In early 2020, New York debt collector Jzanus, Ltd. received a new round of "delinquent accounts" from a Mount Sinai Hospital in New York. Among those accounts was an outstanding balance of $1,461.92 said to be owed by a former patient.
Let's call this patient "Addie." The $1,461.92 balance consisted of charges for medical services the hospital had previously rendered to Addie.
On July 28, 2022, Jzanus sent Addie a debt collection letter demanding payment of the full $1,461.92 balance said to be owed to the hospital.
The debt collection letter demanded more than the patient actually owed
But there was a problem. Addie was enrolled in New York Medicaid. In the plan's parlance, Addie was a "beneficiary" of the Medicaid program. As such, Addie's obligation for the $1,461.92 balance would have been only a fraction of that total. Because Jzanus's debt collection letter demanded payment for an amount in excess of what Addie's copay (under the New York Medicaid plan) would have been, it misrepresented what Addie actually owed.
New York State Medicaid rules prohibit hospitals "from requesting any monetary compensation from the beneficiary, or their responsible relative, except for any applicable Medicaid co-payments." Perhaps the hospital was aware of this, and chose to refer Addie to collections instead of risking violation of this rule by billing Addie directly for the $1,461.92 balance.
But the Medicaid rules also prohibit that. 🤦
A Medicaid beneficiary [...] must not be referred to a collection agency for collection of unpaid medical bills or otherwise billed, except for applicable Medicaid co-payments[.] Providers may, however, use any legal means to collect applicable unpaid Medicaid co-payments.
So, the appearance was that the hospital violated Medicaid rules by referring the $1,461.92 to Jzanus, and that Jzanus then violated debt collection law by misrepresenting the amount Addie was obligated to pay.
A class-action lawsuit ensued...