Debts and Collections

Introduction

In this lecture, we will discuss the purpose of credit and collections in the medical office, delve into federal laws affecting credit collection, and review delinquent claim policies along with the steps of an effective collection process. The burden of healthcare expenses on patients has become increasingly pressing for both hospitals and patients.

Financial Burden of Healthcare Expenses

  • Hospitals are losing approximately $7.5 billion annually due to uncollected out-of-pocket medical expenses (CMS survey, 2019).

  • Patients face difficulties keeping up with rising medical costs, particularly due to insurance reforms that have increased co-pays.

  • Patients are now expected to cover about 30% of medical treatment costs, which many find unaffordable.

  • High medical expenses are a significant factor in two-thirds of bankruptcies. This trend leads to an increasing amount of bad debt for hospitals, prompting healthcare providers to establish robust patient billing policies to collect payments promptly, particularly at the time of service.

Importance of Effective Credit and Collection Practices

  • While it's ideal to collect payments at the time of service, alternate payment options such as credit card billing and payment plans help improve accounts receivable and decrease reliance on aggressive collection practices.

  • Payment plans have emerged as a necessary strategy as patient responsibility for healthcare costs continues to rise, making it essential for providers to offer credit arrangements to all patients in compliance with federal laws.

Key Federal Laws Affecting Credit Collection

Consumer Credit Protection Act (1968)

  • Requires providers to disclose finance charges and aspects of credit transactions in a clear manner, helping consumers understand borrowing costs and compare different credit options.

Electronic Funds Transfer Act

  • Establishes rights and responsibilities in electronic fund transfer systems, requiring financial institutions to maintain standards concerning transaction accounting and error resolution.

  • Protects consumers during electronic transfers (e.g., debit cards, ATMs).

Equal Credit Opportunity Act

  • Prohibits discrimination in credit decisions based on race, religion, national origin, sex, or other characteristics, requiring that such factors do not influence credit access or terms.

Fair Credit and Charge Card Disclosure Act

  • Amends the Truth in Lending Act and mandates specific disclosure requirements for credit and charge card issuers.

Fair Credit Billing Act

  • Requires creditors to promptly acknowledge and investigate billing complaints from consumers and lays out the right to dispute charges within a 60-day window post-bill receipt.

Fair Credit Reporting Act

  • Regulates the use of consumer credit information, ensuring accuracy and fairness in credit reporting from agencies.

  • Enforced by the Federal Trade Commission and the Consumer Financial Protection Bureau.

Fair Debt Collection Practices Act (FDCPA)

  • Prohibits abusive practices in debt collection by third-party agencies, including harassment and false representations.

  • Specifies permissible contact hours and restricts certain annoying and unethical collection techniques.

Handling Delinquent Claims

  • Healthcare providers must verify insurance information during each patient visit and follow up on accounts that are past due.

  • A delinquent account refers to unpaid bills beyond a designated timeframe (e.g., 120 days).

  • The aging claim cycle progresses through various periods: 30 days, 60 days, and 90 days, typically requiring focused recovery efforts on older delinquencies.

Preventing Delinquent Claims

  • Effective strategies include verifying patient health plans, submitting clean claims electronically, and contacting payers to confirm claim statuses and support documentation as needed.

  • Providers must track filing periods and understand the risk of uncollectible revenues past a specific date (e.g., 180 days), after which reimbursement claims become increasingly challenging.

Accounts Receivable Aging Reports

  • This report depicts the outstanding claims by date and enables providers to prioritize collection efforts with the oldest debts being addressed first.

Outsourcing Collections

  • In many cases, practices may outsource collections to agencies, which specialize in managing unpaid accounts. These agencies typically charge fees for their services, which must comply with the FDCPA guidelines regarding disclosure and consent.

  • Uncollectible receivables are classified as bad debts, which must have been included in prior income to be written off properly.

Steps to an Effective Collection Process

  1. Initial Contact: Call the patient within one week to discuss satisfaction and upcoming invoice reminders.

  2. Duplicate Invoice: Mail a duplicate invoice with "past due" stamped on it ten days post-due date.

  3. Reminder Letter: Send a second overdue notice along with a duplicate invoice.

  4. First Collection Call: Call to learn about reasons for nonpayment and secure a commitment to pay.

  5. First Collection Letter: Send the first collection letter prompting payment.

  6. Second Collection Call: Request full payment again and discuss previous commitments.

  7. Second Collection Letter: Reinforce collection efforts with another letter.

  8. Third Collection Call: Warn of potential escalation to a collection agency.

  9. Final Collection Letter: Notify the patient of the account transfer to collections.

  10. Submission to Collection Agency: Transfer the account to the agency for further action.

Conclusion

In summary, this lecture covered the importance of credit and collections in the medical office, the impact of federal laws on collection practices, strategies for managing delinquent claims, and a streamlined collection process. Your understanding of these topics is crucial for effectively navigating financial responsibilities in healthcare.