US Medical Billing
Patient Billing & Collections

Sending an Account to Collections

Placing an account is usually described as escalation — the balance leaves the practice's queue and becomes somebody else's problem. It is better understood as a change of status. The practice remains the creditor, remains the only party that can say whether the amount is correct, and remains the one a patient will call when it is not. What changes is who is collecting, and which body of law they are collecting under — and that second question is settled by a fact most practices never establish: whether the balance was in default when it was handed over.

Updated 11 min read

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Key takeaways

  • Placement changes the account's legal status, not just who is working it. The practice stays the creditor and stays answerable for whether the balance was right.
  • Under the FDCPA, the hinge is default rather than placement: the definition of debt collector excludes activity concerning a debt that was not in default when the collecting party obtained it.
  • That makes an early-out vendor taking pre-default accounts and an agency taking post-default accounts two different arrangements. Buying one while assuming the rules of the other is a common and avoidable error.
  • A creditor that collects its own debts under a name suggesting a third party is collecting is treated as a debt collector. An invented recovery name on a late statement can do this by accident.
  • Being outside the federal statute is not being unregulated. State collection law reaches creditors directly in ways the FDCPA largely does not.
  • The pre-placement checklist is about the balance, not the patient: insurance exhausted, amount verified, assistance offered, no open dispute, address current.
  • A recall policy decides in advance what comes back and who can order it. Without one, an account placed in error stays placed.

What actually changes at placement

It is worth being precise about which things move and which do not, because the assumption that everything moves is where most of the trouble starts.

Moves: who is contacting the patient
A third party begins communicating about the balance, on its own systems and its own schedule, in ways the practice may not see unless it asks to.
Moves: which rules govern that contact
The Fair Debt Collection Practices Act is aimed at parties collecting debts owed to someone else, so its conduct rules generally reach the agency in a way they do not reach the practice's own billing staff.
Does not move: who the creditor is
The practice is still owed the money. The agency is acting on its behalf, which is precisely why the statute treats it as a third party.
Does not move: responsibility for the amount
Whether the charge was right, the insurance was billed, the adjustment was taken and the patient responsibility was calculated correctly are all facts about the practice's records. No agency can establish them and no placement resolves them.
Does not move: the relationship
The patient does not experience this as a transfer to an unrelated company. They experience it as something the practice did, and they will say so — to the practice, and publicly.

Default, not placement, decides which rules apply

This is the fact worth taking away, and it is not intuitive. Under 15 U.S.C. § 1692a(6) (opens in a new tab), a debt collector is a person whose principal purpose is collecting debts, or who regularly collects debts owed or due another. The definition then excludes, among others, a person collecting another's debt to the extent the activity concerns a debt which was not in default at the time it was obtained by such person.

Which splits outsourced patient collections into two things

An early-out or extended-business-office arrangement — where a vendor works accounts on the practice's behalf during the ordinary statement cycle, before anything is in default — sits on one side of that line. A collection agency taking accounts after the practice has given up on them sits on the other. They are frequently sold by the same companies, sometimes described in the same brochure, and they are not the same arrangement. A practice that contracts for one and assumes the conduct rules of the other has an unexamined compliance question and does not know it.

Two consequences follow for the contract. The first is that the practice should be able to say, in writing, at what point in its own cycle each vendor receives an account and whether the balance is in default at that moment — which requires the practice to have defined what default means for its balances at all. The second is that the answer belongs in the agreement rather than in an assumption, because it determines what the vendor may do and therefore what the practice is arranging to have done in its name.

The trap a practice can walk into on its own

The same definition contains a provision that catches practices which never placed anything at all. Notwithstanding the exclusion for a creditor collecting its own debts, the term debt collector includes any creditor who, in the process of collecting his own debts, uses any name other than his own which would indicate that a third person is collecting or attempting to collect those debts.

The invented recovery name

It is a familiar idea: the third statement goes out under a firmer-sounding name — a recovery division, an adjustment bureau, an account services office — on the theory that patients respond to apparent escalation. Where no real third party stands behind that name, the practice has adopted a name other than its own that indicates a third person is collecting, and the statute says what follows. The mirror provision is the reassuring one: an officer or employee of a creditor collecting **in the name of the creditor** is expressly excluded. Collecting under the practice's own name is the safe configuration, and it is free.

And outside the FDCPA is not outside the law

The federal statute is aimed at third parties, so a practice collecting its own balances in its own name is largely outside it. That is a statement about one statute. Most states regulate debt collection independently and a number of them reach creditors collecting their own debts, payer contracts commonly impose limits of their own, and none of that is displaced by the FDCPA's scope. The practice-level question — what may we say, to whom, and how often — is a question for counsel about a specific state, answered once and written into the policy.

What has to be true before an account is placed

Every item here is about the balance rather than about the patient, and that is the point. The question at placement is not whether this person seems likely to pay; it is whether the practice is confident the amount is owed.

  1. Insurance is genuinely exhausted

    Billed, adjudicated, and — where it was denied — either appealed or a decision recorded not to. A balance moved to a patient because a claim was mishandled is not a patient debt, and billing the patient for a denied claim is the prior question this one depends on.

  2. The amount has been verified, not merely aged

    Someone has confirmed the charge, the contractual adjustment and the cost-sharing calculation. Age is evidence that nobody paid; it is not evidence that the figure is right, and an incorrect balance placed with an agency is an error that now has an audience.

  3. Assistance was actually offered

    Not merely available. If the practice has a financial assistance policy, a patient who would qualify should have been given a real chance to use it before the account leaves, and the record should show that they were.

