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How to negotiate before medical bills pile up

Allie Johnson

April 14, 2015

Did an unexpected illness, surgery or trip to the emergency room leave you with a stack of doctor bills you can't pay?

Don't worry: You might be able to work out a deal to cut the amount you owe.

“Medical debt is negotiable,” says Sandee Ferman, author of “How to Settle Debts Yourself.”

And if you contact your health care provider quickly, you can prevent your debt from being sent to a collection agency, which can harm your credit, says Thomas Nitzsche, financial educator for ClearPoint Credit Counseling Solutions, a national nonprofit credit counseling agency.

Although the newest FICO credit scoring model, FICO 9, puts less weight on medical collections, a medical collection stays on your credit report for seven years and can affect your ability to get a loan, rent an apartment or get a job, he says.

“A lot of people put their head in the ground and ignore medical bills,” Nitzsche says. “But you want to catch them before they go to collections.”

Here are eight steps to take if you're overwhelmed by medical debt:

1. Check your bills. When medical bills pile up, it's important to get organized, says Maureen Lamb, CEO and founder of Medical Bill Support, a company that provides medical bill advocacy to patients. Make sure you have itemized bills, meaning the individual charge for each procedure, test and drug is listed, she says. Then, check for errors such as double billing, Lamb recommends. If you need clarification, or you think you've spotted a mistake, call the hospital billing department or doctor's office, she says.

2. Review your insurance documents. If you have health insurance, go over your explanation of benefits (EOB) form, which shows what the provider charged, how much the insurer is paying and what you owe, Lamb says. Make sure everything looks correct — for example, that the amount you owe, listed on the EOB as “patient responsibility,” matches your bill from the health care provider. If there's anything you don't understand, call your insurance company, she says. “Question anything that doesn't look right,” she says.

3. Look at your budget. Before you negotiate, figure out how much you can afford to pay toward your debt, Ferman says. A monthly payment plan is the most common type of arrangement, and you want to make sure you'll be able to pay as agreed, she says.

“A lot of people put their head in the ground and ignore medical bills. But you want to catch them before they go to collections.”
–Thomas Nitzsche, ClearPoint

4. Contact the medical provider. As soon as you've reviewed your explanation of benefits, pick up the phone, Lamb says. Call the hospital billing office or, if the bill is from an individual provider such as a family doctor, the office administrator. Explain that you're experiencing financial hardship and ask what options you have: Will the provider cut the total amount you owe or set up a payment plan? (If you dread calling, you can write a letter, Ferman says.) Some hospitals have financial aid programs, and you might qualify even if you think you make too much, Nitzsche says. In fact, he once applied for financial aid for a $4,000 hospital bill due to underemployment, he says. The hospital cut 60 percent off his bill and gave him two years to pay it off.

5. Negotiate. Not every provider has a financial aid program, however. And if you propose a settlement, it's likely your first offer will get declined, Ferman says. “There's going to be a back and forth,” she says, adding that you should make your case by providing proof of your financial hardship, such as paystubs or federal disability paperwork. And Lamb says you should check Healthcare Bluebook to see if the prices you were charged are reasonable. If you're not getting anywhere, don't be afraid to go up the chain to a supervisor or even the vice president of patient accounts, Lamb says.

6. Seek help if necessary. If you're having trouble working with the provider directly, you have options. A nonprofit credit counseling agency can arrange a debt management plan, Nitzsche says. A plan doesn't work quite as well for medical debt as it does for credit card debt because card companies have set concessions for consumers who go through credit counseling, he says. “But, the basic premise is the same,” he says. Or you can contact a medical billing advocate, Lamb says. The Alliance of Professional Health Advocates offers a search tool.

7. Find out if you'll owe taxes. If you settle your debt for a lower amount than the total owed, you might owe income taxes on the amount that was forgiven, Nitzsche says. He recommends that you check with your tax adviser about the tax implications of settling a medical debt so you don't get surprised at tax time.

8. Get it in writing. As soon as you make an agreement with the medical provider, get it in black and white, Ferman says. File the letter  with records of your payments, she says. “You always want to document everything,” she says.

Settling medical debt can be a win for both the consumer and the health care provider, Ferman says. For example, she helped one man negotiate a $25,000 medical bill down to $5,000 when he couldn't pay due to a drop in income. “The hospital got some money, and he got the debt off his back,” she says. “Everybody was happy.”

Check out our May 12, 2015, G+ Hangout on medical debt, when Editor at Large Erica Sandberg hosts credit expert Beverly Harzog.