The New Orleans City Council on Thursday (May 11) approved a contract between the city and the New York-based nonprofit RIP Medical Debt as part of an effort to forgive up to $130 million in medical debt held by New Orleans residents using only $1.3 million federal pandemic relief funds. 

The contract includes a timeline with the goal of forgiving $40 million of residents’ medical debt by the end of this year, $50 million in 2024 and another $40 million in 2025. 

The contract is a significant step forward since the council first allocated the $1.3 million in December as part of the 2023 city budget. But it’s only one hurdle in a long process before residents actually start receiving letters informing them their debt has been relieved. 

The ultimate success of the program will hinge on whether the city’s two major hospital systems — Ochsner Health and LCMC Health — participate and agree to donate or sell their patient debt at a steep discount. The two hospital systems confirmed to Verite that unlike many hospitals, they do not sell their debt to collections agencies, meaning they hold all the patient debts themselves. 

“Without them, none of this works,” RIP Medical Debt CEO Allison Sesso said in an interview with Verite last month. “We gotta make sure the hospitals get on board here.”

At the time, however, Sesso suggested that LCMC and Ochsner hadn’t committed to the effort yet. 

“I honestly don’t think we’ve had enough engagement with them. And I don’t think that’s our fault,” she said. “We’ve reached out to them but we haven’t received a, ‘We’re going to go ahead and move forward with this’ from them yet.”

Daniel Lempert, a spokesperson for RIP Medical Debt, told Verite this week that not much has changed since last month.

“The success of the program depends on health care providers like hospitals and physician groups stepping up like we said before.” 

New Orleans is part of a growing list of cities working with RIP Medical Debt to dedicate public funds to individual medical debt relief, including Pittsburgh and Cook County, Illinois.

RIP Medical Debt claims it’s able to have such a big impact because it buys debt at a discount, on average obtaining $100 in medical debt for every $1 spent. Originally, RIP Medical Debt focused on buying debt from “secondary markets” — collection agencies that obtain old debts from hospitals. 

More recently, the nonprofit has started working directly with hospitals to convince them to donate or sell their old debt. Debt obtained directly from hospitals still only makes up a minority RIP Medical Debt’s portfolio — 31% in 2022. But that’s up significantly from 23% in 2021. 

Working directly with providers will be especially important in New Orleans because the two major hospital systems’ debts are not sold off.

In a statement to Verite last month, an LCMC spokesperson said the hospital was “still in the process of exploring a potential relationship with RIP Medical Debt.”

“The billing and collection process for health systems is deeply complicated, and LCMC Health continues to explore this as an option that could benefit our patients,” the statement said. 

An Ochnser spokesperson told Verite on Thursday that the hospital system is also continuing discussions with RIP Medical Debt but did not commit to participating in the program. 

“Ochsner representatives have met with RIP Medical Debt, and will continue to evaluate our participation in the program,” the statement said. “Ochsner Health commends Councilwoman Helena Moreno and the New Orleans City Council for taking steps to eliminate medical debt for people in New Orleans. To make healthcare more equitable and affordable for our region, Ochsner has generous financial assistance policies in place, and Ochsner refrains from pursuing extraordinary debt collections at our hospitals and facilities.”

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Before joining Verite, Michael Isaac Stein spent five years as an investigative reporter at The Lens, a nonprofit New Orleans news publication, covering local government, housing and labor issues. During...