Michigan House Passes Medical Debt Protection Bills With New Limits on Collections and Debt Sales

Legislative Snapshot

• Bill: House Bills 5254 and 5255 (Medical Debt Protection Act)
• Jurisdiction: Michigan
• Status: Passed Michigan House of Representatives, pending further legislative action
• Key Provisions: Limits medical debt interest and fees, restricts collection practices, regulates medical debt sales, requires financial assistance disclosures, and establishes enforcement under the Michigan Consumer Protection Act
• Effective Date: Not yet enacted
• Industry Impact: Would impose new compliance requirements on healthcare providers, medical debt buyers, and collection agencies involved in medical debt collection

The Michigan House of Representatives has approved bipartisan legislation that would create new statewide restrictions on how medical debt can be charged, collected, and sold. House Bills 5254 and 5255 would establish the proposed Medical Debt Protection Act, adding consumer protections for patients while creating new compliance requirements for healthcare providers, medical debt buyers, and collection agencies operating in the state.

The legislation now advances for further consideration in the Michigan Legislature and represents one of the most significant proposed medical debt reforms in the state to date.

Proposed Medical Debt Protections

Under House Bill 5255, medical debt arising from healthcare services, medical products, prescription drugs, durable medical equipment, or transportation for healthcare services would be subject to new collection and servicing restrictions. The bill would exclude traditional credit card debt but would include healthcare-specific financing arrangements.

Among the bill’s key provisions:

• Interest and late fees could not be charged for at least 90 days after the final bill becomes due.
• Interest and fees would be capped at 3% annually.
• Medical creditors and medical debt collectors would be prohibited from taking extraordinary collection actions until at least 120 days after the final bill is due.
• Patients would be entitled to advance written notice before certain collection actions are initiated.

The legislation would apply certain enhanced restrictions to hospitals and healthcare providers with annual revenue of at least $20 million.

Restrictions on Collection Activity

The legislation defines “extraordinary collection actions” broadly, including actions such as:

• Reporting adverse information to consumer reporting agencies
• Filing lawsuits
• Wage garnishment
• Property liens
• Bank account seizures
• Debt sales to third parties
• Foreclosure actions related to medical debt

The bill would prohibit certain actions outright, including causing an individual’s arrest, foreclosing on real property, placing liens on personal property, and garnishing wages of individuals who qualify for financial assistance.

Healthcare providers and collectors would also be required to provide information regarding available financial assistance programs before pursuing certain collection activities.

New Requirements for Medical Debt Buyers

The proposal would also regulate the sale of medical debt portfolios.

Before selling medical debt, healthcare providers would be required to enter into written agreements with medical debt buyers that include several consumer protection provisions. Those agreements would prohibit buyers from engaging in collection activities barred under the act, limit interest charges to 3% annually, and require debt to be returned to the original creditor if a patient is later determined to qualify for financial assistance.

Notably, the legislation would provide that medical creditors remain liable for actions taken by medical debt buyers after the sale of the debt, subject to contractual indemnification provisions.

Enforcement Through the Michigan Consumer Protection Act

House Bill 5254 would amend the Michigan Consumer Protection Act to classify violations of the Medical Debt Protection Act as unfair trade practices.

Consumers could pursue private actions for damages and attorney fees, while the Michigan Attorney General and local prosecutors would have authority to seek injunctions and civil penalties. Courts could impose fines of up to $25,000 for unlawful conduct.

Industry Implications

If enacted, the legislation would create new compliance obligations for hospitals, healthcare providers, medical debt buyers, and collection agencies involved in medical receivables. Organizations purchasing or collecting medical debt in Michigan would likely need to review portfolio acquisition agreements, collection timelines, interest assessment practices, financial assistance procedures, and litigation strategies to ensure compliance with the proposed requirements.

The bills passed the Michigan House with bipartisan support and now await consideration in the Senate.