What Is Collections in Medical Billing and How Does It Work?

Medical billing “collections” refers to the process of recovering unpaid balances for healthcare services. This stage begins after a patient’s insurance has processed a claim and the provider has attempted to collect any remaining patient responsibility. It represents the final effort within the healthcare revenue cycle to secure payment for services rendered.

Understanding Patient Financial Obligations

Patients incur financial responsibilities for healthcare services through various mechanisms outlined in their insurance plans. A common obligation is the deductible, which is the specific amount a patient must pay out-of-pocket before their insurance coverage begins to pay for covered medical expenses. For instance, if a plan has a $2,000 deductible, the patient is responsible for the first $2,000 in covered services each plan year before insurance benefits apply.

Co-pays are fixed amounts paid directly by the patient at the time of service, such as a $30 co-pay for a doctor’s office visit or a $50 co-pay for an emergency room visit. Co-insurance, conversely, represents a percentage of the cost of a covered health service that the patient is responsible for after meeting their deductible. For example, an 80/20 co-insurance plan means the insurance covers 80% and the patient is responsible for the remaining 20% of the allowed charges.

Additionally, patients may be responsible for services not covered by their insurance policy or for charges that exceed the out-of-pocket maximum. The out-of-pocket maximum is the most a patient has to pay for covered services in a plan year, after which the insurance plan typically pays 100% of the costs.

Internal Collection Efforts by Providers

Before an account is transferred to an external collection agency, medical providers undertake a series of internal efforts to recover unpaid balances directly from patients. The process begins with the issuance of initial billing statements and invoices shortly after services are rendered and insurance has processed the claim. These statements detail the services provided, the total charges, the amount paid by insurance, and the remaining patient responsibility.

Following the initial statement, providers send follow-up statements and reminder notices over a period of several weeks or months. These notices serve to remind the patient of the outstanding balance and encourage prompt payment. If the bill remains unpaid, the provider’s billing department may initiate phone calls to discuss the outstanding amount and inquire about the reasons for non-payment.

During these internal efforts, providers often offer various solutions to patients facing financial difficulties. This can include setting up structured payment plans, allowing the patient to pay the balance in smaller, manageable installments over time. Some providers also have financial assistance programs or charity care policies that patients may qualify for based on income or other criteria. Finally, providers may send pre-collection letters or final notices, stating the account will be forwarded to an external agency if payment is not received by a specified date, usually within 90 to 120 days of the original due date.

External Collection Agency Involvement

When internal collection efforts prove unsuccessful, a medical provider may transfer an unpaid account to a third-party collection agency. This typically occurs after a period ranging from 90 to 180 days of non-payment, depending on the provider’s policy and the type of debt. The collection agency then acts on behalf of the medical provider, or in some cases, may have purchased the debt outright, to recover the outstanding amount.

Upon receiving the account, the collection agency will initiate contact with the patient, commonly through initial dunning letters and subsequent phone calls. These communications aim to inform the patient that the debt has been placed with them and to solicit payment. The agency is required to verify the debt, providing details such as the amount owed and the original creditor.

Collection agencies may attempt to negotiate settlements, where the patient pays a reduced amount to fully resolve the debt. This allows the agency to recover funds and the patient to clear the debt, potentially avoiding further collection actions. Unpaid medical bills that are sent to collections can impact credit reports, though there are specific rules governing this. For instance, as of July 1, 2022, paid medical collection debt is no longer included on U.S. consumer credit reports, and as of April 2023, medical collection debt with an initial reported balance under $500 is removed from credit reports.

Patient Rights and Recourse

Patients have specific rights when dealing with medical debt collections, primarily protected under the Fair Debt Collection Practices Act (FDCPA). This federal law regulates the conduct of third-party debt collectors, prohibiting abusive, deceptive, and unfair practices. For example, debt collectors generally cannot call before 8 a.m. or after 9 p.m. without permission, or harass a consumer with repeated calls.

One important actionable step for patients is to request validation of the debt from the collection agency. Within five days of their initial communication, a debt collector must provide a written validation notice detailing the amount owed, the current creditor, and a statement of the consumer’s right to dispute the debt within 30 days. If a patient disputes the debt in writing within this 30-day period, the collection agency must cease collection efforts until they provide verification of the debt.

If a medical bill is incorrect or unsubstantiated, patients have the right to dispute it. This involves sending a written dispute letter to the collection agency, clearly stating why the debt is being challenged and requesting supporting documentation. Patients can also attempt to negotiate payment plans or settlements directly with the collection agency or, in some cases, with the original provider, even after the account has been placed for collection. If a collection agency violates a patient’s rights under the FDCPA, complaints can be filed with federal agencies like the Consumer Financial Protection Bureau (CFPB) or the Federal Trade Commission (FTC), or with state Attorney General offices.