Policies and Practices | Medical Debt

Medical Accounts Resolution Process FAQs

Policies and Practices | Medical Debt

Medical Accounts Resolution Process FAQs

These FAQs are related to various phases of the medical account resolution process.

Basics of the account resolution process

Post-discharge account resolution efforts begin with diligence to assure that the balance (also known as patient responsibility) is correct and complete. Once efforts to identify and bill third party payers or governmental programs have been pursued to their fullest and financial assistance programs applied as required by IRS 501(r), there may be a balance for which the patient is responsible. Per the 501(r) rule, patient education regarding FAPs must be communicated verbally and in a written policy, and notices posted prominently in locations in the provider facility. Although the 501(r) rule applies only to not-for-profit hospitals, for purposes of these best practices, the task force believes that all providers, regardless of tax-exempt status, should adhere to the 501(r) requirement for FAP communication and posting.

While a remaining patient balance assumes the prior steps have been taken, it does not preclude continuing efforts to educate the patient, repeat screenings for financial assistance program eligibility or other attempts to qualify the patient for third party coverage, offer payment arrangements or other solutions on an ongoing basis.

All hospital billing statements must include a conspicuous written notice informing the recipient about the availability of financial assistance under the hospital’s policy. The notice must include the telephone number of the office or department that can provide information about the FAP and FAP application process, including the URL where copies of the FAP documents may be obtained. The best practices encourage providers to make certain these links are easily accessible (requiring less than three clicks to access) and recommend that providers check the links not less frequently than annually to ensure that the links are not broken. Links that are broken or not easily accessible may trigger an IRS next-level review for not-for-profit providers.

As specified in HFMA’s Patient Financial Communications Best Practices, communication with the patient should include verification of patient information (mailing address, phone numbers, email, etc.) and the patient's preferred methods for future communication, which should include all contemporary forms of communication permissible. If the patient changes their preferences related to how they would like to be contacted, this information must be updated and shared with all partners. Given Telephone Consumer Protection Act requirements, this is particularly time sensitive if the patient or responsible party withdraws their consent to be contacted via cell phone using an automatic telephone dialing system.

Provider policies should include guidelines for responding to consumers who dispute all or part of the items or amounts billed. Such policies should include assurance that the patient has received a full list of all charges, including interest and late fees, and suspension of collection activities until the items or amounts have been verified. In this way, an account will be considered resolved or the charge or charges will be removed if the items or amounts cannot be verified within a reasonable amount of time.

The definition of small balance is subject to the provider’s discretion and internal policies. A provider may choose to pursue account resolution in a number of ways. Resolution may occur as a result of an early transfer to a business affiliate, internal resolution or small balance write-off. This workflow does not favor one method of small balance resolution over another but seeks to illustrate the options that may be pursued in accordance with provider policy and governing laws. This step could take place prior to extensive account resolution efforts, after receipt of payment from a third-party payer, or following partial payment from a patient.

Payments should be applied to accounts in a consistent manner. For patients with multiple open accounts, unless there are specific payment application instructions provided by the patient, the payment should be applied to the balance on the statement that accompanies the payment. If there are funds in excess of the balance related to the statement and no accompanying instructions for applying the remaining funds, they should be posted to the oldest account first. Lacking any direction whatsoever (e.g., a payment sent without instructions or an accompanying statement or a payment sent with statements from multiple accounts and no instructions) from the patient as to how to apply payments to multiple accounts, providers should systematically apply payments to older accounts first to assure a fair and constant methodology of account.

All activities in pursuit of account resolution should be governed by the provider organization’s financial assistance program, account resolution and collections policies. These policies should be approved by the provider’s board or other authorized body and followed by all parties, including business affiliates representing the provider. Providers should have a clear written policy regarding the provision of financial assistance, which describes how to apply, what supporting documentation should be submitted, eligibility criteria and any measures providers may take to resolve accounts. This policy should be readily available to all patients.

Providers must undertake reasonable efforts in a consistent manner to resolve accounts. These may include solutions mentioned previously, or by further means, subject to patient consent where applicable, such as phone calls, text messages, email, letters and other contemporary means to communicate with the patient, screening (including, but not limited to, bankruptcy, eligibility for financial assistance programs or third party payers); data scoring for the purpose of financial assistance or payment plan development; and third party loans from reputable providers.i

Where appropriate, messages sent to patients/responsible party (or scripting used) should emphasize the benefits of engaging with providers or business affiliates to resolve accounts. As discussed in the concluding section on areas for further refinement, the task force believes that in the future, these messages could be tailored to patients based on their economic profile to help demonstrate the value proposition of engaging with providers in account resolution efforts.

