128. The Strange History of Medical Debt

Medical debt has a strange and storied history in America. Stretching back to colonial times, physicians and patients alike have grappled with its harsh realities. In recent years, hospitals have resorted to selling medical debt to third parties, who then aggressively pursue patients. In today’s episode, medical historian Luke Messac, MD, PhD, guides us through the past and present landscape of medical debt, examining perspectives from patients, providers, hospitals, and governments. We delve into a form of indentured servitude in the name of debt clearance, the birth of nonprofit hospitals, a pivotal shift in the 1980s, feasibility of operating healthcare under free market principles, medical economics in the 1600s, hospitals suing patients, and the emergence of medical debt as its own thriving industry.

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Guest Bio: Luke Messac MD, PHD emergency physician and medical historian whose research focuses on health care’s history and political economy. Luke is an attending physician at Brigham and Women’s Hospital, an Instructor in Emergency Medicine at Harvard Medical School, and the author of two books, No More to Spend: Neglect and the Construction of Scarcity in Malawi’s History of Health Care and most recently, Your Money or Your Life: Debt Collection in American Medicine. 

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Mentioned In This Episode

• Wachalal – Healthcare in Rural Guatemala
• Paul Farmer
• Rudolf Virchow
• RIP Medical Debt – Erasing medical debt for pennies on the dollar
• Dollar For – Relief from hospital bills

We Discuss:

The Great Betrayal of Modern Medicine | Hospitals suing patients over debt

• A sense of betrayal arises from hospitals suing low-income patients.
• An ideal in medicine is to provide care based on need, not financial status.
• COVID-19 exacerbated disillusionment with the healthcare system’s inequalities.

The Service Credit Program | Indentured servitude in the name of debt clearance

• Hospitals offered service credit programs where patients worked off medical debt.
• An elderly widow worked in the hospital laundry to pay off her deceased husband’s medical debt. She was otherwise not paid for her time.
• Hospitals claimed to provide dignity and personal responsibility through these programs.
• The practice resembled Dickensian times, highlighting the harshness of the system.
• Ethical questions arise about how hospitals handle low-income patient debts.

Nonprofit hospitals were born out of the almshouse tradition where charity care was part of the mission

• Nonprofit hospitals initially provided care based on charity and community benefit.
• Financial assistance was historically a part of the mission of nonprofit hospitals.
• Hospitals historically held patient debt on their books for years, avoiding aggressive collection.
• Economic changes and cuts to Medicare and Medicaid in the 1980s led hospitals to pursue debts more vigorously.
• The shift included selling debt to third parties and limiting charity care to cut costs.

The 1980s were a turning point for medical debt in the United States

• Cuts in government medical spending in the 1980s strained hospital finances.
• Hospitals responded by reducing charity care and increasing debt collection efforts.
• Reimbursement reductions forced hospitals to seek revenue through patient debt.
• Aggressive pursuit of medical debt became more common in the 1980s.
• Economic policies during the Reagan era influenced the shift toward debt collection.

With cuts in government medical spending, hospitals cut costs by limiting charity care and aggressively pursued unpaid debts

• Hospitals limited charity care and pursued patient debts more aggressively to cut costs.
• Selling patient debt to third-party collectors became more widespread.
• Measures like suing patients and garnishing wages were adopted.
• Economic pressures drove hospitals to treat patient debt collection as a revenue source.
• Low-income patients were the most affected by these policy shifts.

Why healthcare cannot operate in a pure free market

• Healthcare lacks the conditions for a free market, such as perfect information and patient choice.
• Patients often seek care under duress, making market principles ineffective.
• Most U.S. hospitals are private nonprofits or public institutions operating outside pure capitalism.
• Nonprofit hospitals historically provide community benefits, including charity care.
• Economic policies need to reflect the unique nature of healthcare and its impact on patients.

Hospitals used to refuse care to patients, and the courts supported it

• Historical court cases allowed hospitals to refuse care based on various criteria.
• A 1930s case exemplified hospitals’ rights to deny treatment, even in life-threatening situations.
• Legal decisions historically supported hospitals’ discretion in providing care.
• Civil rights changes in the 1960s began to challenge these practices.

Patient dumping and the rise of EMTALA

• Patient dumping involves transferring uninsured or poorly insured patients to public hospitals.
• EMTALA requires hospitals to stabilize patients before transferring them.
• The law was a response to hospitals avoiding care for financially disadvantaged patients.
• Public hospitals faced a surge in unstable patients due to patient dumping.
• EMTALA created a legal obligation for hospitals to provide emergency care regardless of payment.

Collecting money from patients has been an issue for hundreds of years

• Historical accounts from the 1800s show physicians struggling to collect payments from patients.
• Medical societies had guidelines for providing free care to those in need.
• The shift to corporate healthcare employment has removed some financial decision-making from doctors.

In the 1600s, doctors could be arrested for charging too much

• 1600s laws in Virginia allowed for the arrest of doctors charging exorbitant rates.
• Early laws attempted to regulate the medical profession and protect patients.

Debtor’s prison

• Debtors’ prisons existed in the United States until the 1830s.
• Many Americans, including those with medical debt, were imprisoned for unpaid debts.
• Family members often had to pay off debts to secure a debtor’s release.
• The abolition of debtors’ prisons marked a shift in how society handled debt.

Does suing patients to recover medical debt improve a hospital’s bottom line?

