Medical Debt Collectors to Feel Impact of Healthcare Providers? Fight with Insurers

Health care providers are angry about their reimbursement rates from private and government insurers, and if recent news reports are any indication, they aren’t going to take it anymore.

From lawsuits to state and federal legislative initiatives, health care providers have been fighting — and winning in some cases — delayed and denied payments, lower than expected reimbursement rates, and Medicare recovery audits that have increased their bad debt expense. The battles have the potential to impact collection agencies that pursue medical debt, according to an industry analyst.

Last week, WellPoint agreed to pay $11.8 billion to settle a lawsuit filed by hundreds of hospitals it denied payment to after dropping covered patients whose treatment had been approved. WellPoint still faces a class action suit by California doctors over unpaid bills for patients with canceled policies.

Meanwhile, it can’t be denied that the American Medical Association’s ad campaign targeting Republican Senators who voted to support Medicare cuts to physicians helped the bill get enough votes to override Bush’s veto.  The AMA also is supporting bills before the California Senate that would prevent insurers from canceling policies after 18 months. And it supports another bill that reached California Governor Arnold Schwarzenegger’s desk this week to toughen the state’s power to fine insurers for failing to pay bills. 

Now health care providers are targeting the Medicare Recovery Audit Contractor program, which recently said it recovered $1 billion since 2005, with 85 percent coming back from hospitals. Two Democrat House leaders have asked the Government Accountability Office (GAO) to investigate the program, based on complaints from doctors and facilities who say the RAC program uses unqualified auditors, didn’t follow Medicare rules, and employs a reimbursement system that encourages abuse.

The ongoing fight between health care providers and insurers will have repercussions for the ARM industry, said Michael Klozotsky, health care analyst for credit and collection industry advisory firm Kaulkin Ginsberg.  “They might have more business to collect the insurance payments, but now they’re in a situation where they have an adversarial relationship between insurance and the agency.”

Physicians, however, feel they have little choice, Klozotsky said. ”It’s getting to the point for many physicians that they can’t make a living, or maintain office staff.”

Klozotsky said many physicians may feel their only alternative is to absorb the cost, pass it on to patients in services paid through their deductibles, or take in more patients. All of these could adversely affect their relationships with patients, he said, and that could negatively affect self-pay collections – the fastest growing segment of medical debt.

"If someone feels he got substandard treatment from a doctor, either in terms of medical care or bedside manner, then the incentive to pay that bill might decrease substantially," Klozotsky said. "If (Patients) feel like a number, they will likely respond (to medical bills) like a number, rather than as a patient who owes something more than just money to their healthcare providers."