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BILLING AND BILLING AND COLLECTIONCOLLECTIONSS FOR FOR THE HEALTH CARE INDUSTRYTHE HEALTH CARE INDUSTRY
By: James A. Christopherson, Esq.
James A. Christopherson, Esq. 100 Park Street
Traverse City, MI 49684 (231) 929-0500
Fax (231) 929-0504 Email: [email protected]
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Seminar Participants
James A. Christopherson has written and spoken extensively on healthcare issues. He received his B.A., magna cum laude, from Michigan State University, and his J.D. degree, cum laude, from Wayne State University. He is a member of the State Bar of Michigan and is admitted to practice before the United States Supreme Court (where he has personally argued), the United States District Courts for the Eastern and Western Districts of Michigan, and the United States Court of Appeals for the Sixth Circuit. He is the recipient of the American Jurisprudence Award for Taxation. He is a member of the American Health Lawyers Association, and the Health Care Law Sections of the State Bar of Michigan and the American Bar Association. Mr. Christopherson is available to assist physician groups and other health care providers with a wide range of legal issues including HIPAA compliance, forming professional corporations and limited liability companies, ambulatory surgery center formations, contracting, mergers, fraud and abuse, and other legal issues. .
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TABLE OF CONTENTS I. INTRODUCTION .............................................................................................................. 1 II. DOCUMENTATION PRIOR TO SERVICE: AVOIDING COLLECTION PROBLEMS ...... 1
A. PATIENT AGREEMENTS..................................................................................... 1 B. PAYMENT TERMS ............................................................................................... 1 C. INSURANCE COVERAGE.................................................................................... 1 D. THIRD-PARTY PAYMENT GUARANTIES ........................................................... 1
III. MICHIGAN’S PROMPT PAYMENT LEGISLATION ......................................................... 2 IV. INFORMAL AND FORMAL COLLECTION....................................................................... 2
A. PRE-LITIGATION COLLECTION TACTICS ......................................................... 2 B. SELECTING A COLLECTION AGENT ................................................................. 3 C. INSTITUTING A LAWSUIT ................................................................................... 5 D. LITIGATION CONSIDERATIONS......................................................................... 5 E. THE APPEAL PROCESS ................................................................................... 10
V. THE FAIR DEBT COLLECTION PRACTICES ACT ....................................................... 19 VI. MEDICAID COLLECTION ISSUES ................................................................................ 22 VII. MEDICARE COLLECTION ISSUES AND MEDICARE APPEALS................................. 22
A. COLLECTION ISSUES ....................................................................................... 22 B. HOSPITAL INPATIENT REIMBURSEMENT ...................................................... 23 C. PHYSICIAN ISSUES........................................................................................... 23 D. MEDICARE APPEALS........................................................................................ 25 E. MIDLEVEL PROVIDERS .................................................................................... 26
VIII. BLUE CROSS BLUE SHIELD COLLECTION ISSUES .................................................. 27 IX. COLLECTING ON A JUDGMENT .................................................................................. 28
A. POST-JUDGMENT DISCOVERY METHODS .................................................... 28 B. NOTIFICATION TO THE DEBTOR..................................................................... 29 C. PERIODIC AND NON-PERIODIC GARNISHMENTS......................................... 29 D. COLLECTION AGAINST PERSONAL PROPERTY ........................................... 44 E. COLLECTION AGAINST REAL PROPERTY ..................................................... 44
X. SPECIAL COLLECTION ISSUES................................................................................... 46
A. WHERE THE PATIENT IS INVOLVED IN A PERSONAL INJURY ACTION...... 46 B. COLLECTION AGAINST SPOUSES AND MINORS .......................................... 46 C. COLLECTION AGAINST MINORS ..................................................................... 46
XI. MICHIGAN’S NEW JUDGMENT LIEN ACT ................................................................... 47
A. INTRODUCTION................................................................................................. 47 B. COMPARISON WITH ORDERS FOR SEIZURE OF PROPERTY ..................... 47 C. RENEWAL OF A JUDGMENT LIEN ................................................................... 53
XII. BANKRUPTCY ISSUES INVOLVED IN COLLECTION OF HEALTHCARE DEBTS ..... 58
A. INTRODUCTION................................................................................................. 58 B. LIQUIDATION/REORGANIZATION UNDER THE BANKRUPTCY CODE......... 59
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C. CHAPTER 7 ........................................................................................................ 60 D. CHAPTER 13 ...................................................................................................... 67
Common Questions Asked About Chapter 7 .............................................................................. 73 Common Questions Asked About Chapter 13............................................................................ 82 XIII. PHYSICIAN COMPLIANCE PLANS ............................................................................... 92
A. DO I NEED A COMPLIANCE PLAN? ................................................................. 92 B. WHAT IS A COMPLIANCE PLAN?..................................................................... 92 C. OIG COMPLIANCE PROGRAM GUIDANCE ..................................................... 94
XIV. RECENT ISSUES IN COLLECTION .............................................................................. 97
A. HEALTH CARE FRAUD AND BILLING ISSUES ................................................ 97 B. COMPLIMENTARY PROFESSIONAL MEDICAL SERVICES............................ 99 C. HIPAA ISSUES ................................................................................................. 103 D. MISCELLANEOUS ISSUES ............................................................................. 103
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I. INTRODUCTION II. DOCUMENTATION PRIOR TO SERVICE: AVOIDING COLLECTION
PROBLEMS
A. PATIENT AGREEMENTS
1. Standard Agreement
2. Collectability
B. PAYMENT TERMS
1. Promissory Notes
2. Security for Payment
C. INSURANCE COVERAGE
1. Interplay with Patient Agreements
2. Coordination of Benefits
D. THIRD-PARTY PAYMENT GUARANTIES
1. Spouses
North Ottawa Community Hospital v Barbara Kieft, 457 Mich 354 (1998)
David Kieft received medical attention at North Ottawa Community Hospital and later passed away. His estate was insolvent. North Ottawa Community Hospital was owed $22,191.81. It tried to collect the debt from his wife, Barbara Kieft. Mrs. Kieft contended that she did not have a duty or obligation to pay for her husband=s debts. North Ottawa Community Hospital contended that Ait is well established in Michigan law, that each spouse is obligated to pay for the medical necessaries rendered to the spouse, if they were rendered during the marriage.@ The Michigan Supreme Court upheld the Married Woman=s Property Act and found that North Ottawa Community Hospital could not recover the debt from Barbara Kieft.
