U.S. agency proposes rule to eliminate medical debt from most credit reports, saying it's an unreliable predictor of payment

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Kentucky Health News

The federal Consumer Finance Protection Bureau is proposing to eliminate medical debt from most credit reports, stop companies from sharing debt information and bar lenders from making decisions based on medical data.

About 12 percent of Kentucky adults, more than 400,000 people, are estimated to have medical debt.

The proposed rule brought "immediate cheers from consumer advocacy groups that have long pushed for change," Amy Lotven reports for Inside Health Policy. "CFPB believes the rule . . .would remove as much as $49 billion in debt from 15 million Americans and increase credit scores by an average 20 points."

The agency's research has found that medical debt "is not a good predictor of loan repayments," so it thinks the regulation would "improve underwriting, stop denials of loans to consumers who would repay, and lead to about 22,000 additional safe mortgages a year," Lotven writes.

CFPB Director Rohit Chopra said the credit-reporting system is often inaccurate, yet is used "to coerce patients into paying medical bills that they do not owe."

In 2003, Congress restricted lenders from using medical information about debts, but "agencies created a regulatory loophole that let creditors use such information in their decisions," Lotven reports. The proposed rule "would close the regulatory loophole from 2003 by establishing guardrails for credit-reporting companies and banning lenders from taking medical devices as collateral for a loan as well as from repossessing a device if the loan is not repaid."

Vice President Kamala Harris and Lisa Lacasse, president of the American Cancer Society Cancer Action Network, said states should take similar action. David Kendall, senior fellow for health policy at Third Way, a centrist group that has produced several reports on debt, said the proposed regulation is the latest in a series of federal and state actions “to fight the scourge of medical debt. They have been preventing medical debt by expanding coverage, funding medical debt abolishment, and ending junk insurance that can lead to medical debt.”

UPDATE, June 12: "Tuesday's announcement builds on a 2022 effort by the big credit bureaus TransUnion, Equifax and Experian to keep debt off consumers' reports until it's at least a year old," Axios reports. "The two major credit scoring companies, FICO and VantageScore, have also reduced how much medical debts can factor into consumers' scores at that time."

Pikeville Medical Center, citing bad decisions by prior management, continues to reduce staff, this time by laying off 100

Pikeville Medical Center, Eastern Kentucky's largest hospital, is cutting its workforce to correct what CEO Donovan Blackburn called "poor business decisions" by his predecessor, Walter May.

"The news comes a week after the credit rating agency Moody's lowered the hospital's credit rating two notches, citing increased labor costs and limited cash flow," notes Will Wright of the Lexington Herald-Leader.

May, who led the hospital's growth over the past 20 years, was fired in January. Since then, the hospital has cut 250 employees by attrition, but now is laying off 100, Blackburn said. Another 30 recently "left through a normal exit including quitting or being fired," WKYT-TV of Hazard reports.

Blackburn said the hospital hired 600 people for a clinic it built in 2015, pushing its workforce above 3,000, but didn't need 480 of them. "In 2016 we had the best year we ever had at the end of the 2016 year, but in 2017 we had the worst year we ever had," he told the station. The clinic was named for May's wife, hospital attorney Pamela May, who died in May 2017. That was the same month that the hospital hired Blackburn, who had been Pikeville's city manager.

KentuckyOne Health parent firm's debt rating downgraded again; explores merger that would create largest not-for-profit chain

Flaget Memorial Hospital at Bardstown is part of the chain.

S&P Global Ratings has cut its debt rating for Catholic Health Initiatives, a nonprofit with KentuckyOne Health hospitals in Louisville, Lexington, Bardstown, Berea, Campbellsville, London, Martin, Mount Sterling, Nicholasville and Shelbyville.

S&P, former Standard & Poor's, dropped CHI's rating from A-minus to BBB-plus Thursday. That is just two spots above a junk-bond rating. However, the BBB-plus rating was upgraded from negative outlook to stable outlook, meaning no further downgrades were looming, Dave Barkholz reports for Modern Healthcare. Fitch Ratings also downgraded the company's debt rating in July from A-plus to BBB-plus, he notes.

