RIDING THE ONCOMING TSUNAMI OF UNPAID MEDICAL DEBT
RIDING THE ONCOMING TSUNAMI OF UNPAID MEDICAL DEBT Speakers: Phil Stenger (Principal attorney at Stenger & Stenger, P. C. and Founder of Capital Alliance Financial, LLC) Email: phil@stengerlaw. com Joe Jammal (Principal Attorney at Stenger & Stenger, P. C. ) Email: joej@stengerlaw. com Stenger & Stenger, P. C. 2618 East Paris Ave SE Grand Rapids, MI 49546 Office: 616 -940 -1190 Fax: 616 -940 -1192 Copyright © 2016 by Stenger & Stenger, P. C. , All rights reserved. 1
INFORMATION REGARDING SPEAKERS • STENGER & STENGER, P. C. is a mid-sized law firm founded in 1994 and headquartered in Grand Rapids, Michigan specializing creditors rights and collections with extensive presence in medical debt collections and compliance matters. The firm has been awarded Martindale-Hubbell's highest rating, AV. The firm practices throughout the state of Michigan as well as in Indiana, Ohio, Kentucky, Tennessee, Georgia, Minnesota, Colorado and New Jersey. • CAPITAL ALLIANCE FINANCIAL, LLC (“CAF”) is a receivables acquisition company founded in 1998 by Phil Stenger for the purpose of acquiring charged off consumer receivables. Since its founding, CAF has purchased over 800 portfolios with a face value of approximately 500 million dollars. CAF is experienced in valuing portfolios and therefore can price a portfolio in a way that makes sense for both parties. CAF’s goal is to monetize its client’s receivables so that they can move beyond the collections cycle with their charged off accounts and let us monetize their receivables. CAF is a Certified Professional Receivables Company by DBA International. • Phillip S. Stenger is the founding principal of Stenger & Stenger, P. C. Mr. Stenger has been awarded Martindale. Hubbell's highest rating, AV, as a pre-eminent attorney and is also a Certified Creditors’ Rights Attorney by the American Board of Certification. Mr. Stenger received his undergraduate degree in Business Administration (concentration in accountancy) from the University of Notre Dame in 1985, his law degree from Wayne State University in 1988 and his Masters in Taxation from Grand Valley State University in 1993. In addition to his legal practice, Mr. Stenger is married with five children and is actively involved in various community and civic matters. • Joe M. Jammal is a principal attorney at Stenger & Stenger, P. C. Mr. Jammal received his bachelor’s degree in economics from the University of Michigan in 2004 and graduated cum laude from Valparaiso University School of Law in 2007, where he was a member of the University’s Law Clinic. Admitted to practice in the State of Michigan and the Western District of Michigan in November 2007 and admitted to practice in the State of Minnesota in June 2008, and admitted to practice in the states of Wisconsin and Tennessee in 2015 and Maryland in 2016. Areas of Practice: Creditor Rights and Collections. 2
LEGAL DISCLAIMER • The materials provided are for informational purposes only and not for the purpose of providing legal advice. You should contact your attorney to obtain advice with respect to any particular issue or problem. Use of and access to these materials do not create an attorney-client relationship between the author or the law firm of Stenger & Stenger, PC and the attendees of this presentation. The opinions expressed at or through this presentation are the opinions of the individual author and may not reflect the opinions of the firm or any individual attorney. 3
INDEX • • • • • Healthcare Market Overview……………………. Pg 7 Poll Questions part 1…………………. . Pg 11 Options…………………………. . Pg 12 Poll Questions part 2……………………. . Pg 17 CFPB/Credit Bureau Reporting ………………. . . …………. …. ………. . Pg 18 Poll Questions part 3……………………………. Pg 22 Collection Agencies Relationship…………………. . . . Pg 23 FDCPA Impact on Consumer Collection……………. ……. Pg 25 TCPA……………………………. …. …………Pg 29 Placement with Third-Party Collections…………. ………Pg 32 Lawsuit on Debt…………………………. Pg 33 Post Judgement Interest and Actions……………. ……. . Pg 34 Judgment Lien……………………………. ……. Pg 36 Garnishments…………………. Pg 38 Execution/Seizures…………………. Pg 45 Creditors Exam………………. . …………………. Pg 46 Bankruptcy…………………………. . . Pg 48 Renewal of Judgment……………………. Pg 50 4
RESOURCES • Healthcare Management Association www. hfma. org • Medical Group Management Association www. mgma. com • American Association of Healthcare Administrative Management www. aaham. org • Best Practices for Resolution of Medical Accounts; A Report from the Medical Debt Collectors Task Force, January 2014 www. hfma. org 5
PATIENT RESPONSIBILITY Strategically Managing the Coming Tsunami 6