2. Minors Parents are liable for medical services provided to a minor unless
the minor is emancipated.
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3. Employers
4. Others
III. MICHIGAN’S PROMPT PAYMENT LEGISLATION On May 17, 2002, Michigan enacted Prompt Payment Legislation. Insurance
companies, including health insurers, HMOs and Blue Cross and Blue Shield, are required to pay a clean claim within 45 days after receipt. A clean claim that is not paid within 45 days of its receipt shall bear interest at 12% per annum. A health plan must notify the provider within 30 days after receipt of the claim by the health plan of all known reasons that prevent the claim from being a clean claim. If the health plan contends that the claim is not clean, the provider then has 45 additional days to submit a clean claim. A clean claim is defined as a claim that does all of the following:
1. Identifies the health professional or health facility that provided service
sufficiently to verify, if necessary, affiliation status and includes any identifying numbers.
2. Sufficiently identifies the patient and the health plan subscriber. 3. Lists the date and place of service. 4. Is a claim for covered services for an eligible individual. 5. If necessary, substantiates the medical necessity and appropriateness of
the service provided. 6. If prior authorization is required for certain patient services, contains
information sufficient to establish that prior authorization was obtained. 7. Identifies the service rendered using a generally accepted system of
procedure or service coding. 8. Includes additional documentation based upon services rendered as
reasonably required by the health plan. Health care corporations, such as hospitals, have 60 days instead of 45 days, to
make payment. The legislation took effect on October 1, 2002. IV. INFORMAL AND FORMAL COLLECTION
A. PRE-LITIGATION COLLECTION TACTICS
1. Collection letters
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2. Telephone calls
3. Personal visits
Note: Fair Debt Collection Act procedures must be complied with in making contact, either oral or written, with the debtor, which contact seeks to collect the debt. See the discussion of the Fair Debt Collection Act, below.
Be creative and flexible in attempting to collect debts!
B. SELECTING A COLLECTION AGENT
1. Collection agencies
a. Is this the right move for you?
b. Are more intense collection efforts needed?
c. What tactics are used by the collection agency?
d. Rates and fees?
2. Attorneys (Pre-litigation)
a. Even more intense collection efforts necessary
b. Promissory Note (see form attached)
c. Greater fees and costs
3. Investigate the Agency
Experience with your industry Your business may require unusual collection tactics that some agencies may be more familiar with than others. Government, student loans, and medical accounts are examples of when specific expertise is important. Reputation of the firm Make sure to check a collection agent's references, particularly from clients that are in a similar business. Call the references and ask their opinion of the collection services, if they have had any problems, and what their typical success rate is.
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Method of collection services Examine the letters that will be used and judge whether they will be effective with your customer base. Also ask about the training telephone collectors receive to ensure their methods are professional and respectful, and find out how they handle legitimate excuses or hardship cases. How they handle skiptracing “Skiptracing” refers to how the collection agent finds debtors who have disappeared and can no longer be directly contacted. This is particularly important when collecting from individuals. Agencies should have access to online search capabilities and telephone databases to help locate these debtors. Geographic coverage Some states require collection agencies to obtain licenses before they can pursue debtors located in that state; others require different licenses for agencies headquartered in their state. Ask potential agencies what states they are able to collect in, and how they handle accounts in other locations. Often, agencies forward accounts from outside their coverage areas to other agencies, which can save you the hassle of shopping for agencies that cover many different areas, but will result in a lower percentage of the collected debt being returned to you. Insurance An Errors and Omissions Liability insurance policy can benefit both you and your collection agent by protecting against lawsuits unhappy debtors might file for perceived harassment. An up-to-date policy can be a sign of a collection service that is responsible and conscientious. Shop around Collection services don’t require long-term contracts or exclusivity. Try a few different vendors and see which produces the best results before settling on one firm. Even after you have chosen a primary collection agency, it can be worthwhile to send a few delinquent accounts to a different agency just to compare ongoing performance. Important note: do not send the same account to more than one agency--that is illegal under the FDCPA.
