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The Legal Department articles are not intended to serve as legal advice and are offered for educational purposes only. The information provided should not be used as a substitute for independent legal advice and it is not intended to address every situation that could potentially arise. Please be aware that laws, regulations and technical standards change over time. As a result, it is important to verify and update any reference or information that is provided in the article.
by: Mary Riemersma, Former Executive Director
Updated July 2010 by Ann Tran, JD, Staff Attorney
Updated August 2012 by Sara Kashing, JD, Staff Attorney
Collecting from nonpaying patients or prior patients can be a time-consuming and sometimes troublesome process. To aid in this process, consider the following options:
Require Payment At Time of Treatment
Questions often arise as to what are the best methods to collect from patients or prior patients who, for one reason or another, are not paying the fees to which they have agreed. Of course, the best means to avoid the difficulty of having to collect is to establish the rule that payment for all services is to occur at the time treatment is provided. Some, however, may believe that such a position is too harsh, and may offer the opportunity to carry balances for patients, with the expectation that payment will be forthcoming at a later time.
A more middle of the road approach for those who believe it is too onerous for the patient to have to pay at the time service is rendered is to allow services to be paid with credit cards. This arrangement gets you out of the banking and credit business. The down side for this convenience, however, is that the therapist will forego several percentage points of income, as one must compensate the bank or credit card service for this convenience.
Get Signed Informed Consent/Disclosure
Statement About Payment Expectations Some therapists will agree to allow the patient to delay payment because a claim is first being submitted to an insurance company for reimbursement. In such a case, we would recommend that the therapist clearly articulate in an informed consent/disclosure statement that the patient is responsible for paying for the service provided, regardless of whether or not the third party payer actually pays. Therefore, should the insurance company deny for some legitimate reason, e.g., the patient is being treated for a preexisting condition about which you were unaware, it will be clear you are nevertheless entitled to and expect to be paid. Further, it will be clear that if the insurance company does pay, but incorrectly pays the insured rather than you, the therapist, the insured is still obligated to pay you.
Generally speaking, while collection agencies may work, we recommend other collection options. If, however, you seek only a portion of the balance owed and want limited involvement and no hassle, a collection agency may be a reasonable option. Keep in mind, however, that you will likely get only a portion of what is rightfully yours. Generally the agency retains forty to fifty percent of the fees collected. Further, they will generally retain this amount even when they incur no costs for collection. For example, you turn in an account for collection, and before the agency makes any effort to collect, the patient pays. In this scenario, the collection agency will usually retain whatever portion you have agreed to pay. If, in spite of the caution, a collection agency is the option you decide to use, select the agency very carefully to make sure the firm is accustomed to collecting for professionals. You do not want your patient or prior patient to be harassed by unscrupulous tactics employed by some collection agencies.
Foregoing Payment or Collection May Be the Preferred Option
Before pursuing any method of collection, consider whether or not it is worthwhile to collect. Pursuing collection may lead the patient to bring a lawsuit, possibly even a groundless lawsuit, or to file a complaint. If your patient or prior patient is likely so motivated, the most economical resolution may be to write off the amount owed.
If you agree to carry balances for your patients, be sure you bill regularly-e.g., send statements monthly. Create a good paper trail. It will not only appear professional, it will assist you should you decide to pursue some means of collection at a later time.
You may wish to include in an informed consent/disclosure statement the agreement of the patient that any disputes are to be resolved by mediation. Mediation may provide an economical and hassle-free resolution to a disputed billing. It is intended to be non-adversarial and usually involves one or more mediators who will meet with you and the patient in a neutral location to attempt to resolve the dispute. Mediation allows you and the patient the opportunity to work out a resolution together, rather than someone else, like a judge, imposing a decision upon you. Mediation can be done on its own or during a small claims court action. If the matter is resolved through mediation, the small claims action is terminated.
Small Claims Court
If your client has not paid and you have pursued all other reasonable means to collect (regular billings, letter informing that action will be taken if balance is not paid by a date specific, etc.), small claims court, in my opinion, is likely the most cost-effective and reasonable means to pursue collection.
For a matter to be handled in small claims court in California, the amount in dispute may not exceed $10,000. However, you may only file two such claims per year in California in any amount between $2,500 and $10,000. An unlimited number of claims not exceeding $2,500 may be filed per year by any one individual. Corporations and other entities cannot ask for more than $5,000. You will need to state the dollar amount of the damages in the suit and you should be prepared with documentation to substantiate the amount sought. This is where it is worthwhile to have a good paper trail of regular billings that have gone unpaid and at least one final demand letter informing the patient that action will be taken to collect if payment is not received by a certain date.
In general, if you are suing someone or being sued in small claims court, you must appear in court and represent yourself. If you are a sole proprietor, you represent yourself. If you operate as a partnership, one of the partners of the practice must appear. If you operate as a professional corporation or as a nonprofit organization, the person who appears must be an employee, officer or director of the entity. In any case, you may not be represented by an attorney, however, you may consult with an attorney before appearing in small claims court.