HEALTHCARE MARKET OVERVIEW • 2015 healthcare expenditures expected to top $2. 9 trillion • • Healthcare spending represents 17% of GDP • • Represents 11. 5% of all consumer debt • • Represents 38% of all third party collections • • Average recovery rates –hospitals – 15. 3% • • Average recovery rates –non hospitals – 21. 8% 7
THE REVENUE CYCLE- PROBLEMS AND CHALLENGES HEALTHCARE PROVIDERS ARE UNDER INTENSE PRESSURE CAUSED BY GOVERNMENT LEGISLATION 8
THE TSUNAMI: MASSIVE INCREASES IN SELF PAY BALANCES ARE ON THE HORIZON 9
CONT. “In light of the massive (and potentially catastrophic) increase that is expected to impact healthcare providers from their patient‐pay accounts over the next few years, U. S. healthcare providers must modernize their billing and collection practices, or they will find themselves choosing between massive restructuring, consolidation, or even bankruptcy. “ (US NEWS MEDIA on Healthcare). 10
POLL QUESTIONS • Has your percentage (ratio) of patient responsibility grown year‐over‐year in 2015 vs. 2014 as a percentage of total A/R? YES/NO • Have you made any significant changes to your patient billing and collection strategies in the last 12 – 24 months to modernize them? YES/NO 11
OPTIONS 1. Internal Collections Invest in better systems to track, monitor and collect patient responsibility. Managed correctly, this should increase collections of patient responsibility debts. The disadvantage is that such systems can be expensive to implement and require additional full-time employees to operate system effectively. Historically hospitals have not proved to be good at collecting their past due accounts. 12
OPTIONS CONT. But, if that does not work! Best Practices for Resolution of Medical Accounts: A Report from the Medical Debt Collection Task Force, 2014, HFMA and ACA “Disposition of unresolved accounts. Following the exhaustion of all reasonable efforts to resolve the debt, providers should have written, board-approved policies regarding the disposition of remaining unresolved accounts. Some options to consider might include placing the debt with a secondary business affiliate for further efforts, selling the debt to a certified debt buyer who adheres to the ACA International’s Code of Ethics, or discontinuing efforts and writing the account off to bad debt. ” 13
OPTIONS CONT. 2. External Collections: Third party collection agencies and collection law firms Third party collectors are focused solely on collections and through specialization deliver enhanced results. It also allows the medical provider to shift responsibility for compliance with collection laws to third party through indemnification provisions. Since it is the third party collector engaged in collections and not the medical provider, the collection process preserves the provider’s reputation. 14
OPTIONS CONT. 3. Sale In the last 10 years there has been growing market acceptance of selling the patient responsibility portion of the revenue cycle. The advantage is it provides immediate liquidity to the medical care provider to invest in other revenue producing items. Best Practices for Resolution of Medical Accounts “Requirements for debt buyers. If the provider elects to sell outstanding accounts, it should require that the debt buyer (a) abide by ACA International’s Health Care Collection, Servicing and Debt Purchasing Practices Statement of Principles and Guidelines, (b) adhere to ACA’s International’s Code of Ethics, and (c) be licensed as a debt buyer where required by state law. ” The process: Buyers would analyze the providers receivables to determine historical performance and appropriate pricing. The due diligence process would include removing accounts that are not collectable (disability, charity care, Medicaid, disputed accounts) so that sole focus is on portion of A/R that can be collected without adverse impact on provider. 15
OPTIONS CONT. Deal Structures • Outright Purchases- accounts are sold for immediate cash • Lease- accounts are leased and after a defined period of time (ie, 5 years) are returned to provider • Co- investment- accounts are sold, but after purchaser reaches an agreed upon ROI, revenues are shared at a negotiated rate Documents Needed • Business associate agreement • Document that allows buyer to collect (Purchase and Sale Agreement) Key Provisions • Indemnification provisions • Ineligible Accounts- defining what types of accounts provider is required to buy back (ie, disability, charity care, etc. ) • Required E&O insurance • Right to audit for HIPPA compliance 16