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C. INSTITUTING A LAWSUIT
1. Filing the Summons and Complaint
a. Complaint for Account Stated (see Complaint attached)
Affidavit supporting amount of account also necessary (see Affidavit attached)
b. Complaint for Breach of Contract
c. Filing fees
2. Responding to the debtor=s answer or failure to answer
a. If debtor fails to answer, may apply for default and default
judgment
b. If debtor=s answer is not legally sufficient, may move for Summary Disposition (see Judgment Granting Summary Disposition attached)
3. Discovery Practice and Procedures
4. Settlement Discussions
a. Formal settlement procedures (facilitative mediation;
arbitration)
b. Informal settlement procedures
5. Trial
6. Obtaining a Judgment
D. LITIGATION CONSIDERATIONS
1. Who are the parties?
2. What is the likelihood of collection?
I.e., is it worth it to sue? Even if you get a judgment, will you get paid?
$ UCC searches
$ Real estate search
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$ Motor vehicle search
$ Private investigator
$ Internet
3. Statutes of Limitations
a. Account stated: 6 years from the date of the last item proven in the account (MCLA 600.5831)
b. Breach of contract: 6 years from the date of the breach
(MCLA 600.5807(8))
4. Jurisdiction and Venue
a. Circuit Court: over $25,000 at issue
b. District Court: less than $25,000 at issue
c. Small Claims Court: less than $3,000 at issue
5. Background
The description of litigation that follows is written from the perspective of the typical business that is a defendant in a civil case. However, the experience for the plaintiff, or person actually initiating litigation, is not substantially different for the purposes of this explanation, and a business may wish to bring litigation as a means to resolve a dispute as well as be subject to an adverse claim. This explanation describes the litigation process from its initiation through the final resolution of the claim.
6. Complaint
The first event that occurs in litigation ordinarily is the filing of a complaint by your adversary in the local, state, or federal court. The most common manner in which a business finds out that it is involved in litigation is service of the complaint. For the small to medium-sized business, this typically involves a document showing up at your receptionist’s desk either by way of certified mail, return receipt requested, or hand-delivery by a process server. In either event, the arrival of such a document from a law firm, which undoubtedly accuses the business and its shareholders, directors, officers, and employees of various bad acts, can have a profound effect on office morale and can be a source of unpleasant rumors, which unfortunately can slip outside of the business and into the ears of customers, creditors, etc.
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The defendant must then decide to retain an attorney or firm to represent it. Many business attorneys who are steeped in drafting documents and conducting contract negotiations are not well equipped to handle litigation. Nevertheless, many, not wishing to lose client control, will agree to handle such matters, which can lead to unfortunate consequences. Typically, however, a referral is made to an actual litigator either within a firm regularly used by the business or to a litigation specialty firm. Sometimes, depending on the allegations in the complaint, defense counsel is selected by an insurer pursuant to a duty to defend contained in an insurance contract covering the business. Although alternative fee arrangements have been discussed for years, the typical arrangement is an hourly rate, which may range anywhere from approximately $100 to more than $300 per hour for commercial litigation. The reasons offered for the various rates include the prestige of the particular litigator’s law school, internal firm resources, experience in particular matters, and the quality of work to be performed. These qualifiers do not necessarily translate into the ability to actually successfully litigate a case, and the client should specifically inquire about the attorney’s litigation experience.
7. Answer to the Complaint
After identifying and selecting appropriate defense counsel, the process of responding to the allegations in the plaintiff’s complaint begins. Typically, the principals of the business meet with the lawyer(s), together with any employees or agents of the business who are particularly involved with the facts giving rise to the lawsuit. One of the main reasons for the meeting will be to review the complaint paragraph by paragraph so defense counsel can prepare a response called an answer. In the answer, the defendant will admit or deny the plaintiff’s allegations or indicate that the defendant is unable to respond because of the lack of information.
In addition, it is not unusual for the answer to include affirmative defenses, which are reasons in law or fact about why the plaintiff should not recover. These often serve as the basis for motions filed by the defendant to seek the dismissal of the complaint for failure to state a viable claim. A defendant typically has between 21-28 days in which to file its answer.
8. Discovery
In addition to the answer and a possible motion to dismiss, it is customary for the defendant to serve discovery requests asking the plaintiff to produce documents and answers to written questions and to seek testimony from individuals involved in the lawsuit.
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Indeed, the complaint served on the business may well include such requests by the plaintiff. Discovery typically continues for a period of 2 months to one year following the answer to the complaint. Depending on the complexity of the case and the determination of the parties, this process can be quite costly, both in terms of attorney time and business resources. It is not unusual that a case of moderate complexity will require several days of preparation by both the attorney and the client for each deposition.
9. Case Evaluation
At or near the conclusion of discovery, the Michigan Court Rules of 1985 require an evaluation of the claim. The legal term for this in Michigan is case evaluation. Case evaluation requires the attorneys to submit case summaries to a panel of 3 independent lawyers. This process culminates in a hearing where counsel for each of the parties appear before this panel to discuss the facts and law of the case with the intent of having the evaluators arrive at a settlement figure that they believe is most likely to resolve the litigation.
The Michigan Court Rules provide a significant incentive to the parties to settle their differences at this point by imposing on the party who refuses to settle the risk of having to pay the attorney fees of the other party if the action proceeds to trial and the other party prevails. Although the use of special panels for complex commercial matters sometimes reduces the risk of such awards, it is a reality that the business and its attorney must contend with.
