Collections Process: Recovering Revenue While Preserving Patient Relationships

Every healthcare practice faces the same uncomfortable truth: not all patients pay their bills on time. But how you handle collections determines whether you recover that revenue, maintain patient relationships, and build a sustainable financial foundation.

The best collections process isn't about aggressive tactics. It's about creating systematic approaches that prevent collection issues before they start, communicate clearly when balances exist, and recover revenue professionally when necessary.

Prevention Through Front-End Processes

The most effective collections strategy begins before services are rendered. When you establish clear expectations and collect upfront, you'll cut backend collection challenges significantly.

Start with thorough insurance verification. Confirm coverage, understand benefit limitations, and identify patient responsibility before the appointment. This prevents the "I thought insurance would cover that" conversation weeks later.

Collect copays, deductibles, and known patient responsibility at the time of service. Research shows that collecting at check-in achieves 90%+ success rates, while collecting after the visit drops to 50% or less. You're not being aggressive. You're simply collecting what's owed at the most natural time.

Communicate your financial policy clearly during the first contact. Explain payment expectations, available payment methods, and what happens if balances remain unpaid. Patients who understand expectations upfront are far more likely to meet them.

Offer payment plans proactively. When you identify patient responsibility that exceeds the patient's ability to pay immediately, present payment options before the appointment. This prevents the balance from going to collections in the first place.

Document everything. Record financial discussions, payment agreements, and patient commitments in your system. This documentation protects both parties and provides clarity if collection efforts become necessary.

Internal Collections Workflow

When balances do remain after insurance processing and initial patient payment, activate a systematic internal collections workflow that balances persistence with professionalism. This process should integrate closely with your overall claims management to ensure coordination between insurance and patient payments.

Statement Cycles

Send statements at regular intervals—typically every 30 days. Each statement should clearly show:

  • Date of service
  • Services provided
  • Insurance payment (if applicable)
  • Patient responsibility
  • Payment due date
  • Available payment options

Vary your messaging with each cycle. The first statement might simply say "Amount Due." The second could add "Past Due—Please Contact Us." The third might reference potential collection agency referral.

Reminder Sequences

Don't rely solely on mailed statements. Most practices achieve better results with multi-channel reminders:

  • Day 30: First statement mailed
  • Day 35: Text or email reminder (if patient opted in)
  • Day 45: Second statement mailed
  • Day 50: Phone call attempt
  • Day 60: Third statement with collection warning
  • Day 65: Final phone call attempt
  • Day 75: Decision point for external collections

This sequence ensures multiple touchpoints while respecting patient communication preferences and maintaining compliance with contact regulations.

Call Campaigns

When calling about outstanding balances, approach conversations professionally but firmly:

"Hello [Patient Name], this is [Your Name] from [Practice Name]. I'm calling about an outstanding balance of $[Amount] from your visit on [Date]. Do you have a few minutes to discuss payment options?"

Listen to the patient's situation. They may have legitimate reasons for non-payment—billing errors, insurance confusion, financial hardship. Each requires a different resolution approach.

Payment Negotiation

Maintain payment plan flexibility while protecting practice revenue. Standard options might include:

  • 3-month plans for balances $100-$500
  • 6-month plans for balances $501-$1,500
  • 12-month plans for balances over $1,500

Require automatic payment enrollment for plans exceeding three months. This improves compliance and reduces administrative burden.

Consider offering modest discounts for immediate payment. A 10% discount on a $1,000 balance might cost you $100 but saves weeks of collection efforts and potentially higher external collection costs.

Communication Best Practices

How you communicate about collections matters as much as what you communicate. Professional, compassionate communication recovers revenue while preserving relationships.

Professional and Compassionate

Medical debt often results from unexpected health events, not irresponsibility. Approach each conversation with empathy while maintaining firm expectations.

Don't say: "You're past due and need to pay immediately."

Do say: "I see you have an outstanding balance from your emergency visit. I want to help you find a payment solution that works for your situation. What options would be manageable for you?"

This approach acknowledges the patient's humanity while clearly communicating that payment is expected.

Payment Option Emphasis

Focus conversations on solutions, not problems. Rather than emphasizing what the patient hasn't done, present options for what they can do:

  • Pay in full today with a discount
  • Set up a monthly payment plan
  • Apply for financial assistance
  • Use a healthcare credit card

When patients see clear paths forward, they're more likely to choose one.

Documentation Requirements

Document every collection interaction:

  • Date and time of contact
  • Person spoken with
  • Discussion summary
  • Payment commitment or reason for non-payment
  • Next action and timeline

This documentation protects your practice legally and ensures continuity when different staff members handle subsequent calls.

Escalation Protocols

Define clear escalation paths for difficult situations:

  • Standard collections: Handled by billing staff
  • Disputed charges: Escalated to billing manager
  • Financial hardship: Directed to financial counselor
  • Aggressive or threatening patients: Referred to practice administrator

Clear protocols ensure appropriate handling and protect staff from uncomfortable situations beyond their authority.

External Collections Decisions

Despite best internal efforts, some accounts require external collection agencies. Make these decisions strategically.

When to Send to Collections

Establish clear criteria for external referral:

  • Balance minimum (typically $50-$100)
  • Days outstanding (typically 90-120 days)
  • Failed payment plan (after 2+ missed payments)
  • Patient non-response (after 4+ contact attempts)

Some practices never send to collections and write off small balances instead. Others pursue every dollar. Your decision should reflect your patient demographics, practice values, and recovery cost analysis.

