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Attorney Tom Nichols Letter to Wisconsin State Assembly in Support of Senate Bill 286 Regarding Health Care Billing Companies

May 27, 2016

Representative Jason M. Fields, Chair
Committee on Financial Institutions
Wisconsin State Assembly
Room 221 North, State Capitol
Madison, WI  53708

Dear Representative Fields:

This letter is being submitted in support of 2009 Senate Bill 286.  First, let me thank you for making the effort to have this Bill considered in the Wisconsin State Assembly.  It is a worthwhile piece of legislation, but I realize that there are many demands upon the Legislature’s time at this point in the Session.

As you know, SB 286 clarifies the definition of “collection agency” under Section 218.04 of the Wisconsin Statutes to make it clear that “health care billing companies” are excluded.  This is appropriate because health care billing companies are essentially “business-to-business” enterprises.  Primarily what they do is gather treatment information from individual physician groups, prepare medical billing invoices in compliance with the applicable Medicare, private payor and other requirements, and submit them (often electronically) to various insurance companies and other payors.  Essentially, these companies perform on an outside basis what many physician groups do internally.  In fact, receipts collected through health care billing company efforts are often deposited directly into lock box accounts in the name of the relevant physician groups.

Given the substantial differences between true “collection agencies” and health care billing companies, there are a number of requirements in the Regulations promulgated under Section 218.04 covering “collection agencies” (which take over accounts after they become delinquent) that are problematic when applied to health care billing companies (which prepare and send initial invoices to insurance companies and other payors).  Among these problematic provisions are the following:

(1) Office Hours.  Section 74.02(2) of the Regulations requires “collection agencies” to maintain regular office hours at least three (3) hours per day, Monday through Friday.  This requirement is especially problematic for small health care billing companies, where there may be only one or two or just part-time employees and all of the billing is done electronically or by United States mail.

(2) Release of Accounts.  Section 74.10 of the Regulations provides that a “collection agency” must return any account back to the initial creditor upon request, unless that account is in the “actual process of collection.”  Section 74.01(1) of the Regulations defines “actual process of collection” as receiving payments at periodic intervals, contacting the debtor within the last thirty (30) days and receiving a promise of payment, or referring the account for legal actions where the “collection agency” has advanced legal costs.   Although this definition apparently could be changed by contract, it obviously contemplates that the “collection agency” engages in the “actual process of collection.”  Unlike true “collection agencies,” health care billing companies simply do not engage in these types of “actual process of collection” activities.  Whereas it may be appropriate for “collection agencies” to return any accounts that are not in the “actual process of collection” upon request by the creditor, it could be a real hardship for health care billing companies to have to return essentially all of their accounts at any time upon request of the creditor, because the bulk of their work effort is spent preparing the original bill and the accounts are almost never in the “actual process of collection.”

(3) Full Receipts.  Section 74.11(7) of the Regulations requires a written confirmation that the debt has been paid or settled in full within ten (10) business days of request.  This provision contemplates situations where the payment is the last in a series or there is some type of a lump sum payment in full settlement, as is often the case with true “collection agencies.”  However, health care billing companies often receive batch payments from insurance carriers or co-payments and deductibles from individuals where full payment cannot be determined for some time.  This is because the closing out of any particular bill (much less an entire batch of bills) often involves coordination of payment from primary and secondary payors, as well as individual co-payments and deductibles, in addition to applying Medicare rules and regulations, contractual rate provisions and other applicable requirements.

(4) Refund Obligation.  Section 74.11(9) of the Regulations requires that all refunds of payments be made within thirty (30) days of the close of the month during which payment was received.  Here again, this provision may be entirely appropriate in the case of true “collection agencies” because the amount owed is typically not in question.  However, for all of the reasons explained in detail regarding the preceding item, an insurance company’s or patient’s entitlement to a refund may not be able to be determined for some time until after the actual payment is made.

(5) FDCPA Notice.  Section 74.13 of the Regulations requires a written notification of “collection agency” status within five (5) days after initial communication with the debtor unless the initial communication itself is written and contains the notice (or the debtor has paid the debt within that 5-day period).  The required language must be in at least 8.0 type and be contained in either a “collection notice” or in a “validation” under Section 809 of the Federal Fair Debt Collection Practices Act (“FDCPA”).  Compliance with this restriction is easy for true “collection agencies,” because their initial communications are often written, and sending subsequent “collection notices” or FDCPA “validations” is common.  In stark contrast, the initial communication for health care billing companies is often an electronic submission.  Moreover, health care billing companies are not subject to the FDCPA, because their services concern debts which were “not in default” when obtained by the companies.  Therefore, they never even send FDCPA “validations” and rarely, if ever, send anything that might constitute a “collection notice” (and certainly would not want to do so within five (5) days of their initial communication).

As you can see, the above requirements, while perhaps appropriate for true “collection agencies,” would create serious problems for mere health care billing companies.

The vast majority of bills transmitted by health care billing companies never even become delinquent, and in the rare cases when they do, the companies typically either write them off or turn them over to actual “collection agencies” for pursuit as a delinquent debt.

Moreover, subjecting Wisconsin health care billing companies to “collection agency” regulation is particularly problematic, because out-of-state health care billing companies are not subject to such regulation, even those who bill for health care services provided to Wisconsin patients.  Thus, Wisconsin health care billing companies would be faced with the unhelpful prospect of having to move out of state in order to conduct their business or simply losing business to national competitors who do not have employees within the state and who would not be subject to these onerous requirements.  Either way, it is not good for Wisconsin employment, and in any event, there is no benefit to Wisconsin consumers.

As for consumers, it is important to recognize that the vast majority of bills and collections resulting from health care billing company services are between the companies themselves and government programs or other third-party payors.  Though there is some communication with individual consumers regarding co-payments and deductibles, this communication typically only occurs after the government payor or private insurance company has determined the gross amount that needs to be paid, as well as the portion of that amount that is to be paid by the patient insured.  Thus, the impact of this legislative clarification on individual consumers should be negligible.

In light of the above, we strongly urge you to recommend passage and vote in favor of Senate Bill 286.  Thank you very much for your consideration in this matter.

Thomas J. Nichols