Health Care Providers Turn to Auctions for Patient Debt

The growth in patient debt has some hospitals turning to selling it through online auction systems provided by the Web sites ARxChange.com and Medipent.com.

Together the two systems have auctioned less than $500 million, a small part of the $31.2 billion in uncompensated care that hospitals provided nationwide in 2006 alone, according to the American Hospital Association.

ARxChange.com, owned by TriCap Technology Group, has dominated the hospital debt auction market, with $400 million in debt being sold through about 27 auctions. Medipent.com reports it has conducted 12 auctions for New York hospitals where $60 million in debt was purchased, according to an article today in The Wall Street Journal, “Hospitals Put Patients’ Debt Up for Auction.”

In the auctions, the hospitals offer their patient debt hoping to receive bids by debt buyers and collection agencies. The purchaser either buys the debt or arranges to pay a guaranteed amount to the seller for the right to work the debt, according to the Journal. The auction firms receive revenue from both the buyer and the seller.

The debt auction market is an unusual turn for hospitals and other health care providers, an industry known for being careful in their collection practices, wary of putting off local customers with too aggressive an approach.

One outcome is that hospital debt may go for a higher price in an auction, causing buyers to be more aggressive in their collection activities, according to the Journal.

These buyers may “have to work harder” to make a profit, Michael Klozotosky, an analyst with collection-industry strategic advisor Kaulkin Ginsberg Co., tells the Journal. “Working harder means sometimes using strategies that are more aggressive,” he said.

The auction houses say that they ensure the participating collection agencies are checked for their treatment of patient debtors. And the hospitals have the right to say what firms can take part in the auction.

Indeed, the hospitals do not have to sell their debt to the highest bidder if they have second thoughts on the firm. Nashville, Tenn.-based Vanguard Health Systems chose the buyer of $48.8 million in patient debt in January in an auction on ARxChange.com because it had worked with the collector previously.

Kaulkin Ginsberg is the publisher of insideARM.