'MedFICO' score: Good medicine or bad?

It appears that Fair Isaac Co., developers of the FICO credit scoring model, may be backtracking a bit from plans to launch a special FICO scoring system for medical debts.

I interviewed Fair Isaac spokesman Craig Watts for the CreditCards.com special report on health care and credit and he seemed less certain about the details of the plan than The Dallas Morning News reported in January.

Dubbed the 'medFICO' score in the Dallas article, the plan was purportedly to debut as early as this summer in some hospitals. The health care industry would be able to take medical bill payment histories and use the data to determine patients' creditworthiness after care is rendered.

"There is no score yet," Watts told me. "We're talking with a startup company about developing some kind of score. It's still in the discussion phase as far as I know."

Trial balloon?
Could it be that the whole 'medFICO' story went out to the media as a trial balloon to see if it would float in the court of public opinion? If so, the balloon popped. The blogosphere has gone crazy, mostly with criticism of the plan. To date, the MSNBC blog The Red Tape Chronicles has more than 2,000 comments on its posting. The White Coat Rants blogger writes, "I'm having a difficult time understanding the purpose of this concept."

Several people have questioned the legality and ethics of the plan and how it aligns with the Fair Credit Reporting Act and the Fair and Accurate Credit Transactions Act. Would the score be used to somehow deny patients services? To cherrypick and treat patients with "good" credit while leaving low-scoring consumers with substandard care?

Another blog, Why Chat's Credit Confusion, has even posted sample letters suggesting patients send them to hospitals where they've been treated and ask to keep their financial data from being sent to any third parties -- as a kind of pre-emptive strike against invasion of health privacy.

Clearly, people are stirred up about the possibility of a medical FICO score.

Hospitals and bills
Interviews with spokeswomen from the American Hospital Association, the leading trade group of hospitals and health care systems nationwide, as well as the Healthcare Finance Management Association revealed they knew very little about the new scoring system. They've been reading the news reports and blogs, too. Suzanne Lestina, from the health finance group, says she's been trying unsuccessfully to get details of 'medFICO' plan. "If you find out, let me know."

She says hospitals have been using traditional credit scoring methods -- that look at all credit payment histories -- for years. "There is a difference between ability to pay and patients that won't pay," she says.

But, Lestina says, there's a basic flaw with 'medFICO': "Just looking at how I paid my medical bill doesn't give me a full picture. It is only part of the picture."

Lestina points out that not all consumers pay medical bills like they would rent, mortgage or car notes. So a score that excludes non-medical payment histories may tell only part of the story, she says.

"If I have four bills and one of them is a $50 medical bill and one is a phone or credit card bill, am I going to pay my phone bill before the medical bill? Just because I hold off on my medical bill, does that make me a bad consumer? Many people today don’t' pay their hospital bill because they may not feel it is an essential bill."

"The current credit scoring looks at the entire score," she says, adding a new medical-only score "is a good tool, but is it the whole tool?"

According to reports, Fair Isaac and Tenet Healthcare each put $10 million into a venture to fund Waltham, Mass.-based HealthCare Analytics Inc. (HAI) launch of the new scoring system.

Rising out-of-pocket costs
As our special report points out, the ability -- or inability -- to pay hospital bills is a growing problem for both medical providers and consumers as out-of-pocket costs for health care continue to rise. Hospitals with charity care programs that provide free or reduced price care need tools to better determine who should and shouldn't get charity care.

"This has become a concern for hospitals because patients are paying higher deductibles," says Watts from Fair Isaac. He says developers of the medical FICO score -- or whatever it will be called -- are seeking to determine "is there a way to help hospitals make better, more consistent decisions about who receives that kind of assistance?"

Currently, two of the three major credit reporting bureaus -- TransUnion and Experian -- say medical providers represent only a small percentage of the companies that report payment data to the bureaus each month. It is only when delinquent accounts are sent to collection agencies that the information shows up on consumers' credit reports. That would likely change under a medical FICO scoring system.

Also, some consumer advocates argue that perhaps medical debt should be treated differently. Unlike running up debt purchasing big-screen televisions or Caribbean cruises, medical bills are involuntary for the most part. Should a consumer be held to the same payment standards for medical debt that they are for other kinds of consumer debt?

See related: "Special report: Health care and credit," "Blog: Worried about health care bills and financial ruin," "15 tips for paying high medical bills," "Health care credit cards rise to fill insurance gap"