Medical Debt is Bad, But Hospitals Make It So Much Worse

Medical debt has become a fixture in our health care marketplace, with 41 percent of working-age Americans reportedly struggling to pay their medical bills. Unfortunately, both the health sector and our legal system treat medical debt as isolated instances of financial mismanagement by individuals, rather than a systemic feature of our own making.

This is a profound mistake. Medical debt is not the consequence of bad financial decisions — no one wants to suffer from chronic illness or require expensive surgery, and the triggers of medical debt are beyond one’s control. It also is not the consequence of injudicious shopping since patients are not informed of the prices they will be charged.

If anything, medical debt is the result of deceptive practices, hidden fees, and unmet promises of charity programs. One study found that between 60-80 percent of bad debt should have been charity care, and another found that 80 percent of medical bills contain errors.

Nonetheless, hospitals now routinely sue patients to collect medical debt, courts administer default judgments on a widespread scale, and state coercive mechanisms promptly employ wage garnishments and property liens to collect. These collection lawsuits represent more than just blaming the victim (which they do) and amount to more than unnecessarily punitive actions (which they are). They reveal the dark underbelly of our health system that, without reform, will cause any policy reform to be counterproductive.

Hospital collection actions against patients reveal an institutional self-importance, a belief that every dollar collected is a dollar going to a meritorious cause. This is not just fundamentally incorrect, but it expresses a near disregard for the health of patients and their communities. The exact opposite is true: These hospital policies undermine the very purpose of medicine.

There are two pillars to this argument. 

1. First, medical debt itself is a cause of bad health. Individuals with medical debt are more likely to skip medical care, even for emergencies and when risking worse health outcomes. A record 38 percent of Americans reported postponing medical care due to cost in 2022. Medical debt can also cause long-term financial insecurity. One in five adults with health care debt do not believe they will ever be able to pay it off, and an estimated 66.5 percent of bankruptcies are tied to medical debt. In turn, families that experience bankruptcies, or have poor credit ratings because of carrying large debt loads, suffer from additional harms to their financial and physical health. Medical debt also crowds out expenses that would otherwise promote health and well-being, and it harms credit ratings, preventing former patients from obtaining new credit, renting apartments or qualifying for jobs.
2. In my own study of North Carolina, I observed that medical debt lawsuits can add substantial interest obligations to a principal debt. Our sample of lawsuits from 2017 to 2022 revealed that more than one in 10 judgments include more than $10,000 in interest, and some families owed as much as $100,000 in interest alone. When combined with attorney and court fees, interest fees accounted for 35.4 percent of the total judgments owed to hospitals.

This harm to population health is being engineered by the very entities that we rely upon to provide a safety net. Although hospitals clearly are entitled to payment for services rendered, both nonprofits and for-profits are also vastly supported by government subsidies, and there is a growing sense that hospitals, especially nonprofits, are breaching a social contract when they sue former patients. Human Rights Watch, for example, has alerted the public to “wolves in sheep’s clothing,” decrying that “unscrupulous nonprofit hospitals can hide among their responsible peers, benefiting from their public perception and tax status as charitable institutions while engaging in extractive and exploitative practices.” Many others, across the country and political ideology, fear that hospitals are acting counter to their central mission and failing to convincingly justify the public support and goodwill they have accumulated over the past century.

In short, the underbelly of the U.S. health system — the actors that extract wealth from the most vulnerable and cause harm to broader community health — is also its pillars. Medical debt and legal collection actions must not be viewed as products of specific individual excesses or policy oversights, but instead as a sign that something is rotten at the core of our delivery system. 

Therefore, meaningful reform cannot be limited to forgiving medical debt or expanding charity care programs. Even more sweeping actions — such as expanding Medicaid benefits, capping health care prices, demanding full price transparency, or deep health insurance subsidies — will not deter the entities that treat patients as revenue opportunities and the legal system as leverage. We need to fundamentally curtail the expansionist, maximalist tendencies of the nation’s hospitals and hold accountable the forces that have led us astray.