You may take witnesses with you to small claims court. An appropriate witness would be someone with firsthand knowledge of the facts or someone who is an expert on the subject. Generally, as a therapist attempting to collect from a patient, you will not have witnesses. If you do take a witness, be sure you have thought through what you expect from the witness. Avoid taking friends or relative with you for moral support or otherwise.
If you wish to subpoena a witness (e.g., a billing clerk), you can get Form SC-107 from the small claims court clerk, which compels the witness to come to court and to bring any relevant records (you will need to specify the documents or records you are seeking). You or any other person may serve the subpoena. A copy of the subpoena is delivered to the witness and you give the original subpoena with proof of service to the court clerk before the hearing date. Witnesses are entitled to fees of $35 per day and 20 cents per mile to comply with the subpoena.
The filing fee is based on the amount of your claim and the number of claims you have filed in the past twelve months. If you have filed twelve or fewer claims in the past twelve months, and the amount of your claim is less than $1,500, the filing fee is $30. If the amount of your claim is $1,500.01 to $5,000, the filing fee is $50, and if the amount of your claim is between $5,000.01 and $10,000, the filing fee is $75. If you have filed more than twelve claims in the past year, the filling fee is $100 for any claim amount. Cases are usually heard between twenty days after the filing date if the person you are suing is within the same county and seventy days if the person being sued is outside the county.
A small claims court case must be filed in the proper court or venue. This location is where the person you are suing (the defendant) lives. The person you are suing must first receive a copy of the claim (must be "served"). The defendant must be served at least fifteen days prior to the trial date if located within the county in which the trial will take place, or at least twenty days prior to the trial date if located outside the county in which the trial will take place.
Service can be accomplished by any person who is 18 years of age or older that is not a party to the claim. Thus, neither you, nor your witness can serve the claim. If the person you are attempting to serve cannot be located at his or her home, a copy of the claim can be left in the home with a person who is at least 18 years of age. This person must be told what the claim is about. When a claim is left with a party other than the defendant, a copy must also be mailed by first class mail to the defendant at the address where the claim was left. This copy must be mailed at least 25 days before the hearing if the defendant resides within the county and 30 days before the hearing if the defendant resides outside the county. The claim is considered served 10 days after the copy is mailed.
Possibly the easiest and most effective method of service is to utilize a process server. You can find a listing of process servers in the phone book or on the Internet, and you will pay for such a service. In some counties a sheriff will serve the claim for a fee. The person who serves the defendant must file a proof of service form, which can be obtained from the small claims clerk, before the trial. The clerk will inform you how much in advance of the trial the form must be filed-this period will vary by county. You can also pay a fee to the small claims clerk to send the claim by certified mail. If, however, the defendant refuses to sign for the certified mail, service is not considered complete.
The defendant does not need to accept the claim for it to be properly served. As long as he or she has been identified, it can merely be left in his or her presence. Be sure that the defendant is named correctly. The name on the claim must be the exact full name of the person being sued. If the claim is against a couple, include each individual's full name.
Small claims court cases are usually very brief, often lasting no more than ten or fifteen minutes. Because they are brief, you must briefly and succinctly state your case and provide any accompanying documentation to support your action. Be sure to take copies for both the judge and the defendant. You may wonder, is this not a breach of confidentiality? The answer is no, in that you are not disclosing to the judge the confidential communications that you have had with the patient over the course of the treatment. The only information that you are disclosing is that the patient agreed, either in writing or verbally, to pay for a service that you rendered and you have not been paid. The judge will expect you to demonstrate all methods that you have used to date to attempt to collect the unpaid debt. In preparing what you will say to the judge, be prepared to counter whatever you anticipate the defendant will raise, e.g., "you were a lousy therapist" or "I didn't get better." If you expect that you will be very nervous before the judge, summarize what you will say in writing in advance of the hearing. Remember, you are not, nor are you expected to be an attorney. Therefore, avoid using legalese.
The case will be heard by a small claims court commissioner, a temporary judge (judge pro tem), or a judge. The judge pro tem and the commissioner have all of the powers and responsibilities of a judge. A judge pro tem is an attorney who volunteers his or her time to hear and decide cases. You may object to the case being handled by a judge pro tem, in which case it will be heard by a judge. The case may be decided at the time of the hearing or the decision may be mailed to the parties following the hearing. If you lose the claim you may not appeal, however, the defendant may appeal if unsuccessful. If, however, the defendant files a claim against you, which often occurs (alleging, for example, that he/she was harmed by your treatment), this hearing may occur at the same time, and you may appeal this judgment if it goes against you. If there is an appeal, a new trial will be scheduled. Notices of Appeal must be submitted with the required fees within thirty days after the Notice of Entry of Judgment was mailed or given to you. Appeals are handled in Superior Court, and in such case, you may be represented by an attorney.
Statutes of Limitation
Statutes of limitation vary. Thus, if you are in doubt about whether or not your claim may have exceeded the statute of limitations, file the claim and let the judge decide.
