Medical Debt Resolution

Medical debt in collections: a distinct but resolvable problem

When a medical bill goes unpaid — whether because the patient can't pay, doesn't realize it's owed, or disputes the amount — the hospital or provider has several options. They may continue to pursue it internally through their billing department. They may sell the debt to a third-party collections agency, which then owns the debt and pursues it independently. Or they may place the debt with a collections agency on a contingency basis, where the agency keeps a percentage of what they collect while the hospital retains ownership of the debt.

Each of these scenarios creates a different legal and practical situation — and requires a different approach. Our case managers assess the specific status of your medical debt before taking any action, because the right response to a debt still held by the hospital differs significantly from the right response to a debt that has been sold to a third-party collector.

Your rights under the Fair Debt Collection Practices Act

The Fair Debt Collection Practices Act (FDCPA) is a federal law that governs the conduct of third-party debt collectors — entities that collect debts owed to someone else. Hospitals collecting their own debts are generally not subject to the FDCPA. Third-party collections agencies pursuing a medical debt that was sold or assigned to them are.

Under the FDCPA, you have the right to request verification of the debt in writing within 30 days of the collector's first communication. When you submit a written debt validation request, the collector must stop all collection activity until they provide verification of the debt — including the amount owed, the name of the original creditor, and documentation establishing that the debt is valid. This right is enforceable, and violations of it — including continuing collection activity after a validation request has been submitted — create liability for the collection agency.

You also have the right to dispute the debt in writing. If you dispute all or part of the debt, the collector must record the dispute and cannot report the disputed amount to credit bureaus as undisputed. Collectors who ignore written disputes and continue reporting the debt to credit bureaus as valid may be in violation of both the FDCPA and the Fair Credit Reporting Act.

Our case managers initiate the formal debt validation and dispute process as the first step in any case involving a third-party collector. This step establishes your rights, creates a record, and — crucially — pauses collection activity while the dispute is active.

Not sure where to start? Get a free consultation — our case managers will review your situation at no cost.

Why medical debt in collections is still negotiable

Collection agencies that purchase medical debt typically pay a fraction of face value — often 3 to 15 cents on the dollar. When they collect the full amount from the patient, the profit margin is substantial. This economics means that a collection agency has significant room to settle below face value and still profit — and they know it. The question is whether the patient knows it too.

When the original debt contained billing errors — which our audit almost always finds — the settlement leverage is even stronger. A debt based on an inflated or erroneous bill is more difficult to validate, more subject to dispute, and less certain to survive a challenge. Our case managers document billing errors identified in the original bill and incorporate them into the debt settlement negotiation.

For debts still held by the original hospital — never sold to a third party — the negotiation dynamic is different but equally viable. Hospitals prefer to settle accounts at a discount rather than commit additional administrative resources to collections, particularly when the account has been outstanding for an extended period and when charity care or billing error documentation provides additional grounds for reduction.

Medical debt and credit reporting: what changed in 2023

Significant changes to medical debt credit reporting took effect in 2023. The three major credit bureaus — Equifax, Experian, and TransUnion — implemented new policies removing paid medical debt from credit reports, removing medical debt under $500 from credit reports regardless of payment status, and extending the time before unpaid medical debt appears on credit reports from six months to one year. The Consumer Financial Protection Bureau has also proposed rules that would effectively eliminate medical debt from credit reports entirely for purposes of lending decisions.

These changes meaningfully reduce the credit leverage that collection agencies have historically used to pressure payment. However, they do not eliminate the underlying debt — and they do not prevent collection activity itself. Collection agencies can still pursue payment by phone and mail, and unpaid debts over $500 that are more than one year old can still appear on credit reports.

Our case managers track the current state of medical debt credit reporting rules and ensure that any credit reporting that occurs for debts under active dispute is appropriately challenged. We also verify that paid debts are correctly removed from credit reports as required under current bureau policies.

MedErase handles this for you. Get a free consultation and our case managers will assess your specific bill.

Medical debt and bankruptcy: what case managers can accomplish that bankruptcy cannot

Medical debt is dischargeable in bankruptcy — and for patients with overwhelming medical debt and limited assets, bankruptcy can provide meaningful relief. However, bankruptcy has significant consequences for creditworthiness that persist for 7 to 10 years, and it affects all debts, not just medical ones.

Medical bill negotiation and debt settlement can achieve significant reductions in medical debt without the consequences of bankruptcy, and without affecting non-medical debt. Our case managers pursue the maximum available reduction through direct settlement before bankruptcy is considered — in many cases achieving outcomes that eliminate the need for a bankruptcy filing.

Hospital liens and medical debt: a specific complication

When a patient receives medical care for injuries sustained in an accident, hospitals sometimes file a medical lien against any legal settlement the patient may receive. A hospital lien is a legal claim against a portion of a personal injury settlement, workers' compensation award, or other recovery — it means the hospital has the right to be paid from those proceeds before the patient receives them.

Liens create a specific complexity: the patient may receive a legal settlement only to find that the hospital's lien claim consumes a significant portion of it. Our case managers negotiate medical liens directly with the hospital's billing department and legal counsel, seeking a reduction in the lien amount that reflects the same principles applied to standard bill negotiation — errors in the underlying bill, charity care eligibility, and the settlement dynamics that motivate hospitals to accept discounts.

Frequently asked questions about medical debt resolution

Can old medical debt still be collected?

Medical debt, like other debts, is subject to statutes of limitations — legal time limits on how long a creditor or collector can sue to collect a debt. These vary by state, typically ranging from 3 to 10 years. Once the statute of limitations has passed, the debt is time-barred — meaning it cannot be collected through legal action, though collectors may still attempt to collect it. Our case managers assess the age of your debt and the applicable statute of limitations before recommending a course of action.

What if the collection agency won't negotiate?

All collection agencies negotiate. The question is at what point in the process and on what terms. Agencies that refuse to negotiate on initial contact typically have a policy of not negotiating in early-stage collections — they respond differently when an account is documented, disputed, and aging. Our case managers know the dynamics and apply the appropriate pressure through the appropriate channels.

Should I pay a medical collection before trying to negotiate it?

Generally, no — payment before negotiation eliminates your negotiating leverage entirely. There is limited basis for requesting a refund after payment. Our case managers pursue negotiation first and only authorize payment once a written settlement agreement is in hand.