Patients filing for bankruptcy can significantly disrupt a healthcare practice’s usual billing and collections processes. Effectively managing these situations is crucial yet it’s often an overlooked aspect of practice management. By understanding the legal requirements and establishing clear procedures, medical practices can avoid legal pitfalls and preserve patient trust.

Monitor Bankruptcy Notifications

When a patient files for bankruptcy, the court issues a notice. It’s essential for healthcare practices to monitor these notifications, as continued collection efforts on a debt included in bankruptcy can lead to legal complications. 

Comply with the FDCPA

 The Fair Debt Collection Practices Act (FDCPA) establishes standards that prohibit harassment and ensure fairness in debt collection practices. Physicians and practice managers must adhere to its provisions when collecting debts, especially regarding patients in bankruptcy.

Bankruptcy Types and Their Impact on Medical Bills

Understanding the different types of bankruptcy can help healthcare providers and administrators manage patient debts effectively.

• Chapter 7 Bankruptcy (liquidation): Under Chapter 7, a patient’s assets are liquidated to settle debts, with certain exemptions. Medical bills are categorized as unsecured debt, the last in line for repayment. Medical practices should expect to recover little or no payment and the unpaid balance will need to be written off if it is included in the discharge.
• Chapter 13 Bankruptcy (reorganization/debt repayment plan): Chapter 13 allows patients to reorganize their debts under a court-supervised repayment plan that typically occurs over three to five years. Medical debts may be included in this plan, which can lead to partial payment over time. Providers must work with the bankruptcy trustee, comply with the plan and suspend collection efforts once Chapter 13 is filed until the court decides how debts will be handled.
• Chapter 11 Bankruptcy (Business Reorganization): While primarily for businesses, high-net-worth individuals can sometimes use Chapter 11 for personal debt reorganization. Medical bills may be restructured, allowing for partial payment over time. Similar to Chapter 13, the healthcare provider must follow the court’s reorganization plan and accept incremental payments, if available.
  

Effective Communication and Documentation

Good communication and documentation can help to prevent misunderstandings and legal conflicts and maintain patient trust. When a patient informs a practice about filing for bankruptcy, it’s essential to secure written confirmation and record this information in the patient records. Any further collection efforts on the account should cease. 

If a patient verbally claims to have filed for bankruptcy, request documentation like a case number or court notice and verify this information through public bankruptcy records. Temporarily suspending collections while awaiting confirmation is a good practice to avoid violating the automatic stay.

Establish Internal Policies for Handling Bankrupt Accounts

To manage patient bankruptcies effectively, it’s vital for practices to create clear policies and ensure that bills do not get sent to patients going through bankruptcy. 

Any termination of a physician-patient relationship should be well documented following proper protocols, such as providing written notice and sufficient time for the patient to secure alternative care and ensuring emergency care is not disrupted. Providers should avoid discharging a patient solely due to a bankruptcy filing and instead base the decision on broader payment challenges.
Seek Legal Guidance
To stay compliant with bankruptcy laws and FDCPA guidelines, healthcare practices may benefit from consulting with legal counsel. An attorney with experience in bankruptcy and debt collection can provide tailored guidance, reducing the risk of costly errors. Having legal support also ensures that staff have reliable resources to answer questions about handling bankrupt accounts.

Consequences of Noncompliance

Failing to manage patient bankruptcies correctly can have serious ramifications for a healthcare practice, including legal penalties, reputational damage, financial losses and loss of patient trust.

Final Thoughts

Proactively managing patient bankruptcies by establishing clear policies, staying compliant with legal standards and educating staff can help healthcare practices avoid costly mistakes. By understanding bankruptcy procedures and communicating effectively with patients, providers can maintain strong patient relationships while protecting their practice’s financial stability.

MagMutual provides expert resources and guidance to help healthcare professionals navigate these challenges with confidence. Visit our full library of Healthcare Insights for additional support.

Disclaimer: The information provided in this article does not constitute legal, medical or any other professional advice. No attorney-client relationship is created and you should not act or refrain from acting on the basis of any content included in this article without seeking legal or other professional advice.