• Research shows that suing patients for debt provides minimal financial benefit to hospitals.
• Hospitals typically earn less from debt lawsuits than the salary of the CEO
• Suing patients is not a necessary practice for hospital financial stability.

In the early 2000s, Yale New Haven Hospital put liens and foreclosing on patients’ homes as part of a debt collection strategy

• Yale New Haven Hospital used aggressive debt collection tactics, including home liens and foreclosures.
• The hospital targeted low-income patients and even its own employees.
• Public outrage and media coverage led to legal and policy changes.
• The hospital’s practices sparked a national debate on healthcare and patient rights.
• Congressional hearings and state laws addressed the ethical implications of such practices.

Medical debt collection has now become a thriving industry

• Medical debt collection involves powerful actors and a large number of vulnerable patients.
• Third-party debt collectors buy medical debt from hospitals and aggressively pursue payments.
• The industry includes prominent figures like the owner of the Detroit Pistons.
• Debt collection practices often involve harassing patients and legal actions.

How third-party medical debt collectors operate

• Third-party debt collectors buy medical debt at a fraction of its value.
• Hospitals sell debt to recover at least some of their losses avoid direct involvement in aggressive collection practices.
• Debt collectors profit by pressuring patients into paying more than the debt’s purchase price.
• The collection process often involves legal actions and wage garnishments.

RIP Medical Debt buys and forgives medical debt

• RIP Medical Debt buys and forgives medical debt to relieve patients’ financial burdens.
• The organization emerged from the Occupy Wall Street movement.
• The practice highlights the absurdity of medical debt as a profit-making opportunity.

Is buying and forgiving medical debt better or just forgiving it upfront?

• Recent research indicates that forgiving medical debt upfront is more effective than paying it off on the back end.
• Forgiving old debt through organizations like RIP Medical Debt may not be a long-term solution.
• Ensuring patients receive financial assistance initially prevents debt accumulation.
• Streamlining financial assistance processes can help more patients avoid debt.
• The focus should be on preventing medical debt rather than addressing it later.

Dollar For is a nonprofit focused on helping patients navigate financial assistance programs

• Dollar For helps patients apply for hospital financial assistance to prevent medical debt.
• The organization provides free assistance and uses tools to determine eligibility.
• Many patients qualify for financial assistance but struggle with the application process.
• Hospitals can simplify the process by automatically qualifying patients based on income.
• Dollar For’s work highlights the need for better access to financial assistance.

Some hospitals are making financial assistance easier to access

• Hospitals like OHSU use software to automatically qualify patients for financial assistance.
• Simplified processes reduce the burden on patients seeking assistance.
• Proactive identification of eligible patients improves access to care.
• Automatic qualification can prevent unnecessary debt and financial stress.

State legislation is starting to address medical debt collection

• States like Maryland have passed laws limiting aggressive debt collection practices.
• New laws prevent hospitals from suing patients for small amounts and selling debt.
• Foreclosure and wage garnishment restrictions protect low-income patients.
• State-level reforms can significantly impact how medical debt is handled.
• Legal changes aim to reduce the financial burden on vulnerable patients.

National approaches to medical debt

• The Affordable Care Act requires nonprofit hospitals to provide financial assistance.
• Proposals for a single-payer healthcare system aim to eliminate medical debt.
• Universal healthcare systems in other countries prevent catastrophic medical expenditures.

Medical debt is prevalent around the world, but the US stands apart among wealthy countries

• The U.S. has the highest levels of medical debt among developed nations.
• Medical debt causes significant financial hardship worldwide, especially in low-income countries.
• Most developed countries have universal healthcare systems that prevent catastrophic medical expenditures.
• The U.S. healthcare system’s reliance on patient debt collection is unique among wealthy

The consequence of copays

• Copays and out-of-pocket medical expenses can act as barriers to necessary care.
• Research, including the Rand health insurance experiment, shows an increased risk of death with higher out-of-pocket expenses.
• Increasing copays reduces both unnecessary and necessary medical care indiscriminately.
• The moral hazard argument for copays is not supported by data; it fails to differentiate between types of care.

Paul Farmer and caring for the destitute sick

“The idea that some lives matter less is the root of all that’s wrong with the world”

• Paul Farmer dedicated his life to providing quality healthcare to the destitute sick.
• Believed that “decent care should be available to all,” and lived by this principle.
• Founded and supported hospitals in underserved areas like Rwanda, partnering with governments to improve healthcare.
• Emphasized that “The idea that some lives matter less is the root of all that’s wrong with the world.”
• Inspired many to follow his mission, creating a ripple effect of compassionate care and healthcare justice.

The hospital that’s carrying out Paul Farmer’s vision in Guatemala

• A clinic in Guatemala, founded by American doctor Zack Self, provides emergency and critical care to a rural community.
• The clinic is completely supported by donations and the founder’s income.
• The mission is to provide the best possible healthcare to everyone, regardless of their financial status.
• Inspired by Paul Farmer’s vision
• Attracts support and volunteers who share the vision of providing equitable and high-quality healthcare.

Rudolf Virchow | Physicians are the natural attorneys for the poor

• Rudolf Virchow, a 19th-century physician, believed that “physicians are the natural attorneys of the poor.”
• Physicians witness patients’ toughest moments and should advocate for them beyond medical care.
• Addressing medical debt and aggressive debt collection is crucial for supporting vulnerable patients.
• The societal issue of medical debt implicates physicians and requires their involvement in the solution.
• The problem of medical debt unites diverse groups in outrage and calls for collective action to address it.