The medical debt shuffle: Allina sells overdue bills to itself to sue patients

Derek Seman had no idea he owed $1,067.88 to Allina Health for cardiac tests, or that the debt was sold to a collector called Accounts Receivable Services.

Then a summons arrived in the mail last month. This mysterious company wasn't going to be patient.

"I didn't even know they could take you to court for medical debt," he said.

Turns out, it was still Allina. The Minneapolis-based health system owns Accounts Receivable and sells overdue patient debts to it. Accounts Receivable pursues payment, often in court, and returns the proceeds to Allina.

The transaction differs from traditional debt sales, by which hospitals and clinics dispose of overdue debts for pennies on the dollar to independent firms that pursue collections for their own profit. But critics cite similar ethics concerns.

State Sen. John Marty, DFL-Roseville, filed legislation that would ban medical-debt buying because it shifts collections from hospitals and clinics, which have reputations to protect, to third parties.

"These folks are sharks," he said. "At least hospitals have some kind of public image. Debt buyers have no image. Nobody knows who they are."

Accounts Receivable gained attention last fall, when the Minnesota State Bar Association reported that it filed the second-most medical debt lawsuits in the state. The Brooklyn Park firm exclusively collects delinquent bills for Allina, after the health system has reached out to patients at least six times over four months without success, but the connection isn't advertised. Allina's name and logo do not appear on the firm's website or outside its offices.

The separation is intentional, because patients who ignore letters, calls, emails and texts from Allina's billing office are more likely to respond to a new collector, said Motti Edelstein, Allina's vice president of revenue cycle (an industry term for billing and collections). Lawsuits are attention-getters, but he said most are settled, and that patients can still ask for discounts or payment plans.

"It's a more effective [collection tactic] for the ones that have ignored the entire first part of the process," Edelstein said. "Because of the regulations as far as what we can do versus what they can do, it pays to move it to a different organization."

Accounts Receivable sued 90 Allina patients in the first 10 days of April. Some patients were caught off guard, because they weren't convinced they owed money.

Seman's debt stems from tests to address a frightening but temporary increase in his heart rate. The commercial painter from Annandale admits he can be hard to reach, only answering calls from familiar numbers. Accounts Receivable is supposed to contact delinquent patients at least eight times, but he doesn't recall that many notices before he was sued.

Full payment in one swoop could be tough for the 42-year-old father of two, but he said he hopes to negotiate a discount or installments.

"I tried calling them and left a message, and they never called back," he said.

Medical debt is a hot topic in Minnesota, where health insurance plans have tried to keep premiums affordable by increasing deductibles and shifting more costs of medical care on patients.

DFL lawmakers joined with Gov. Tim Walz and Attorney General Keith Ellison this year to protect patients by limiting collection activities, including preventing hospitals from denying non-emergency care to patients with overdue bills, or from transferring debts to spouses of patients who die with unpaid bills.

Marty said he wants to add his proposal to that reform package, or an alternative that requires debt-buyers to disclose who sold them the debts and how much they paid. A Federal Trade Commission analysis found buyers paid on average less than 2 cents on the dollar for medical debt, compared to 5 cents for credit card debt and 50 cents to acquire mortgage debts, which come with the collateral of property.

"The reason this debt is so cheap is that it isn't very collectable. People don't have the money," said Ruth Lande, a former hospital billing executive who works for Undue Medical Debt. The Massachusetts nonprofit buys debt at around one penny on the dollar and forgives it to relieve patients of the burden. It has relieved $40 million in medical debt for 43,000 Minnesotans.

Debt-buyers have reported an increase in Minnesota clients. Large systems such as Fairview, HealthPartners and North Memorial don't sell debts, but the option can be appealing to smaller providers that have less ability to collect them on their own.

Capio Partners, a Georgia-based firm, has worked with Minnesota clients and tried to change the perception of debt-buying by collecting from patients without suing or charging interest. That approach offers advantages to everyone, said Mark Detrick, Capio's chief executive.

"Owning the account allows us to be patient and work collaboratively," he said.

Allina, which operates 12 hospitals and 90 clinics, is hardly alone in leaning on courts for collections. Fairview filed 20% of medical debt lawsuits in Minnesota from 2018 through 2021, the bar association analysis found. Nor is it the only provider to obscure its role in collections. Roughly 5% of cases were filed against patients in western Minnesota by Accounts Management Inc., a subsidiary of Sioux Falls-based Avera Health.

Minnesota's nonprofit hospitals have long helped patients, providing $279 million in charity care in 2022, but also writing off $476 million in debts they expected patients to pay, according to the state's health care cost information system. Edelstein said they are less able to absorb losses amid rising staffing, drug and equipment costs. Allina's collectors want to connect patients with financial assistance or benefits for which they are eligible, he added, but sometimes they must press cases when patients are flaunting on social media that they aren't paying any bills, or ignoring debts for elective procedures they agreed to pay.

"We have too tight of a margin to say, 'we'll just write everything off,'" Edelstein said. "So it's incumbent on us to collect everything we can … to make sure Allina Health can continue to pay its bills and continue to invest in itself. If we didn't have a secondary process [for bill collection] that would just be too much money that's not being collected."

Federal law prevents health care providers from selling debts until they have first tried to collect them. Patients also are protected from deceptive or coercive collection tactics by state law and an unusual agreement between Minnesota's hospitals and its attorney general.

Like most large health care systems, Allina publishes options for patients with overdue bills, including stalling collections activities for 30 days if patients claim the debts aren't accurate, that an insurance company should be paying, or that they need documentation or help applying for charity care.

Bankruptcy is a last resort, especially once a debt becomes a court matter. Michael Kotzer of New Ulm sought that protection this winter to prevent Accounts Receivable from garnishing his wages and collecting his $5,500 medical debt, which built up after triple-bypass surgery.

Kotzer's debt wasn't sold to Accounts Receivable, but rather financed with principal and interest payments through the company's MedCredit division. He said he was sued after he stopped making payments, because the company had increased monthly demands beyond what he could afford.

Kotzer, 36, said he landed in debt because he can't cover the deductibles and costs of his wife's workplace health plan. The couple discussed divorce — ending a 10-year marriage born in a workplace romance at Walmart — so Kotzer could qualify for public health benefits and shield his wife from debts. They were joking, mostly.

"It's terrible," he said. "I don't go to the doctor as much anymore because I can't afford the bills."

Most lawsuits by Accounts Receivable are dismissed, because they compel settlements or the patients are bankrupt. When they do make it to court hearings, Accounts Receivable often wins without a fight, because patients don't show up. Among 85 cases filed last August, 21 resulted in default judgments for the agency — which can then pursue wage garnishment or other means of collection.

Jill Hass, 58, of Fridley said in mid-April that she had no idea that she had been sued in mid-March over her $3,800 debt that Allina sold to Accounts Receivable. She said she rebuffed earlier collection efforts by Allina, because she thought insurance was covering treatment of injuries from a car accident.

"I wasn't responsible for the bill so therefore I wasn't paying it," she said.

Sometimes, resolving medical debt trades one problem for another. Even when Undue Medical Debt eliminates debts, a recent study found it doesn't fix patients' finances or aid their mental health.

Barbara Cooley, 46, of Jordan said her $1,900 Allina debt was sold to Accounts Receivable last summer after she was late making a payment. The former bill collector for a chiropractic office said she couldn't persuade the agency to discount the debt to an amount she could pay with savings.

"I ended up paying it with a credit card," she said, "which now has a balance that I am stuck paying anyway."