The dilemma of medical debt lawsuits in Minnesota: Too big to pay, too small to fight

A first-of-its-kind review of consumer debt lawsuits has revealed which Minnesotans are most likely to be sued for overdue medical bills — and it's not the really sick ones with "astronomical" debts.

It's patients who are often insured, with everyday health care needs that bust their budgets.

The Minnesota State Bar Association reviewed business-to-consumer lawsuits filed since 2011 and found that the average claim in a medical debt case was $1,500. Authors of the review said Tuesday that the results reflect growing gaps and deductibles in health plans that leave even insured people vulnerable to medical bills they can't pay.

The bar association found broader concerns in its analysis of 660,000 lawsuits, including that debts related to health care, rent, auto loans, credit cards and other costs of living make up 51% of the civil court docket. Black and Hispanic Minnesotans were twice as likely to be sued for consumer debts than white people, even among residents of neighborhoods with median incomes of $75,000 or higher.

"We are not doing as good a job as we could in making sure that our courts are a place where everyone gets a fair shot dealing with their debts," said Minnesota Attorney General Keith Ellison.

The study included a detailed review of 1,001 randomly chosen cases filed since 2018 to identify the industries involved. About 1 in 5 involved medical bills.

"We know that isn't the full picture," said Katy Drahos, director of the bar association's Access to Justice Committee, which led the study. "Often people will pay off medical debt with credit cards and not be able to pay off those cards, or prioritize paying off their medical debt, leaving other bills unpaid."

Cases involving auto loans averaged higher unpaid debts, around $7,600, but those involving medical debts offered special concern, because patients often have no choice about incurring bills for urgent or lifesaving care. The lawsuits reflect gaps in government and health care provider safety net programs.

More than 30% of Minnesotans are insured by government-subsidized programs that minimize health care costs on low-income residents and the elderly. Minnesota's hospitals also wrote off $655 million in charity care in 2021.

Jacob Burgess of Zimmerman, Minn., was briefly uninsured during a downturn in his gutter installation business three years ago. At that time, he needed X-rays for a broken nose and then emergency dental work.

When Burgess couldn't pay, Fairview Health Services turned his bills over to Riverview Law Office, which pursued the debt and then set up an installment plan to pay it off. The 37-year-old fell behind this year during a transition to a factory job, which he hoped would offer stable benefits and reduce workplace injury risks. He still owes Fairview more than $2,300, court records show.

"I went a month without making a payment," he said, "and then they sent me a court date."

Charity care is one reason larger medical bills don't end up in court. Minnesota's attorney general and hospitals also have a unique agreement that limits when and how hospitals can sue patients, and prohibits lawsuits against hospital patients who are current with installment payments. The agreement doesn't apply to outpatient clinics.

Minnesota also is one of five states that permits "hip pocket" filing of lawsuits, which allows plaintiffs to gain restitution from defendants before high-dollar cases are reported publicly and scheduled for district court. Smaller cases involving $4,000 or less in consumer credit are often routed to conciliation court (or small claims court) and reported publicly right away.

Among medical debt cases reviewed in the study, 32% were filed by Fairview or its subsidiaries — mostly in small claims court. Minnesota's third-largest health system by operating revenue provides care under the M Health Fairview brand. Another 25% were filed by collection agencies on behalf of unnamed Minnesota providers.

The review concluded that the court system is tilted against patients, who generally can't afford attorneys or find any willing to take small-dollar debt cases. Study authors recommended that all such cases be routed to small claims court, which is cheaper and easier to navigate without an attorney. They also recommended limits on wage garnishments to satisfy judgments so that people can still have enough money for basic needs.

All health systems collect overdue debts, especially as they encounter rising staffing costs and other factors that are resulting in operational losses. Fairview said the study speaks to inadequate health insurance as much as anything.

"Our current health care payer ecosystem puts a nearly unbearable responsibility on some individuals to foot the bill for the care they need," Fairview said in a statement.

Ellison launched an investigation this summer after media reports detailed how Allina Health blocked patients with substantial overdue debts from scheduling non-emergency appointments. Other health systems such as Mayo and HealthPartners use the practice as a last resort, though Fairview does not. Allina has suspended the practice.

Ellison on Tuesday questioned whether courts should play such a central role in debt collection.

"The majority of our court's business is now helping debt collectors and creditors collect money from Minnesotans," he said. "Is that really what we want our court system to be doing?"

Even if providers allow delinquent patients to receive care, many don't. The risk of piling up debts convinces them to endure health problems, which increases the chance that minor ailments become major.

Burgess and his wife have health insurance again but didn't seek care two weeks ago when they were bedridden with COVID-19. Their two children qualify for state coverage, so their health care is assured, but the parents are avoiding their own medical expenses.

Small claims court is scheduled for Oct. 31.

"I'm going to sit down, see what they want to say, sort of speak my piece," Burgess said, "and see what we come to at the end."