When Sarah Martin walked out of the emergency room after several hours of tests and observation following a traffic accident, she assumed the worst was over.

After all, Martin (not her real name), a young professional, had blue chip auto insurance with a well-known national insurer, as well as top-of-the-line health coverage through her Palm Beach, Fla., employer. She didn't expect the bill for her brief, noninvasive ER stay to exceed the $10,000 personal injury limit on her auto policy, but she gave the hospital both insurance cards just in case.

A few months later, the real nightmare began. Suddenly, medical bills began arriving; the total would eventually exceed $13,000. When she contacted her insurers, she found to her horror that neither had paid her medical bills.

"It was back and forth, back and forth. Both of my insurance companies were dropping the ball, the hospital was dropping the ball, and that's why these bills weren't getting paid," she says.

It got worse. Her physicians turned her accounts over to third-party collection agencies that soon began calling and writing, requesting payment. And six months later with an eye toward buying a home, Martin checked her credit report and discovered a medical bill on it.

"It's very frustrating. When you have good insurance coverage, you should have peace of mind," says Martin. "The fact is that these bills are not getting paid, and I'm the one who is suffering. It's like a second blow. It's like when you need them, you practically have to do their job for them."

Caught in the Crossfire
Cases like Martin's have become increasingly common as more consumers find themselves caught in the crossfire between their doctors and their health insurance companies. Here's how it happens:

Your physician submits a bill to your health care organization or insurance company. For whatever reason, payment is delayed or denied entirely. Meanwhile, you quite logically refuse to pay; after all, you're insured. You may not even know a bill hasn't been paid.

The doctor then turns the matter over to a collection agency. It reports the debt as delinquent to the credit reporting agencies -- Experian, TransUnion and Equifax -- and commences hounding you to pay up.

"Typically, the doctor's office is not the one reporting to the credit reporting agency, it is the collection service that is putting the ding," says Mike Kidwell, vice president and co-founder of Myvesta debt counseling service. "And rightfully so. If you're not paying your bill and that bill is unpaid, the fact that it has had to go to collections in an effort to be paid is true and factual information."

You read that right. Even though you have health insurance, you are ultimately responsible for your medical bills. What's more, as unfair as it seems, once that blemish appears on your credit report, it's going to stay there for seven years unless you can prove that it is a factual error.

Consumers pay in medical disputes
Consumers find themselves on the losing end of an age-old grudge match between the medical establishment and health insurers, one that has taken a particularly mean-spirited turn due to administrative issues often blamed on the HMO industry.

Doctors, frustrated with the Byzantine claims process and slow payment habits of some insurers, have successfully lobbied for prompt-payment statutes. Many states now require insurers to pay up on clear claims (undisputed claims) within 45 days of receipt or face fines, interest and restitution. In Texas alone, laggards were ordered to pay millions in fines and restitution.

Health insurers tend to simply pay the fines, calling the zero-error expectations of prompt-pay legislation unrealistic. In desperation, some physicians have turned to collection agencies to hound you, not your insurer, for payment.

That practice is deplorable, according to Charles Inlander, president of the People's Medical Society, an Allentown, Pa.-based consumer rights group.

"They (doctor bills) shouldn't go into collection. This is a tactic that doctors are using to try to intimidate consumers to push their insurance company," he says. "They should be going after the insurance company and not you, but they know it's easier to go after you because you get scared."

Inlander notes that some unscrupulous doctors have used the labyrinthine health care system to double dip, collecting on the same bill from both the patient and the insurance company.

His advice? Get angry -- then get even.

"I basically advise people to call the doctor office and tell them you're never going to use that doctor again and you're going to report them to the insurance department," he says. "It's a double-whammy. They're doing something that is improper in the first place, and then they're really tarnishing your record.

"Frankly, I think that doctors that do that should be exposed, and then they should be looked into by the state in terms of their license, in terms of shoddy business practices."

Credit health checkup
Even after patients recover, credit ratings may suffer. Julie McAdory, branch manager for Consumer Credit Counseling Service in New Orleans, says consumers are often unpleasantly surprised to see unpaid medical bills turn up on their credit report.

"A lot of times after their insurance company pays, people really don't follow through and they don't keep track of it and don't even know that that medical expense is back there. We see a lot of that," she says. "They may have one medical facility and 10 to 15 entries on there from different accounts that they aren't even aware of."

Once an unpaid bill shows up on your credit report, you have four options: pay it, dispute it, explain it or ignore it. Paying the bill won't erase it from your credit report, but it will be marked paid, a far more positive entry than an unpaid debt.

To dispute it, you're going to have to prove that it is erroneous in fact, such as a clerical error. If you can, the credit reporting service will gladly delete the entry.

If the ding was situational, say the result of nonpayment by your insurer, you have up to 100 words to explain on a consumer statement that the reporting agency will attach to your credit report.

Will that explanation make a difference to a prospective creditor or employer?

"Yes," says McAdory. "I have spoken to creditors and lenders in the past several years who say they are taking those things into consideration. They are looking at a person's situation and giving more people a break because of things that have happened to them through no fault of their own."

Experts agree it's a good idea to pull your credit report from all three companies on an annual basis, especially if you have incurred considerable medical expenses. People who haven't checked their reports in a while are "going to be shocked," says Kidwell.

"I was just reviewing a client's credit report with them, it's probably eight pages, and on every page I found, on average, five errors per page," says Kidwell. "Let's admit it, mistakes happen. Garbage in, garbage out."

Fear of physicians
The nightmare didn't end quickly for Sarah Martin. Months after her first encounter with credit problems related to her insurance claims, she was contacted by yet another collection agency about a $300 outstanding medical balance.

"What's worse, this collection agency bought the accounts of the previous collection agency, so the original one didn't reflect payment or something. I had to go through all this again. Where does this end? It's ridiculous."

Although her doctor has recommended a follow-up outpatient procedure, Martin is understandably leery.

"I'm afraid. I don't want to go through all that again. It's medically necessary that I have it, but I don't want to go through the hell of insurance again. And it shouldn't be that way."

Jay MacDonald is a contributing editor based in Florida.

-- Updated: Aug. 12, 2003