Payment is due at the time services are rendered

By Robert T. Luttrell, III and Michael E. Joseph

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Typically, physicians collect co-payments from patients when services are provided, submit claims for reimbursement to government and commercial payers, and then send bills to patients for the balance owing. The payment and collection process is frequently baffling to patients, especially if the bill involves multiple health care providers, such as hospitals or surgery centers, emergency physicians, anesthesiologists, radiologists, clinical labs, and their personal physicians. For office visits and surgical procedures, most physicians handle their patient accounts on a short-term basis without imposing interest or finance charges, expecting payment in full before it becomes necessary to send the next monthly statement. Sometimes that doesn’t turn out to be the case because the patient doesn’t pay on a timely basis.

As an increased portion of healthcare costs are shifted to patients by employers, government payers, and insurance companies, physicians are finding that their accounts receivable are incessantly increasing. As a result, physicians are considering new arrangements to encourage prompt payment by patients. One type of arrangement involves a payment plan in which the patient agrees to pay a fixed amount of the patient’s obligation in several installments. Another arrangement involves a payout over a period of time with interest at a predetermined annual rate. For surgical procedures, the patient might request a payment plan that provides for installment payments, with or without interest, over a period of up to 24 months.

The Oklahoma Uniform Consumer Credit Code, the federal Truth-in-Lending Act, and Regulation Z of the Consumer Financial Protection Bureau all govern extensions of credit to consumers. The Uniform Consumer Credit Code imposes licensing requirements and disclosure requirements consistent with the Truth-in-Lending Act and Regulation Z. All of these laws and regulations refer to “annual percentage rate” and “finance charges,” rather than interest charged on accounts. The finance charge is everything that a consumer is required to pay for an extension of credit, including interest. The annual percentage rate is the finance charge reduced to a percentage rate over the life of the extension of credit.

For purposes of Oklahoma Consumer Credit Code, a physician is engaged in the “sale of services” by furnishing personal services to consumers. “Credit” is the right to “defer payment of debt or to incur debt and defer its payment.” If patients paid their bills in full at the time services were rendered, no credit would be extended. However, many times that is not the case. When a physician defers payment by entering into a payment plan, that would constitute an extension of credit. In that case, payment would not be due at the time services are rendered, but instead would be due at a later time over the course of the payment plan. A physician who defers payment, as a result, would be a “consumer credit seller.”

If a physician permits a patient to defer payment under a payment plan or charges interest on the unpaid balance, the physician must annually submit a notification filing to the Oklahoma Department of Consumer Affairs and pay the required annual filing fee of $120. The notification filing includes an application for an annual license to make consumer credit sales. The form of the notification filing can be found here.

Failure to file may subject the consumer credit seller – in this case, the physician – to civil and criminal penalties. Even though sending an invoice for payment in full after services have been rendered might be considered an extension of credit, the Oklahoma Department of Consumer Credit has never taken that position.

Permitting payment over time or with interest, or both, may also require specific types of disclosures in accordance with state and federal law.

For disclosure purposes, no specified disclosure would be required if the debt is payable in less than four installments and the physician does not charge interest or if the physician does not enter into 25 or more payment arrangements per year. If the physician allows an extension of time for payment on an existing, outstanding account, without interest, the arrangement would not be subject to disclosure requirements because the extension of time is typically not evidenced in writing and does not involve the imposition of interest charges. However, if the physician provides for an extension of time for payment that is set forth in writing and allows for payments in four or more installments or provides for payments with interest, or both, the arrangement would be subject to specific, fairly extensive, consumer credit disclosure requirements. The required disclosure (Form H-2) can be found here.

Most of the information would not be applicable. The physician would need to calculate and disclose the Annual Percentage Rate, the finance charge, the amount financed, the total of payments, and amount of payments. In addition, the physician would be required to provide an itemization of the amount financed. Additionally, the physician would need an agreement regarding payments and due dates.

Doctors are subject to the more-than-four-installments rule, even if no finance charge is involved. An important requirement before the rule becomes applicable is that the installments must be set forth in a written agreement. So, for example, if a patient decides to pay in more than four installments, the doctor can accept those payments without needing to comply with the Truth-in-Lending disclosure requirements, as long as the doctor bills the full amount with each statement. The doctor should not give the patient any indication that payment may be made in more than four installments. For obstetricians, each partial payment is considered a payment for services provided to date.

Physicians are considering other types of arrangements to incentivize patients to pay, such as prompt pay discounts. In addition to the laws and regulations mentioned above, other laws may be applicable to extensions of credit to patients, including the federal Equal Credit Opportunity Act, Fair Credit Billing Act, and other laws. Finally, principles of medical ethics may in some instances affect fee and credit arrangements with patients.

This update has been provided for clients and friends of McAfee & Taft A Professional Corporation. It does not provide legal advice, and is not intended to create a lawyer-client relationship. Readers should not act upon information in this update without seeking professional counsel.