If a case involves an oral contract, the statute of limitations is up to two years from the date the contract was breached. For example, if you had a verbal agreement with a patient to pay for the services you rendered, the statute would be two years.
If a case involves a written contract, the statute of limitations is up to four years from the date the contract was breached. This would be applicable if you had a written agreement with your patient to pay for the services you rendered.
There are differing statutes of limitations involving personal injury, damage to personal or real property, fraud, or when suing a public entity. Such statutes range from one to three years. Generally, these are not applicable when attempting to collect a bad debt.
Meanwhile, you file in small claims court, do all the right things, appear before the judge, and get a judgment. Then what happens-do you sit back and wait for the money to come in? Unfortunately, a judgment does not mean payment. You will have to collect the money yourself if you are successful in small claims court. You must wait at least thirty days from the date of the Entry of Judgment to collect if the defendant appeared in court, and at least thirty days if you have a default judgment (the defendant did not appear). You will need to check with the county sheriff in the county of the suit to see if sheriffs serve "Writs of Execution." If the county sheriff does not do this in your county, you will need to employ a process server who will serve the Writ of Execution. There is a fee to issue the Writ. Before the court issues the Writ, you will need to file a "Memorandum of Costs" form for the process server's fee and mail a copy to the defendant.
The judgment is good for ten years and can be renewed. You are entitled to interest at ten percent per year, beginning with the date of the Entry of Judgment, and you are also entitled to payment for some of your costs in collecting the judgment. To add your costs to the judgment, request and complete a Memorandum of Costs form, which you may obtain from the clerk in the small claims court.
If you are not paid as a result of the judgment, you may wish to consider one of the following options:
Garnish the wages of the patient or prior patient-you may not want to do this because of the embarrassment that it might cause your patient or prior patient.
Place a levy upon the patient or prior patient's bank account. You will need the name and address of the patient or prior patient's bank and the levy is accomplished with a Writ of Execution.
File an Abstract of Judgment-this action liens property owned by the patient or prior patient and must be filed in counties where he/she owns or may purchase property. If and when the property is sold or refinanced, the debt will be paid out of the proceeds of the sale or will not be refinanced until the debt is paid. An Abstract of Judgment requires a small fee, the form can be obtained from the clerk, and is recorded in the county recorder's office.
Hold a judgment debtor hearing-such a hearing requires the debtor to come to court and answer your questions about his or her salary, bank accounts, property, or anything else that can be used to pay the judgment. To order such a hearing, file an "Order of Examination" that can be obtained for a nominal fee from the small claims clerk.
When you collect the judgment, you are required to file a "Satisfaction of Judgment" form with the clerk. A word to the wise, is to never let the balance owed by the patient grow to an unusually large or extreme level. Likely, a $7,500 or greater unpaid balance has reached the danger point. Because of the stress that such an unpaid balance may create in the mind of the patient, you are subjecting yourself to the potential for a malpractice suit with you as the target. If the patient does not have the ability to pay, it is time to find a low cost therapist and refer.
What do you do if the patient or prior patient writes a check with insufficient funds, writes a check on a closed account or stops payment on the check written to you?
Any person who writes such a check may be held liable for a penalty equal to three times the amount of the check, plus the face value of the check. The minimum penalty is $100 and the maximum is $1,500. In the case of such a "bad" check, write a demand letter to the check writer, sent by certified mail. The letter should request to be paid the amount of the check in cash, money order, or cashier's check within thirty days. You may also include the fee charged by your bank for processing the insufficient funds check and any costs for mailing the demand letter. If you do not receive reimbursement within thirty days, even though the party may not have signed for the certified mail, you may file a claim in small claims court. Be sure to take all documentation showing your effort to collect with you when you appear in small claims court. In addition, in the case of a check written where the patient or prior patient has "stopped payment," you must show that payment was not stopped to resolve a dispute or that you made a reasonable effort to resolve any dispute (if there is a dispute) before appearing in court.
Attempting to collect for services that you provide when the patient is unwilling to pay may seem like a daunting task. This task can, of course, be diminished or eliminated by being firm with your patients and collecting at the time services are rendered. However, this rule is not always practical or easy to implement. Should you find yourself in the situation of carrying a balance on the books where you’re getting paid is beginning to look bleak, consider pursuing collection in small claims court. Getting a judgment is a relatively simple, economical, and swift process. Actually getting paid may take a little more effort, but you will feel successful in knowing that you were able to carry out these procedures with little outside assistance or unreasonable expense.
This article appeared in the January/February 2002 issue of The California Therapist, the publication of the California Association of Marriage and Family Therapists, headquartered in San Diego, California. This article is intended to provide guidelines for addressing difficult legal dilemmas. It is not intended to address every situation that could potentially arise, nor is it intended to be a substitute for independent legal advice or consultation. When using such information as a guide, be aware that laws, regulations and technical standards change over time, and thus one should verify and update any references or information contained herein.