Rx: Negotiate hospital bills for financial relief

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The cost for hospital visits is soaring—6 percent for patients with private insurance, 8 percent for patients on Medicare, 9 percent for Medicaid patients and a whopping 15 percent for those who were uninsured—according to Agency for Healthcare Research and Quality, which studied the numbers between 2005 and 2006. What’s worse, an increasing number of hospitals make patients pay thousands of dollars—sometimes tens of thousands—up front to cover what will be those patients’ out-of-pocket costs.

“While only around ten percent of people try to negotiate medical bills, sixty to seventy percent of those [who] try are able to reduce their bills,” says Michael Soon Lee, co-author of “Black Belt Negotiating: Become a Master Negotiator Using Powerful Lessons from the Martial Arts.”

Jonathan G. Stein, a consumer law attorney, negotiates medical bills on behalf of his clients. Strategies he uses include:

  • Asking about special programs—some are income-driven, some charitable and others local government. Some doctors and hospitals do pro bono work for interesting cases and other reasons, but they might ask to write about your case or talk about it at seminars.
  • Asking for the reduced rate billed to major insurers.
  • Making a hardship request, for which you’ll need to provide proof.
  • Setting up an interest-free payment plan, sticking to it and asking for a reduction or complete elimination of payments halfway through. Hospitals sometimes drop the balance because updating your file is an accounting nightmare, Stein says.

Keep in mind that unpaid debt is considered taxable income by IRS, warns Dennis Newman, an accountant at Sharrard, McGee & Co. He’s seen hospitals and medical practices even issue a 1099-C IRS form to patients for the amount written off. However, “if the taxpayer would have been able to claim an itemized deduction for medical expenses had the forgiven amount been paid, the amount forgiven does not have to be included in income,” says Mel Schwarz, a partner at tax firm Grant Thornton. If you were insolvent before and after the discharge, you won’t owe tax, says Bob Johansmeyer, a so-called enrolled agent that represents taxpayers before IRS.

S. Berg