Agency Selection

Not all collection agencies are equal. Evaluate potential partners on:

  • Healthcare specialization
  • Recovery rates for accounts similar to yours
  • Communication methods and professionalism
  • Compliance record and practices
  • Fee structure (contingency vs flat rate)
  • Reporting and transparency

Request references from other healthcare practices and verify their Better Business Bureau rating and state licensing.

Contract Terms

Negotiate terms that protect your practice and patients:

  • Contingency rates (typically 15-35% depending on account age)
  • No placement fees
  • Account return rights
  • Communication guidelines
  • Bad practice protection
  • Reporting frequency

Avoid agencies that charge fees regardless of collection success or that maintain aggressive practices that damage your reputation.

Patient Communication

Before referring accounts to collections, send a final notice giving patients one last opportunity to resolve the balance internally. This notice should:

  • State the outstanding balance clearly
  • Specify the deadline before external referral
  • Offer payment plan options
  • Provide direct contact information
  • Explain credit reporting implications

This final notice often prompts immediate payment from patients who ignored previous statements.

Collections activities face extensive regulation. Maintain strict compliance to protect your practice and patients.

Fair Debt Collection Practices Act

While the FDCPA primarily applies to third-party collectors, it establishes standards you should follow:

  • Don't contact patients at unreasonable times (before 8 AM or after 9 PM)
  • Don't contact patients at work if they've requested you not to
  • Don't use threatening or harassing language
  • Don't disclose medical debt to third parties
  • Don't misrepresent the amount owed or consequences of non-payment

Your collection agency must follow these rules strictly. The FTC's Fair Debt Collection Practices Act overview provides comprehensive guidance. Include FDCPA compliance requirements in agency contracts, similar to how you maintain healthcare marketing compliance standards across all patient-facing communications.

State Regulations

States impose additional requirements beyond federal law. Some states:

  • Limit interest charges on medical debt
  • Require specific notice periods before collection referral
  • Mandate charity care screening before collection actions
  • Restrict wage garnishment for medical debt

Consult legal counsel familiar with healthcare collections in your state to ensure full compliance.

Medical Debt Reporting Changes

Recent changes to credit reporting rules affect medical debt:

  • Paid medical collections are removed from credit reports
  • Unpaid medical collections under $500 don't appear on reports
  • Medical debt has a one-year waiting period before appearing on reports

These changes reduce collection leverage but also reduce patient consequences for medical debt. The Consumer Financial Protection Bureau provides guidance on medical debt reporting that affects collection strategies. Adjust your collection timing and strategies accordingly.

Charity Care Considerations

Many states and hospital systems require charity care policies and prohibit collection actions against patients who qualify for financial assistance. Even if not legally required, offering charity care demonstrates community commitment and prevents aggressive collection of uncollectible debt.

Establish clear charity care eligibility criteria (typically 200-400% of federal poverty level) and screen patients for eligibility before referring to collections.

Performance Measurement

Track key metrics to optimize your collections process.

Collection Rate

Calculate the percentage of patient responsibility actually collected:

Collection Rate = Total Patient Payments / Total Patient Responsibility

Industry benchmarks vary by specialty and payer mix but generally range from 85-95% for well-run practices. Rates below 80% indicate process problems requiring immediate attention.

Aging Analysis

Monitor how long balances remain unpaid:

  • 0-30 days: Should be 60-70% of total AR
  • 31-60 days: Should be 20-25% of total AR
  • 61-90 days: Should be 10-15% of total AR
  • 90+ days: Should be less than 5% of total AR

Aging trending upward indicates collection process deterioration. Address issues immediately before they compound.

Days in AR

Calculate average time to collect payment:

Days in AR = Total AR / (Annual Revenue / 365)

Target 30-40 days for most practices. Higher numbers indicate collection process inefficiencies or payer payment delays.

Write-Off Management

Track write-offs as a percentage of charges:

Write-Off Rate = Total Write-Offs / Total Charges

Distinguish between contractual adjustments (expected) and bad debt write-offs (preventable). Focus improvement efforts on reducing bad debt while maintaining compliance with payer contracts.

Recovery by Collection Stage

Analyze which collection efforts generate the best results:

  • Statement-only recovery rate
  • Email/text reminder recovery rate
  • Phone call recovery rate
  • Payment plan enrollment rate
  • External agency recovery rate

This analysis identifies which efforts provide the best return on investment and where to focus resources.

Building a Collections Culture

Effective collections require practice-wide commitment. Your entire team—from front desk to providers—must understand that collecting payment is part of providing patient care, not separate from it.

Train staff on communication techniques that are firm but compassionate. Resources like HFMA (Healthcare Financial Management Association) offer best practices for patient financial communications. Role-play difficult conversations. Provide scripts for common scenarios. Build confidence in discussing money matters professionally. Consider this part of your comprehensive staff training development program.

Establish clear expectations and accountability. When front desk staff are expected to collect copays but performance isn't measured, collection rates suffer. Monitor individual performance and provide coaching for improvement.

Recognize and reward success. When collection rates improve, acknowledge the team's efforts. When individual staff members handle difficult collection situations effectively, celebrate that success.

The Long-Term View

Collections done well recover revenue while preserving patient relationships and practice reputation. Collections done poorly damage trust, create staff stress, and may still fail to recover owed amounts.

Build systems that prevent collection issues through clear billing transparency, collect upfront when possible, communicate clearly when balances exist, and pursue unpaid amounts professionally and persistently.

Remember that the goal isn't just to recover today's revenue. It's to build financial sustainability while maintaining the patient relationships that drive tomorrow's growth.