As defined by the IRS in section 501(r), ECAs include taking legal action, selling an individual’s debt to another party and/or credit bureau reporting. While the 501(r) rule only applies to not-for-profit hospitals, for purposes of this best practice, we use the term to refer to these account resolution activities regardless of whether the provider taking them is for-profit or not-for-profit.
Adhering to this best practice does not require hospitals to use ECAs; they are optional, to be used at a hospital’s discretion and in accordance with the board-approved account resolution policy. This task force does not endorse any specific strategies but reiterates the importance of compliance with provider policies and governing state and federal regulations.
Hospitals are encouraged to weigh the risk of using an ECA (e.g., potential to negatively impact patients or injure the hospital’s standing in the community) against anticipated increased yield resulting from the ECA’s usage.
The discussion of ECAs in the context of this best practice is intended to provide guidance on the steps an organization should take prior to using a particular ECA if a hospital believes the risks are justified by the benefits.
ECAs should be pursued only after reasonable efforts to resolve a patient’s account have occurred. Exhibit 2 offers a checklist of steps hospitals should take prior to using an ECA. The task force believes the checklist in Exhibit 2 can be used as the basis for internal controls to ensure ECAs are not used on patient accounts if all reasonable efforts to resolve a patient’s account have not been exhausted. Prior to the initiation of any ECA, the best practice process assumes the following steps have been taken related to the patient/responsible party’s account:
- Screening for correct contact information
- Screening for possible insurance coverage and accuracy of existing insurance information
- Reviewing accuracy of payments made by health plans and balance posting by providers
- Patient or responsible party has been contacted regarding opportunities for financial assistance and payment plans
- Determination of presumptive eligibility for financial assistance
- Adherence to existing payment plans (if one exists)
- Reviewing patient/responsible party bankruptcy status or other factors that would deem a person eligible for FAP or other support (e.g., victims of violent crimes)
Regardless of the number of times an account has been screened for the items listed above, an account must be screened based on the checklist in Exhibit 2 prior to initiation of an ECA.
Hospitals should set a balance materiality threshold prior to initiation of a legal action. This can be based on market conditions and other provider-specific factors (e.g., not-for-profit status, affiliation with religious or governmental organizations, safety net status, mission-related services, community supported activities, endowments, etc.).
Providers need to determine an appropriate duration of account resolution effort prior to initiation of an ECA.ii At a minimum, this must comply with the 501(r) requirements which require patients should be given at least one written 30-day notice that ECAs may be initiated if a financial assistance application is not submitted, the bill is not paid, or an arrangement to repay the bill has not been agreed to by both patient and provider within 120 days after the first billing statement or receipt of an incomplete financial assistance application. However, this can vary based on the severity of the ECA and the provider’s business practices. The task force recommends waiting 120 days from the date of the first billing statement before commencing ECAs. It should be noted that the 501(r) rule allows ECAs to occur prior to 120 days in certain circumstances. The task force's use of 120 days as a general guideline serves to protect patients from undue haste in use of ECAs, apart from the IRS ruling.
iiThe New York Attorney General's settlement with the credit reporting agencies requires them to wait 180 days before medical debt will be reported on a consumer’s credit report.