POLL QUESTIONS Credit Bureau Reporting 1. Does your organization’s collection agency report medical debt to credit bureau? Yes/No/Not Sure 2. Do you know what criteria are used to report to a credit bureau by your agencies? Yes/No 3. What percentage of trade lines reporting on a consumer credit bureau are medical? Greater than 50% or less than 50% 4. Have you heard of the CFPB (Consumer Financial Protection Bureau? Yes/No 17
CFPB/CREDIT BUREAU REPORTING • CFPB- Federal agency which was created as part of Dodd Frank bill designed to regulate financial institutions • CFPB mandate includes entities that provide consumer credit- broadly speaking covers medical providers • CFPB 2014 study: Consumers Credit Reports: A study of medical and non-medical collections • Table which categorizes type of consumer medical collection complaints (Please see Appendix A) 18
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CFPB/CREDIT BUREAU REPORTING CONT. • CFPB consumer portal to allow consumers to file a complaint: http: //www. consumerfinance. gov/complaint/ • Study found that there wide variations in when medical debts were reported on the consumer’s credit report • Study also found that medical debts were less predictive of future likelihood of paying debt than other trade lines 20
CFPB/CREDIT BUREAU REPORTING CONT. • Study found that some of the new models being developed by the credit reporting agencies are differentiating between medical and non-medical debt • Report concludes that rules should be created that set forth the conditions for reporting medical debt on credit bureau 21
POLL QUESTIONS • Poll Questions 1. Do you audit your collection agencies to insure that they are HIPAA compliant and have safeguards in place to protect personal information? 2. Do you sue accounts that cannot be collected through normal channels? 22
COLLECTION AGENCIES RELATIONSHIP 1. It is important to provide work standards for the collection agencies or law firms you use. What expectations do you have for calling? Letter writing? 2. Collection Agency Contract a. Does it provide for indemnification? b. Does it require E&O insurance? c. Business Associate Agreement 23
COLLECTION AGENCIES RELATIONSHIP CONT. • CFPB has brought enforcement actions to ensure that attorneys are “meaningfully involved” in the entire litigation process • Make sure the attorney is “meaningfully involved” on litigation process 24
FDCPA IMPACT ON CONSUMER COLLECTION Fair Debt Collection Practices Act - The FDCPA regulates collection practices and was passed to eliminate abusive collection practices and promote fair debt collection. • Consumer debt arising out of transaction primarily for personal, family, or household purposes. • Medical debts subject to FDCPA • Third-Party Debt Collection - Party collecting on behalf of another • Collection Agencies • Attorneys 25
FDCPA IMPACT CONT. • Regulates the following: • Communication • Time and place • False and Misleading representations • Balance, Legal Collections, etc. • Unfair Practices and harassment/abuse • Threatening debtor, endless phone calls, authorized interest only, properly and timely posting payments (late fees), etc. • Validation of debts • Written within 30 days, information, documents, etc. • Legal actions (limited to venue restriction) 26
FDCPA IMPACT CONT. • Why is the FDCPA important in collections? • Collection agency/attorneys must take steps to adhere to requirements of FDCPA and local court rules in pre-suit collections, filing of lawsuits and post-judgment actions such as garnishment, executions, bankruptcy matters, etc. • Liability could include statutory damages up to $1, 000. 00, actual damages, costs and attorney fees • Class Actions 27
FDCPA IMPACT CONT. • First-Party Collections • FDCPA applies to “debt collectors” • Most jurisdictions, including Michigan, provide that there is no vicarious liability under FDCPA against first-party creditor. • Consumer Financial Protection Bureau (CFPB) addressing firstparty collections under the Act creating agency and authority to prevent unlawful, deceptive and abuses practices (UDAAPs). • CFPB application of UDAAPs to first-party collections under the Dodd. Frank Act and UDAAPs • Compliance with FDCPA and UDAAPs increasingly important in first-party collections 28
TELEPHONE CONSUMER PROTECTION ACT (TCPA) • TCPA limits that use of automatic telephone dialing systems (ATDS) • Prohibits calls, texts and other forms of communication to consumers from ATDS to cell phone or service for which consumer is charged for call • Must have prior express consent to use ATDS to call cell phone • TCPA does not define “prior express consent” • Exemptions include the following: • Express consent (may but not always include scenario in which number provided at time of transaction from which debt arose) • For the purpose of urgent healthcare treatment • Numerous limitations on solicitors 29
