3 Steps Hospitals Can Take Today to Prepare for New Rules on Medical Debt Collection

For the next few weeks we’ll all be on pins and needles.

The U.S. Treasury Department has heard from the medical associations and ACA International, on proposed rules that would greatly restrict how hospitals run their patient financial services departments and manage their third-party collection agencies.

You are no doubt already familiar with the proposed rules that, if enacted, will be enforced by the IRS and reported by not-for-profit hospitals annually on Schedule H, Form 990. The comment period on the proposed rules, introduced this spring, closed on Sept. 24.

One of the big question marks when the Schedule was revised three years ago was the section that required tax-exempt hospitals to refrain from “extraordinary collection actions” until it could “reasonably” determine whether a patient qualified for charity care/financial assistance. That left many scratching their heads as to what exactly is an “extraordinary collection action,” and what, precisely, was “reasonable.”

Several organizations asked the Treasury to be specific, and at least among healthcare providers, the legal community, and collection agencies, there was one area they wanted excluded. As the American Bar Association stated in its comments to the IRS almost two years ago, “making a report to a credit rating agency or engaging a collection agent” should not be considered “extraordinary.”

The Treasury Department apparently did not agree, and last spring’s proposed regulations made a point of making both actions “extraordinary” — with caveats.

The new regulations propose a 120-day notification period following the provider’s first bill to any patient who might qualify for financial assistance. Once that period expires, the patient has another 120 days to submit a financial assistance application. During that 240-day window, the hospital can engage a collection agency to collect that debt but it cannot sell the debt to a third party or report the patient to a credit reporting agency, as both actions are now defined as “extraordinary.”

At this moment the Treasury is reviewing the comments on the proposed regulations. It’s anyone’s guess what regulations they will impose. Until then, there are proactive steps you should take to prepare for whatever the final decision will be.

Communicate with your collection agency partners

Regardless if you meet regularly with your collection agency partners or infrequently, now would be a good time to have a conversation with them to determine what steps they have taken, if any, to prepare for the Treasury’s decision. More importantly, let them know what your expectations are and what they will be based on possible scenarios of what the IRS will eventually decide.

You might decide to have your collection agency partners immediately refrain from taking any of the actions defined as extraordinary collection actions in the proposed rules. In addition to selling the debt and reporting to a credit bureau, the IRS definition list includes:

• Placing a lien on an individual’s property;
• Foreclosing on an individual’s real property;
• Attaching or seizing an individual’s bank account or any other personal property; Commencing a civil action against an individual;
• Causing an individual’s arrest;
• Causing an individual to be subject to a writ of body attachment; and,
• Garnishing an individual’s wages.

Engage your collection agency partners to uncover candidates for financial assistance

Make certain your collection agency partners have intimate knowledge of your financial assistance policy. In most cases, your collection agents will spend more time communicating with your patients then even their respective doctors, and will certainly have more detailed knowledge about the patient’s financial status.

Make certain your own compliance house is in order

This is a good time to review your own collection policies and your procedures for screening patients who might qualify under your financial assistance policies. The sooner you identify potential candidates and either add them to your charity care rolls or eliminate them from consideration, the sooner you can move them off the 240-day freeze.

John Owen is the Director of Client Development at DECA Financial Services. Email him at jowen@decafinancialservices.com