10. Settlement
If the litigation settles, whether at the case evaluation stage or some other time, the parties typically enter into a detailed document referred to as a release. In the release one party agrees to pay the other a specified dollar amount or agrees to change its conduct in some way. This release also typically relieves each party of any further liability to the other for any and all matters that have been raised up to that point. Other matters that may be included in the release vary with the type of claim. A release purporting to restrain a party from future litigation on the basis of future conduct is generally not enforceable.
11. Alternative Dispute Resolution (ADR)
Because so many litigants are frustrated by the litigation process or the prospect of being involved in it, alternative dispute methods are proliferating across the country. The most common of these is arbitration. A variety of entities offer the services of individuals to conduct either binding or nonbinding arbitrations of disputes that
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would otherwise end up being tried in municipal, state, or federal courts. The arbitrators themselves are typically senior level attorneys or retired judges, and the parties share the direct expenses of the arbitration. The arbitration hearings are usually abbreviated by relaxing the formal procedures and rules that tend to prolong trials in the courts. The most important aspect of arbitration is establishing the ground rules by which the arbitration itself will occur. A skilled litigator will understand that his or her client’s case may benefit or suffer from the imposition of any one of a number of arbitration rules regarding length of testimony permitted, application of certain evidentiary rules, and the authority of the arbitrator to govern such matters as the discovery process.
The greatest virtues of ADR are its potential for the substantial reduction of costs and time associated with the conduct of a trial. The parties have the ability to fashion a dispute resolution process tuned specifically to the problem at hand. The utilization of ADR methods should be considered in every case and rejected only when there are clearly defined reasons for doing so. However, arbitrators lack the enforcement power of a judge, and this lack of control can affect the speed with which the case proceeds.
12. Trial
If settlement efforts fail, the parties will proceed to trial. This occurs within a few months of the conclusion of the case evaluation. A trial takes place before a state or federal judge and, in most cases, involves a jury. Typically, trials are conducted 4 days per week in both state and federal courts in Michigan, with the fifth day reserved to deal with matters in other cases, of which there are many hundreds per judge in each court. The duties of the judge and jury at trial are separated into 2 functions: the judge resolves issues of law, while the jury resolves issues of fact. For example, at the conclusion of the trial, the judge will instruct the jury on the legal definition of a contract. The jury will determine, based on the evidence and testimony presented during the trial, whether a contract was formed. A moderately complex trial may last at least one week and sometimes may last as long as 3 or 4 weeks. More than one client has agreed to resolve differences with the opposing party during the first or second day of trial after observing the demeanor of the jury.
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13. Verdict and Judgment
After the judge instructs the jury on the applicable law, the jury will then go into the jury room to determine whether the defendant is liable and, if so, to what extent the plaintiff is entitled to damages. When the jury foreperson reads the verdict, the uninitiated client may well experience a profound sense of victory or loss, depending on the verdict. The litigator understands, however, that this is merely another step in a long process. Before the verdict and resulting judgment may be enforced, the losing party may seek an appeal of the decision to an appellate court. If there is no appeal, the prevailing party may employ a variety of means to collect the judgment, while the losing party may attempt to avoid collection by various legal means, including a declaration of bankruptcy or other ways of safekeeping assets. Indeed, from the date of initiation of litigation or before the events leading up to it, one of the parties may have been actively engaged in “asset hiding,” making ultimate collection of a judgment difficult or impossible.
E. THE APPEAL PROCESS
If one of the parties is dissatisfied with the results of the trial, it may file an appeal with the state or federal appellate courts. The appeals process involves submission to an appellate court of all trial materials, including transcripts of the trial testimony and documentary evidence, together with a lengthy and expensive appellate brief that summarizes the various issues of law and fact. The minimum charge for any level of competent representation on appeal will be substantial, with attorney fees ranging well into the 5 figure range, and, in the event of a long trial, possibly 6 figures. The appeal process is somewhat less intensive from the client’s standpoint, in that once the trial concludes, the attorneys focus on the drafting and preparation of the appeal and there is typically no further discovery. It is quite possible that the only communications the client will receive during the appeal process are the appellate brief, notice, and attendance at the appellate argument conducted approximately one year later, and notification of a decision between 6 months or a year later. In Michigan, if either party is dissatisfied with the first appellate decision, that party may request that the Michigan Supreme Court hear the case, which repeats the earlier process and adds an additional year or two of time and expense. At each phase of the appellate process, it is also very common for the matter to be returned to the trial court with the possibility of a complete or partial retrial.
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1. Time for Taking Appeal
Generally 21 days following the entry of the order or judgment appealed from
2. Filing the Record on Appeal
3. Stay of Proceedings to Enforce a Judgment (stay bond necessary,
in an amount not less than 1-1/4 times the amount of the judgment entered)
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PROMISSORY NOTE
FOR VALUE RECEIVED, IMA DEBTOR promises to pay to the order of GOOD DOCTORS, P.C. of __________________________________, Michigan, the principal amount of Twelve Thousand Dollars ($12,000) and interest on the unpaid balance at a rate per annum of eight percent (8%) from the date of this note.
The principal of this note shall be paid in full on or before January 1, 2008. IMA DEBTOR shall make regular monthly payments of at least Two Hundred Fifty Dollars ($250) by the first day of each month, beginning April 1, 2006 to GOOD DOCTORS, P.C. IMA DEBTOR may prepay all or part of the principal of this note at any time.
