After hearing that John oliver bought $15mil in medical debt at .5 cent on the dollar, I couldn't help but wonder..

Exactly. Can someone please explain how this makes sense? If it only costs 50 bucks to set up such an operation, couldn't everyone just reduce their debt to .5% of what it previously was? And not only that, imagine you take a loan in order to make the initial payment: You could repeat this process to infinity, rendering your debt about zero + the 50 Dollars you had to initially bring up.
I must've misunderstood something about this concept, right?

I'm not a financial guru by any stretch (background is corporate tax), so by all means feel free to critique.

1. The debt's stated value is the issue value. As debts become worthless, they are written off (tax deduction) by the creditor. This process is governed by, at a minimum, GAAP, or generally accepted accounting principles.
2. These rules already established the debts to be worthless (bankruptcy, insolvency, etc.).
3. I'm not clear on how creditors must recognize the $60k. Other Income? Offset to Bad Debts? Either way it effectively reduces the tax deduction above.
4. Oliver neither paid the issue value of debt nor has any expectation of getting that amount from debtors.

He's blowing smoke.

There's this term, "transfer price." Always remember--the actual value of a thing (barring extraordinary circumstances) is the transfer price. The transfer price is the value is the price actually paid, and in this case that number is less than $100k.

There's actually a way to test the value of this debt. The IRS taxes forgiven debt; it is within the definition of income. So...will the IRS track down the debtors and tax this $15 million? Of course not (again, except for the unusual circumstance).

Everybody in the comments is a nolife who spends their time doing freaking meme math