TCPA CONT. • What is an ATDS? • “equipment which has the capacity A) to store or produce telephone numbers to be calling, using a random or sequential number generator; and (B) to dial such numbers. ” • Includes predicative dialers that have capacity to dial without human intervention • ATDS only needs to have the capacity to store or produce numbers using a random or sequential number generator and does not actually have to be used. Satterfield v. Simon & Schuster, Inc. , 569 F. 3 d 946, 951 (9 th Cir. 2009) • Prerecorded messages, phone calls, faxes, texts. 30
TCPA CONT. • Why is the TCPA important to collections? • Statutory damages for violation up to $500. 00 per violation or treble damages for “willfully and knowingly” violating statute of $1, 500. 00 per violation • Many courts have found that debt collection calls are not exempted under the statute despite possible exemption in statute. • Class actions • Difficult to support claim for vicarious liability as TCPA references “making” or “initiating” calls; however, vicarious liability upheld in certain jurisdictions • To protect against liability, must take reasonable precautions with whom is hired as third-party collector and in drafting agreements with third party (indemnification clause) 31
PLACEMENT WITH THIRD-PARTY FOR COLLECTIONS • Business Associate Agreement with third-party collection agency or law firm • Cover all areas of use and management of confidential information • HIPAA Compliance by third-party • Possible vicarious liability for actions of business associates/subcontractors pursuant to 2013 Omnibus Rule. • Inquiry as to healthcare provider’s authority over business associate’s business conduct. 32
LAWSUIT ON DEBT • File where contract signed or where consumer resides (Attorney requirement under FDCPA) • Service by personal service, registered or certified mail with return receipt requested and acknowledge by Defendant or alternate service if ordered by the Court • If no answer filed in District or Circuit Court, default judgment may enter after 21 or 28 days. • If answer filed, then case shall be litigated. • Costs of Filing: • • $25 up to $600; $45 from $600 to $1, 750 $65 from $1, 750 to $10, 000 $150 for over $10, 000 33
POST-JUDGMENT INTEREST • Calculate from the date of filing of the Complaint to Satisfaction of Judgment • 2. 571% per year for 6 -month rate as of January 1, 2016 • Per MCL 600. 6013(7), this rate changes every 6 months. • 13% per year maximum for written instruments • The rate shall be the rate as agreed upon in the written instrument and shall not exceed 13% per year. MCL 600. 6013(8) 34
POST-JUDGMENT ACTIONS • Action may be taken 21 days after entry of judgment (MCR 2. 614(A)(1)) • Time allowed for Judgment Debtor to file a motion to set aside Judgment, motion for new trial or motion for reconsideration. 35
JUDGMENT LIEN • Lien on Judgment Debtor’s property and judgment can be paid from sale proceeds. • Notice of Judgment Lien shall be filed with the Court • Cost for filing is $10. 00. • File with register of deeds • Cost associated with filing with register of deeds is $14. 00 - $15. 00. • Service by certified mail on the Judgment Debtor at last known address (personal service if over $25, 000. 00) • Description of Judgment Debtor’s property does not need to be included with Notice of Judgment Lien. 36
JUDGMENT LIEN CONT. • Judgment lien lasts 5 years • May be renewed once until judgment expires • If judgment is renewed, then you may file a new judgment lien on the property and renew lien until judgment expires • No right to foreclose on property under Michigan Judgment Lien. • Cost increase? • SCAO form MC 94 37
GARNISHMENT • Judgment Debtor’s property in possession of third party • Three (3) types of Garnishments that may be filed in Michigan • Periodic Garnishment • Non-periodic Garnishment • Garnishment of Judgment Debtor’s state tax refund • Does not apply to Federal tax refund 38
PERIODIC GARNISHMENT • Filed against Judgment Debtor’s Wages or income from rental property • “Plaintiff knows or with good reason believes the garnishee is indebted or possess or controls property belonging to Defendant. ” • Filed with Court and served on Garnishee Defendant by Plaintiff once entered by Court • Garnishee required to disclose within 14 days and serve Defendant a copy of the Garnishment within 7 days. • SCAO form MC 12 39