Each payment upon this note shall be made at GOOD DOCTORS, P.C.=s address (set forth above) or such other place as the holder of this note may direct in writing.
If default occurs in the payment of any monthly payment or in the payment of any payment of any other indebtedness or obligation now or later owing by IMA DEBTOR to GOOD DOCTORS, P.C., or if a voluntary or involuntary case in bankruptcy, receivership or insolvency is at any time instituted by or against IMA DEBTOR, then the indebtedness evidenced by this note shall, at the option of the holder, become immediately due and payable, without notice or demand.
IMA DEBTOR agrees to pay any and all expenses, including reasonable attorney fees and legal expenses paid or incurred by the holder in attempting to collect this note.
IMA DEBTOR waives demand for payment, presentment, notice of dishonor, and protest of this note.
This note shall be governed by and interpreted according to the laws of the State of Michigan.
________________________________ IMA DEBTOR January __, 2006
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STATE OF MICHIGAN IN THE DISTRICT COURT FOR _____________________ COUNTY
____________________________________ GOOD DOCTORS, P.C., a Michigan Professional Services Corporation,
Plaintiff, v Case No. 06- -GC IMA DEBTOR,
Defendant. __________________________________________________________________ James A. Christopherson (P31585) DINGEMAN, DANCER & CHRISTOPHERSON, P.L.C. Attorneys for Plaintiff 100 Park Street Traverse City, MI 49684 (231) 929-0500 __________________________________________________________________ COMPLAINT
There is no other pending or resolved civil action arising out of the transaction or occurrence alleged in the Complaint.
Plaintiff, GOOD DOCTORS, P.C. by its attorneys, DINGEMAN, DANCER
& CHRISTOPHERSON, P.L.C. and for its Complaint against the Defendant, IMA
DEBTOR, states:
1. Plaintiff GOOD DOCTORS, P.C. is a Michigan Professional
Services Corporation doing business in Grand Traverse County, Michigan.
2. The Defendant is a married man believed to be residing in Grand
Traverse County, Michigan.
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3. On or about March 1, 2005 Plaintiff provided professional medical
services to the Defendant at Munson Medical Center in Traverse City, Michigan, in the
amount of Twelve Thousand Dollars ($12,000).
4. Pursuant to a Provider Inquiry, on or about March 10, 2005, a
check from Blue Cross/Blue Shield of Michigan in the amount of Eight Thousand Five
Hundred Dollars ($8,500), made payable to Defendant for services rendered by Plaintiff,
was cashed by Defendant.
5. Despite requests, Defendant has failed to make payment to
Plaintiff.
6. The account has been stated between the parties.
7. This Complaint is based upon the Affidavit of Susan Johnson,
Account Manager for Plaintiff, attached hereto as Exhibit AA@.
WHEREFORE, Plaintiff prays that this Honorable Court grant the following
relief:
A. That this Court enter a judgment against Defendant in the amount
of Twelve Thousand Dollars ($12,000), plus interest, costs and attorneys fees; and
B. Such other and further relief as the Court deems just and proper.
DINGEMAN, DANCER & CHRISTOPHERSON, P.L.C.
Dated: April __, 2006 BY: ___________________________________
James A. Christopherson (P31585) Attorney for Plaintiff 100 Park Street Traverse City, MI 49684-2511 (231) 929-0500
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STATE OF MICHIGAN IN THE DISTRICT COURT FOR ______________ COUNTY
______________________________________ GOOD DOCTORS, P.C., a Michigan Public Services Corporation,
Plaintiff, v Case No. 06- -GC IMA DEBTOR, a married man,
Defendant. ___________________________________________________________________ James A. Christopherson (P31585) DINGEMAN, DANCER & CHRISTOPHERSON, P.L.C. Attorneys for Plaintiff 100 Park Street Traverse City, MI 49684 (231) 929-0500 ___________________________________________________________________ AFFIDAVIT STATE OF MICHIGAN )
) ss. COUNTY OF GRAND TRAVERSE )
SUSAN JOHNSON, being first duly sworn, states as follows:
1. I am the Director of Patient Accounts for Plaintiff GOOD
DOCTORS, P.C.
2. I am familiar with the account of the Defendant, IMA DEBTOR.
3. That the amount due and owing Plaintiff from Defendant is Twelve
Thousand Dollars ($12,000) plus interest, attorney fees and costs.
4. Despite requests, Defendant has failed to pay Plaintiff for the
services provided.
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Further, Affiant sayeth not.
_____________________________________ Susan Johnson
Subscribed and sworn to before me this _____ day of April, 2006.
______________________________________ Notary Public
County, Michigan My Commission Expires:
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STATE OF MICHIGAN IN THE DISTRICT COURT FOR _________________ COUNTY
_______________________________ GOOD DOCTORS, P.C., a Michigan Professional Services corporation,
Plaintiff, v Case No. 06- -GC
HON. IMA DEBTOR,
Defendant. __________________________________________________________________ James A. Christopherson (P31585) DINGEMAN, DANCER & CHRISTOPHERSON, P.L.C. Attorneys for Plaintiff 100 Park Street Traverse City, MI 49684 (231) 929-0500
Ima Debtor In Pro Per 750 Centre Place Traverse City, MI 49686
__________________________________________________________________ JUDGMENT AND ORDER GRANTING PLAINTIFF=S MOTION FOR SUMMARY DISPOSITION At a session of said court held in the City of _________________ County, State of Michigan, this ____ day of April, 2006. Present: Honorable ______________, District Court Judge.
