Interest Charges: Can Health Care Providers Charge 12%, 18% or Higher?
By Richard H. Adler
October 13, 2000
In the past year we have received many, many phone calls, emails and letters inquiring about the laws regarding interest charges health care providers can assess on overdue patient accounts. This article is intended to answer those questions.
All health care providers at some time will experience delays in reimbursement. For example, a patient may have insurance but the insurer delays reimbursement, the patient may have exhausted benefits, or a specific provider’s services may be limited or excluded from coverage.
Outstanding patient accounts are a part of the health care provider’s practice. How account balances are handled may effect the ultimate success of a practice. One tool health care providers have at their discretion is charging interest on outstanding patient accounts. Charging interest is permitted under Washington state law but there are limitations. Providers need to be aware of these because there are punitive consequences for straying above the legal limit.
- The Washington legislature enacted interest-limiting laws “to protect the residents of this state from debt bearing burdensome interest rates…” RCW 19.52.005. The highest rate permissible for interest charges, discussed in RCW 19.52.005 provides:
- Any rate of interest shall be legal so long as the rate of interest does not exceed the higher of (a) twelve percent per annum; or (b) four percentage points above the equivalent coupon yield (as published by the Federal Reserve Bank of San Francisco) of the average rate for twenty-six week treasury bills as determined at the first bill market auction conducted during the calendar month immediately preceding the later of (i) the establishment of the interest rate by written agreement of the parties to the contract or (ii) any adjustment in the interest in the case of a written agreement permitting an adjustment in the interest rate.
According to RCW 19.52.020, a health care provider can charge twelve percent per annum. Interest rates may be higher than twelve percent, as long as it is calculated as four percentage points above the equivalent coupon issue yield of the twenty-six week treasury bills. For example, if the twenty-six week treasury bill yielded ten percent, then the permissible interest rate would be four percent per annum higher, or fourteen percent. Unless you are prepared to re-calculate your interest charge each month for every patient bill, it is prudent to use a twelve percent per annum as a basic interest charge on all your patient accounts. Obviously, providers and their patients are free to agree to a lesser interest amount. However, providers cannot charge a higher amount.
The law requires that all agreements regarding interest be in writing. If a specific interest rate is not agreed upon, though it is agreed that interest will be charged, then the law presumes the rate of twelve percent per annum.
WHY CAN VISA, MASTERCARD AND RETAIL STORES CHARGE A HIGHER AMOUNT?
Some might be tempted to argue that a health care provider should be able to charge interest greater than twelve percent since Visa, MasterCard or retail store charge cards have higher rates. However, consumer credit cards are governed by a different statute, RCW 19.52.120 which provides:
A sales contract for goods or services providing for the deferred payment of the purchase price shall not be subject to this chapter…
This part of the statute allows Visa, MasterCard and retail stores to charge rates higher than twelve percent. They are exempt from RCW 19.52.005 that limits interest rates on Washington residents. The term “sales contract,” as defined in RCW 19.32.120, requires that the buyer and seller agree on the purchase price. In Re Refro, 407 F.2d 238 modified 53 F.2d 834. When a patient begins treatment, no health care professional could (or would want to) establish a final, or total purchase price. There are too many future uncertainties affecting the cost of health care, including patient’s responsiveness to treatment, exacerbations of condition, change in diagnosis, etc. The law allows for charging interest on outstanding balances, but a health care provider’s interest can be not higher than twelve percent, or four percentage points above the treasury bill rate.
WHAT IF I USE AN INTEREST RATE GREATER THAN 12 PERCENT?
When the health care provider charges interest greater than twelve percent, there can be significant penalties affecting the account involved.
RCW 19.52.030 provides that the creditor (provider) shall only be entitled to the principal less the amount of illegal interest accrued thereon. This means that if your patient owes you $1,000.00 ($750.00 principal, $250.00 interest at eighteen percent) on a health care bill, then the interest owed is void and as an additional penalty, the $250.00 of interest is deducted from the principal so that the outstanding balance now is only $500.00 total. The penalty is even more extreme if interest has been paid on the account, in which case the creditor is only entitled to the principal, less “twice the amount of interest paid and less the amount of all accrued and unpaid interest.”
In the event that the patient/debtor goes to court and prevails, the health care provider/creditor is required to pay the patient’s attorney’s fees plus any amounts he was paid in excess of what the creditor was legally entitled. Charging interest more than legally allowable is considered an “unfair act or practice in the conduct of commerce” and is deemed a violation of the Consumer Protection Act (RCW 19.52.036). A violation of the Consumer Protection Act can lead to the assessment of treble damages (three times the amount) plus costs and attorney fees against the losing party.
Many providers reading this article will either breathe a sigh of relief that they are charging the maximum allowable interest rate, or develop a cold sweat realizing that an eighteen percent per annum interest charge is void. It is recommended that all health care providers follow these several points:
- All patients should have clear written notice from the provider’s office as to the interest rate charged on outstanding balances;
- All agreements to charge interest should be in writing and included in the paperwork given to new patients entering your office;
- Interest on outstanding accounts should not be more than twelve percent per annum (one percent per month);
- If there is no written office policy advising your patient that you will charge interest and you have not been charging interest, you cannot charge interest retroactively after the service has been provided;
If your interest rate is more than twelve percent (many charge interest at eighteen percent or one and a half percent per month), it is recommended that you re-adjust your interest charge from the higher rate to twelve percent, advise your patient in writing of the change, and recalculate all receivables that have a higher than twelve percent rate.
I hope that this information will prove useful.