The call came out of the blue from an unfamiliar not-for-profit in Oklahoma. What was familiar to Amy Garner was the name of her local hospital in rural Texas, from which the woman on the phone said she’d gotten Garner’s number.
The stranger asked simply: Do you need anything?
“I was like, ‘No ma’am but I do know my mother does,'” recalled Garner, who lives in Breckenridge, Texas, about 100 miles west of Fort Worth.
The answer triggered a quick response. The Center for Consumer Recovery in Tulsa, Oklahoma, found a local charity that could help Garner’s mother with her leaky roof and the precarious stack of haydite blocks leading to her kitchen door. The Area Agency on Aging of West Central Texas had the work done within a few months.
Meanwhile, CCR kept in touch weekly, calling Garner with updates even if there were none. Now, her mom has a safe porch and no longer has to maneuver around a bucket of rainwater.
“It probably saved my mom from falling and breaking her hip,” Garner said. “That’s what I pictured all the time.”
As with most things, this help has strings attached. Unbeknownst to Garner, CCR owns her medical debt, and it’s hoping her gratitude will translate into payment. A relatively new operation with ambitious growth plans, CCR convinces hospitals to donate medical debt they’ve already run through their own collection processes and deemed uncollectible.
It’s a much different setup than RIP Medical Debt, a New York not-for-profit that either accepts donated medical debt from hospitals or buys it from them. Then, rather than collecting on the debt, RIP forgives it. The group’s website says it has erased almost $5 billion in medical debt.
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 not-for-profit hospitals can then report those proceeds as community benefits on their tax forms, a point legal and community benefit experts dispute.
So far, CCR has only signed on a handful of hospitals in rural Texas and Washington state, but it’s 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.
Several healthcare industry and debt collection specialists interviewed for this article said they’re concerned about what CCR is doing. They worry it will further stress patients who’ve already been hounded by debt collectors and dissuade them from seeking future medical care. And even though CCR’s leaders insist multiple lawyers have signed off on the operation, it still raises important ethical and legal questions.
“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 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.
Despite all the phone calls to Garner, CCR’s representatives never told her their employer owns her debt. She said she never received the letter—required under the federal Fair Debt Collection Practices Act—notifying her that CCR owns her debt and is working with a debt collector. In fact, she didn’t know she had an outstanding medical bill.
Garner didn’t learn any of this until she got a call from a reporter.
Regardless, her appreciation is palpable. Elderly people like her mom, whose income is less than $400 per month, are too proud to ask for help, Garner said. Even if they weren’t, they wouldn’t know where to look.
“We’ve actually even said, ‘What is the donation process if, say, I wanted to donate to the office of aging?'” Garner said.
A colorful history
CCR’s 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. Bartmann died following a heart procedure in 2016.
CFS bought charged-off credit card debt at “substantially discounted prices” and then attempted to collect on it, according to the government’s indictment. Court records show CFS accumulated unpaid debt with a total face value of more than $14 billion between 1995 and 1998. CFS bundled the debt and sold it to investors in the form of securities, drawing proceeds that far exceeded what CFS paid for the debt.
The company got in 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. As he explained to CBS News in 2013: “If I can get you out of debt, you will have more money to pay me later.”
After Bartmann’s death in 2016, his business partner Tom Simonson stepped up to lead CFS-2. One of the first things the former IBM executive did was change 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 that 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. It’s led by Tim Steffl, a longtime American Hospital Association executive whose job is to sell CCR to hospitals and hospital associations. Bartmann advocated for not-for-profit organizations getting into the debt collection business to, among other things, generate cash flow.
Simonson insists the operation is legally sound: He’s run it through multiple lawyers, he said.
“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-for-profit organizations that aren’t living up to their tax-exempt status, he said.
“It looks like a lot of schemes that have been out there to revive dead debt that the FTC has been trying to crack down on,” Roberson said.