This matter having come before the Court on Plaintiff GOOD DOCTORS,
P.C.=s Motion for Summary Disposition, the Court having considered said motion and
the affidavits and exhibits attached thereto, having heard the oral argument of counsel
and the parties, and the Court being otherwise fully advised in the premises;
IT IS HEREBY ORDERED THAT Plaintiff's Motion for Summary
Disposition as to Plaintiff=s Complaint is hereby GRANTED for the reasons stated on
the record. Judgment is hereby entered for Plaintiff in the amount of Twelve Thousand
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Dollars ($12,000), which sum is calculated as of March 1, 2005. Interest shall be
payable on this Judgment in accordance with MCLA 600.6013.
Dated: April __, 2006 ____________________________________
__________________, District Judge
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V. THE FAIR DEBT COLLECTION PRACTICES ACT
Who is a debt collector under the Fair Debt Collection Protection Act? A debt collector is any person, other than the creditor, who regularly collects debts owed to others. A physician or a medical practice that is actually owed the debt is not necessarily a debt collector. An MSO would meet the definition of a debt collector and must comply with the Fair Debt Collection Act. Contact by a debt collector. A debt collector may contact a debtor in person, by mail, telephone, telegram, or fax. However, a debt collector may not contact a debtor at unreasonable times or places, such as before 8 a.m. or after 9 p.m. A debt collector also may not contact a debtor at work if the debt collector knows that the debtor=s employer disapproves. A debtor can stop a debt collector from contacting the debtor. A debtor may stop a debt collector from contacting him or her by writing a letter to the debt collector telling them to stop. Once a debt collector receives the letter, the debt collector may not contact the debtor again except to say there will be no further contact. Another exception is that a debt collector may notify the debtor if the debt collector or the creditor intends to take some specific action. May a debt collector contact any person other than the debtor? If the debtor hires an attorney, the debt collector may not contact anyone other than the attorney. If the debtor does not have an attorney, a debt collector may contact other people, but only to find out where the debtor lives and works. Collectors usually are prohibited from contacting such permissible third parties more than once. In most cases, a debt collector is not permitted to tell anyone other than the debtor and the debtor=s attorney that the debtor owes money. What is a debt collector required to tell the debtor about the debt? Within 5 days after the debtor is first contacted, a debt collector must send the debtor a written notice telling the debtor the amount of money owed; the name of the creditor to whom the money is owed; and what action to take if the debtor believes he or she does not owe the money.
May a debt collector continue to contact the debtor if the debtor believes he or she does not owe money? A debt collector may not contact the debtor if, within 30 days after the debtor is first contacted by the debt collector, the debtor sends the debt collector a letter stating the debtor does not owe money. However, the debt collector can renew
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collection activities if the debtor is sent proof of the debt, such as a copy of a bill for the amount owed. What types of debt collection practices are prohibited?
Harassment. A debt collector may not harass, oppress, or abuse any person. For example, a debt collector may not:
A. Use threats of violence or harm against the person, property,
or reputation of a debtor;
B. Publish a list of consumers who refuse to pay their debts (except to a credit bureau);
C. Use obscene or profane language;
D. Repeatedly use the telephone to annoy someone;
E. Telephone people without identifying themselves; or
F. Advertise the debt.
False statements. A debt collector may not use any false statements when collecting a debt. For example, a debt collector may not:
A. Falsely imply that they are attorneys or government
representatives;
B. Falsely imply that the debtor committed a crime;
C. Falsely represent that the debt collector operates or works for a credit bureau;
D. Misrepresent the amount of the debt;
E. Misrepresent the involvement of an attorney in collecting a
debt;
F. Indicate that papers being sent to the debtor are legal forms when they are not; or
G. Indicate that papers being sent to the debtor are not legal
forms when they are.
Unfair practices. A debt collector may not engage in unfair practices in attempting to collect a debt. For example, a debt collector may not:
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A. Collect any amount greater than the debt, unless allowed by law;
B. Deposit a post-dated check prematurely;
C. Make the debtor accept calls or pay for telegrams;
D. Take or threaten to take the debtor=s property unless this
can be done legally; or
E. Contact the debtor by postcard.
A debt collector also may not state that:
A. The debtor will be arrested if the debtor does not pay the debt;
B. A debt collector will seize, garnish, or sell property or wages, unless a debt collector intends to do so, and it is legal to do so; or
C. Actions, such as a lawsuit, will be taken against the debtor, which legally may not be taken, or which a debt collector does not intend to take.
A debt collector may not: A. Give false credit information about the debtor to anyone;
B. Send the debtor anything that looks like an official document from a
court or government agency when it is not; or
C. Use a false name. What control does the debtor have over payment of debts? If the debtor owes more than one debt, any payment the debtor makes must be applied to the debt indicated. A debt collector may not apply a payment to any debt the debtor believes the debtor does not owe.