These options are not comprehensive but are examples of common practices that can be used to work with patients to resolve an account. Furthermore, taking all of these steps is not mandatory to adhere to the best practice. The task force strongly encourages providers to use sound business judgment and knowledge of their patient populations and the surrounding community when deciding which options to deploy and when.

The use of electronic communications to engage and educate patients about their options for resolving an outstanding balance poses a unique opportunity for providers to deploy adaptive outreach strategies. Analytics based on patient/responsible party responses to electronic communications (e.g., open rates, response rates) can be used to tailor content and timing of engagement messages, leverage patient/responsible party preferences to increase effectiveness and facilitate account resolution.

i If a provider uses data scoring tools to screen and qualify individuals for financial assistance or charity care, their use should be documented in the organization’s financial assistance policy. if the provider claims any charity care granted to Medicare beneficiaries using data scoring tools as allowable reimbursement on the cost report, the presumptive tool needs to satisfy the requirements of Provider Reimbursement Manual §312 and provide sufficient documentation to support the determination. How this will be achieved should be incorporated into the provider’s financial assistance policy.

While the task force firmly believes that early screening of accounts for third party payers, bankruptcy, financial assistance programs and other means of resolution is preferred for both the patient and provider, we understand that no system is perfect. Therefore, business affiliates should rescreen accounts to ensure fair, patient-friendly account resolution. And, as discussed below, accounts should be rescreened prior to initiation of any ECA. Furthermore, it is important to make appropriate efforts to provide adequate information to consumers regarding their obligation and the possible consequences of failure to resolve an account.

A formal board-approved policy from providers should specify what actions may be taken and the circumstances under which each may be employed. Business affiliates acting on behalf of a provider (ranging from early-out to account recovery affiliates) must offer the patient/responsible party the provider’s FAP and options for a payment plan based on the provider’s policy during communications/interactions in accordance with section 501(r) requirements. 

When accounts cannot be resolved (or a pathway for resolution established) an account may be considered delinquent by the provider. While an account's age (based on the date of first billing of patient responsibility from a provider or early-out business affiliate) is a reasonable factor used to determine whether or not an account is delinquent, it is not the only factor that could be considered. Ultimately, this determination should be grounded in the organization's board-approved account resolution policy and sound business judgment about the collectability of an account.

At the provider's discretion, accounts deemed at risk for nonpayment may be outsourced to a business affiliate for advanced efforts to obtain resolution. Similar to the process for early-out accounts, if a provider chooses to use external business affiliates to pursue at-risk account resolution, then reconciliation must occur.

Working with account resolution business affiliates

If an account is assigned to a business affiliate who acts on behalf of a provider, the business affiliate must offer the patient/responsible party the provider's FAP and options for a payment plan based on the provider's policy during communications/interactions in accordance with section 501(r) requirements. The business affiliate must adhere to the hospital's board-approved account resolution policy.

HFMA believes it is important for hospitals to ensure that their business affiliates' approach to account resolution is aligned with the provider’s brand and mission to the community. To that end, the best practice recommendation is that hospitals use the ECA checklist in Exhibit 2. This provides a pause point prior to initiating an ECA to review the account, make sure it has been properly handled, and provide one last outreach to the patient prior to initiation of the ECA. Additionally, hospitals should review scripting the business affiliate typically uses during account resolution activities with patients during their evaluation of potential business affiliates. This will also help ensure the business affiliate's approach to account resolution is aligned with the hospital's mission and brand. 

The practice of assigning accounts to business affiliates for resolution does not imply a delinquent obligation. The term "early out," sometimes referred to as precollection, simply means that the provider has chosen to outsource some or all of its open accounts to a business affiliate to service the accounts as an extension of the provider's patient accounting department. In this sense, early out may refer to any account resolution activities handled by a business affiliate that occur before an account is deemed delinquent.

If an account is outsourced to a business affiliate for resolution, the business affiliate must have access to all necessary information to assist the patient in resolving the account. In the event an account is placed with a secondary business affiliate, the secondary affiliate should have access through the provider to the necessary account information from the primary affiliate's efforts in order to effectively resolve the account in a patient-friendly manner. The provider should receive account status (which includes disputes, current balance and last payment date and amount) when the primary agency returns the account to the provider. Hospitals must take reasonable steps to ensure that business affiliates who are handling protected health information related to patients’ accounts are compliant with HIPAA privacy and security requirements.

