Nevada Law Could Lower Healthcare Debt Values

A new law in Nevada aimed at holding hospitals accountable for the actions of the collection agencies they hire, also could limit the value of hospital debt portfolios sold in the state.  The law forbids publicly-owned hospitals from transferring a real property lien to a debt buyer, potentially lowering the value of the portfolio and cash to hospitals. Privately-owned and not-for-profit hospitals in Nevada do not have the right to get a personal-property lien on a debtor.

Assembly Bill 247 took effect in October, requiring hospitals to comply with the Fair Debt Collections Practices Act and shortening by two years the time a hospital has to pursue delinquent payments. But the law’s mandate that “a hospital must not assign, sell, or transfer its interest in a lien,” will affect portfolio pricing, according to experts in the accounts receivables management industry.

“That’s significant for debt buyers and collection agencies,” said Michael Klozotsky, healthcare analyst for Kaulkin Media’s Analyst Group. “If a hospital sells an account it may already have a (property lien) judgment in place for, it can’t sell or transfer the interest in the property lien. It will decrease the value of that particular account.  If a hospital has hundreds of properties (with property lien judgments) it will reduce the value of a portfolio.”  

Because the value of individual bad debt accounts can vary greatly, it’s difficult to estimate the premium on an account with a property lien judgment. But industry experts agree it increases the potential for collections.  

Bill Welch, president of the Nevada Hospital Association, notes that the law only affects the state’s publicly owned hospitals, which represent about 17 percent of the market.  

“Only a public hospital has the right to pursue a (real property lien,)” he said, adding that state law doesn’t allow non-profit and private hospitals to pursue a lien on personal property.  

Welch said a publicly owned hospital still can pursue a real property lien if it chooses as part of its own collections effort. But he acknowledged that some hospitals may hesitate, fearing negative publicity.

In the meantime, the new law will make it harder for collection agencies to negotiate payments with debtors in Nevada, said Larry Berlin, an equity analyst with First Analysis Securities who covers Asset Acceptance Capital Corp. and other ARM firms. And it gives many of the nationwide ARM firms another reason to avoid healthcare collections.  

“The harder you make it to collect, and the more you see government interference with collections, the more you will see them (nationwide ARM firms) stay out of the field or pay less to come into the field,” Berlin said.