Medical Debt Reforms Fall Short Without Addressing Consumer Debt Litigation

This article is the third in a three-part series looking at issues surrounding debt lawsuits in state courts.

Medical debt reforms recently enacted in statehouses across the country represent important progress in tackling an issue that affects millions of Americans each year, but so far there has been little focus on how the courts and their complex processes contribute to broader problems in resolving debt cases.

Today, Colorado and Oklahoma require additional documentation in every lawsuit to collect medical debt;  New York and Delaware, meanwhile, prohibit garnishment of financial assets on medical debt cases. But none of these state-level reforms include provisions to help courts easily identify whether a case involves medical debt.

Although the reforms are well-intentioned, their general failure to address how courts handle forms of debt that might not be easily identified as being related to health care costs—essentially hidden medical debt—means many Americans could still be left behind. Too often such medical debt can look like other financial obligations.

How medical debt hides on court dockets—and why that matters

Research shows that medical debt cases are much more prevalent than what court data shows. For instance, in Oregon, researchers with the data science consulting firm January Advisors found that when just looking at plaintiff names, for example, medical practitioners and hospitals, medical debt cases were estimated to be 11% of state court dockets. Only when the firm looked at case documents did it find that medical debt was actually about a third (34%) of the docket. And that is probably an undercount, because the percentage excludes people who put medical bills on non-medical credit cards. Those with cases that fall outside of that initial 11% may not benefit from changes meant to improve medical debt litigation.

Medical debt is often difficult to spot on state court dockets because of the complicated ways in which Americans pay for health care and the often-convoluted network of players involved in attempting to collect this type of debt. For example:

• Medical debt can show up in court as credit card debt. Americans often pay for medical expenses with credit cards. If that debt goes into collections, it shows up in court filings as credit card debt. Many medical expenses, such as visit co-pays, outpatient services, and medical supplies, require upfront payment. Additionally, individuals may use medical credit cards, such as CareCredit, to pay for medical care, a detail that might not be reflected in court filings. 
• Medical debt can be obscured when debt changes hands. As with other forms of consumer debt, many types of plaintiffs can sue for medical debt. For example, a patient can be sued directly by the medical provider (such as a hospital), a third-party collection agency assigned to collect debt on the provider’s behalf, or a debt buyer—a company that purchases the debt and makes a profit if it collects. The presence of different potential actors not only conceals these issues in court data but also can create confusion for consumers who receive notice of a lawsuit against them. And just like data related to other forms of debt, data in medical debt in lawsuits shows that courts often know the name of the plaintiff but rarely identify the underlying type of debt. In some instances, the plaintiff’s name may have no relationship to the original owner of that debt.

For example, a woman in Oregon, who was sued for consumer debt told her local news station that when she began receiving debt-related notices from an entity called LVNV, she assumed they were fraudulent; she had no recollection of doing business with that company. After doing some digging, including more than 100 hours writing and printing documents at the public library, she learned that LVNV was a company that buys debt from Synchrony Bank, the servicer for a variety of credit cards, including cards for retail stores, digital payment services, and medical expenses.

How state legislators can require better data and protect consumers

Some of the same factors that make it difficult to identify medical debt also can make it challenging to create policies and procedures that address it. And these issues are compounded by the fact that there has been little focus on the role that the courts play in America’s medical debt problem. A 2023 analysis by The Pew Charitable Trusts found that 13 states had enacted legislation related to medical debt protection since 2020, but lawmakers in only five—Arizona, Colorado, New Mexico, Nevada, and New York—had included meaningful litigation provisions.

Policymakers looking to address these issues can take two important steps:  

• Consider extending medical debt reforms to all types of consumer debt litigation. Policymakers and community leaders can ensure that their reforms target medical debt by targeting all consumer debt cases. Identifying proactive solutions earlier in the process, such as charity care programs that help people before their medical debt is in collections, can also be helpful in assisting constituents in debt.
• Develop the tools needed to better identify medical debt cases. Policymakers don’t need to wait to gather data before enacting medical debt reforms. Working with courts to identify the nature of underlying debts and specifically medical debt (e.g., New Jersey courts have different case types for different kinds of debt) versus other forms of debt would provide critical information that can be used to improve debt litigation.

Policymakers also should consider specific reforms to debt litigation processes that would further help constituents being sued for medical debt and other forms of consumer debt. For example, they can enact policies that:

• Strengthen requirements that ensure that the right person is served in debt cases. Proper service is crucial with every kind of debt, especially in medical debt cases, where people can have a lot of bills from different providers. 
• Help consumers understand who is suing them and for what. Because medical debt suits, like many debt cases, are often brought by third parties such as debt collectors or debt buyers, understanding the “chain of custody” can be confusing. That problem can be compounded by the fact that medical bills frequently contain errors and incorrect charges. Better policies on verifying medical debts and requiring proof of all kinds of debt to be provided to the individual being sued would help.
• Ensure that garnishment and bank account protections are applied automatically. Hospitals and debt collectors often resort to garnishment—involuntarily taking a portion of wages and funds from a person’s bank account—to satisfy debts. Although states have some protections in place against garnishment, they are often outdated and difficult to claim. States should make bank account protections that limit garnishment automatic to help ensure that people can continue to pay for food, housing, and transportation while paying off medical debt.
• Remove barriers that prevent people from participating in their cases. Most people sued for a medical debt will navigate the court process alone. Consumers are usually not represented by a lawyer, either because such legal help is unaffordable or the debt in question is too small for it to make economic sense to hire a lawyer: A study in Minnesota found that the median medical debt was $1,500. If people are unlikely to have representation, states should remove legal barriers to participation in the cases by those being sued—such as answer requirements and user fees—that are too big of a barrier for most nonlawyers to navigate.

When policymakers understand and can address how medical debt is handled in the nation’s state courts, they can help their constituents, businesses, and state court systems more effectively resolve these matters.

Ruth Rosenthal is the project director and Casey Chiappetta is a principal associate with The Pew Charitable Trusts’ courts and communities project.