While ACA International and stakeholders in Nevada await the outcome of the lawsuit on S.B. 248, here is guidance on how to navigate the medical debt law that took effect July 1.
Are you still struggling to understand the requirements of S.B. 248, the new Nevada medical debt collection law that took effect July 1? It’s been a week now, and many in the accounts receivable management (ARM) industry remain unclear on exactly what S.B. 248 requires and prohibits. In fact, as previously reported, ACA International, the Nevada Collectors Association (NCA) and 14 other plaintiffs filed a lawsuit asserting several defects with the new law, including an allegation that the law is so vague as to be unconstitutional. (In the U.S. Supreme Court’s words, constitutional vagueness means that a law is not “precise enough to give fair warning” to medical debt collection agencies that certain conduct may fall within the ambit of the new law and that it does not “provide adequate standards to enforcement agencies, factfinders, and reviewing courts.”)
Note: David Israel and his team at Sessions, Israel, and Shartle represent ACA and its members in the pending lawsuit in the U.S. District Court for the District of Nevada. They’ve been working closely with Pat Reilly of Brownstein Hyatt Farber Schreck, who represents the NCA in the litigation and who additionally serves as local counsel for ACA. Editor’s note: As a litigant in the case, ACA International is unable to provide any further guidance.
Now, although S.B. 248 may be too vague to implement as written, we can still try and break down the text of the law for ACA members.
First, S.B. 248 added several new definitions to Chapter 649 of the Nevada Revised Statutes (NRS), which governs “Collection Agencies” in Nevada. The new definitions are:
- Medical debt: Any debt owed for goods or services provided by a medical facility, health care provider or emergency medical services provider.
- This term expressly includes “financing or an extension of credit by a third party for the sole purpose of purchasing goods or services provided by a medical facility, a provider of health care or a provider of emergency medical services.”
- But it expressly excludes “an open-end or closed-end extension of credit made by a financial institution to a borrower that may be used by the borrower, at his or her own discretion, for any purpose other than the purchase of goods or services provided by a medical facility, a provider of health care or a provider of emergency medical services.”
- Medical debtor: “A debtor who owes a medical debt.”
- Medical facility: The law includes the same meaning here as in NRS 449.0151. It is a broad definition that covers everything from surgical centers and rural clinics to nursing homes and in-home nursing agencies, so be sure to take a look at the linked statute.
- Provider of emergency medical services: “The operator of an ambulance or air ambulance” or “a fire
–fighting agency which provides transportation for persons in need of emergency services and care to hospitals."
- Provider of health care: The law includes the same meaning here as in NRS 629.031. Again, the referenced definition covers a lot of ground, encompassing service providers including doctors, dentists, athletic trainers, family therapists, pharmacists, and more. Be sure to look at the linked statute here.
A New Notice Requirement
S.B. 248 requires a new state notice to medical debtors. Because the notice is required by Section 7 of the bill, let’s call it a “Section 7 Notice.” (Clever, huh?)
Section 7 Notices must be sent via registered or certified mail. For more information on those mailing services offered by the U.S. Postal Service, click those links to the relevant parts of the USPS Domestic Mail Manual.
The requirements for Section 7 Notices state:
“Not less than 60 days before taking any action to collect a medical debt, a collection agency shall send by registered or certified mail to the medical debtor written notification that sets forth:
(a) The name of the medical facility, provider of health care or provider of emergency medical services that provided the goods or services for which the medical debt is owed;
(b) The date on which those goods or services were provided; and
(c) The principal amount of the medical debt.”
In addition, a Section 7 Notice must:
“(a) Identify the name of the collection agency; and
(b) Inform the medical debtor that, as applicable:
(1) The medical debt has been assigned to the collection agency for collection; or
(2) The collection agency has otherwise obtained the medical debt for collection.”
The 60-Day Waiting Period
Section 7 prohibits debt collectors collecting medical debt from “taking any action to collect a medical debt” within 60 days of sending the Section 7 Notice to a medical debtor. It’s unclear exactly how much work the Nevada legislature intended the phrase “any action to collect a medical debt” to do in this seemingly broad prohibition. Taken at face value, the prohibition could end up hurting consumers, as it appears to prevent agencies from doing anything during the waiting period except, as set forth later in Section 7, receiving “a voluntary payment from a medical debtor” (and providing a corresponding voluntary-payments disclosure to the medical debtor).
Receiving “Voluntary Payments” During the 60-Day Waiting Period
Notwithstanding the 60-day waiting period imposed by the Section 7 Notice requirements, a collection agency may accept “a voluntary payment from a medical debtor during the 60-day notification period” provided that:
“(a) The medical debtor initiates the contact with the collection agency; and
(b) The collection agency discloses to the medical debtor that:
(1) A payment is not demanded or due; and
(2) The medical debt will not be reported to any credit reporting agency during the 60 day notification period . . . .”
