OIG Rules Hospitals Can Sell Medical Debt Directly to Nonprofit Buyer

A blue door with two small holes in it.

Can health systems and large physician groups sell or donate their unpaid medical debt to a medical debt forgiveness company without fear of violating federal anti-kickback laws? A recent Advisory Opinion issued by the Department of Health and Human Services Office of the Inspector General said yes, at least under the circumstances outlined in the request for an opinion.

While the names of the parties generally are redacted from these opinions, in this instance, the law firm representing the requestor issued a news release identifying the client as RIP Medical Debt, a 501(c)(3) charitable organization that locates, buys, and forgives individual patients’ medical debt.

Until now, the nonprofit had been limited to purchasing medical debt accounts from commercial debt buyers on the secondary debt market. To that end, it has acquired and abolished more than $2 million of medical debt. Under the proposed arrangement, RIP wants to bypass the secondary market and purchase or receive a donation of inpatient and outpatient debt directly from hospitals and certain other providers.

To pay off debt, RIP receives donations from individuals, philanthropists, foundations, faith-based organizations and corporations. These donors have only limited control over how their donations are used. For example, they can’t request specific patients’ debt be paid, or payment be made for specific services or treatments.

The debt purchased would be money that the healthcare provider already attempted, but failed to collect, either through its own billing and collection process or by using one or more collection agencies. If debt is related to Medicare services, RIP said that the debt would be “uncollectible†under Medicare bad debt rules.

RIP and healthcare providers would work with a HIPAA-compliant third-party vendor of data and analytical services to identify debt that meets the objective criteria for forgiveness. Most hospitals write off uncollectible accounts as bad debt, while 30 to 35 percent of hospitals sell portfolios of uncollectible accounts to debt purchasing companies, which then continue to try to collect from patients, according to RIP. In its request, RIP pointed to a Kaiser Family Foundation survey that found one-in-four Americans struggled to pay a recent medical bill.

In its opinion, the OIG noted that the arrangement could run afoul of Anti-Kickback (AKS) or civil monetary penalty (CMP) laws if RIP’s forgiveness of a patient’s debt could cause that patient to seek items or services from that provider or could influence the patient’s future selection of the provider.

The AKS makes it a criminal offense to knowingly and willfully offer, pay, solicit, or receive any remuneration to induce or reward referrals of items or services reimbursable by a federal healthcare program.

However, the OIG said the arrangement would not violate either Anti-kickback laws or CMP because as a condition of participating in the proposed arrangement providers would have to agree not to publicize the sale or donation of debt to requestor.  In addition, it would be RIP, not the provider, who notifies the patient that his or her debt has been paid in full. 

“Therefore, the patient may have limited or no knowledge of the provider’s role in the abolishment of the patient’s debt,†the OIG opined.

Also, RIP would forgive debt only after the provider attempted and failed to collect the debt and was based on an individualized determination of financial need. Therefore, there would be no blanket debt forgiveness or cost-sharing waiver concerns.

In addition, the OIG noted that the proposed arrangement should not lead to increased costs to federal healthcare programs because the debt forgiveness would take place only after the provider rendered the services with the expectation of collecting payment and attempted to collect payment.

“Purchasing or receiving a donation of debt after it is incurred and deemed uncollectible does not carry the same risks as agreeing to subsidize an ongoing payment obligation or waiving a payment obligation in advance,†OIG noted.

Although each advisory opinion is specific to the requestor, it may be viewed as guidance for those providers looking to sell off bad debt. It’s always best to consult with a healthcare attorney before structuring any arrangements to ensure you do not run afoul of the law.

The Health Law Offices of Anthony C. Vitale can assist you in making sure such arrangements are legal. We can be reached at 305-358-4500 or email us at info@vitalehealthlaw.com.

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