Managing Medical Bills on the Brink of Bankruptcy

Abstract

In the vast majority of health care interactions, patients in the United States - regardless of their insurance status - bear some direct financial liability to medical providers. Whether they are not-for-profit hospitals or for-profit small businesses, health care providers cannot be indifferent to the collection of these obligations. Consultants in medical practice management have developed and marketed extensive advice for structuring all aspects of providers' interactions with patients to mimic commercial transactions in other retail service contexts. This advice, if successful, shields providers from the public scrutiny of after-the-fact debt collection through lawsuits and liens. Medical practice management affects the study of the financial burden imposed by health care. In recent years, lawmakers and scholars have debated the role of medical problems in fueling personal bankruptcy filings. Some scholars measure medical-related bankruptcy using survey techniques. Skeptics of survey-based findings often cite studies of bankruptcy court records that yield more conservative estimates. Court record studies look for evidence of claims by creditors with medical identities in the documents that bankruptcy filers submit to the court. A clash over these methods arose directly prior to the passage of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. This bill was the most significant set of amendments to the Bankruptcy Code in a generation and substantially restricted debt relief for individual filers. Lawmakers who opposed the bankruptcy bill cited a 2005 study by Himmelstein, Thome, Warren, and Woolhandler finding that approximately half of bankruptcies were medical-related. Supporters of the bankruptcy bill countered with a court record analysis conducted within the Department of Justice (DOJ). According to the DOJ analysis, over half of the sample (54%) had no medical debt at all, the average medical debt among those with any such debt was under $5,000, and medical debt comprised only 5.5% of the total unsecured debt of the sample. More recently, debates about health care finance intensified public interest in the financial impact of medical bills and these methodological disputes. In the summer of 2009, Himmelstein et al. reported that 62% of personal bankruptcies could be construed as medical-related. President Obama used medical bankruptcy rates as a rationale for health care reform. Lawmakers held hearings on whether the current health care system is bankrupting American families. At one such hearing in July 2009, Representative John Conyers cited the Himmelstein study as evidence that health care reform was urgently needed. But a scholar from the American Enterprise Institute countered by citing the earlier DOJ court record analysis and its more modest assessment of the role of medical debt in bankruptcy. Here, we provide the first attempt to reconcile these competing methods of measuring medical burden, applying both the survey method and court record method to the same set of filers in a single dataset. Our dataset, the 2007 Consumer Bankruptcy Project ("2007 CBP"), is a nationally representative sample of people who filed for bankruptcy in early 2007. This dataset consists of hundreds of variables from court records, questionnaires, and telephone interviews. It was compiled by professors of law, medicine, and sociology at seven major research universities, including one of the authors of this Article.