Unpaid patient balances can put real pressure on your medical practice. But sending an overdue medical bill to collections shouldn’t be an automatic next step.

Before you turn over an account, confirm that the balance is accurate, your practice has followed applicable billing requirements, the patient has received required notices, and the collection agency will handle the account appropriately. That’s especially important because medical debt rules aren’t governed by one nationwide collection standard. Federal requirements can depend on the type of provider, the patient’s insurance status, who is collecting the debt, and what collection activity is being taken. States can impose additional—and sometimes significantly stronger—protections.

Use these five steps before referring a patient account to collections.

Step 1: Determine Whether Financial Assistance Rules Apply

Before you classify an unpaid balance as bad debt, determine whether financial assistance requirements apply to your organization or the particular account. This distinction is important because not every physician practice is subject to the same federal financial assistance rules.

Federal tax law imposes specific financial assistance policy and collection requirements on tax-exempt hospital facilities under Internal Revenue Code §501(r). Those hospital facilities must establish and widely publicize financial assistance policies and make reasonable efforts to determine whether an individual qualifies for financial assistance before undertaking certain extraordinary collection actions.

For tax-exempt hospital facilities, the IRS regulations generally provide a 120-day notification period and a 240-day application period, measured from the first post-discharge billing statement, in connection with extraordinary collection actions. These timeframes should not be presented as universal collection deadlines for independent physician practices.

If you operate an independent medical practice, review whether state law, your contracts, your organization’s own financial assistance policy, or another applicable requirement imposes additional obligations.

Before moving an account forward, your team should determine whether:

• The patient qualifies for financial assistance under an applicable policy.
• A payment plan or other alternative should be offered.
• Applicable state law requires a financial assistance notice or other disclosure.
• Required patient communications have been documented.
• Your organization’s billing and collection policy has been followed.

Don’t automatically treat charity care and bad debt as interchangeable. Your written policies should explain when a balance qualifies for financial assistance and when an unpaid patient-responsibility amount may proceed through your normal collection process.

Step 2: Make Sure the Patient Actually Owes the Balance

Before you send an account to collections, verify the amount first. This isn’t simply good customer service. The Consumer Financial Protection Bureau (CFPB) has specifically warned debt collectors about collecting medical charges that aren’t actually owed.

In a 2024 advisory opinion, the CFPB identified potentially unlawful collection practices involving amounts already paid by insurance or another payer, charges prohibited by federal or state law, charges for services the patient did not receive, upcoded services, and unsubstantiated medical bills. Before referring the account, review it for coding or billing errors, duplicate charges, missing insurance payments, incorrectly posted payments, contractual adjustments, incorrect patient-responsibility amounts, and unresolved payer issues.

Your practice should also consider whether federal surprise-billing protections affect the balance.

Under the No Surprises Act, uninsured or self-pay patients generally have rights to receive a Good Faith Estimate when they schedule qualifying care in advance or request an estimate. CMS also provides a patient-provider dispute resolution process when an uninsured or self-pay patient’s bill is at least $400 above the expected charges shown on the Good Faith Estimate, subject to the program’s requirements.

The takeaway for your billing team is simple: Don’t send a disputed or potentially incorrect amount to collections without investigating it first.

Step 3: Check the Medical Debt Laws That Apply in Your State

This may be the most important compliance checkpoint in your collection process.

Federal law does not create one uniform medical debt collection system for every practice and every patient. States increasingly impose their own restrictions on medical debt collection, credit reporting, notices, interest, lawsuits, liens, wage garnishment, payment plans, and other activities. Credit reporting is a particularly important example.

In January 2025, the CFPB issued a rule intended to remove medical debt from consumer credit reports and restrict creditors from considering it. However, on July 11, 2025, the U.S. District Court for the Eastern District of Texas vacated that rule. The CFPB now states that the rule is no longer in effect and retains the old materials for reference only.

But that does not mean every practice can report every medical debt. Several states have their own medical debt reporting restrictions.

For example, California’s SB 1061, effective January 1, 2025, generally prohibits medical debt covered by the law from appearing on consumer credit reports. The California Attorney General has stated that the prohibition remains in effect.

New York’s Fair Medical Debt Reporting Act prohibits covered healthcare providers from furnishing medical debt information to consumer reporting agencies and requires their collection contracts to prohibit collectors from reporting covered medical debt.

Connecticut prohibits healthcare providers and collection entities from reporting covered medical debt to credit rating agencies, and its statute states that medical debt reported in violation of the law is void.

Colorado also restricts the inclusion of medical debt information in consumer reports and places requirements on debt collectors’ representations about medical debt reporting.

And credit reporting isn’t the only issue to research. Some states regulate what collection actions may be taken, when they may be taken, what notices are required, or what financial assistance and payment-plan protections must be offered.

Before referring an account, confirm:

1. Which state’s law governs the account.
2. Whether that state restricts medical debt credit reporting.
3. Whether notices or waiting periods apply before referral or other collection action.
4. Whether financial assistance or payment-plan requirements apply.
5. Whether the state restricts interest, lawsuits, liens, wage garnishment, debt sales, or other collection activity.
6. Whether your collection-agency agreement reflects applicable state requirements.

