Hospitals have long used outside collection agencies to collect from the uninsured and under-insured, but the auction model increases the chance that the price of the debt will be driven up, allowing hospitals to recoup more of their money. Newer debt is worth more, because it is easier to collect, while older debt with a low likelihood of being repaid is typically bought for "just pennies or fractions of pennies on each dollar owed, reflecting the small amount [collectors] expect to collect from patients while still pulling in a profit," says the WSJ. The sometimes-inflated prices paid for fresh debt leads to collection agencies’ having to recoup more money from patients to cover the initial investment and turn a profit, but the winning bidders generally get to keep all the money they collect.
The auction sites included in the report say the have safeguards in place to ensure collection firms are reputable, and "site owners also try to ensure that collectors comply with hospital rules ? whether they must record phone calls, for instance, or get the hospital’s permission before initiating a lawsuit against a patient. Hospitals have final say over who bids on their accounts, and ? don’t necessarily award the contract to the highest bidder.
Read more about online auctions of hospital debt.
