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Interest & Collection Companies

Wednesday, May 24, 2017   (0 Comments)
Posted by: Adrienne J. Hersh, J.D., ICS Legal Counsel
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The following is a continuation of Adrienne Hersh's "Medical Billing & Collecting: Some Legal Guidelines" which can be found here.



Providers who submit claims to third party payors are entitled by law to interest when payment is not timely. Third party payors must pay claims within 30 days after they receive a claim with sufficient documentation. If the third party payor believes the documentation is insufficient on initial receipt of the claim (for example, cases where the payor requests additional information to prove medical necessity), the third party payor must notify the provider within 30 days after receiving the claim. In those cases, the "clock” starts running when sufficient documentation is received. If the third party payor does not pay the claim within 30 days after the claim is complete, the health care professional or health care facility is entitled to interest at the rate of 9% per year. Interest payments must be made within 30 days after the late payment. Interest of less than $1 need not be paid. Preferred provider agreements that attempt to have physicians contract away their legal rights to prompt payment and interest may be unenforceable because they are against public policy as expressed in these laws.


The ICS is often asked whether physicians may also charge their patients interest on unpaid patient balances. In general, interest may be added in business transactions only when there is an agreement to do so by both parties at the inception of the contract. Also, collection agencies in Illinois may not add amounts to the debt unless there was an agreement by the original parties. Therefore, if you want the ability to add interest charges in the future, or if you anticipate sending uncollected fees to a collection agency, it is advisable to get specific written authorization from your patients during the first visit. This authorization can be made part of your original signed patient financial agreement, which doctors typically require prior to first treatment. The Illinois Interest Act provides that in all written contracts parties may stipulate to interest of up to 9%. Thus, even when agreed to, interest may not exceed 9% per year by current law in Illinois.


In the absence of a written agreement to charge interest, the Illinois Interest Act may permit creditors to receive 5% annual interest in some specific situations, a couple of which may apply in a physician’s office. The first is where money is due on "settlement of accounts between parties.” If you review an outstanding account with a patient and the patient acknowledges the debt, this type of interest may be applicable, but only from the date of acknowledgment by the patient. Another possible justification for this type of interest is on money "withheld by an unreasonable and vexatious delay of payment.” This theory is more difficult to prove and applies only when your patient has thrown obstacles in the way of collection or has deliberately induced you to delay taking proceedings to collect the debt longer than you would have otherwise done.


Collection Agencies – To Use or Not to Use?

Like any other business, a chiropractic practice may wish to use a collection agency to pursue overdue patient accounts. Most of these collection agencies are paid a percentage of the amount collected.  In the past, this fee structure was considered a technical violation of the prohibition against fee-splitting in the Medical Practice Act, because it amounted to dividing a professional fee with another party.

The law was changed in 2010 to clarify that physician licensees are permitted to pay a percentage fee to administrative, billing or collection agencies in exchange for their services, provided:

i) the licensee or the licensee's practice at all times controls the amount of fees charged and collected; and


(ii) all charges collected are paid directly to the licensee or the licensee's practice or are deposited directly into an account in the name of and under the sole control of the licensee or the licensee's practice or deposited into a "Trust Account" by a licensed collection agency in accordance with the requirements of Section 8(c) of the Illinois Collection Agency Act.

Therefore, if the above conditions are met, physicians will not jeopardize their professional licenses by hiring collection agencies on a percentage compensation basis.


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