Collecting Past-Due Hospital Bills: How Much Does it Cost to Hire a Medical Debt Collection Agency?

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Medical and hospital bills rival student loans as a leading cause of debt in America. These debts affect both the patient and the provider, as unpaid medical bills play a significant role in the increased costs many medical facilities face.

Attempting to collect on these bills also represents a substantial amount of time. What's more, attempts are often futile. This is because debt collection is a specialty, one that the average medical professional is not trained to perform. More and more, hospitals turn to collection agencies to handle these unpaid bills. The question then becomes, is the cost worth it?

Why Choose a Collection Agency?

Collection agencies collect tens of billions of dollars every year, making them highly effective at recovering past due debts. They use a variety of methods to reach delinquent account holders, including phone calls, letters, and email. When the situation warrants it, collection agencies may also turn to the courts to collect payment.

These companies focus solely on debt collection, meaning they've determined the most effective means of accomplishing their goal. They also have the tools to help locate account holders, using the latest technologies and software to find current phone numbers and addresses.

Choosing the Right Collection Agency

With so many agencies to choose from, knowing where to begin often feels overwhelming. Obviously, you want the best agency. Start with some basic research. Your goal is answering four questions.

• 1. Is the agency licensed? Not every state requires collection agencies to carry special licenses (34 of 50 do). InsideARM lets you research licensing and bonding requirements by state.
• 2. Is the agency bonded? Twenty-nine states require special bonding. A bonded agency is one that holds a surety bond with an insurance company. These bonds form a contract between the collection agency (the principal), the insurance company (the surety), and the state government (the obligee). Violating the bond by breaking a regulation or handling payments in an inappropriate manner allows the state to make a claim against the bond and receive reimbursement if the insurance company determines that the agency acted in an inappropriate manner.
• 3. Does the collection agency have insurance? Look for a collections agency with an Errors & Omissions insurance policy (often called an E&O policy). This protects the agency against lawsuits from debtors. As of May 2018, no states require this insurance, but it's a smart business move. Ask the agency to provide proof of an E&O policy.
• 4. Does the agency belong to ACA International? ACA International is a trade group specializing in debt collection. Its members must meet stringent ethics guidelines. Membership is voluntary and may be revoked if the agency fails to adhere to these guidelines.

What Is the Average Cost of Hiring a Collections Agency?

Without knowing how much money is owed, it is difficult to estimate the cost of hiring a collection agency. This is because the amount owed plays a large role in determining the fee. You also find variances by location, age of the debt, and type of debt.

There are two main methods by which collection agencies charge for their services. Some agencies allow you to choose between pay structures, but not all.

• Flat fees are typically charged only when it's early in the debt collection process, often known as a pre-collection service. If the account goes into full collections, the pay structure typically changes to contingency.
• Contingency pay structures are more common, typically ranging between 25 and 40 percent of the full amount owed. So, if your hospital has $100,000 in collections, your average cost ranges between $25,000 and $40,000. The main benefit here is that, until the agency collects on the debt, you pay nothing. However, the percentage fee is typically much higher than the flat rate option. The reason is that you are paying the agency for the risk it takes in being unable to collect on every account. Even so, this is typically the more popular option, as, by the time the debt makes it to a collection agency, the hospital has typically written it off as lost, and 60 percent is better than zero.

Fees also vary by size and collection method. The following sample prices give you a broad idea of what to expect.

• Debts up to $3,000 include a registration fee of around $25 and a contingency fee between 10 and 15 percent.
• Debts over $3,000 include a registration fee of around $90 and a contingency fee between 5 and 10 percent.
• Some agencies charge different percentages according to the amount collected. Expect to pay 10 to 15 percent for up to $1,000, 8 to 10 percent for up to $6,000, between 6 and 8 percent for up to $10,000, and around 5 percent for up to $12,000.

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