Combining Confusion: Medical Debt Under $500

Credit reporting has changed a lot since March 2021 when the three largest national credit reporting agencies (NCRAs) made an agreement to make three changes to how they would credit report medical debt collection accounts. This has created many new scenarios as well as questions that can impact not only how you deal with delinquent accounts, but also your bottom line. The last change goes into effect at the end of this month and involves medical debt under $500.

The Changes to Date

The first two changes for Equifax, Experian and TransUnion were implemented July 1, 2022. They were:

• Stop including paid medical debt collection accounts on consumer credit reports.
• Stop including unpaid medical debt collection accounts on consumer credit reports until one year (365 days) from the date of first delinquency (DoFD).

The Big Change With Medical Debt Under $500

The third, final, and arguably most impactful rule, will go into effect March 30, 2023. This one sets a threshold dollar amount of less than $500 for any medical debt reported.

While there are many questions that come with this new threshold, the big one is what happens if a patient has multiple accounts of medical debt under $500?

To break it down, can a medical debt collector/debt buyer combine accounts owed to the same provider into a single balance and then credit report as a single medical debt if they individually fall below the $500 threshold, but collectively exceed the $500 threshold?

The Answer Is…

Potentially. There’s no definitive answer yet. The question of if the practice of combining accounts violates the Fair Debt Collection Practices Act (FDCPA) requires a fact-specific analysis. Regarding your facility — the decision of how to handle medical debt under $500 should be made based on the legal advice of your legal counsel.

This analysis should include consideration of the provider’s billing and accounting practices and the origin of the debts in question. If the provider uses a single account for patients — and that is their standard practice — then a debt collector may fairly and truthfully combine those debts into a single account. There are several factors, such as the terms of the underlying contract, transaction dates and services provided, that should be considered for analysis.

The Argument for Combining Accounts

It should be noted that the FDCPA defines debt as, “any obligation or alleged obligation of a consumer to pay money arising out of a transaction in which the money, property, insurance, or services which are the subject of the transaction are primarily for personal, family, or household purposes, whether or not such obligation has been reduced to judgment.” [1]

When it comes to the FDCPA, a “debt” comes from “a transaction,” which is usually a single transaction. Historically, plaintiffs’ attorneys have tried to argue in favor of aggregation for credit reporting purposes. They have argued that separating serial debts owed to the same creditor and reporting them as separate accounts is a mischaracterization of the debt and an unfair practice under the FDCPA.

But…

These claims have been rejected at least twice by the 7^th Circuit Court.

In Rhone v. Medical Business Bureau, LLC, the 7^th Circuit said that viewing the aggregation or disaggregation of multiple debts owed to the same creditor for purposes of credit reporting is not allowed. “The number of transactions between a debtor and a single merchant does not affect the genesis, nature, or priority of the debt and so does not concern its character.” The statute names ‘character, amount, or legal status’ as distinct attributes, and it would undercut this disjunction to treat arithmetic as concerning the debt’s ‘character’ rather than its ‘amount.’

Not long after Rhone, the 7^th Circuit made a decision on Zablocki v. Merchants Credit Guide Co. This case raised the question if FDCPA Section 1692f requires debt collectors to aggregate multiple debts owed to a single creditor when reporting to a consumer reporting agency. The court concluded its analysis with this thought on the subject:

“If sorting through and weighing these competing interests [i.e., the costs and benefits of aggregating debts into single tradelines versus disaggregating them] ultimately shows the plaintiffs’ proposed ‘aggregation’ rule to be a wise public policy, then the adoption of that rule should be done by Congress or through the administrative process. Section 1692f does not create that rule on its own. And the courts are not the proper body to issue that rule.”

In other words, they felt that while it was not a bad idea, Congress or through the administrative process, not the courts, is the way to make this a rule.

What it Means

These two cases would suggest that there’s nothing inherently misleading or unfair in reporting multiple debts either aggregated or separately if the reporting accurately reflects the account balances.

Cases from other federal districts seem to support the 7^th Circuit’s conclusions where a debt collector reports separate debts as separate accounts or tradelines. No FDCPA violation has occurred under FDCPA Section 807 [15 U.S.C. 1692e] as long as the information has been accurately reported on the whole account.

Future Problems

Depending on the provider’s billing and accounting practices, there is a scenario that could become a problem when combining separate debts. If multiple accounts of medical debt under $500 are combined that have separate DoFDs, some portion of the aggregate balance could remain on the consumer’s credit report longer. If reported separately, allegations that the debt collector is attempting to “re-age” a portion of the debt would be allowed, committing an unfair practice under the FDCPA.

Conclusion

The decision to combine accounts of medical debt under $500 or not is one that shouldn’t be taken lightly or without consideration from your legal counsel. There are many factors to take into account when deciding whether to follow this practice. As the three credit reporting bureaus continue to make changes, Americollect will continue to share the potential impact on your bottom line. If you have any questions, please contact us!

[1] FDCPA Section 803(5) [15 U.S.C. 1692a(5)]