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Bill Collectors: Under State and Federal Law

TPAs occasionally receive demands for payment from entities that purport to work on behalf of medical providers who have payments due to them.  Often, these are co-pays that are the responsibility of the plan participants and are uncollectible debts to the provider.  Therefore, what the collection agency will do is take over the “files” from the provider and split the amount collected.  The questions arise—what is the TPAs responsibility under state and federal law when these demand letters arrive?

Licensing Requirements: The first thing to note is that there are licensing requirements for any law firm or debt collector that contacts a business or individual for the purpose of collecting a debt. A collection agency is defined as: "all persons directly or indirectly engaged in the business of soliciting from or collecting a consumer claim due, or asserted, arising from transactions involving a resident, seeking or acquiring real or personal property, services, money, or credit for personal, family or household purposes." A debt is defined as: "any obligation to pay money arising out of a transaction the subject of which is primarily for personal, family or household purposes, whether or not the debt has been reduced to judgment."  Consumer debt includes debts owed to small business clients, plumber, printers and health care providers.

You will want to check whether the entity contacting you is licensed in the state.  Anyone in the business of a collection agency must be licensed in the state.  Anyone who is a non-attorney, makes contact with debtors, for the purpose of collecting a debt, using such procedures to be identified with the operation of a collection agency (e.g. receive accounts from client, docket the accounts, mail letters, call the debtor, collect the amount due) needs a license for each location in which they are doing business. Fees for licenses range state by state.

Debt collectors violate Federal law by threatening to use all means to collect a debt where collector is not licensed in the State where the debtor resides. This is based on the fact that they do not have access to state courts where the debtor resides. State sanctions arise if “any person knowingly and willfully engaging in collection business without a license is guilty of a misdemeanor, and subject to a fine of $1000 and/or imprisonment for 6 months” depending on the state in which they do business.  There are exemptions to the licensing requirement, for example, an attorney handling collection lawsuits on behalf of a client would not need to be licensed.

Federal Agency:  The Federal Trade Commission administers the Federal Debt Collection Act.  The FTC can subpoena records, file suit, and seek cease and desist orders against collection agencies or individuals acting as a debt collector. The FDCA defines "debt collector" as: any person or business whose: The principal purpose of which is the collection of debts, or Who regularly collects or attempts to collect debts owed or due another. According to the FDCPA, a Corporate Attorney who acts as regular counsel to a corporation, such as a TPA, is a debt collector when he/she uses corporate letterhead to send a dunning letter with the purpose of collecting a debt. The notice must be large and conspicuous enough to satisfy the "Least sophisticated consumer" test.

The FDCPA provides protections to individuals contacted by debt collectors.  Among them is a required disclosure which must state the following:

Validation of Debt. The notice must be given with the initial communication (oral and written) or within 5 days thereafter containing:The amount of the debt; The name of creditor to whom owed; A statement that the collector will assume the debt valid unless disputed within 30 days; A statement that if the consumer notifies collector in writing within 30 days, the collector will obtain and mail the debtor verification of debt or copy of judgment; A statement that the collector will, upon debtor's written request within 30 days, provide debtor with the name and address of the original creditor, if different.

Consumer Response.  If the consumer sends a written notice of dispute, the collector must cease further communication until verification is furnished.

Debt Collector must give a "Mini-Miranda" Warning

A debt collector engages in false or misleading representation if he fails "to disclose in all communications made to collect a debt that the debt collector is attempting to collect a debt and that any information obtained will be used for that purpose.

There is a limitations on communications with the debtor.  Phone calls can only be made between the hours of 8 a.m. to 9 p.m.  The debt collector must cease further communication if the debtor notifies the collector in writing.

There are sixteen prohibitions to the actions of a debt collector in the federal statute

Those prohibitions are too numerous to mention but it is important to note the following: A debt collector cannot threaten action (i.e. a lawsuit) that they do not intend or will not take; A debt collector cannot harass, oppress or abuse the debtor. They  cannot use or threaten the of use of violence; use obscene or profane language; they cannot publish debtor lists; cannot advertise the sale of a debt to coerce payment; they cannot make repeated phone calls (immediate recall after       debtor hangs up is considered harassment). Note, however, that mailing 48 letters over 8 months is not considered conduct arising to harassment.  State laws may differ. Unfair Practices—a debt collector cannot accept a post dated check of more than 5 days without notifying the debtor in writing of the intent to deposit within 3-10 days of deposit.  A debt collector cannot deposit a post-dated check prior to effective date.

Liability and Damages: You should contact legal counsel regarding any liability and damages under the federal and state consumer protection statute. 

Health Care/Medical Collections:  In general, health care and medical collections are treated differently than other consumer debts.  They are based on the provider-patient relationship (either through express agreement or assignment or through an implied agreement). Medical bills are considered to be "consumer debts" under the Fair Debt Collection Practices Act.  Some state laws view medical bills as a bill for "personal services" arising out of   a "consumer transaction".  A hospital lien- applies only to hospitals, not to any other provider's bills.  There is no lien for physicians. In general, if the patient dies, claims against the estate must be timely filed, within 6 months of the death or within 2 months of receiving notice from the estate that any claim will be barred unless timely filed.  Refer to state law to determine whether different statutes of limitations apply. Assignments:  The proceeds of a tort claim can be assigned by the client and his attorney to satisfy a health care provider claim.

Report any problems you have with a debt collector to your state Attorney General's office and the Federal Trade Commission. Many states have their own debt collection laws, and your Attorney General's office can help you determine your rights.  The Federal Trade Commission works for the consumer to prevent fraudulent, deceptive and unfair business practices in the marketplace and to provide information to help consumers spot, stop and avoid them. To file a complaint or to get free information on consumer issues, visit or call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. The FTC enters Internet, telemarketing, identity theft and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.

(This is in no way legal advice.)

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