The South Florida Business Journal ran a story about a seriously ugly confrontation between the Jackson Memorial Hospital, South Florida's largest, and a debt-collector who had bought $1.87 billion of the hospital's overdue accounts receivable.  (Apparently, debt-collectors usually collect overdue hospital bills for a contingency fee, rather than buying an entire portfiolio.)  In this case, the bad debts stretched as far back as 1998.

The collector, International Portfolio Inc. (IPI), anticipated collecting under 6 percent of the balance - about $109 million.  Boy, did they ever learn a lesson about hospital bills!  IPI's lawyers allege that:

• the hospital had already released liability for almost $1 billion dollars worth of the debts;
• the hospital purged debtors' information, making it impossible for IPI to track them down;
• the hospital tried to stop collection and take back over half a billion dollars of the debts; and
• the hospital wrote letters to debtors informing them that they had zero balances!

Confusion or malevolence? I cannot say, but I have written before about how absurd hospital billing and collections are, so it does not surprise me that IPI is having such a miserable experience.

Unfortunately, hospitals have precious little incentive to practice fair and efficient debt collection.  How has every other major retail enterprise learned that banks have a comparative advantage in managing individuals' credit risk? Competition, that's how, which led them to accept credits cards instead of managing the risk themselves.

How can good public policy help? Stop addressing the so-called "crisis of the uninsured" ER care by throwing money at providers through DSH (disproportionate share hospital payments) and other mechanisms.  Instead, transfer subsidies to patients, require hospitals to collect their money from them, and watch hospitals take up business practices similar to those in other enterprises.