Ask the Experts: Attorney Fees for Collections
We currently refer bad debt collection accounts to three different companies by alpha split. Two are law firms and one is a collection agency. We are in the process of rewriting our collection agreements and I am wondering if HFMA offers any templates for these types of agreements? I am also concerned about consistency between companies and how they work the accounts.
I discovered that one of the law firms is adding an “attorney fee” on the very first collection letter that is sent to the patient. Example: Bill is $30 and they add $10 for attorney fee. They told me they are adding this as a sliding scale fee, based on the amount of the outstanding balance. I was surprised to see this on the very first letter.
Do you have any advice about whether this is compliant with collection guidelines? What concerns should I have from our health system perspective that this company is adding this fee to our patients immediately and the other companies are not adding attorney fees until a lawsuit is in process? I see this as inconsistent for our patients. Does this set us up for any legal or government compliance concerns? Would this violate 501(r) in any way?
Answer 1: I am recently retired, but I served as interim CFO and interim director of patient financial services for many hospitals for many years. My belief is that collection agencies should be used for collection services and law firms should be used for legal services.
Most geographic areas where I have worked have an abundance of regular collection agencies. So, unless you are in an atypical area, there should be enough collection agencies to allow you to have three working for your hospital, each with a third of the alphabet.
Every year or two, you may want to determine which agency is the least effective, and put the contract for its portion of the alphabet up for bid. You can include that agency in the bidding process, too, if you wish, as it may give you a better financial deal or make other changes that will give you a better contract.
Law firms can be effective for specialty insurance collection services, like workers’ compensation, industrial accident cases, or out-of-state Medicaid. Often their services are for payer payments only. Law firms can also be effective in resolving self-pay cases that are difficult to resolve.
You could consider having one collection agency specialize in the collection of Medicare bad debts, which are for the self-pay portion of services provided to Medicare patients. A hospital needs to handle these carefully, to make sure that the hospital is compliant with Medicare regulations and to make sure that uncollected payments are handled properly with regard to the Medicare cost report. Close cooperation between the patient accounts department and the revenue cycle (or reimbursement) department is needed to make sure that the hospital does not make errors in its handling of these cases.
You also may want to find an agency that specializes in Medicaid insurance collections. If so, your hospital could bill Medicaid for the first 90 or 120 days, and then send any open claims to the agency. The agency would then do the re-billing and other follow-up work with Medicaid, making sure that Medicaid billing deadlines are not exceeded. In most states, there is no self-pay portion for Medicaid, so this type of agency would work only with insurance payments.
Another collection agency could handle older self-pay accounts, perhaps those that are more than 180 days. There will be a higher fee for this, but it may be worth it.
Finally, another agency could handle pure self-pay accounts from day one. Many hospitals are moving in this direction. Many of these agencies provide trained on-site financial counselors that can help uninsured patients sign-up for health insurance or help them qualify for discounts or free care. In addition, agencies also work to collect the portion that can be paid in a manner consistent with the hospital’s goals.
This question was answered by: Robert J. Ellertsen, FHFMA, interim vice president finance/CFO, Cambridge Health Alliance Physicians Organization, and a member of HFMA’s Massachusetts/Rhode Island Chapter.
Answer 2: You can negotiate collection rates. Most will send the initial letter for a very small fee. You can negotiate the interest rate as well. As the previous response stated, reduce the number of agencies you use based on performance and which one is more willing to negotiate or work with you on mutually agreeable rates.
This question was answered by: Michele Marcum, CHFP, director of contracting, Humana, Inc., and a member of HFMA’s Idaho Chapter.
Answer 3: First, this is a legal question, and it should be addressed directly to legal counsel for confirmation. However, I can share that based on my experience, typically attorney fees are not added unless they are ordered by a judge. (This is in line with some state specific restrictions).
Many states have specific laws regarding collection and fees and you should consult with the state hospital association or other regulatory body to determine if any state laws prohibit this practice.
I believe that there is also guidance regarding this area under the federal Fair Debt Collection act that indicates if you charge interest on an account (and I feel this attorney fee is similar) you have to notify patients at the time of service that this is your practice. You can research this on the Federal Trade Commission’s website.
This question was answered by: Suzanne Lestina, vice president, client innovation, Avadyne Health and a member of HFMA’s First Illinois Chapter.
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