The number of individuals filing for bankruptcy protection is rising. A major cause of bankruptcy in the U.S. is medical bills. As an independent medical practice this means that you need to be knowledgeable about how bankruptcy impacts your patients and practice.
The U.S. Bankruptcy Court reported that there were just 679,982 Chapter 7 filings in fiscal year 2008. Since that time double digit percentage increases have become the norm as part of an overall trend that began after the 2005 passage of the Bankruptcy Abuse Prevention and Consumer Protection Act which put restrictions on the disposal of debts. In the case of Chapter 7 liquidation, medical bills and other unsecured debt are usually discharged. Chapter 13 reorganization allows for payment but the process and investment of time is significant.
Having a solid policy and process in place for regular debt collection will keep bankruptcy filings from having a major impact on your practice. However, when bankruptcy does occur and you receive notice of filing, all collection attempts on bills prior to the filing date must stop. Informing your collection agency of the notice is the next step for patients already in collections. Continuing to call or collect from the patient puts the clinic in violation of the court order which can create the risk of fines and fees.
For a Chapter 7 bankruptcy there is little chance of collecting. A Chapter 13 bankruptcy provides a plan to repay debts over three to five years. After attending an initial meeting of creditors with the trustee and debtor, the medical practices must choose to file claims with the court in 90 days. Government debt and secured debt are given priority for payment in these arrangements.
There are several actions clinics can take to avoid costly losses from bankruptcy. First, having a consistent collections policy and practices in place that prevents patients from receiving services if bills go unpaid is important. This policy needs to be in place before you run into issues with a patient. Carefully consider your clinic risks before stopping seeing a patient on a care plan, give the patient notice, and provide enough time for the patient to identify other sources of care.
With high deductible health care plans increasing clinics need to be prepared. A consistent standard must be set for what is considered an account in good standing or an “approved” monthly payment plan. If specific circumstances warrant, another arrangement can be made with the clinic administrator after completing a financial hardship process.
Have a clear policy for patient financial obligations that your staff understands and adheres to:
- Policy must be provided to patients and signed
- Policy should also be posted in the clinic
- Staff must be able to clearly describe the policy and know the payment options
- Policy must include timeline of statements, calls and consequences for non-payment (i.e. refusal of future service, being sent to collections, etc.)
Have a structured process that ends with patients going to collections:
- Ensure that patients are aware of the timeline and process for payment and that they will be sent to collections for non-payment
- For bad debt sent to collections only 15-20 % on average is recovered if the accounts are placed within 6 months of the date of service and less when a reasonable timeline is not upheld
Keeping the lines of communication open with your patients and holding everyone to a consistent process can prevent sudden realization that you won’t be getting paid. Independent medical practices need to have a strategy and plan for patient collections that produces results and reduces risk – even more important with increasing bankruptcy numbers.