Debt collector eyes ambitious growth; experts suggest hospitals proceed with caution
Although it has only worked with a handful of rural hospitals in Texas and Washington, the Center for Consumer Recovery has ambitious growth plans.
The Tulsa, Oklahoma-based firm, which convinces hospitals to donate medical debt they’ve already run through their own collection processes and deemed uncollectible, is making inroads with influential hospital associations, including one in Ohio that has agreed to pitch the model to major systems like Cleveland Clinic and MetroHealth.
But industry and debt collection specialists interviewed for this article are concerned about what CCR is doing, cautioning that it could further stress patients who’ve already been hounded by debt collectors and dissuade them from seeking future medical care.
“I can’t tell you exactly what side of the line it’s on, but it’s very close to the line, that’s for sure,” said Neale Mahoney, a health economist who studies medical debt as an economics professor at Stanford University.
“If I was a hospital that cared a lot about my image in the community, I wouldn’t want an article coming out documenting what I was doing here.”
CCR draws hospitals in by promising to send 20% of collection proceeds to a charity of the hospital’s choice, which could include the provider’s own foundation. To sweeten the deal, CCR claims notfor-profit hospitals can then report those proceeds as community benefits on their tax forms, a point legal and community benefit experts dispute.
It’s a much different setup than RIP Medical Debt, a New York not-forprofit that either accepts donated medical debt from hospitals or buys it from them. Then, rather than collecting on the debt, RIP forgives it.
A COLORFUL HISTORY
CCR has worked most extensively with its first customer, Stephens Memorial Hospital, a critical-access hospital in Breckenridge, Texas, that has donated more than $13 million in medical debt since 2019. Of that, CCR contractor Noble Financial Solutions has collected about $35,000 and sent 20% of that to the hospital’s foundation.
Its model was pioneered by the late Bill Bartmann, a controversial figure in the debt collection industry who became a billionaire running the country’s largest buyer of charged-off credit card debt.
Bartmann’s original business, Commercial Financial Services, declared bankruptcy in 1998 amid an investor lawsuit. A federal fraud investigation would later send his business partner to prison.
The company got into hot water when leaders overhyped their collection forecasts to investors and credit rating agencies.
When collections fell short, they fraudulently inflated them.
Ultimately, Bartmann was legally cleared. Once that happened, he turned his sights toward uncollectible medical debt, calling his new company CFS-2. After Bartmann’s death in 2016, his business partner Tom Simonson stepped up to lead CFS-2. The former IBM executive changed the name to the Center for Consumer Recovery to avoid “some optical things that were not ideal.”
Simonson also split the business into separate entities, creating two for-profit companies he now heads: Merit Financial Solutions and its debt collection subsidiary, Noble Financial Solutions. Both companies contract with CCR. Merit connects patients with charities and Noble collects. CCR is the not-for-profit organization that interfaces with hospitals and accepts their donated debt.
Simonson insists the operation is legally sound, saying he’s run it through multiple lawyers.
“I’m pleased to tell you we are airtight on that,” Simonson said.
Eric Roberson, a former Federal Trade Commission prosecutor and attorney with Kilgore & Kilgore in Dallas who represents clients who’ve been subject to illegal debt collection practices, said this operation is worrying. The FTC in recent years has stepped up its investigations of not-forprofit organizations that aren’t living up to their tax-exempt status, he said.
Making CCR a not-for-profit was potentially a strategic choice. Federal law requires debt collectors to identify themselves as such, but that doesn’t apply to a charity allegedly trying to help someone, he said.
However, Roberson noted that if CCR is obtaining information to help the debt collector, Noble, and is getting a portion of the collections in return, then it would be subject to the debt collection law. If that’s the case, CCR would likely need to identify itself as a debt collector under the Fair Debt Collection Practices Act.
THE ‘ WHITE GLOVE’ APPROACH
Simonson insists that Noble isn’t like other debt collectors.
He repeats the term “white glove” to describe the gentle approach the company takes with patients. CCR pairs them with services like housing help, food assistance, transportation, addiction treatment or credit counseling.
“Once we provide those services, people are offered the opportunity to make a modest, affordable, voluntary payment toward the delinquent, charged-off medical debt that
“I can’t tell you exactly what side of the line it’s on, but it’s very close to the line, that’s for sure.” Neale Mahoney, Stanford University health economist
has come to CCR in the form of a donation,” Simonson said.
Sometimes, even after CCR connects them with services, they still choose not to pay—and that’s fine, he said. He gave the example of a Texas man that CCR paired with the local Area Agency on Aging, which built him a new wheelchair ramp. He ultimately did not pay his hospital bill.
“He didn’t offer to, and we didn’t expect him to,” Simonson said. “We didn’t pursue him in that way.”
Simonson said Noble does not work with Medicare or Medicaid debt and it never sues patients over the unpaid medical bills.
That could be because it’s legally barred from doing so. In Texas, collectors can’t sue on debt that’s more than 4 years old, Roberson said. Most of the debt from Stephens Memorial was 5 years old when it was donated, said Doug Smith, the hospital’s chief financial officer.
Simonson doesn’t shy away from acknowledging that Noble reports patients’ unpaid bills to credit bureaus when hospitals allow it. That’s necessary because it makes patients more willing to give Noble access to their entire credit files so CCR can help them fix other areas of delinquency, like mortgages or car payments, he said.
Roberson said it’s frustrating to see patients get put in a worse position by a purported charity.
“It seems to me they’re adding it to the credit report in order to get leverage, not in order to get access,” he said.
CAREFUL CONSIDERATION
Not-for-profit hospitals could report the 20% of proceeds that go to charity on Schedule H of their Internal Revenue Service Tax Form 990s, claimed Stephan Mathis, a Tulsa attorney representing CCR. Specifically, Mathis said it could be reported as community health improvement services or health professions education if it’s used for scholarships.
But there’s a problem with that. CCR—not the hospital—makes the donation directly to the charity.
“(The hospital) wouldn’t be able to take or report community benefit for something a third party has done after donation of that debt,” said Stephen Clarke, a managing director in Ernst & Young’s Exempt Organization Tax Services practice.
Hospitals should approach an arrangement like this one carefully and in consultation with tax advisers, Clarke said. ■