  4. The statement cycle completed as designed

    The patient statement cycle reached its defined end rather than trailing off. Placement should be the decision the cycle ends in, taken by someone with authority to take it, not what happens when the cycle stops producing responses.

  5. There is no open dispute

    An account the patient has questioned, in writing or on a recorded call, is not ready to go. Placing a disputed balance converts a service problem into a legal one and forfeits the practice's best argument, which is that it looked into it.

  6. The contact details are current

    A placement based on a stale address means the practice is escalating against someone who may never have received a statement. That is a bad outcome on every dimension: it does not collect, and it is indefensible if challenged.

Decide the recall rules before you need them

Some accounts will be placed in error — a payment that crossed in the mail, a denial overturned on appeal, a patient who qualified for assistance all along. The question is whether anything brings them back. A recall policy names what comes back, who can order it without escalating, and how quickly the agency must stop. Without one, the default is that a placed account stays placed, because no individual feels authorized to reverse a decision the process made. One case turns that from a service question into a legal one: a patient bankruptcy stays collection by every entity the moment the petition is filed, and the agency will keep working the account until the practice tells it not to.

Overseeing the agency you placed with

The agency acts in the practice's name and on the practice's records. That makes oversight a continuing obligation rather than a procurement exercise finished at signature, and most of it consists of a small number of questions asked regularly.

  • Which arrangement is this, in writing? Pre-default or post-default, and therefore which conduct rules the vendor is operating under. See above — this is the question that determines all the others.
  • What does the vendor actually say to patients? Templates and call scripts, reviewed rather than assumed. A practice cannot outsource its reputation, and the wording goes out under its name.
  • How do disputes and complaints reach the practice? There should be a defined route and a person who reads them. A dispute that resolves inside the vendor tells the practice nothing about a billing defect that may be producing more of them.
  • How is the balance kept in step? Payments made to the practice, adjustments, and recalls have to reach the vendor promptly. A patient pursued for money they already paid is the single most damaging failure in this process, and it is an integration problem rather than a conduct one.
  • What comes back at the end, and in what state? Accounts returned as uncollectible should arrive with a record of what was done, so that the write-off is a documented conclusion rather than an administrative shrug.

A different vendor from the one that chases payers

This is patient money, governed by consumer-protection law, collected from the person who received the care. An outsourced A/R vendor pursuing insurance receivables is a different arrangement with different rules and a different set of oversight rights — outsourced A/R vendor oversight covers that one. Practices sometimes buy both from one company, which is fine, and is not a reason to govern them as one thing.

Common questions

Does the FDCPA apply to our own billing staff?

Generally not, and the reason is definitional rather than a matter of leniency: the statute is aimed at parties collecting debts owed to someone else, and it expressly excludes an officer or employee of a creditor collecting for that creditor in the creditor's own name. Two cautions belong with that answer. The first is the name provision — collecting your own debts under a name that suggests a third party is collecting brings you inside the statute. The second is that most states regulate collection independently and some of them do reach creditors, so being outside the federal statute is not the same as being unregulated.

Is an early-out vendor the same as a collection agency?

Not necessarily, and the difference is worth establishing in writing. The FDCPA's definition excludes a party collecting another's debt where the activity concerns a debt that was not in default when that party obtained it. A vendor working accounts during the ordinary statement cycle, before default, is in a different position from an agency taking accounts after the practice has stopped pursuing them. The same company often offers both services, so the label on the contract matters less than the answer to a specific question: at what point in our cycle does this vendor receive an account, and is the balance in default at that moment?

How old should a balance be before we place it?

No responsible general answer exists, and a number published here would be read as a standard when it is really a decision about a different practice. The inputs are the practice's own: balance sizes, patient population, the cost of another statement pass, and what the practice's own history says about when payment stops arriving. What does generalize is the shape of the decision — placement should be the conclusion of a defined cycle, taken by someone with authority, against a balance whose correctness has been confirmed, rather than the thing that happens when the statements run out.

What if the patient disputes the balance after we place it?

The dispute is about the practice's records, so it comes back to the practice regardless of who is holding the account. That is why a defined route for disputes to reach a person who can look them up matters more than it appears to: an agency cannot establish whether a claim was billed correctly, an adjustment was taken, or an appeal was owed. Practically, a disputed balance is usually best recalled while it is examined — which is only possible if a recall policy exists and names who can invoke it.

Can we report an unpaid balance to a credit bureau?

This article does not answer that, deliberately. The rules on medical debt reporting have moved recently and have been the subject of litigation, which means anything specific stated here would date quickly and being wrong about it can expose a practice legally. It is a real question with a real answer for your state and your circumstances, and it is one to put to counsel and then record in the policy — not one to take from a website.

Key terms in this article

Defined once, on their own pages.

Continue learning

The cycle that ends here, and the questions that come first.

Authoritative sources

  • 15 U.S.C. § 1692a — Fair Debt Collection Practices Act, definitions (opens in a new tab)

    Defines a debt collector as a person who uses an instrumentality of interstate commerce or the mails in a business the principal purpose of which is the collection of debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another. The term expressly includes any creditor who, in the process of collecting his own debts, uses any name other than his own which would indicate that a third person is collecting or attempting to collect such debts. Its exclusions include, at (A), an officer or employee of a creditor while collecting debts for that creditor in the creditor's name, and at (F), a person collecting a debt owed another to the extent the activity is incidental to a bona fide fiduciary obligation or escrow arrangement, concerns a debt originated by that person, concerns a debt which was not in default at the time it was obtained by that person, or concerns a debt obtained as a secured party in a commercial credit transaction.

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