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New Credit Scoring Model Reduces Impact of Medical Collections

FICO has refined its credit scoring model to include a more nuanced way to assess consumer collection information, bypass paid collection agency accounts and offer options to differentiate medical from nonmedical collection agency accounts.  In May, the Consumer Financial Protection Bureau released a white paper, “Data Point: Medical Debt and Credit Scores,” to evaluate if medical and nonmedical collections are equally predictive of consumers’ credit performance.

“The answer appears to be no,” the CFPB stated. “Our results suggest that consumers with more medical than nonmedical collections had observed delinquency rates that were comparable to those of consumers with credit scores about 10 points higher.”  In its white paper, the CFPB found that credit scoring models have not been weighing medical debt very well. It found that if the credit scoring models accounted differently for medical debt in collection and medical debt that is repaid by the borrower, the models could be more precise.

According to the CFPB, “The use of medical collections in credit scoring models has generated concerns stemming from the unique circumstances under which these debts arise and come to be reported to the [nationwide credit reporting agencies]. Among their unique characteristics is that consumers may sometimes be unaware that the medical collections exist.”  ACA International has supported efforts to reform credit reporting for medical debt, and is working to be at the table to discuss how this should work in the future.

ACA also participated in a Medical Debt Collection Task Force involving the Healthcare Financial Management Association best practices to help make paying medical bills an easier and fairer proposition for consumers.  According to an August 2014 article in Healthcare Financial Management by Chad Mulvany, the director of healthcare finance policy, strategy and development at the HFMA’s office in Washington, D.C., the CFPB has also alleged that some collection agencies report a patient’s debt to a credit bureau without issuing a statement as a way to reduce collection costs.

Mulvany said that if this practice does exist, it does not agree with the best practices developed by the HFMA and

ACA.  “HFMA’s Medical Debt Task Force found that notifying the patient in advance of reporting an account to a credit bureau is a widely adopted best practice,” Mulvany said in the article.  The best practices also include establishing policies for account resolution, ensuring those policies are followed and reporting back to credit bureaus when an account is resolved.

As the CFPB develops rules for the debt collection industry, questions about including medical debt in the process remain unanswered.  According Mulvany’s article, the CFPB’s May report is the first glimpse of its efforts to understand how medical debt impacts consumers’ access to credit.  “Although broader action will likely have only an indirect impact on providers, the report is worth noting because its findings identify potential areas of opportunity for revenue cycle improvement,” Mulvany said.  More information: and

Last modified onTuesday, 17 February 2015 14:21

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