The Treasury Department has heard from the medical associations and ACA International on proposed rules that would greatly restrict how hospitals run their patient financial services departments and manage their third-party collection agencies.

You are no doubt already familiar with the proposed rules that, if enacted, will be enforced by the IRS and reported by not-for-profit hospitals annually on Schedule H, Form 990. The comment period on the proposed rules, introduced this spring, closed on Sept. 24.

One of the big question marks when the Schedule was revised three years ago was the section that required tax-exempt hospitals to refrain from “extraordinary collection actions” until it could “reasonably” determine whether a patient qualified for charity care/financial assistance. That left many scratching their heads as to what exactly is an “extraordinary collection action,” and what, precisely, was “reasonable.”

Several organizations asked the Treasury to be specific, and at least among healthcare providers, the legal community, and collection agencies, there was one area they wanted excluded. As the American Bar Association stated in its comments to the IRS almost two years ago, “making a report to a credit rating agency or engaging a collection agent” should not be considered “extraordinary.”

The Treasury Department apparently did not agree, and last spring’s proposed regulations made a point of making both actions “extraordinary” — with caveats.

The new regulations propose a 120-day notification period following the provider’s first bill to any patient who might qualify for financial assistance. Once that period expires, the patient has another 120 days to submit a financial assistance application. During that 240-day window, the hospital can engage a collection agency to collect that debt but it cannot sell the debt to a third party or report the patient to a credit reporting agency, as both actions are now defined as “extraordinary.”

At this moment the Treasury is reviewing the comments on the proposed regulations. It’s anyone’s guess what regulations they will impose. Until then, there are proactive steps you should take to prepare for whatever the final decision will be.

Communicate with your collection agency partners

Regardless if you meet regularly with your collection agency partners or infrequently, now would be a good time to have a conversation with them to determine what steps they have taken, if any, to prepare for the Treasury’s decision. More importantly, let them know what your expectations are and what they will be based on possible scenarios of what the IRS will eventually decide.

You might decide to have your collection agency partners immediately refrain from taking any of the actions defined as extraordinary collection actions in the proposed rules. In addition to selling the debt and reporting to a credit bureau, the IRS definition list includes:

• Placing a lien on an individual’s property;
• Foreclosing on an individual’s real property;
• Attaching or seizing an individual’s bank account or any other personal property; Commencing a civil action against an individual;
• Causing an individual’s arrest;
• Causing an individual to be subject to a writ of body attachment; and,
• Garnishing an individual’s wages.

Engage your collection agency partners to uncover candidates for financial assistance

Make certain your collection agency partners have intimate knowledge of your financial assistance policy. In most cases, your collection agents will spend more time communicating with your patients then even their respective doctors, and will certainly have more detailed knowledge about the patient’s financial status.

Make certain your own compliance house is in order

This is a good time to review your own collection policies and your procedures for screening patients who might qualify under your financial assistance policies. The sooner you identify potential candidates and either add them to your charity care rolls or eliminate them from consideration, the sooner you can move them off the 240-day freeze.

John Owen is the Director of Client Development at DECA Financial Services. Email him at jowen@decafinancialservices.com

The U.S. Department of Health and Human Services recently announced that it would test the capitation model of payment reform in Massachusetts. The state’s 110,000 Medicare/Medicaid patients under age 65 will be assigned to an integrated care organization (ICO) in exchange for a set fee per patient that covers all medical treatment for a defined period.

The test will demonstrate if capitation works and is scalable, The Massachusetts test heralds the beginning of a new era of payment reform. But as we all know, payment reform is already here. There is a growing consensus by providers that the well-worn fee-for-service model doesn’t work, and that something has to change. But change is already here, and payment reform, whether we like it or not, has arrived. Unless healthcare providers are proactive, these payment reform trends themselves will literally pick our pockets as payors–be they government agencies or insurance companies–pick hospitals’ pockets.

Federal and state governments already engage in payment reform in its crudest form by simply reducing reimbursements. This trend will continue as the Baby Boomer generation becomes the Medicare generation (or possibly the Medicaid generation considering the millions that have saved nothing for retirement).

In the case of Medicare and Medicaid, there is only one place where the buck stops when it comes to the government, and that is with providers. The winners will be those who become the most proficient and efficient when it comes to seeking reimbursements and avoiding denials. As we mentioned last month, that means getting ahead of the ICD-10 curve. Fortunately the U.S. Department of Health and Human Services has given you another year to get ready.

Health insurers are under tremendous pressure from their customers, i.e., employers, to keep costs down, and so far 2012 has not been a banner year for revenues or profits. Insurers will transfer that financial pressure onto providers, and as UnitedHealth Group recently demonstrated, they will leverage consumers to help them. At the recent HFMA leadership conference, UnitedHealth Senior Vice President Simon Stevens showed off a brief demo of his company’s customer engagement tool that enables their customers, your patients, to see the price and relative quality of procedures of healthcare providers in their area. Stevens called it an “Expedia” of healthcare options.