In other examples, the FTC has shut down fraudsters who claimed to be police or veterans charities and said they’re collecting money for charitable purposes, but keep almost all of the proceeds, Roberson 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.
April Kuehnoff, a staff attorney with the National Consumer Law Center, a not-for-profit that specializes in consumer law help for low-income people, said it’s problematic that CCR’s website does not identify the company as a debt collector, even though it contracts with a third party to collect on the debt it owns.
“I’m concerned that the proper consumer protections are not in place here and the consumer protection laws are not being abided by whoever the entity is that’s doing the debt collection,” she said. “That’s really troubling and bad for consumers.”
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. It’s similar to the way Bartmann explained the model.
First, 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 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.
“We never sue anybody,” he said. “That’s a core principle of CCR. Even people that deserve to get sued.”
That could be because it’s legally barred from doing so. In Texas, collectors can’t sue on debt that’s more than four years old, said Roberson, the former FTC lawyer. Most of the debt from Stephens Memorial was five 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.
“It actually forces them to engage with us in a more active way and let us go to work and help us clean up their whole credit,” Simonson 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.
As for the potential damage to patients’ credit scores, Simonson said medical debt isn’t as harmful as commercial debts, like credit card debt.
While it’s true that medical debt has a smaller credit impact than non-medical debt, Stanford’s Mahoney said it’s not clear how much lower.
“If you have no other blemishes, medical debt can lower your score significantly and lead to meaningfully higher interest rates and less access to credit,” Mahoney said. “However, many people with medical debt have many other derogatories, and so the additional impact of medical debt can be small.”
Mahoney’s recent study in the Journal of the American Medical Association found unpaid medical debt is now the largest source of debt held by collection agencies, a fact that wasn’t true a decade ago. Almost one in five Americans has a medical debt in collections.
The stress associated with getting phone calls related to medical debt can dissuade people from getting necessary follow-up care, Mahoney said. When it comes to CCR’s model specifically, the idea that some of the proceeds can get donated back to the hospital’s foundation makes him “really uneasy,” he said.
“Legally, maybe it’s perfectly reasonable, but it does seem like literally a quid pro quo,” Mahoney said. “That was a red flag for me.”
Rural hospitals get on board
The COVID-19 pandemic has exacerbated the nationwide nurse shortage, and Goodall-Witcher Hospital in Clifton, Texas is feeling the effects.
What sold CEO Adam Willmann on CCR was the prospect of 20% of collections funding a scholarship to keep nurses local. To do that, CCR would probably donate the proceeds to his hospital’s foundation, he said.
Willmann learned about CCR from Smith, the CFO in Breckenridge, about a two-hour drive away. Smith pitched the concept in a meeting with Willmann and his hospital’s CFO. Willman said he also likes the idea of improving patients’ financial health through the services CCR offers.
“The concept of it to me is pretty awesome,” Willmann said.
Goodall-Witcher has donated roughly $11 million in medical debt to CCR, Willman said. Goodall-Witcher is a 25-bed critical-access hospital that’s partly funded through a local property tax levy.
Willmann also chairs a prominent rural hospital association in Texas called the Texas Organization of Rural and Community Hospitals. He’s not concerned about the potential for the debt collection side of the operation to add stress on patients, he said. If anything, his hospital is trying to get tougher on debt collection, since it’s taxpayer-supported, he said.
Matthew Kempton signed his first deal with CCR when he was the CEO of Stephens Memorial in Breckenridge. He’s since become CEO of Willapa Harbor Hospital in South Bend, Washington, where he has again agreed to donate medical debt to CCR. Simonson said he received the donation in June, prior to Noble becoming registered as a debt collector in Washington. Simonson said Noble would not contact the patients until the company was officially registered.
Like Willmann, Kempton likes the idea of turning old debt into useful services for patients, such as credit counseling or home improvements.
“If there is a return from that, we’re able to use it toward projects and things we have, capital and fundraising projects,” Kempton said.