What can a debtor do if the debtor believes a debt collector violated the law? The debtor has the right to sue a debt collector in a state or federal court within one year from the date the law was violated. If the debtor wins, the debtor may recover money for the damages suffered. Court costs and attorney=s fees also can be recovered. A group of people also may sue a debt collector and recover money for damages up to $500,000, or 1% of the debt collector=s net worth, whichever is less.
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Where can a debt collector be reported for an alleged violation of the law? Any problems a debtor has with a debt collection such as a debt collector can be reported to the Michigan Attorney General=s office and the Federal Trade Commission.
VI. MEDICAID COLLECTION ISSUES Currently, the following Medicaid Health Plans operate in Michigan:
Cape Health Plan Community Choice Michigan Great Lakes Health Plan Health Plan of Michigan HealthPlus Partners, Inc. M-CAID McLaren Health Plan Midwest Health Plan Molina Healthcare of Michigan OmniCare Health Plan, Inc. PHP-MM Family Care PHP of Southwest Michigan Priority Health Government Programs, Inc. ProCare Total Health Care UP Health Plan
A physician executes a Medical Assistance Provider Enrollment Agreement with the Department of Social Services to be reimbursed for services under Medicaid. Medicaid requires prior authorization for certain services before services are rendered. Payment for physician services is often capitated. Collection remedies depend on the health plan and the contract that the group has agreed to.
VII. MEDICARE COLLECTION ISSUES AND MEDICARE APPEALS
A. COLLECTION ISSUES
Medicare Part A In-Patient Hospital Care Medicare Part B Basic Physician Services and Outpatient Care
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Medicare Part C Beneficiaries, instead of having deductions taken from their Social Security check to pay for Medicare Part A, which covers in-patient hospital care, and Medicare Part B, which covers basic physician services and out-patient care, can opt for Medicare Part C. It covers everything in Part A and Part B, but offers this coverage in a new manner that may take the form of a health maintenance organization, preferred provider organization, Medical Savings Account or other new type of health plan.
Medicare Part D: Prescription Drug People on Medicare can join Medicare prescription drug plan between November 15, 2005 and May 15, 2006. People that become eligible for Medicare after May 15, 2006 will have a 7 month “window” to enroll (3 months before, the month of, and 3 months after the month they become eligible). There are added out-of-pocket costs with the new Medicare prescription program.
B. HOSPITAL INPATIENT REIMBURSEMENT
Hospital inpatient services are paid for pursuant to a prospective payment system (“PPS”). Under the PPS system, Medicare pays a predetermined rate for each covered hospital discharge, subject to certain limits and adjustments. Calculation of the actual payment is based on the hospital’s payment rate per case or base rate multiplied by the weight of the diagnosis related group (“DRG”) to which the case is assigned. The weight assigned to each DRG is based on the average resources required for the case compared to the average resources used to treat all cases.
C. PHYSICIAN ISSUES
For Medicare, a physician has 3 options: (1) The physician can sign a participation agreement and become a participating physician, (2) the physician can choose to be a non-participating physician or (3) a physician can opt out of Medicare. A participating physician agrees to accept payment from Medicare based on a fee schedule that lists all covered services, as well as the approved charge that Medicare will pay for a particular service. This Medicare physician fee schedule is normally updated and published annually in the Federal Register in early November. A participating physician agrees that payment for Medicare services based on the fee schedule represents the approved and full charge. This means a physician cannot collect or "balance bill" an amount in excess of the approved charge listed on the fee schedule for services furnished to Medicare patients.
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A participating physician also agrees to accept assignment on all Medicare claims. This means that Medicare will pay 80% of the approved fee schedule charge directly to the physician. The physician is responsible for collecting the remaining 20% of the Medicare approved charge from the patient.
There are several advantages to being a participating physician. Physicians are reimbursed at 100% of the Medicare fee schedule amount for covered services furnished to patients. Physicians also receive 80% of payment due directly from Medicare, which often makes the claims process easier. In addition, participating physicians are listed in a "Medicare Participating Physician/Supplier Directory" that is made available to various senior citizen groups and individuals who contact Medicare and request the name of participating doctors. A physician that does not participate in Medicare still faces limits with respect to the amount he or she can collect from Medicare for covered services furnished to patients. Non-participating physicians are subject to the Medicare fee schedule, but the approved charge amounts are 5% less than the approved charges of participating physicians (i.e. the fee schedule for non-participating physicians is 5% lower than the fee schedule for participating physicians). For example, if Medicare reimburses a participating physician $100 for Service X, a non-participating physician will be reimbursed $95. The key advantage of choosing non-participation status is that physicians can accept or decline assignment for Medicare claims. If a non-participating physician accepts assignment, Medicare will pay 80% of the non-participating fee schedule rate directly to the physician. The physician must then bill the Medicare patient for the remaining 20% of the non-participating fee. If a non-participating physician does not accept assignment, Medicare pays the patient for the claimed benefit, not the physician. Thus, it is up to the physician to collect the entire payment for covered services directly from the patient. The key advantage for physicians who do not accept assignment is that they can bill the patient for 115% of the non-participating fee schedule approved charge. Essentially, this means non-participating physicians who do not accept assignment may collect 9.25% more than participating physicians. For example, if Medicare reimburses a participating physician $100 for Service X, a non-participating physician that does not accept assignment may bill the patient for $109.25.
