Helpful Suggestions for Managing the Medical Bad Debt Collection Process

Medical Bad DXebtThere are three major leverages, which “motivate” patients to pay a delinquent bill. The first is the involvement of an independent third-party. Collection agencies create a situation where the debtor may or may not know what the collection agency is going to do to collect the debt. I call this the threat of the unknown. This creates an environment, which motivates some account holders to resolve their debt quickly and amicably.

The second leverage is the threat of affecting a person’s credit. For those who care about their credit, a collection agency derogatory on their credit file is something they don’t want to see. The potential affects of a derogatory on a person’s credit report is a huge motivator to resolve their outstanding account.

The last leverage to collect a debt is the threat of litigation. A successfully litigated past-due account would include the initial amount of the debt in the settlement, and it possibly could include interest, court fees and potentially, the cost of collection fees, if it is annotated in the agreement the patient acknowledged when the service was rendered (such as a consent form).

Once the court has ruled in favor of the provider, wage garnishment and property liens are strategies to collect a judgment. I am a believer that providing quality medical services are paramount to a community’s well-being. In some areas, hospitals limit some leverages, such as not allowing accounts to be reported to the credit bureaus.

Limiting the leverages a collection agency may use to collect outstanding accounts will hurt the provider’s cash collections and can become an impediment for the financial health of the providers organization.

Providers, in most markets have experienced an increase of self-pay accounts. In some instances, I’ve witnessed increases as much as two or three-fold over the past three to five years. Minimizing the leverages a collection agency can use to collect outstanding A/R takes away from the financial well-being of the medical provider, thus reducing the amount of service they offer the community. Quality medical care does not come without a cost. I recommend providers use credit reporting judiciously, and only after the patient has an ample opportunity to resolve the debt.

In addition, the advent of the new Patient Protection and Affordable Care Act (PPACA) and the IRSs 501 (c) (3), facilities must be sure the accounts going to a collection agency do not meet a provider’s charity policy. If collection activity is performed by a third party, and it is determined the account could have qualified for charity, new legislation’s requirements could put a provider at financial risk.

I recommend to providers that they scan all accounts that are ready for write off with an automated charity-scoring tool. If providers follow a consistent process for identifying and pursuing patients who truly deserve to be written off as charity, they minimize the risk of collecting cash from charity qualified accounts.

Following a written charity policy and designating the correct accounts as charity, helps to lower the risk of running afoul of the brand new legislation and the IRSs 501(c)(3). These new requirements create a win-win situation for the provider and the collection agency. The provider wins because they can control their bad debt reserves, give more community benefits and eliminate the possibility of a legislative infraction. The collection agency wins because they are collecting on accounts, which truly are “collection accounts” thereby reducing the time and effort attempting to collect accounts, which should be deemed as charity.


Phil C. Solomon is a healthcare finance and revenue cycle BPO strategist with experience spanning two decades. Phil has expertise in the areas of revenue cycle optimization, clinical documentation, healthcare technology integration and BPO outsourcing. He is the publisher of Revenue Cycle News, a healthcare revenue cycle blog and is a featured speaker at many HFMANAHAM and AAHAM healthcare educational conferences.


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