Medical debt collection agencies are for-profit companies that buy unpaid medical bills from hospitals and clinics—typically for 1 to 10% of the original bill—and then attempt to collect the full amount from patients. Over 5,400 debt collection firms operate in the United States, with the largest specializing in medical debt purchased at steep discounts from healthcare providers. More than 100 million Americans carry medical debt, making this a widespread issue. Understanding how debt buying works, who can legally purchase your medical debt, and what protections exist can help you respond effectively if a collection agency contacts you.
Table of Contents
- How the Medical Debt-Buying Market Works
- When Hospitals Sell Your Debt
- What Happens When a Debt Buyer Owns Your Account
- Your Legal Rights Against Unlawful Collection
- An Alternative: Nonprofit Debt Forgiveness
- Frequently Asked Questions
How the Medical Debt-Buying Market Works
Debt buyers are investment companies that purchase unpaid medical bills on the secondary market. The global medical debt collection services market reached $8.2 billion in 2023, according to Verified Market Reports, and over 5,400 debt collection firms operate nationally in a $13.6 billion market, per AdvancedCB's 2026 survey.
The economics are straightforward: hospitals sell debt for far less than what patients owe. Fresh medical debt—bills unpaid for less than a year—sells for 5–10 cents per dollar, while older accounts drop below 1 cent, according to Undue Medical Debt. A debt buyer purchasing a $10,000 hospital bill might pay $500 to $1,000, then profit if they collect the full amount or any portion of it.
Encore Capital Group operates Midland Credit Management, the largest publicly traded debt buyer, with 2024 revenues around $1.46 billion. Most other debt buyers are smaller, private firms competing for market share by purchasing portfolios of medical debt directly from hospitals or through brokers.
When Hospitals Sell Your Debt
Hospitals typically send unpaid bills to collection after 60–120 days without payment, according to the Healthcare Financial Management Association. At this point, they have two options: hire a collection agency to pursue the debt on commission, or sell the account outright to a debt buyer.
For nonprofit hospitals, the sale of patient debt is restricted. Tax-exempt hospitals cannot sell patient debt to third-party collectors unless the patient is ineligible for financial assistance or has not responded to assistance offers for 180 days, per IRS Section 501(r)(6) charity care requirements. This protection means that before a nonprofit hospital sells your debt, it must offer—and you must refuse—financial assistance.
For-profit hospitals and clinics face no such restriction and can sell debt immediately. If you have received a financial assistance offer from your hospital, responding to it within the 180-day window can prevent your debt from being sold to a collector. If you ignored the offer or were unaware of it, your debt may already have moved to a buyer.
What Happens When a Debt Buyer Owns Your Account
Once a debt buyer owns your medical debt, they typically pursue collection through calls, letters, or lawsuits. Your debt may appear on your credit report, affecting your score and ability to borrow. Unlike the original creditor, debt buyers often pursue aggressive collection tactics because their entire profit depends on recovery rates. federal credit reporting rules for medical debt remain in flux.
The CFPB finalized a rule in January 2025 prohibiting lenders from considering medical debt in credit decisions and removing medical debt from most credit reports—eliminating $49 billion from consumers' files. However, a federal court vacated the rule in July 2025, finding it exceeded the Bureau's authority under the Fair Credit Reporting Act. As of now, medical debt can legally appear on credit reports, although federal rules may change again.
Your Legal Rights Against Unlawful Collection
Debt collectors cannot collect amounts you do not legally owe, and medical debt comes with specific federal protections. The CFPB clarified in October 2024 that debt collectors cannot collect amounts already paid by insurance, amounts prohibited by federal or state law, and amounts exceeding legal limits—violations that hold collectors "strictly liable" for medical debt specifically.
When a debt buyer contacts you, request a debt validation letter within 30 days. Under the Fair Debt Collection Practices Act, the collector must prove they own the debt and that the amount is correct. Debt buyers often lack clear ownership chains for very old debt, and validation may be impossible—in which case they cannot legally pursue you further.
Check your credit report for errors: if the debt buyer is reporting an incorrect amount, duplicate entries, or accounts already paid, you have the right to dispute these directly with the credit bureaus. Some states also cap collection amounts or prohibit collection on specific categories of medical debt. Research your state's medical debt laws; your state attorney general's office or a consumer protection agency can provide details.
An Alternative: Nonprofit Debt Forgiveness
Not all medical debt purchased by buyers ends in collection. Undue Medical Debt (formerly RIP Medical Debt) has purchased and forgiven over $10 billion in medical debt by buying it at massive discounts—typically one cent per dollar—and erasing it rather than pursuing collection. This demonstrates that the debt-buying infrastructure can serve purposes other than aggressive collection.
Donated funds allow nonprofits to purchase medical debt portfolios and forgive them entirely, eliminating the burden for affected patients. While you cannot guarantee your debt will be purchased by a nonprofit buyer, the existence of this alternative shows that medical debt sale is not irreversible or final.
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Frequently Asked Questions
Can a nonprofit hospital sell my medical debt immediately?
No. Tax-exempt hospitals must offer you financial assistance and wait 180 days for a response before selling your debt to a third-party collector, per IRS rules.
What if the debt buyer cannot prove they own my debt?
Request debt validation within 30 days of first contact. If they cannot provide proof of ownership and the correct amount, they cannot legally collect.
Will medical debt always show up on my credit report?
As of now, yes—unless state law prohibits it. However, federal rules are in flux; a CFPB rule barring medical debt from credit decisions was vacated in July 2025.
Does Undue Medical Debt buy medical debt to forgive it?
Yes. The nonprofit has forgiven over $10 billion in medical debt purchased at steep discounts, though most debt bought by companies is still purchased for collection purposes. —