By: Ruth Wood, MBA, CPHRM, CHSP, The Institute at MagMutual
Navigating the financial landscape of healthcare is key to keeping a healthcare practice flourishing. One often overlooked but important factor is patient bankruptcy, which can have a major impact on a practice’s financial health. When it comes to bankruptcy and the Fair Debt Collection Practices Act (FDCPA), it’s crucial for healthcare providers to understand essential points of both to manage their billing and collection processes effectively.
Key Information for Healthcare Practices
Notification of Bankruptcy
Once a patient files for bankruptcy, the court issues a notice. Healthcare practices must be vigilant in monitoring for these notices to avoid attempting to collect debts included in the bankruptcy, which could lead to legal complications.
FDCPA Compliance
The FDCPA regulates debt collection practices to prevent harassment and ensure fairness. Physicians must adhere to its provisions when collecting debts, especially regarding patients in bankruptcy.
Understanding Bankruptcy Types
Chapter 7 (liquidation): This form of bankruptcy involves liquidation, which can discharge most liabilities while allowing the debtor to retain exempt assets.
- Medical bills are considered unsecured debt, meaning healthcare providers may recover little or no payment for outstanding invoices when a patient files under Chapter 7 due to unsecured debt being last in line for repayment.
- Healthcare practices must write off the patient’s unpaid balance if it is included in the discharge.
Chapter 13 (reorganization/debt repayment plan): The patient reorganizes their debts and agrees to a court-approved repayment plan, typically over 3-5 years.
- Medical bills may be included in the patient’s repayment plan, but healthcare providers might only receive a fraction of what they are owed. This can provide some relief to creditors, including providers, but requires careful monitoring and management, and providers must comply with the terms of the payment plan.
- Payments for medical bills are made through the bankruptcy trustee, and providers may see gradual payments over the course of the repayment period.
- An automatic stay with Chapter 13 means that collection efforts must cease until the bankruptcy court decides how debts will be handled.
Chapter 11 (reorganization for businesses): While Chapter 11 is primarily used for businesses, in rare cases, high-net-worth individuals with substantial debt may file under Chapter 11 to reorganize their finances.
- In these cases, medical bills may be reorganized, and the healthcare provider could be included as a creditor in the patient’s reorganization plan.
- Similar to Chapter 13, payments may be made over time, but healthcare practices may still only receive a partial amount of the total debt owed.
Preventing Bills from Going to Bankrupt Patients
Establish Clear Internal Policies
Implementing clear policies for handling patient accounts for those who declare bankruptcy is essential. This may involve flagging those accounts for special handling and ensuring that staff are adequately trained on appropriate procedures.
Communicate Effectively with Patients — and Document It
If a patient notifies the practice of their bankruptcy status, it is crucial to obtain written confirmation, document this information in appropriate systems and cease any further collection efforts on the account. Effective communication and documentation can prevent legal issues and maintain patient trust.
Ask for Legal Guidance
Consulting with legal counsel is vital to ensure compliance with bankruptcy laws and the FDCPA. Legal experts can provide guidance on managing accounts and protecting the practice from potential legal repercussions.
Educate Staff Members
Train billing and collections staff on bankruptcy procedures, including recognizing bankruptcy notifications and handling patient inquiries. Well-informed staff members are better equipped to manage these situations effectively.
Risks of Noncompliance with Bankruptcy and FDCPA Requirements
Legal Consequences
Failing to comply with the FDCPA can lead to lawsuits and financial penalties. If a practice continues to pursue collections on debts included in bankruptcy, it may face legal actions from the debtor.
Reputational Damage
Mishandling bankrupt accounts can harm a practice’s reputation, leading to negative patient experiences and potential loss of future business.
Financial Loss
Attempting to collect on discharged debts can result in wasted resources and time, as well as increased operational costs from legal disputes.
Loss of Trust
Patients may lose trust in a practice that does not respect their bankruptcy status, affecting overall patient relations and future business.
By being proactive and implementing clear policies regarding bankruptcy and collections, physician practices can protect themselves legally and maintain healthy relationships with their patients.
Frequently Asked Questions
Are we required to stop collection efforts if a patient verbally claims to have filed for bankruptcy, or must the patient provide proof of filing?
A healthcare provider may be required to cease collection efforts in certain jurisdictions solely based on a patient’s verbal notification of a bankruptcy filing. As a best practice, it is prudent to exercise caution and proceed carefully if a patient informs you verbally, especially because continuing aggressive collection efforts could lead to issues if the patient has indeed filed for bankruptcy and the automatic stay is in place.
It is reasonable to follow up and ask the patient for written confirmation, such as a case number, filing details or a notice from the court. Then, you can verify this information through public bankruptcy records or wait for official court notification.
If bankruptcy has been filed and you continue collection actions after the stay is in effect, you could face legal penalties for violating the stay. This includes fines or even being required to pay damages to the patient for any harm caused by continued collection efforts. Temporarily pausing collection efforts while awaiting confirmation can help avoid any unintentional violation of the automatic stay.
Can we terminate the physician-patient relationship if a patient is unable to pay?
Most healthcare organizations, including physician practices, may terminate the physician-patient relationship under certain conditions. Key considerations include ensuring that emergency care is not interrupted, avoiding patient abandonment, and providing written notice with sufficient time for the patient to find alternative care.
While it is generally acceptable to terminate the relationship for financial reasons, such as non-payment, providers should be cautious about discharging a patient solely due to a bankruptcy filing. The inability to pay, rather than the bankruptcy filing itself, should be the basis for the discharge.