How Long Does It Take for a Medical Debt to Go to Collections?

Growth in annual healthcare costs has slowed since the beginning of the recession. Despite this, privately insured patients are taking on increasing responsibility for the cost of care through greater out-of-pocket expenses.

The typical American family of four had total healthcare costs exceeding $22,000 last year, which included out-of-pocket costs of $3,600. This level of out-of-pocket spending outstripped the amount laid out by the average American household on gas for their automobiles, according to the Milliman Medical Index.

The nation’s out-of-pocket healthcare costs for 2013 are estimated to have totaled $322 billion. This represents a significant amount of debt — debt, which if not paid off in a timely manner, could be sent out to a collection agency.

In fact, millions of medical accounts are sent to collection annually. Medical bills comprise more than half of the accounts in collection, according to research by the Federal Reserve.

It may be for this reason that the Consumer Financial Protection Bureau has also taken a keen interest in this issue. In testimony before a Congressional committee, a CFPB representative stated that medical debt surpassed debt issued by financial institutions as the largest focus of debt collection activity in the country. He also cited debt collection industry data that shows hospitals and other healthcare providers represent the largest group of customers of collection agencies, as well as the largest amount of recoveries in dollar value.

Addressing the Problem

Research and data have established that unpaid medical bills regularly go to collection; frequently this takes patients by surprise. The common question asked by consumers is: How much time elapses before a medical bill is sent to collection? The answer: It depends. It varies greatly among provider types and across regions of the country. That is why millions of Americans are surprised when they get a call from a collection agency rather than their hospital or doctor’s office asking them to pay up.

The Healthcare Financial Management Association (HFMA) and ACA International hope to change this. Early last year they convened a medical debt task force to tackle this problem (full disclosure: I am a member of this task force), and to establish best practice guidelines that outline the actions needed to resolve patient payments after care was provided. The guidelines are intended to clarify the process of resolving medical accounts and to reduce unpleasant surprises for consumers who may have bills sent to collection.

Though the guidelines do not delineate the timeframe for particular actions, they do clarify the crucial steps in resolving medical accounts. For example, they recommend that healthcare providers do the following: make reasonable efforts to ensure that patient bills are accurate and complete; attempt to enroll self-pay patients in any applicable public programs or other private insurance coverage; screen for financial assistance or charity care; offer payment plans that consider the patient’s economic circumstances; and follow the HFMA’s long-standing Patient Friendly Billing Principles.

These guidelines, in conjunction with IRS rules governing the billing and collection policies of nonprofit hospitals, provide just the type of standards that could dramatically alter medical collections. The IRS rules are referenced in the HFMA/ACA Best Practices Guidelines and include timeframes and place certain restrictions on hospitals (nonprofit hospitals that enjoy federal tax exemption) from taking “extraordinary collection actions” until reasonable efforts have been made to determine whether the patient qualifies for the hospital’s financial assistance. This assistance, often referred to as charity care, is available to low-income patients at non-profit hospitals.

What You Need to Know

If you’re concerned that a medical bill may be sent to collection before you have even been informed that you owe it, there are certain things you should know. First, new industry standards are being developed by HFMA – ask you provider if they are aware of them. Second, the IRS is developing rules governing nonprofit hospital billing and collection policies. Therefore, if you have outstanding hospitals bills from a nonprofit hospital, ask them to share their financial assistance and billing/collection policies with you – they are required to do so.

Also, never ignore a medical bill. If you do, you are nearly assured the bigger headache that will result after it has been sent to collection. If you are unable to promptly pay the bill in full, let the provider know and work with them on an extended payment plan. Again, such arrangements are included in the new Best Practices Guidelines and most providers will negotiate realistic payment terms based on a patient’s personal financial state. Finally, be sure to keep current on payments. If you follow these steps, they may help you avoid having to deal with a medical bill that has been sent to collection.

[Ed. note: If you’re concerned about whether your medical debts have been sent to collection (or know that they have), it’s important to check your credit reports, which you can do for free through the government-authorized AnnualCreditReport.com. You can also check your credit scores for changes using a free tool like Credit.com’s Credit Report Card, which also gives an overview of your credit report, and lists whether you have any negative accounts.]