The new law specifies at Section 7.5(2) that “[n]o action by a medical debtor to initiate contact with a collection agency may be construed to allow the collection agency to take action to collect the medical debt before the expiration of the 60-day notification period . . . .”
What does “action to collect the medical debt” mean and what exactly is the prohibition?
By way of example:
- What if the medical debtor asks for a payoff quote? Can the debt collector provide it?
- What if the medical debtor needs a settlement offer because they want to clean up their credit report before buying a house or getting a government clearance? Can the debt collector provide the settlement offer?
- What if the medical debtor requests validation of the debt referenced in the Section 7 Notice? Can the debt collector validate?
The answers to these questions are not clear in S.B. 248, and that’s a big problem for the regulated entities charged with complying with the law and for consumers who may be left hanging while agencies wait for the 60 days to pass before they attempt to assist consumers who want to resolve their debts.
Voluntary Payment Caveats
The new law specifies that “[a]ny voluntary payment toward a medical debt that is made by a medical debtor to a collection agency [as permitted under Section 7.5]:
(a) Does not extend the applicable statute of limitations;
(b) Is not an admission of liability; and
(c) Shall not be construed as a waiver of any defense to the collection of the medical debt.”
No Confessed Judgments or Powers of Attorney
Section 8(1) of the new law specifies that “[a] collection agency, or its manager, agents or employees, shall not, for any medical debt. . . . [t]ake any confession of judgment or any power of attorney running to the collection agency or to any third person to confess judgment or to appear for the debtor in a judicial proceeding.”
Limitations on Civil Actions
This feels like a significant change and requirement for collection agencies. The new law states at Section 8(2) that “[a] collection agency, or its manager, agents or employees, shall not, for any medical debt. . . . [c]ommence a civil action to collect the medical debt if the amount of the medical debt, excluding interest, late fees, collection costs, attorney’s fees and any other fees or costs, is less than the maximum jurisdictional amount set forth in subsection 1 of NRS 73.010 [i.e., $10,000].”
At the same time, “[n]othing in [that prohibition] shall be construed to prohibit the commencement of a small claims action in justice court to collect the medical debt.”
The law appears to be saying that a debt collector can’t sue a medical debtor for a medical debt where the amount claimed is less than $10,000 unless it sues for those amounts under $10,000 in small claims court.
That’s confusing on its face, right? Does it include appeals? What about enforcement of arbitration awards? What about that fact that, even where a contract specifies attorneys’ fees and S.B. 248 envisions awards of attorneys’ fees (albeit with a cap, see below) and a creditor would be able to obtain attorneys’ fees in a court of general jurisdiction, small claims courts in Nevada do not have authority to award attorneys’ fees? This feels poorly thought out and grossly unbalanced at best.
Limitations on Collection Fees and Attorneys’ Fees
The new law states at Section 8(3) that “[a] collection agency, or its manager, agents or employees, shall not, for any medical debt. . . . [c]harge or collect a fee of more than 5 [%] of the amount of the medical debt, excluding interest, late fees, collection costs, attorneys’ fees and any other fees or costs, as a collection fee or as an attorney’s fee for the collection of the medical debt.”
That seems to be all-encompassing: a cap of 5% of the principal amount due to cover all fees—collection fees, mailing fees, court filing fees, attorneys’ fees. When you do the math, that is outright oppressive and will likely kill all legal collections except in high-dollar cases.
Protections Cannot Be Waived
“The protections set forth in Sections 7 [regarding the 60-day notice], 7.5 [regarding voluntary payments] and 8 [regarding limitations on legal collections and fees] . . . are for the benefit of medical debtors and cannot be waived.”
“This act becomes effective on July 1, 2021.”
Yes, that means there was less than a month to get policies and procedures in place to comply with this new law.
It’s not clear from the text of the law whether it will be retroactive or prospective. Many legal commentators have cited constitutional principles that would require only prospective application, meaning that the law should apply only to medical debt accounts placed, assigned, or otherwise “obtained” for collection on or after July 1, 2021. But, again, it’s not clear from the law itself, so it remains to be seen how it will be enforced.
In Conclusion . . . What Should We Do?
What does it all mean? Well, it’s not entirely clear yet, but we’re hopeful that the lawsuit filed by ACA and others in the U.S. District Court for the District of Nevada will precipitate a legislative or regulatory clarification of these requirements in the coming days.To help shed some light, we’re also sharing the informal, non-binding answers that Nevada Financial Institutions Division (NFID) Deputy Commissioner Mary Young provided to Missy Meggison, general counsel at the Consumer Relations Consortium. Read more here.