A board-approved policy must specify and govern the steps permissible for business affiliates to use as they attempt to resolve accounts. These steps should be included in the provider’s contract with the business affiliate. Compliance with established account resolution policies is mandated and should be assured by regular audits and account reconciliation between the provider and business affiliate. Disputed balances must be reviewed in a timely manner as specified by ACA International and the IRS 501(r) rule to rectify errors and update accounts.

When a provider chooses to use external business affiliates to pursue account resolution (either as part of an early-out strategy or if the account becomes delinquent and is transferred to a business affiliate), account reconciliation must occur. This will ensure multiple entities are not pursuing resolution of the same account simultaneously and protect patients from duplicative contacts. This step must occur with sufficient frequency to provide a high level of confidence that the patient is not experiencing duplicative contacts regarding the same account. If the patient updates information on their account (including changes in contact information or consent to contact) this information must be updated in both business affiliate and hospital records. 

All consumer complaints should be tracked and shared between the business affiliate and the provider in order to improve customer service, hasten account resolution and avoid recurring grievances. As referenced earlier, account servicing parties must abide by the provider's board-approved financial assistance program, account resolution and collection policies. Regularly occurring audits should be performed to assure compliance with policies for both early-out providers and accounts that are in collections. Business affiliates' internal policies should comply with established ethical standards as outlined in ACA International’s Code of Ethics and Code of Operations.

Extraordinary collection actions

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.

The initial billing to the patient for a patient balance (either true self pay or balance after insurance) is the starting date for the process to resolve the account. All time-bound activity should be driven by this date.

For example, if the provider allows reporting to a credit agency, according to the IRS 501(r) rule, it should occur no sooner than 120 days from the date of the provider’s first bill to the patient. While the rule does not require the 120-day waiting period in situations where certain conditions have been satisfied, this group recommends this time frame as a reasonable period before ECAs begin. Given the significance of the first statement date in account resolution activities, the task force believes that it is essential information that should be shared with business affiliates who are engaged in account resolution efforts.

Providers may choose not to report past due accounts to credit bureaus. However, it is the position of this task force that if reporting has occurred, it is the responsibility of the reporting entity (either provider or business affiliate) to also report back to the bureau if the account is resolved. The task force suggests that a negative listing for medical debt be removed from a consumer's credit report within 45 days of account resolution. In this way, the consumer is not penalized beyond resolution of the account.

For not-for-profit hospitals, the final IRS 501(r) rule requires an authorized body of the hospital to adopt the provider’s financial assistance and billing and collections policies (e.g., accounts receivable resolution policy). Beyond being a requirement for not-for-profit providers, this is a best practice for all hospitals, regardless of tax-exempt status. As part of this best practice, if the account resolution policy undergoes a material revision, it should be reviewed and approved by the authorized body.iii

To further the authorized body’s understanding of how the account resolution policy is impacting patients and the community, a finance leader should provide, on an annual basis, a high-level review of the ECAs allowed and the circumstances in which they are allowed under the current account resolution policy. The review also should include reporting of the percentage of patients/guarantors, by race and ethnicity, who are written off to bad debt. Additionally, this review should include the rate at which the permissible ECAs are used and the financial results of their use. As discussed in the section on areas for further refinement, as the data becomes available, providers should report to the authorized body the rate at which permissible ECAs are used, by patient/guarantor race and ethnicity.

iiiThis is a requirement for not-for-profit providers under IRS 501(r).

Final disposition of unresolved accounts

Following the exhaustion of all reasonable efforts to resolve the debt, providers should have written, board-approved policies regarding the disposition of remaining unresolved accounts. Some options to consider might include placing the debt with a secondary business affiliate for further efforts, selling the debt to a certified debt buyer who adheres to the ACA International’s Code of Ethics or discontinuing efforts and writing the account off to bad debt. If the provider intends to claim Medicare charity care and bad debt as reimbursable on the cost report, all resolution activity must also comply with the Medicare Provider Reimbursement Manual.

If the provider elects to sell outstanding accounts, it should require that the debt buyer abide by ACA International’s Health Care Collection, Servicing and Debt Purchasing Practices Statement of Principles and Guidelines, adhere to ACA International’s Code of Ethics, and be licensed as a debt buyer, where required by state law. In addition, the provider should prohibit the resale of accounts by the debt buyer without the provider’s prior approval. The purchase and sale agreement between the provider and the debt buyer should also include a representation from the debt buyer that it will only engage collection agencies for the collection of sold accounts that agree to maintain collection agency licenses where required by state law; comply with federal, state and local laws; and adhere to ACA International’s Code of Ethics.

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