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Why hospitals want your credit report
The Wall Street Journal
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Published: 4/28/2008 12:03 AM

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In a development that consumer groups say raises privacy issues, a growing number of hospitals are mining patients' personal financial information to figure out how likely they are to pay their bills.

Some hospitals are peering into patients' credit reports, which contain information on people's lines of credit, debts and payment histories. Other hospitals are contracting with outside services that predict a patient's income and whether he or she is likely to walk away from a medical bill. Hospitals often use these services when patients are uninsured or have big out-of-pocket costs despite having health insurance.

Hospitals say the practice helps them identify which patients to pursue actively for payment because they can afford to pay. They say it also allows them to figure out more quickly which patients are eligible for charity care or assistance programs.

Administrators also argue that these credit checks can help them minimize losses. In 2006, nearly 5,000 community hospitals provided uncompensated care costing $31.2 billion, the vast majority of it charity care or unpaid patient bills, according to the American Hospital Association.

Consumer advocates say the practice creates the potential for hospitals to misuse the information by denying or cutting back on patients' care if they can't pay.

Hospitals say that doesn't happen. Hospitals often ask patients for permission to access their financial records, but such authorization is sometimes buried in the fine print. What's more, hospitals could scour a patient's financial records for credit lines and encourage the patient to tap them, despite high interest rates or other costs.

"It has the potential to put people at risk financially," says Mark Rukavina, executive director of the Access Project, a research and advocacy group that focuses on medical debt.

Consumers' credit reports are maintained at the three major credit bureaus, which determine credit-worthiness using criteria such as the well-known FICO score. But while a snapshot of how much credit you have available and your debt-payment history might help predict the likelihood of your repaying, say, a car loan, it's less reliable when it comes to medical-bill payments.

"Health care is always considered that last, almost discretionary, spending," says Stephen Mooney, senior vice president of patient financial services at Tenet Healthcare Corp., the Dallas for-profit hospital company.

To address this problem, Equifax Inc., one of the credit bureaus, has developed a separate credit score specific to health care that aims to predict if a patient can be expected to repay medical bills. The health-credit score is a number derived from a patient's traditional credit report. Equifax developed it by matching up a cross section of hospital payment records with patients' credit reports to look for common patterns.

SearchAmerica Inc. is a company that mines credit bureaus for data on behalf of its hospital clients, which it says have doubled in number to 900 since 2005. As patients register for treatment, the company advises hospitals on whether they are likely to qualify for financial assistance. SearchAmerica also generates a health-care credit score, which factors in a patient's history of paying hospital bills. After the patient receives care, the company factors in the size of the bill and tells the hospital how likely it is that the patient will pay.

Tenet, Fair Isaac Corp., developer of the widely used FICO score, and a venture-capital firm have each contributed $10 million to a start-up called Healthcare Analytics Inc. that is assembling bill-collection data from hospitals to develop methods for predicting patients' payment habits. The firm is analyzing the impact of health-care-specific factors such as insurance-plan design.

The Health Insurance Portability and Accountability Act, or HIPAA, a federal law that has patient-privacy provisions, doesn't bar hospitals from providing patient payment histories to consumer reporting agencies. SearchAmerica says it is required by its contracts with the hospitals to keep the information private. The company says it does not receive any medical information from the hospitals.

It's unclear how much latitude hospitals have to legally check a patient's financial information. Under the Fair Credit Reporting Act, hospitals are allowed to obtain patients' credit reports if they get their permission, says Rebecca Kuehn, an assistant director in the Federal Trade Commission's division of privacy and identity protection. And after a patient owes money, the hospital becomes a creditor and has strong grounds for checking a credit report even without permission, especially when a bill is long overdue, she says.

Health-credit scores provided to hospitals by firms like Equifax and SearchAmerica aren't accessible to the patients themselves. Both firms say hospital credit inquiries do not adversely affect patients' traditional credit reports.