Tag: medical debt collections

Unpaid medical bills are more than a patient financial issue. They place sustained pressure on hospital margins and operational efficiency. Millions of Americans carry medical debt, and when balances move to collections, hospitals often incur significant fees without a clear view of the total cost.

The impact goes beyond dollars recovered. Medical debt can affect a patient’s credit and access to care, while hospitals absorb inefficiencies that consume staff time and divert resources away from patient services. Without visibility into how collection services perform and what they truly cost, these challenges compound quietly over time.

Why This Matters to Hospitals Right Now

Medical debt is everywhere. About 36 percent of U.S. households carry some form of medical debt. In 2024, roughly 10 million people had unpaid medical bills in collections.

For hospitals, these unpaid balances usually end up with collection agencies. But here’s the problem: without clear reporting, it’s tough to know what we’re actually paying. Are the dollars we spend delivering real results? Or are we just handing over fees without seeing real recovery?

This lack of visibility hits hospitals in multiple ways. Margins get squeezed. Inefficiencies remain hidden. And funds that could improve patient care are tied up in uncertainty. Meanwhile, patients feel the pinch too. Medical debt can hurt their credit and make accessing care more difficult.

When unpaid accounts stack up, the risk of bad debt grows. Hospitals face more financial strain, and the cycle keeps repeating. Understanding and managing these costs is no longer optional, it’s essential to keeping operations running smoothly and maintaining trust with patients.

How Collection Agencies Are Paid

1. Contingency Fee Model (Most Common)
   Agencies are paid only when money is recovered. Rates typically range from 15 to 40 percent, depending on factors such as account age, balance size, and complexity. While this model aligns incentives, it often masks the true cost per recovered dollar when hospitals cannot connect fees, recovery outcomes, and account characteristics in one view.
2. Flat Fee Arrangements
   Some agencies charge a fixed fee per account, usually for high-volume, low-balance portfolios. In healthcare, these models are less common due to regulatory requirements and account complexity.

The pricing structure itself is rarely the issue. The challenge is knowing which model delivers the best net outcome for your hospital’s mix of accounts.

What Drives Collection Fees Higher

Several factors consistently increase collection spend:

• Debt Age
  Older balances are harder to recover and typically fall into higher fee tiers.
• Debt Size and Volume
  Smaller balances often carry higher percentage fees, while larger volumes may qualify for lower negotiated rates.
• Healthcare Specific Complexity
  HIPAA requirements and billing nuances demand specialized handling, which can affect both cost and outcomes.

How Much Hospitals Actually Pay

Example Cost Scenarios

As accounts age, fees increase while net recovery declines. Performance also varies widely between agencies. Some recover less than 15 percent of assigned balances, while stronger healthcare-focused agencies may exceed 25 percent.

Without clear visibility, these differences remain difficult to identify and act on.

This is where Valify helps. By categorizing collection services as a purchased services spend category and connecting fees, recovery outcomes, and benchmarks in one view, Valify enables hospitals to see what they are truly paying, compare performance across vendors, and make data-backed contract and sourcing decisions.

Hidden Costs Hospitals Rarely Track

Even when paid only on results, true costs include:

Operational Costs

• Internal staff time spent preparing accounts for agency submission.
• Resources for follow-up, dispute resolution, and appeals.

Opportunity Cost

• Lost negotiating power when agencies take over accounts.
• Reduced control over revenue forecasting and reporting accuracy.

Patient Experience Impact
Poor communication or unclear billing can create patient frustration. Dissatisfied patients may delay future care or leave negative reviews, affecting our hospital’s reputation.

What Hospitals Should Measure

Understanding collection spend requires more than reviewing invoices. Hospitals need visibility into what they pay, what they recover, and how performance varies across accounts and vendors.

Spend and recovery visibility

Track total dollars paid to collection agencies and break that spend down by account age, type, and outcome. Measuring net recovery after fees is essential to understand how much value is actually retained. Without this view, hospitals often overestimate agency performance.

Performance benchmarks

Compare recovery rates, time to collect, and cost per recovered dollar against industry norms. Typical healthcare recovery rates range from 15 to 25 percent. Meaningful variation below that threshold may signal contract or process issues that warrant review.