PERIODIC GARNISHMENT CONT. Old Law New Law • After service, expired after 182 days • Renewal required after expiration of garnishment • Creditor may lose priority against wages/income • $15. 00 filing fee and $6. 00 disclosure fee • After service, does not expire till judgment satisfied. • Creditor retains priority based on date of service on garnishee • Balance statement every 6 months (costs, interest, etc. ) • Allow garnishee 28 days to correct default and 21 days additional to petition court • $15. 00 filing fee and $35. 00 disclosure fee 40
PERIODIC GARNISHMENT • Exemptions • • • Social Security Benefits Unemployment Compensation U. S. and Michigan Civil Service Retirement Benefits IRA accounts Worker’s Compensation Benefits See MC 12 for additional income sources exempt from Garnishment. 41
NON-PERIODIC GARNISHMENT • Shall be used to execute on Judgment Debtor’s bank accounts, financial accounts or if Judgment Debtor works as Independent Contactor (not paid a regular wage). • “Plaintiff knows or with good reason believes the garnishee is indebted or possess or controls property belonging to Defendant. ” • See procedure for Periodic Garnishments for procedure for Non-periodic Garnishments. • See exemptions for Periodic Garnishments for funds exempt from Non-periodic Garnishments. • Do funds lose exemption when deposited in account? • Costs are $15. 00 for filing fee and $1. 00 for disclosure fee. • SCAO form MC 13 42
GARNISHMENT OF STATE TAX REFUND • Michigan is one of very few states that allow garnishment of state tax refund • Prepared by Plaintiff, filed with court and served by Plaintiff after issuance on the state treasurer • Served on or after November 1. Earlier for E-filng. • Plaintiff must serve on Judgment Debtor within 7 days of service on state treasurer • State of Michigan will notify Judgment Debtor if State Tax Refund is intercepted and amount within 90 days of establishing if refund owed. • SCAO form MC 52 43
RELEASE/SUSPENSION OF GARNISHMENT • Objections should be filed within 14 days of service of Garnishment. • Reasons for objection are funds are exempt, bankruptcy, installment order, judgment was paid, etc. • If garnishment released, then new garnishment must be filed to proceed. • If garnishment suspended, then if default occurs, then garnishment may be reinstated. 44
EXECUTION / SEIZURES • Execution is process to seize property in Judgment Debtor’s possession (MCL 6001 et seq. & MCR 3. 106) • Officer handling execution may not enter dwelling to seize goods. • Judgment debtor exemptions listed in MCL 600. 6023 and Judgment debt has a right to remove these items prior to sale. • No exemptions for corporations. • SCAO form MC 19 45
CREDITOR’S EXAM • Subpoena issued to Judgment Debtor, or anyone with money or property of the Judgment Debtor, requiring the party to provide information regarding Judgment Debtor’s assets. MCL 600. 6110 and MCR 2. 621(A). • Party required to appear and court will place party under oath. • Best to use if unable to find employer, bank or property for garnishment/execution. • Questions on employer, bank accounts, etc. 46
CREDITOR’S EXAM CONT. • Attorney/Plaintiff affidavit confirming that party subpoenaed indebted to Plaintiff. • Failure to appear • If Judgment Debtor properly served, courts issue show cause or bench warrant • If Judgment Debtor properly served notice of show cause hearing, court issues bench warrant • Bench warrant issued for contempt of court 47
BANKRUPTCY • Chapter 7 - Liquidation • Chapter 11 – Reorganization (businesses) • Chapter 13 - Reorganization • Upon filing, Bankruptcy stay applies as to all pre-petition debts. • 90 day preference period • $600. 00 for primarily consumer debts • Upon bankruptcy discharge, all pre-petition debt is discharged and no longer due and payable • Exceptions to discharge often are student loans, debts obtained through fraud, tax liabilities, etc. • Medical Debt is dischargeable in bankruptcy and is considered nonpriority unsecured debt 48
BANKRUPTCY CONT. • Dismissal • If a bankruptcy is dismissed without discharge, then creditor may proceed with actions against debt. • If debt not listed on matrix in Chapter 7, courts have found that debt is still discharged. 49
RENEWAL OF JUDGMENT • A judgment is good for ten (10) years. MCL 600. 5809(3) • If entered in court that is not a court of record (small claims) then judgment good for six (6) years. • Judgment may be renewed by ex parte motion and upon entry of order, is good for another ten (10) years. • SCAO form MC 390 50
QUESTIONS? 51
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