Plaintiff argues debt collector was required to provide a financial assistance policy to the consumer on behalf of its health care provider client; however, an 8th Circuit judge ruled the entities are separate and dismissed the claim on appeal. Editor’s note: This article is available for members only.
5/6/2021 12:00
According to a ruling by the U.S. Court of Appeals for the 8th Circuit in Klein v. The Affiliated Group Inc., debt collectors are not required to provide financial assistance policies in collection letters under the Internal Revenue Service’s 501(r) rules for nonprofit hospitals; rather, the responsibility lies on the hospital.
ACA International supported the defendants in the case, The Affiliated Group and Credit Management LP, through the Industry Advancement Fund.
This case addresses two separate issues:
- The debt collector’s role to inform consumers of financial assistance policies under 501(r) if they are working on behalf of a health care provider client, and
- Allegations that the debt collection agency violated the Fair Debt Collection Practices Act by attempting to collect on a debt that was barred by law.
The plaintiff, Dina Klein, owed money on a medical bill and applied for financial assistance through her health care provider. The application was denied, and her bill went to collections.
In November 2017, North Memorial (the health care provider) hired The Affiliated Group (TAG) to collect the debt. TAG sent Klein a letter that month informing her that “the below listed account(s) has been turned over to us by our client, who has given you an opportunity to satisfy this obligation.”
TAG’s letter did not mention anything about North Memorial’s financial assistance policy, according to the court.
At the time, TAG and Credit Management LP (CMLP) were wholly owned but separate subsidiaries of The CMI Group.
At some point, TAG either merged or transferred the debt to CMLP, both of which were owned by The CMI Group. After the two companies consolidated accounts under the CMLP label, that agency sent a substantially similar collection letter to Klein in its own name in March 2018.
Financial Assistance Policy Agreement
After receiving the second collection letter, the consumer sued TAG and CMLP arguing, among other things, that the debt collectors violated Sections 1692e(5) and 1692f(1) of the FDCPA by failing to include information about the hospital’s financial assistance policy in the two letters.
The district court entered summary judgment in favor of the debt collectors, and the consumer appealed to the 8th Circuit.
The plaintiff argued that TAG and CMLP needed to provide a financial assistance policy to the consumer since their client was a nonprofit health care provider and, as such, was subject to 501(r). They argued that TAG and CMLP were acting as an extension of the health care provider and, by failing to provide a required notice, were in violation of the FDCPA.
Regarding the consumer’s claim that the debt collectors violated the FDCPA by failing to notify her of the hospital’s financial assistance policy, the court determined that 501(r) regulations required the hospital to include its financial assistance policy in its billing statements, rather than the collection agencies. (Emphasis added).
Accordingly, the 8th Circuit affirmed the lower court’s grant of summary judgment in the debt collectors’ favor and dismissed the 501(r) claim because it applies solely to health care providers, not collection agencies, and there was no connection to the FDCPA.
The court reasoned that the two collection agencies, TAG and CMLP, were separate entities from the hospital, and it assigned only its ability to collect debts to the debt collectors, not its medical billing function.
Further, the court asserted that the record showed the hospital notified the consumer about the charity care policy prior to her receipt of the collection letters, and “[the FDCPA] does not impute [the hospital’s] responsibility to comply with Treasury Department medical billing regulations to debt collectors working on its behalf.”
Attorneys from ACA member company Malone Frost Martin PLLC represented TAG and CMLP in the appeal.
Attorney General Agreement
Importantly, at all relevant times, the hospital had an agreement with the Minnesota Attorney General requiring the hospital to enter written contracts with third-party debt collection agencies and requiring that such contracts comply with the 501(r) federal regulations by requiring the hospital to confirm that the patient was given a reasonable opportunity to apply for charitable care.
Chris Meier, general counsel and chief compliance officer for The CMI Group and a Members Attorney Program committee member with ACA, weighed in on the case outcome.
“What’s most important for agencies is that the court had the opportunity to extend the Minnesota attorney general’s order to third parties and vendors but declined to do so,” Meier said. “We are extremely pleased that the 8th Circuit reached the conclusion that debt collection agencies are not ‘hospital organizations’ under 26 CFR 1.501(r) and therefore are not obligated to provide patients with the hospital’s financial assistance policies. We are also relieved that the court opted not to extend the Minnesota attorney general’s agreement with the hospital to us as its agency given that we were never a party to that negotiated resolution. We thank the Malone Frost Martin firm for their representation on this matter as well as ACA International for its commitment to helping its membership fight back against meritless and misguided lawsuits.”
Visit ACA’s Industry Advancement Fund (IAF) website for more information about legal resources available for members.
The newest initiative under the IAF, the matching funds program, aims to provide members with financial support up to $10,000 for cases that do not rise to the level of “industry-wide significance,” but that nonetheless merit support.
Members can read more about the case here:
Klein v. Affiliated: Hospital’s Agreement with AG Not Imputed to Debt Collector