The only example Kempton could share of a patient who CCR helped was the same one Simonson gave: the former Stephens Memorial patient who got a new wheelchair ramp. Simonson even shared a local newspaper article that erroneously credited CCR with paying for the construction.
CCR doesn’t pay for any of the social services; it refers patients to agencies that do. In that case of the wheelchair ramp, the Area Agency on Aging of West Central Texas picked up the roughly $4,500 tab.
Therein lies another issue with CCR’s model. Groups like the Salvation Army can only help so many people, and CCR and its partners are capitalizing on their work to convince people to pay them money, Mahoney said.
“If I was a manager at Salvation Army and CCR came to me and explained this business model, I’d be worried,” Mahoney said. “These are people I’m trying to help stand on your feet and CCR is saying, ‘Now that you’re standing on your feet, how about you agree to this payment plan for the next two years?'”
Simonson said the agencies love getting the calls from CCR.
“They wish more people would call to get help,” Simonson said. “They’re thrilled when we call them to say, ‘Hey, we’ve got a new list of people.'”
Then there’s the community benefit question. Stephan Mathis, a Tulsa attorney representing CCR, told Modern Healthcare 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, which is where hospitals report their community benefit activities. Specifically, Mathis said he thinks 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 makes the donation directly to the charity the hospital chooses. In other words, the money doesn’t go back to the hospital before it’s donated.
At that point, it’s not the hospital making the donation, since it has relinquished control of the debt, said Stephen Clarke, a managing director in Ernst & Young’s Exempt Organization Tax Services practice.
“It wouldn’t be able to take or report community benefit for something a third party has done after donation of that debt,” said Clarke, who was involved in the development of the Schedule H ahead of its debut on tax forms for 2008.
Whatever foundation receives the donation would need to report the contribution revenue on its own tax form, he said. “But that’s entirely different from reporting it as community benefit on Schedule H.”
Hospitals should approach an arrangement like this one carefully and in consultation with tax advisors, Clarke said. Personally, he’s skeptical, he said.
“It strikes me as a dubious arrangement,” Clarke said.
It’s not clear how many patients CCR has actually helped, since Garner was the only patient who could be interviewed for this article. Smith, of Stephens Memorial Hospital, provided phone numbers he said were for three other patients, but none could be reached. Smith said CCR claims to have contacted about 1,600 Stephens Memorial patients whose debt was donated.
Leaders with the social service agencies CCR said it works with most frequently told Modern Healthcare they hadn’t heard of the group.
“No one seems to know of it,” a spokesperson for the state agency that oversees Texas Rent Relief.
“Neither our state level or other locations came through with any standing relationships with CCR,” a spokesperson with the Salvation Army in Texas said.
“Actually, the Center for Consumer Recovery has not made any referrals so far,” the head of Abilene’s Meals on Wheels program wrote in an email.
Simonson explained that those agencies work with hundreds of people, so it’s not surprising they don’t remember CCR.
CCR is small now, but it could soon get a jolt of new customers with the help of an Ohio hospital association and group purchasing organization that’s agreed to market the services to its 36 hospital and 10 health system members. Brian Lane, CEO of the Cleveland-based Center for Health Affairs said his team likes the idea, pitched to them by a “strategic partner,” because it has the potential to help patients, hospitals and communities.
“We’re organizationally attracted to the opportunity to come together, use what is a dormant asset currently as a means to enhance the community service, to support those that are actually in need,” he said.
Each hospital and health system member will receive a fact sheet about CCR and can decide for themselves whether to participate, Lane said. CHA’s members include Cleveland Clinic Health System, Bon Secours Mercy Health, MetroHealth System and University Hospitals.
University Hospitals is trying to set up a call with CCR to learn more, a spokesperson for the health system said.
Simonson said there’s “tremendous scale” built into the work his companies are doing.
“We’ll get to a scale that will be quite significant, both in terms of accounts that are donated as well as the number of patients that we’re serving,” he said.