Fair Isaac

Since I’m simmering over experiencing first-hand what the practical implications are of medical TPA’s being safe from bad-faith or other consumer grievance claims under ERISA (see this post and the one I’ll write once my temper has cooled a bit more), something tells me that I should restrain myself from commenting too much on this:

MSNBC’s Red Tape Chronicles has a post discussing one of Fair, Isaac’s new products:

The project, dubbed “MedFICO” in some early press reports, will aid hospitals in assessing a patient’s ability to pay their medical bills. But privacy advocates are worried that the notorious errors that have caused frequent criticism of the credit system will also cause trouble with any attempt to create a health-related risk score. They also fear that a low score might impact the quality of the health care that patients receive.[...]

Several published reports have described Healthcare Analytics product as a MedFICO score, computed in a way that would be familiar to those who’ve used credit scores. The firm is gathering payment history information from large hospitals around the country, according to a magazine called Inside ARM, aimed at “accounts receivable management” professionals. It will then analyze that data to predict how likely patients will be to pay future medical bills. As with credit reports and scores, patients who’ve failed to pay past bills will be deemed less likely to pay future bills.

And at this point, I’ll stop, since my “professional and recreational stats-geek” side and my “inner consumer advocate” are in serious conflict as a result of events of the past week. The pros and cons of such a scheme, I’ll leave as an exercise for the reader, for now.

Seen in the Wichita Eagle:

Credit bureaus are expected to adopt a new version of the widely used FICO credit score this year that will no longer benefit so-called “authorized users” on another person’s credit card account.[...]

The move is in response to the controversial practice of “piggybacking,” in which some Web sites allow consumers with poor credit scores to hitch on to someone else’s good credit record.[...]

Called FICO 08, the new formula also will be more forgiving of occasional slips by consumers but will take a harder line on those who are repeatedly late on their bills. The FICO score ranges from 300 to 850.[...]

TransUnion expects to have the new FICO scoring model “available for customer testing during the second quarter of 2008,” said spokesman Steven Katz.

Experian doesn’t have a date for adoption of FICO 08, said Rod Griffin, manager of consumer education. “We’re working with FICO on the technical issues and on implementation, but we don’t yet know what the date will be,” he said.

Equifax is apparently standing aside for now, due to an ongoing squabble with Fair Isaac.

Fico has been pushing for the credit industry to more modern models for a while now, since a bit before my prior life where I worked on credit scoring for an insurer. It’s a little amusing that it’s taken a scam to push through change at two of the three bureaus.

Of course, as the new models roll into production, I expect to see some consumers and consumer advocates become introduced to the notion of just how different a consumer’s scores can be under two different models, which should make for some “entertaining” debate. That, plus I half expect to see some additional fuel supplied to the fires of those who don’t understand and don’t like the nuances of differences in what data is collected by the individual bureaus.

(Note to the type A personality folks watching their scores—the actual 3 digit numbers aren’t necessarily significant. A 20-50 point swing isn’t terribly significant, as long as you’re still passing the hurdle rates. Besides non-mortgage-based lenders mostly use their own, proprietary models anyway. Fico scores these days are only really important in the mortgage world, where a standardized model is necessary to securitize the mortgages as well as to prescribe standards for Fannie Mae and Freddie Mac.)