Don’t rely on a national policy alone. Your practice and collection agency should have a process for identifying and complying with state-specific requirements.

Step 4: Give the Patient a Clear Final Opportunity to Resolve the Account

A final pre-collection notice is a sensible component of a medical practice’s collection process and may also be required in some circumstances under applicable law or organizational policy. But don’t assume there is one universal federal rule requiring every physician practice to give patients exactly 10, 14, 30, or 180 days before referring an account to an outside collection agency.

Instead, establish your deadline based on the laws that apply to your organization and state, your payer and contractual requirements, and your written billing and collection policy. Your final communication should clearly explain the balance owed, payment options, how to contact your practice, how the patient can question or dispute the balance, and what your practice may do if the balance remains unpaid.

Be particularly careful about threatening credit-report consequences. If state law prohibits reporting the patient’s medical debt, don’t tell the patient that failure to pay will damage their credit. Likewise, don’t present any potential legal or financial consequence as certain unless it actually applies to the patient’s account.

Once an outside debt collector covered by the Fair Debt Collection Practices Act begins collection activity, federal FDCPA requirements and the CFPB’s Regulation F may apply.

Regulation F requires covered debt collectors to provide prescribed debt-validation information and establishes procedures for consumer disputes. It also prohibits false, deceptive, misleading, unfair, and certain other collection practices.

The distinction matters: these FDCPA and Regulation F requirements generally govern entities that meet the applicable definition of a debt collector. They should not automatically be described as identical requirements imposed on every physician practice collecting its own debts.

Step 5: Choose a Healthcare Collection Agency Carefully

Once you’ve confirmed that the balance is accurate and eligible for referral, evaluate your collection agency carefully.

A collection agency working with medical debt must navigate more than ordinary accounts receivable. It may encounter insurance adjustments, patient billing disputes, federal debt-collection rules, state medical debt laws, and protected health information.

Ask prospective agencies how they verify balances, handle disputes, track state-law requirements, respond when your practice recalls an account, manage patient complaints, and protect PHI. You should also determine exactly what the agency does with credit-reporting information. Don’t assume that credit reporting is permitted—or even useful—for every medical debt.

Your written agreement should clearly establish the agency’s responsibilities and your practice’s expectations.

Protect PHI When You Send Medical Debt to Collections

HIPAA does not prohibit a covered healthcare provider from using a collection agency. HHS specifically recognizes debt collection as a payment activity under the HIPAA Privacy Rule. A covered entity may engage a debt collection agency through a business-associate arrangement to perform collection activities on its behalf.

When a collection agency is acting as a business associate and handling PHI on behalf of your HIPAA-covered practice, the HIPAA Rules generally require an appropriate written business associate contract.

HHS explains the required components in its Business Associate Contract guidance.

Don’t stop with the BAA. HIPAA’s Minimum Necessary Standard generally requires covered entities to make reasonable efforts to limit PHI used, disclosed, or requested for payment and healthcare operations to the minimum necessary to accomplish the intended purpose. That doesn’t mean federal law establishes a universal list consisting of only the patient’s name, service date, balance, and contact information. Instead, your practice should develop policies that reasonably limit the information provided based on what is actually necessary for the collection activity.

Don’t routinely send full medical records, detailed clinical notes, or other unnecessary PHI simply because an account has been referred to collections.

Create a Written Medical Debt Collection Policy

One of the biggest risks is allowing every employee to handle overdue accounts differently.

One employee gives patients 30 days. Another waits 90. Someone sends accounts immediately after several unanswered calls. Another promises that the debt will affect the patient’s credit without determining whether reporting is permitted.

That inconsistency makes compliance harder to defend.

Create a written workflow explaining when a balance becomes delinquent, which billing notices are required, when financial assistance screening applies, what payment arrangements may be offered, how disputed balances should be reviewed, which state-specific requirements must be checked, when an account becomes eligible for outside referral, and how PHI may be disclosed to the collection agency.

Your policy should also identify who has authority to approve referrals and how your practice handles errors discovered after an account has already been transferred.

Then train everyone involved in patient billing to follow the same process.

Don’t Treat Collections as Just a Revenue Cycle Issue

Recovering unpaid patient balances matters, but your collection process has to protect more than revenue.

An inaccurate or improperly handled debt can become a patient complaint, compliance problem, privacy issue, or legal dispute. The CFPB has specifically warned debt collectors about attempting to collect medical amounts that patients don’t actually owe, while federal and state governments continue to impose different protections around medical billing and debt collection.

Before every referral, ask three questions:

1. Is the balance accurate?
2. Have we completed the billing and collection steps required for this account?
3. Is the collection action we’re about to take legally permitted?

If your staff can’t confidently answer all three, investigate before sending the account.

Keep Your Billing and Compliance Team Up to Date Patient billing rules, payer requirements, medical debt protections, HIPAA obligations, and reimbursement policies don’t stand still—and your staff shouldn’t have to figure out every change on their own. With Healthcare Training Leader’s Annual All-Access Pass, your entire practice gets access to expert-led training covering medical billing, coding, reimbursement, compliance, credentialing, HIPAA, practice management, and more. Give your team practical answers they can put to work immediately while helping your practice reduce mistakes, protect revenue, and stay ahead of regulatory changes.

 

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