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Managing Delinquent Patient Accounts

April 20, 2023 360

One of the questions listed above for you to consider as a practice owner was, “What action will you take, if any, when your practice has not been successful at collecting the overdue balance?” Unfortunately, in this part of practice management no option feels like a good option. If an account reaches this point, the objective for you as the owner should be to bring the issue to resolution whether the result acts in your favor or not. Here are some options to consider for managing delinquent accounts (typically over 120 days):

  • Collection agency. Despite the high commissions that collection agencies charge, many practice owners prefer this option because it removes the overdue balance from the practice’s accounts receivable and it alleviates the practice of the collections hassle. A common question is, “When and at what dollar amount should I send a patient’s account to collections?” It is best to have a firm policy yet apply it on a case-by-case basis depending on the patient’s situation, history with the practice and attitude. If you are using a collection agency, it is wise to state in your practice’s financial consent form that delinquent accounts (state the time frame, for example 120 days overdue) are turned over to a collection agency. Inform patients in advance that this is your practice policy. Further, it is recommended to obtain in advance patient authorization to release minimum necessary patient information to a collection agency or credit card company when payment is disputed. Without patient authorization, it is a violation of California privacy law to share patient information other than the patient’s contact information and balance due with collection agencies. Once stated in your patient forms, you can apply the policy on a case-by-case basis. For example, if a patient is responsive to your billing statements, phone calls or letters and wants to work with you to pay the account balance, then many practice owners may opt to work with the patient to resolve the balance. However, if a patient is not responsive or is not agreeable with the practice, then the balance, regardless of the amount, is sent to the collection agency. Once the account balance is sent to collections, the practice should remove the balance from its accounts receivable and classify it as “bad debt” in the practice management software or accounting software. It is important to note that, even if the collection agency successfully collects the balance, the portion the practice will receive will be significantly less than the original balance. In most situations, sending a patient to collections will result in the patient’s dismissal from the practice. However, some practices will write into their financial policy that the patient is responsible for paying the collection agency fee if the patient chooses to continue receiving care in the practice. Your liability company can offer guidance and assistance with appropriate patient dismissal letters.
  • Credit bureaus. Many practices will report delinquent accounts to one or all three major credit bureaus — TransUnion, Equifax, and Experian. Reporting the delinquent account to a credit bureau will affect the patient’s credit and may save other future businesses from extending credit or financing to this patient. Although notifying a patient that you are reporting the delinquent account to the credit bureau may persuade that patient to pay, this process is not a guarantee of payment. To report a patient, you first need to be a member of one of the above credit bureaus. Each bureau has its own set of guidelines, but generally, for a small fee you can report a delinquent account and gain access to credit reports.
  • Small claims court. The consensus among most practice owners with small claims court is that the time involved makes it more of a hassle than it’s worth. However, there are some practice owners who believe in the power of the court system. Some find that simply notifying patients of this action is all that is necessary to render payment. However, if you do decide to go this route, be prepared to take some time out of the practice, and it is recommended to only pursue this option for large balances.
  • Attorney notification. To avoid the hassle that often comes with reporting accounts to credit bureaus or small claims court, some practice owners will first have an attorney draft a letter on the attorney’s letterhead notifying the patient with the delinquent account of the financial consent the patient agreed to and the consequence (credit bureau report or small claims court) if the payment is not received by a specific date. The letter should be sent via certified mail. This can be a less costly and time-consuming option and some practice owners believe is just as effective in terms of rendering payment.
  • Managing delinquent accounts in house. Some practices choose to manage delinquent accounts in house and either decide to work with patients to be in good financial standing with the practice or inactivate/dismiss patients who are not willing to work with the practice to make payments. If this choice fits your practice philosophy, be sure you set a clear policy of how accounts will be managed. Not only does your staff need a clear policy to follow, but your patients need to understand the system. For example, you may decide for all accounts over 90 days to work with the patient on transferring the balance to a credit card, utilizing third-party financing, or establishing a monthly payment plan. This management method should be viewed as the exception to the rules as you do not want your staff’s time to go toward managing delinquent accounts for many patients. In addition, it is recommended that you conduct research and understand the following laws pertaining to dentists who engage in debt collection activities on their own behalf:       
  • Federal Fair Debt Collection Practices Act:
  • California Robbins-Rosenthal Fair Debt Collection Practices Act:
  • Civil Code Section 1788-1788.3
  • Civil Code Section 1788.10-1788.18
  • Civil Code Section 1788.20-1788.22
  • Civil Code Section 1788.30-1788.33
  • Charging interest on delinquent accounts. As stated by the Office of the Attorney General, “In transactions for the purchase of goods or services which are not for personal, family or household purposes, there are normally no limits to finance charges except those set by the parties.” To assess an interest charge to patients with delinquent accounts, patients must be informed of the potential charge prior to rendering treatment and must understand the terms that constitute a delinquent balance. Once the patient is informed, the practice has the option of assessing the charge on a case-by-case basis.
  • Patient files bankruptcy and lists practice as creditor. Patient bankruptcy can be a negative aspect of a practice offering in-house financing or not collecting the fee in full before or at time of treatment. When the patient files bankruptcy, it triggers an injunction referred to as an “automatic stay,” which gives the debtor immediate protection from his creditors by prohibiting the commencement or continuation of any acts to collect on debt that arose prior to filing the bankruptcy. The automatic stay will go into effect upon filing of the bankruptcy petition and applies to creditors whether the debtor lists the creditor in the bankruptcy claim. Creditors are bound by the automatic stay even before they become aware of it, but sanctions are imposed only for willful violations. Though you cannot collect on a judgment after the debtor files bankruptcy, you may have rights to pursue in the bankruptcy depending on what chapter was filed and whether you are secured by any of the debtor’s property. As a creditor, you will not be able to dispute the claim or receive any money until a claim is filed. You are not required to file a claim, but this is the only avenue to have a chance of receiving the monies owed through the court.
  • If a patient files bankruptcy and lists you as a creditor prior to treatment completion, you must complete the treatment regardless of the patient’s ability to submit payment. The only exception to this would be if the patient has been noncompliant with treatment and you have documented your attempts to work with the patient to carry out the treatment plan. If the treatment has been completed when the patient files bankruptcy, you can dismiss the patient from the practice and require payment in full to reactivate the patient in your practice.
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