Should Your Office Charge Finance Charges

By: Jill Heyden

As you are aware, out of pocket expenses for patients have increased in the last few years. This fact has prompted many providers to revisit the issue of whether they should charge patients interest or late payment fees after a balance becomes past due. Money collected from these accrued finance charges is often used to offset costs that a practice will incur in its attempts to collect balances owed. Such costs include additional statements, staffing for collections calls, and/or external collections agency fees which are increasing, because of new and additional governmental regulation.

Considerations

There are many things to consider in deciding if your practice should charge finance charges. First and foremost, you will need to check your billing software to determine if the version that you use has the ability to accrue finance charges. Surprisingly, many do not. Others may have the ability, but at an additional cost to you as their user.

Also, consider the amount of time and work that including these charges may add for your billing team. If it does add work, is it manageable and is it worth it? Your team will also be the voice of explanation to your patients. With the implementation of additional fees, patients may need some assistance with understanding the change and the reasoning behind the change. As with all changes to patient interaction: the response from the patient is often determined in the delivery of the message.

Informing Patients

If you intend to charge additional fees on unpaid balances, the Federal Truth in Lending Act requires you to inform patients in advance (at the date of service or at the very least, on the first statement.) It is suggested to inform patients on a lobby sign, on a patient in-take form, and/or the financial responsibility form. Intentions to charge finance charges should also be printed on each billing statement.  Seek legal counsel for suggested verbiage, the amount you may charge, and any relevant state laws.

Calculating Charges

Carefully consider the timing of your accrual plan. Most accounting software calculates the finance charges for you but knowing the process is helpful when you are setting your late fee amount.

To accrue charges per day, the finance percentage should be set based on a full month. First find the daily percentage rate.  If you charge 2 percent per month, multiply that by 0.03 which gives you 1/30th of 2. This will illustrate a daily rate of .06 percent.  Multiply the amount due by the daily rate. This option gives you the flexibility to send out invoices as often as you choose, with each invoice showing a higher finance charge.

Instead of worrying about a daily finance charge, some facilities choose to set a flat monthly percentage amount. For example, say all overdue invoices will be charged a 10 percent late fee. At the end of the month, simply multiply the amount owed by 10 percent. Add the product to the principal balance that is owed.

Patient Perception

While studies have shown that charging a fee to offset costs has fiscally assisted medical practices, the patient’s perception is also a factor. Waiving a finance charge is one way to show your patients that you are willing to work with them and want them succeed in paying their debt. Consumers as a whole are looking for ‘the best deal.’ Finance charges can be used as a negotiating tool with patients without influencing the principal balance that is owed for the services provided.

The American Medical Association offers this guidance: “Although harsh or commercial collection practices are discouraged in the practice of medicine, a physician who has experienced problems with delinquent accounts may properly choose to request that payment be made at the time of treatment or add interest or other reasonable charges to delinquent accounts. The patient must be notified in advance of the interest or other reasonable finance or service charges by such means as the posting of a notice in the physician’s waiting room, the distribution of leaflets describing the office billing practices, and appropriate notations on the billing statement. The physician must comply with state and federal laws and regulations applicable to the imposition of such charges. Physicians are encouraged to review their accounting/collection policies to ensure that no patient’s account is sent to collections without the physician’s knowledge. Physicians who choose to add an interest or finance charge to accounts not paid within a reasonable time are encouraged to use compassion and discretion in hardship cases.”

What About Collections?

What happens to these finance charges if an account needs to be referred to an external collections agency? Because it is federal regulation, finance charge accrual on a bad debt account will need to cease the day that it is outsourced. If finance charges can be clearly distinguished from the principal balance owed when referring the account to an agency, most agencies will accrue finance charges on the principal balance. This also allows them negotiating power when attempting to collect. Some contractual collections agreements may even share a portion of their agency-accrued finance charges back with their clients. 

Consumers are accustomed to being held accountable for debt that they owe. Mortgages, loan payments and even contractual agreements (such as cell phones, utilities, etc.) all charge some type of fees. As a medical provider, why should you have to absorb additional costs because the patient is slow in paying?

Jill Heyden is Director of Business Relations at Advanced Asset Alliance in Sioux Falls.