Patient impact indicators

Collections also affect patient experience. Monitor escalation rates, unresolved balances, and patterns that indicate breakdowns in early communication or billing clarity.

Using Valify’s analytics, hospitals can see all these metrics in one place. The platform shows performance across departments and service lines. It makes it easy to spot trends, identify problem areas, and take action to reduce costs.

Best Practices to Reduce Collection Costs

• Improve Early Accounts Receivable Workflows

Collecting upfront payments before services are delivered can significantly reduce downstream collection costs. Clear communication around co-pays, deductibles, and insurance coverage at the point of care helps prevent confusion and delays later.

Early follow-up on late accounts is equally important. Reaching out sooner increases the likelihood of payment and limits the number of accounts that age into higher-cost collections.

• Negotiate Better Agency Contracts

Collection agency contracts directly influence overall spend. Tiered pricing based on account age and complexity helps ensure hospitals pay appropriately for the level of effort required.

Including performance metrics, such as recovery rates or response times, provides accountability and makes it easier to evaluate whether agencies are delivering real value.

• Segment Accounts Strategically

Not all accounts should be handled the same way. Newer or lower-risk balances may be resolved more efficiently in-house, preserving patient relationships and reducing costs.

Older or higher-risk accounts are better suited for agencies with the right expertise. Intentional segmentation improves recovery outcomes while controlling fees.

• Invest in Technology and Analytics

Analytics help hospitals identify cost drivers before accounts reach collections. Line-item visibility into purchased services makes it easier to spot inefficiencies, adjust workflows, and support stronger contract negotiations.

Valify’s analytics provide this visibility by connecting spend data, performance outcomes, and benchmarks in one place, helping hospitals reduce unnecessary collection costs and improve operational efficiency.

How Valify Helps You Know What You Are Really Paying

Valify provides hospitals with complete visibility into collection services as part of total purchased services spend.

• Purchased Services Spend Analytics

Categorize non-labor spend across 1,400+ service categories to clearly understand where collection costs sit.

• WorkPlan Dashboard

Monitor contract usage, compliance, and spending trends in real time to catch issues early.

• Benchmarking and Advisory

Compare collection costs and recovery outcomes against peer hospitals to identify gaps and opportunities.

• Contract Management Solutions

Use data-backed insights to negotiate stronger vendor agreements, including collection agencies.

With Valify, hospitals understand total spend and performance, not just the nominal fee charged by a collection agency.

Track Costs & Save More Care

Medical debt collection does not have to be a mystery expense. Between tiered fees, debt age impacts, and net recovery outcomes, hospitals like ours can easily overpay without realizing it.

By tracking total cost, benchmarking performance, and optimizing spend across departments, we can reduce unnecessary collection fees and free up resources for patient care.

Ready to see what you are truly paying?
Schedule a demo with Valify today and gain full visibility into your collection costs and all purchased services spend.

FAQs:

How much do collection agencies typically charge hospitals on medical debt?
Most agencies work on contingency and charge 15-40 percent of recovered amounts, depending on debt age and complexity.

Are hospital collection agency fees negotiable?
Yes, especially for high-volume accounts or bundled contracts. Hospitals with better spend insights often negotiate lower rates.

Do collection agency fees include upfront costs?
Standard contingency models involve no upfront cost. Agencies only get paid when they recover money.

How can hospitals lower collection costs?
Improve early billing, segment accounts by age, negotiate better agency contracts, and measure outcomes for continuous improvement.

Does medical debt affect patients’ credit reports?
Yes. Millions of Americans have medical debt in collections, which can appear on credit reports and affect credit scores.

Valify Team

The Valify Editorial Team is dedicated to sharing insights, strategies, and innovations that help healthcare organizations gain control of purchased services spend. Backed by years of expertise in data analytics, procurement, and healthcare technology, the team curates practical resources and thought leadership to guide hospitals and health systems toward greater efficiency and savings. By combining industry knowledge with real-world case studies, the Valify Editorial Team delivers content that empowers decision-makers to drive smarter, data-driven sourcing strategies.