Interest Charges on Outstanding Health Care Bills
By Richard H. Adler
March 13, 1992
All health care providers at some time are asked to defer payment for services. For example, a person injured by the negligence of another may have a personal injury claim, but may not be able to pay for health care treatment until that claim is resolved. Equally as likely, a patient may have insurance, but his/her insurance might lapse because the insurance plan provides for payment only within a specified time period (e.g., one year from the day of the accident), the patient may have exhausted benefits, or a specific provider’s services may be excluded from coverage.
Charging interest on outstanding health care bills is permitted under Washington state law, but there are limitations on the amount a health care provider can charge a patient. There can be adverse consequences to the provider when he/she charges more than the legal limit.
The Washington legislature enacted interest-limiting laws “to protect the residents of this state from debt bearing burdensome interest rates 1/4 ” RCW 19.52.005.
The highest rate permissible for interest charges is discussed in RCW 19.52.020, which provides:
(1) 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, 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, but the law requires that such an agreement 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.
CAN YOU CHARGE HIGHER THAN TWELVE PERCENT?
Some individuals might be tempted to argue that a health care provider can charge interest greater than twelve percent under the authority of 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, ¼
One could claim that since the health care professional is selling services and is electing to defer payment, the twelve percent cap would not apply to the provider. However, the term “sales contract” in RCW 19.52.120 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 no higher than twelve percent.
WHAT ARE THE PENALTIES FOR INTEREST HIGHER THAN THE LAWFUL LIMIT?
When the health care provider charges interest greater than twelve percent, there can be significant penalties. RCW 19.52.030 provides that the creditor (you) shall only be entitled to the principal less the amount of interest accruing thereon the rate contracted for. 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; 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 pushes this issue 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 finding of treble damages (three times the amount) plus costs and attorney fees assessed 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 might 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:
If there is no written office policy advising your patient that you will charge 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 account receivables that have a higher than twelve percent rate.
Does this then mean that credit card companies and retail stores charging higher than twelve percent per annum interest rate are void? The answer is no. Banking and credit card companies have been granted exceptions to the statutes discussed in this article.
Lastly, we want you to know that it is the policy of Adler Giersch, P.S., to pay the interest charges accrued by our client/your patient on outstanding health care balances provided the patient has been given notice and that the interest charge does not exceed the maximum of twelve percent per annum.
I hope that this information will prove useful.