Death, Taxes, and Medical Bills

The final installment of Melissa Jacoby's and Mirya Holman's guest posting on their new article:

Today we’ll finish talking about our paper on medical bills and bankruptcy (our first post featured politics and controversy.  Our second post had data and visuals).  Our study is the first to demonstrate empirically that relying only on debt detectable as medical in court records is an unreliable measure of the financial burden of illness or injury that bankruptcy filers faced.   In our research, the court record method produced a skewed undercount of medical bills in our national sample of filers and completely omitted filers that even the most skeptical of observers would describe as having significant medical hardship.  Although space and time constraints preclude exploration here, our paper also reviews some findings regarding age, sex, race and housing tenure that reinforced our concern, namely that using only court records to understand medical debt burden produces a distorted picture of how much – or, in some cases, how little – medical expenses contribute to the overall debt burden of bankruptcy filers.  Bankruptcy court forms do not systematically collect much demographic information, so it is by combining the court records with survey data that we can examine such questions. 

More generally, our findings demonstrate the risk of a disconnect between the subject of investigation and the function of legal documents for any systematic study of data derived from public court records.   Schedule F, the court record searched for medical debts, is designed to put parties holding debts on notice that those debts will be addressed and possibly discharged in a bankruptcy case.  It is not designed to provide detailed information to the government or researchers about the type of financial obligations that get people into financial trouble.  The identity of the claim holder, rather than the origin of the obligation, drives the information that is solicited and collected.  The forms should be changed considerably if the government intends to use such records to estimate medical burden of bankruptcy filers.  While it is hard to dispute the goal of making court records more accessible electronically, researchers from the government and elsewhere must pay attention to the function the documents serve if the resulting research is to illuminate rather than obscure.  

Now, about health care finance.    Multiple studies have found that the great majority of bankruptcy filers have health insurance at least some of the time, and this one is no different.  We asked all filers with any out-of-pocket expense within the two years prior to filing how they managed their bills.  We discovered people who end up in bankruptcy had a lot of methods of coping with medical bills that we have not been able to discuss here at The Faculty Lounge.   But when they incurred particularly big debts, a notable portion of the filers mortgaged their homes and used credit cards with potentially high interest rates to finance their medical care (data in prior post).   Whether or not managing their debts in this fashion increased their vulnerability to bankruptcy, it may alter the relief they could obtain from bankruptcy once they filed. 

The paper reviews the advice in the medical practice management literature on structuring patient-provider interactions to maximize payment of out-of-pocket obligation (mentioned by Jim Hawkins in his comment on our first post).   These are the matters they don’t teach in medical school: the physical layout of offices, the color of billing envelopes, the physical posture to assume when asking for money, the kind of gifts to buy particularly successful bill collectors in the office, and exhortations to adopt a general commercial attitude, with quotes in the source like “It’s your money – ask for it!”  Along the same lines, an August 5 Wall Street Journal story on increased up-front payment requirements by medical providers (subscription required) cites a doctor regarding how her office staff had to teach patients that visiting the doctor was like buying stuff at Walmart: pay before leaving.  We’ll let the health policy experts continue to fight about whether this analogy is corrosive of or beneficial to health care.  In any event, when successful, these management efforts avert the need for more formal and more public ex post debt collection efforts that end up in the public spotlight, allowing doctors to avoid the legal tangles of debtor-creditor laws and bankruptcy.

Health care consultants have been known to lament that people pay their doctors last.  One might have figured that families headed into bankruptcy would be especially likely to defer dealing with those bills.  We find evidence that financially distressed families are reducing liability to their doctors and, in a non-trivial number of cases, eliminating their debt completely.  And actually, because court records include older medical debt, the reduction of debtors’ liability to doctors is even greater than our comparison of measures would suggest.    Although we believe people highly value their relationships with their doctors, perhaps an additional contribution of our study is to offer evidence of the success of medical practice management from an unexpected quarter.