A recent report by Chilmark Research said that adoption of such tools by insurers has been slow, but is growing. UnitedHealth is the 500-pound gorilla in the marketplace, and where they go, the rest of the pack cannot be far behind.

Some healthcare providers have seen the light, and realized that it comes from a computer screen. As Boca Raton Regional Hospitalrecently demonstrated, providing an online infrastructure where you can engage your patients not only means they will be better informed and better prepared about the cost of their healthcare, it also results in increased collections and increased patient satisfaction.

Did you know enrolling your aging A/R accounts into a third-party debt collector’s early out program can significantly increase your company’s chances for a successful collection recovery without eroding your relationship with the consumer? Early-out programs are just one example of many emerging trends that are sure to re-shape the debt collection industry when fully realized.

In this discussion, we are going to present three emerging trends in our industry that have relevance and impact on how you manage your small business accounts receivable management (ARM), the collector/consumer relationship, and the far-reaching capabilities of consumer protection regulation.

Early-Out

“Early-out” is essentially a loose definition for a program debt collection agencies like DECA Financial Services offer which are designed specifically to collect on recently-delinquent accounts. Small businesses can use an early out program to collect debts from consumers that are usually somewhere between 30-90 days old and therefore have a substantially greater chance of a successful collection.

Most early-out programs operate under the premise of first party collections, in which an agency acts and processes the debt in the name of the client, not on behalf of. This allows for continuity of the debtor during the first billing cycle and handoff to your outsource collection partner.

In addition to a considerably higher probability of full collection, early out programs offer another benefit: decreased consumer attrition. Many times, consumers whose delinquent accounts have been forwarded onto a third-party collector, will likely demonstrate some degree of offence. By entering an account into an early out program, you are sending a very strong message to your consumer that says you need this account to be paid as soon as possible, but the relationship you have for so long enjoyed together does not have to be interrupted.

Finally, an early out service can help your company focus less on debt collection and more on running your business, thus increasing the potential for repayment. In addition, quality firms can provide solid regression identifying trends with your A/R that may assist you in decreasing your delinquency and defaults.

Increased protection over consumer communications

Provisions in the FDCPA, the legislation first introduced in 1978 to protect the rights of debtors today bears more requirements and regulatory red-tape when it comes to contacting consumers than ever before. It is just as important for your company to understand these provisions when collecting past due accounts in house as it is for DECA and other professional third-party collectors to understand.

But another government regulatory body, the Federal Communications Commission (FCC), has as recently as 2008 provided an interpretation of the language in the Telephone Consumer Protection Act (TCPA), a body of legislation passed by Congress in 1991, but has been challenged on at least one front in a Federal District court. The language was ambiguous enough that it allowed debt collection agencies to use automatic pre-recorded debt collection calls to the cell phones of indebted consumers for some time.

Technically, the argument that served as the basis for a California District Court ruling that overturned the TCPA had to do with the express written consent (or lack thereof) from a consumer. Express consent is any agreement, in writing or orally, that waives certain protections for consumers when it comes to debt collection communications. Express written consent, however, is much more challenging to obtain from the consumer.

By writing her cell phone number down on a credit application, the plaintiff in the aforementioned U.S. federal court case who was an indebted woman had in the defendant’s argument granted express written consent to be contacted by telephone. The defendant, a debt collection company in Northern California, had added her to an auto-dial machine list that called her several times. She sued and won an undisclosed judgment on the notion that although she may have granted express written consent for contact via cell phone, consent to use an automated machine was not warranted.

By explicitly requesting in your documentation with your customer’s, consent to reach your debtors via email, phone, cell phone, etc., you have now taken a necessary step in ensuring your collection efforts have been approved by your customer. This also allows a collection agency a greater chance of reaching your debtors, thus potentially increasing your returns.

So the lesson we should all take away is to understand the law and understand your jurisdiction when attempting to collect a debt. One of the many benefits of outsourcing your accounts receivable management and collection efforts is that you do not have to concern yourself with federal compliance – that is our job as your third-party collector in pursuit of a settlement from a consumer.

Modernizing the FDCPA

In keeping the regulatory issue theme, the third trend we are presenting is the Association for Collection and Credit Professional’s (A.K.A. ACA International) report released April 6th, 2011 that outlines the organization’s suggestions for updating and modernizing the FDCPA.

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 established the Consumer Financial Protection Bureau (CFPB), whom in plain terms is a new federal agency that is tasked with providing information and resources to consumers relating to their relationship with financial firms and products. Sounds like a big designation? It is.