"While management's current turnaround plan has created an expectation for stabilization and modest improvement over the next 18 months, it is our opinion that it will take several years on the current financial improvement trajectory for CHI to return to a higher rating," S&P credit analyst Martin Arrick said in the downgrade report.

CHI said in a statement that it has "considerable strengths," including $16 billion in annual revenue, 103 hospitals across 22 states and a solid balance sheet, with assets of $22.7 billion. "We expect a strengthening of our financial performance – and a strengthening of our credit profile," CHI said.

Barkholz reports, "The system's turnaround plan is now being shepherded by interim operating chief Anthony Jones, a Los Angeles-based management consultant who replaced longtime COO Michael Rowan, who resigned in December."

CHI's debt is relatively high for a system of its size, Barkholz notes. The company's annual debt service, interest paid on its bonds and borrowing, is about $460 million on total debt of $9 billion, according to Barkholz.

CHI, which is in affiliation talks with Dignity Health, told Barkholz that its turnaround plan is gaining traction as evidenced by improved earnings in its second quarter, which ended Dec. 31.

Its "alignment" discussions with Dignity continue, even as it works its turnaround plan, Barkholz reports. A merger between the two companies would create the nation's largest not-for-profit hospital chain, with 142 hospitals combined and an annual revenue of more than $26 billion.

Dignity's overall debt is lower: $5.25 billion, he writes. However, it, too, has maximum debt service to carry: $408 million annually. The two companies are expected to decide whether to merge sometime this year.

Hopkinsville hospital's credit rating downgraded; part of national trend, but only Kentucky hospital nicked by rating agency lately

Following a national trend stemming from a slowly recovering economy, the hospital in Hopkinsville has had its credit rating downgraded, a possibility many Kentucky hospitals may be facing. "This means the hospital may have to pay a higher interest rate if it needs to borrow money in the near future," reports Nick Tabor, senior staff writer for theKentucky New Era.

Loss of business, a small revenue base and lots of debt were among the reasons Jennie Stuart Medical Center's rating dropped from BBB+ to BBB, Tabor reports. Fitch Ratings, one of the global agencies whose ratings guide investors, said uncertainty about the expansion of Kentucky's Medicaid system and how federal health reform will affect the hospital's finances were other reasons for the downgrade. The hospital has lost money in two of the last four years. Last year, it had a 1.9 percent loss.

Tabor explains there are eight ratings above the BBB level. If the facility's rating "were to slip two levels lower, to BB+, it would be on the level of 'junk bonds,' no longer considered investment grade," he reports.

There are three major rating companies in the U.S.: Fitch, Moody's and Standard and Poor's. Moody's expects downgrades of nonprofit hospitals to outnumber upgrades by the end of 2012, reports Jeffrey Young for The Huffington Post. Fitch expects the same will happen, said Senior Director Emily Wong. Smaller hospitals will especially feel the pinch since they "don't have as much ability to offset expense, inflation or reimbursement reductions," Wong said.

Since October 2011, Fitch has reviewed seven nonprofit hospitals in Kentucky. Five were affirmed, one was upgraded and Jennie Stuart was the lone downgrade. The other facilities reviewed were:
• Norton Healthcare, Louisville: affirmed at A-

• Owensboro Medicald Health System: affirmed at BBB+

• Appalachian Regional Healthcare: upgraded BB from BB-

• King's Daughters in Ashland: affirmed at A+

• Baptist Health Systems: affirmed at AA-

• St. Elizabeth Medical Center: affirmed at AA-

AA- and A-rated facilities are reviewed every two years. BBB and BBs are reviewed once a year, and B- and below-rated facilities are reviewed every six months. This type of story can be localized for any hospital. The easiest way to check ratings for hospitals in your area is to get an account at each of the three major rating companies. "These accounts are free and easy to set up," Tabor said. (Read more)