A Fair Trade?

November 15, 2001

What you can and can't do when it comes to collections


"We're not a bank. Take out a loan or charge it," says Diane Colton, office manager for Family Medicine Associates of Texas, when asked about extending credit to patients. It's not that Colton is heartless, but her eight-physician practice in Carrollton, Texas, has established a set of rules for collecting payments from its 30,000 patients.

While most physicians prefer to concentrate on their clinical expertise rather than their business acumen, many are savvy enough to hire people like Colton to help them establish and oversee policies ranging from collecting copayments, charging for no-shows, adding finance charges to late payments, and using credit cards. At the same time, office financial gurus should be aware of regulations that may affect these collection practices to ensure that their payment plans follow the rule of law and result in prompt payment to the practice.

Collect it up-front

What every physician practice strives for is collecting payments at the time of service. Copayments are easiest - not only are patients conditioned to paying them at the time of the visit, but managed-care contracts require them to be remitted up-front; otherwise, contract terms with insurers may be violated. Colton says it makes no sense to bill for them because statements cost nearly as much as the copayment. More important, physicians have a legal obligation to collect them.

Waiving copayments for Medicare patients, for example, violates federal law; it may be construed as an inducement to see a specific doctor and is considered fraud by the CMS (Centers for Medicare and Medicaid Services, formerly HCFA). "If you routinely give courtesy, someone is going to question it. You are under obligation to charge the full fee unless you can show financial hardship for the patient," says Mark DeFrancesco, chief medical officer at Women's Health Connecticut, a 140-physician practice in Avon.

Similarly, professional courtesy may be considered an incentive to physicians to refer patients, another potentially fraudulent practice. Scott Williams, director of billing and collections at Duke University in Durham, N.C., says it's a big challenge to ask patients for money, but educating patients and practice staff can help smooth the process. At Duke, staff members are given scripts customized for each specialty to assist in dealing with patients about financial matters.

"When patients call for an appointment, we let them know we expect payment at time of service and remind them of outstanding balances," Williams explains. "And we discuss it again during appointment reminder calls so requests for payment won't come as a surprise." He encourages practices to design their infrastructures so that patients pass a business office or desk before they leave - and have access to an office or alcove for discussing financial issues in private.

"You really can't ask for much more than a copayment up-front," says Victoria Jackson, CEO of Southern Orange County Pediatric Associates in Lake Forest, Calif. "You have to wait to see what insurance covers before you can bill someone." Her practice gives patients envelopes for copayments if they can't pay at time of service, and gives them a week to pay; she will, however, charge $5 if she has to send a billing statement.

Paying over time

While the majority of physician offices accept credit cards to allow patients to pay larger balances over time, some smaller practices - and those striving for that extra degree of customer service - may decide to handle their own payment plans. In that case, disclosure of certain information is required before a "closed-end credit transaction," in which the borrower is required to pay off an established amount by a particular time, is completed.

The Truth in Lending Act outlines several items that must be included in disclosure statements for closed-end credit plans, to protect the creditors (in this case, physicians). These required items include: the institution name, annual percentage rate, finance charge, itemization of amount financed, the payment schedule, the total number of payments and total amount, security interest (whether the loan is secured and if so, by what collateral), prepayment statement (if one exists), late payment (and whether there is a penalty), contract reference, the required deposit, a demand feature (creditors may demand full payment if a patient defaults on payment terms), and insurance disclosures. Any items that are not applicable, such as collateral, may be deleted from the disclosure statement. Be aware, too, that some items may have negative public relations and administrative ramifications.

Inga Ellzey, who runs a physician consulting and billing firm in Casselbury, Fla., recommends that physicians think long and hard about charging a finance fee, for example. "It becomes a bookkeeping hassle. You have to keep separate books - one for medical care and one for administrative charges. If someone can't pay in the first place, how are they going to pay extra fees?" she asks. DeFrancesco agrees that charging interest is not a good idea. "It makes physicians look greedy and gives us a bad image," he notes.

Although the American Medical Association (AMA) discourages commercial collection practices, it supports interest charges if physicians continually experience delinquent accounts. The organization emphasizes that physicians must not only comply with state and federal laws and regulations related to finance charges, but that they also must tell patients their policies in advance by posting signs in the office waiting area, distributing brochures describing billing practices, and including notification in billing statements. If there is a change in terms, patients must be notified within 15 days.

Give patients a chance

Williams agrees that extended payment plans are a better incentive to encourage prompt payment than adding finance charges to late payments, but he is in favor of doing a little due diligence through financial screenings of the patients to ensure they can eventually pay. Family Medicine Associates of Texas is willing to develop payment plans, but with reasonable terms, Colton says - although that doesn't mean $10 a month for a $3,000 invoice. Patients are required to sign a financial agreement, and if they fail to pay on time, the account is moved to a collection agency.


Practices that handle overdue accounts themselves should be aware of the Fair Debt Collection Practices Act. That act outlines when it is appropriate to contact a person (not before 8 a.m. or after 9 p.m.), what constitutes harassment or unfair practices (threats of violence or harm), and what is considered false or misleading representation (misstating the amount owed).

No show, no charge

"It's just putting good money after bad," Williams says, when it comes to charging for no-shows. "It's self-defeating because you won't collect money anyway." Family Medicine Associates of Texas is one of those practices that charges for missed appointments, but only after the third time. Colton sends a letter informing patients that they will be billed for an office visit.

Ellzey considers charging for no-shows another bookkeeping nightmare. She believes that chronic no-shows will eventually move on to another provider. As a preventive measure, she recommends that physicians or their administrators track when missed appointments occur most often - during the summer vacation time, for instance - and overbook the average number of no-shows for those periods. "Use software to automatically trigger appointment reminder calls and don't book appointments too far in advance," she recommends.

DeFrancesco holds a practical view of the no-show dilemma. "We realize that as doctors, we have similar transgressions, making patients wait or sometimes even canceling," he says. "Not charging makes for more satisfaction and better doctor-patient relationships."

Although Mike DiDonato doesn't typically bill for no-shows, there are two elective surgical procedures offered by his urology practice in Voorhees, N.J., that make it necessary because the procedures involve time-consuming microsurgery. Administrator DiDonato says patients must put half down once they decide to undergo these surgeries, half of which the practice keeps if the patient backs out.

"Billing has become so complex," he says, "with so many different regulations and insurers that billing staffs have to be experts, not just data entry people."

Mari Edlin can be reached at editor@physicianspractice.com.

This article originally appeared in the November/December 2001 issue of Physicians Practice.