The ACA announced that among its most important priorities this year is to collaborate and negotiate suggestions for modernizing the FDCPA, an influential piece of legislation that now falls under the CFPB’s authority and currently stands devoid of revision since 2007. The report calls for the attention of regulators to take a look at:

• Language in the bill that addresses and reflects the technological advancements in communications and the rights of both consumer and debt collectors, including but not limited to cell phones, text messaging, email, and social media as a vehicle for collection;
• Clarification on what a collector can and cannot say when leaving a message with a consumer’s answering machine;
• Provide adequate and uniform access of consumer information to debt collectors to ensure timely and the least invasive collection of debt by requiring creditors to keep consumer information accurate and updated;
• And allow debt collectors to fully participate in the dispute process over the validity of a debt so that an appropriate resolution can be achieved quickly.

Of course, this article by no means sums up fully or even partially all of the trends that are emerging in the debt collection industry, but it is a good reference for some of the more persuasive and influential developments that are budding this very year.

Each one of these trends – from the development of early out programs, to legal challenges involving common debt collection communication practices, to the modernization of the FDCPA – will undoubtedly have a lasting effect on the universal state of the debt collection industry when fully matured.

The unfortunate and devastating effects of the most recent recession has inflected a lingering toll on consumers and borrowers across the nation, and these days more than ever debt collection agencies are subject to strict compliance and the calls from regulators for a fair, transparent, and ethical approach to collection. Let’s explore the legislation that has contributed to the contemporary collection compliance environment and how the demand for higher quality service is shaping our industry going forward.

Debt collection agencies like DECA Financial Services are regulated and controlled by the Federal Trade Commission on a national level and by their respective city and state governments as well. A county, city, or state business and occupational license, bond, and insurance are all required to start a collection business, and coming financial reform legislation is expected to extend compliance requirements for new collection agencies.

The FDCPA and changes to collection compliance

Before the passing of the most comprehensive debt collection reform act to date, the Fair Debt Collection Practices Act (or FDCPA) implemented in 2006, many debt collection agencies were by and large operating by questionable tactics and ethics. The collection strategies were aggressive and threatening, and many third-party collection agencies gained predatory reputations. State and Federal regulators, led by initiatives backed by the Federal Trade Commission, set out to create new rules and restrictions that were intended to eliminate some of the industry’s most belligerent methods.

According to the FDCPA’s purpose, the reasons for the new legislation was apparent. The bill cited “abundant evidence of abusive, deceptive, and unfair debt collection practices by many Collectors” that led to personal bankruptcy, marital instability, and job loss for hundreds of debtors. The new laws aimed to set new compliance for the ways creditors and collection agencies contacted debtors, how and when communication could be established, and consumer protections against what could be perceived as abuse, misleading deception, and harassment.

Specifically, the most significant changes in compliance the FDCPA brought include the requirement that creditors and debt collection agencies only contact debtors at certain times throughout the day. Further, the debtor can issue “cease communication” request to the collector, and the collector must comply. The law also prohibited the use of profanity, threats against a debtor’s reputation, and the practice of sharing a debtor’s personal information. The collector must also identify themselves transparently in all communications.

The FDCPA aimed to regulate the capacities of debt collectors as well. Debt collectors, including DECA, are now required to validate the debt through strict and well-documented practices that include written communications and requests to collect the exact debts owed. This gives the debtor the opportunity to review the collection request for discrepancies or deceptive and illegitimate representations. The collector must also disclose more information than ever upon the debtor’s request.

A better playing field for everyone

The FDCPA made great progress in successfully establishing collection compliance reform that not only protects the debtor against unfair and unethical practices, but was also a win for legitimate and lawful collection agencies that had suffered from an industry associated with ugly connotations. In many ways, the FDCPA created a better and more leveled playing field for everyone – debtors, consumers, second-party in-house collection departments and third-party collection agencies like DECA – collectively. Surely, collection agencies that dabbled in unethical collection practices conformed and adapted to the changes in compliance the act brought, but it’s the firms who had always applied integrity and high-quality customer service that also benefited from the new laws.

The leadership team at DECA boasts more than 50 years experience in the debt collection and full-service accounts receivables management industry, and has always prided itself on results-driven, compliance-focused delivery of their services. The certifications acquired by the company over the years indicate a strong and inflexible commitment to quality and the diversification of abilities. Licensed in all 50 states, DECA is a member of the American Collectors Association, currently certified and compliant with all local, state, and Federal requirements, and employs a full-time attorney/compliance officer to ensure continued quality control.

Today’s debt collection industry is undergoing radical changes designed to reign in outdated, aggressive, and unethical collection practices, and DECA welcomes these changes with willful participation. In addition to the protections the FDCPA brings to the industry, it’s expected that the Bureau of Consumer Financial Protection, created in 2010 by the Dodd-Frank Wall Street Reform Act and regulated by the Federal Reserve, will introduce new regulations, compliance, and rules that will strengthen and respect the fragile relationship between collection agencies and debtors.

John Rainier, Strategy Officer, Deca Financial Services, Deca Financial Services is an accounts receivable management firm.