than later. With the correct information and help from medical AR experts, your practice will thrive following the anticipated policy changes.