Physicians can also opt out of Medicare. In doing so, a physician makes the decision not to accept payment from Medicare for any and all (except emergency and urgent care) services performed on Medicare patients. Physicians choose to opt out of Medicare for a variety of reasons: overwhelming paperwork requirements, declining reimbursement rates,
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and onerous administrative burdens.
Participating physicians can opt out of Medicare on the first day of each calendar quarter, if they file an affidavit at least 30 days before the first day of the quarter. Non-participating physicians can opt out at any time.
In order for physicians who opt out of Medicare to receive reimbursement for services furnished to Medicare patients, the physician must sign a private contract with each and every Medicare patient the physician treats. In a private contract, the Medicare patient agrees to pay for services furnished by the physician without regard to any limits that would otherwise apply to what the physician could charge. In addition, a patient that signs a private contract agrees not to bill Medicare or ask the physician to bill Medicare-the patient assumes sole responsibility for payment of physician services. The primary benefit for a physician who opts out and private contracts is that the physician is able to bill Medicare patients without regard to the Medicare fee schedule and allowed charge limits normally imposed on participating and non-participating physicians.
D. MEDICARE APPEALS
The new 5-step appeals process for both Part A and B providers is
structured so that once a contractor makes an initial determination, a provider has 120 days to file a redetermination with the contractor. Following the contractors’ redetermination decision, and within 180 days of receiving the determination, the provider may then file for reconsideration by a Qualified Independent Contractor (“QIC”). Following the QIC’s decision, if the amount in controversy is met (i.e., $100 increased by the percentage increase in the medical care component of the consumer price index), the provider is then afforded the right to file a request for an ALJ hearing. This request must be made within 60 days from receipt of the QIC’s decision. If the provider is dissatisfied with the ALJ hearing decision, the provider has 60 days to file the fourth level of appeal with the Medicare Appeals Council. The final level of appeal is the federal district court. In order to exhaust the final level of appeal, the provider must submit the request within 60 days and meet the amount in controversy requirement of $1,000 or more. The amount in controversy requirement will be adjusted in accordance with the medical care component of the consumer price index.
Old Appeals Process New Appeals Process
First Level
Claims administration contractors for the Centers for Medicare & Medicaid Services review appeals without hearings with the appellants.
No change.
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Second Level
CMS claims administration contractors review appeals of their initial decisions and can hold hearings with the appellants.
CMS-qualified independent contractors review appeals of the initial decisions without holding hearings with the appellants.
Third Level
The Social Security Administration’s Office of Hearing and Appeals adjudicates cases. Administrative law judges hold hearings on Medicare appeals in addition to handling their Social Security work load.
Department of Health and Human Services administrative law judges hold hearings on cases.
Fourth Level
The Medicare Appeals Council bases its final decisions on reviews of the judges’ reports. Appellants who dispute the findings can take their cases to federal court.
No change.
E. MIDLEVEL PROVIDERS
Physician assistants and nurse practitioners are paid at 85% of the Physician Fee Schedule. They are authorized to bill for services which would be covered if provided by a physician or incident to a physician’s services and which they are authorized to perform under state law. Services and supplies furnished “incident to a physician’s professional services” are covered by Medicare if the following is met: • The service is furnished “as an integral, although incidental,” part of
the physician’s professional services during the diagnosis or treatment of an illness or injury.
• The “incident to” service does not have to be rendered at the same
time as the physician’s professional service. • The services must be those services commonly furnished in
physician’s office or clinic. • The services must be rendered under the direct supervision of the
physician, which means the physician need not be in the same room as the treating non-physician but must be present in the office and immediately available to provide assistance and direction.
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• “Incident to” services must be billed in the name of the supervising physician or physician directed clinic.
VIII. BLUE CROSS BLUE SHIELD COLLECTION ISSUES
The Blue Cross/Blue Shield of Michigan (“BCBSM”) is a health care corporation established pursuant to the Nonprofit Health Care Corporation Reform Act (MCLA § 550.1101 et seq.). The statute provides BCBSM certain obligations and grants BCBSM subscribers certain rights. Physician Reimbursement A. Under its BCBSM Physician and Professional Provider Participation
Agreement BCBSM reimburses physicians as follows:
1. Payment will be made directly to physician for “covered services” that are medically necessary.
B. Covered Services are services that are: 1. Medical or health care services, procedures, treatments or supplies
listed in BCBSM member certificates or benefit plans, and 2. Rendered by a physician for the diagnosis or treatment of disease
or injury based on BCBSM “medical necessity” criteria C. Medical necessity means a determination by a physician that based on
BCBSM criteria and guidelines and generally accepted medical standards and practices, that the service:
1. Is generally accepted as necessary and appropriate for the
patient’s condition and diagnosis, 2. Is essential or relevant to the evaluation or treatment of the
disease, injury or illness and is not primarily for the convenience of the patient, and
3. In the case of diagnostic testing, results are used in the diagnosis
or treatment of the patient’s condition. D. BCBSM also uses a Resource Based Relative Value Scale in determining
physician fees. Because it uses different factors its fee schedule is different than Medicare’s fee schedule.
E. A physician must certify that all services billed by the physician were either
performed personally by the physician or under the direct and personal supervision and in the presence of the physician on BCBSM’s claim form.
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F. A physician may participate with BCBSM on a per-claim basis if the physician certifies to BCBSM that (i) the physician will accept payment as payment in full for the services rendered for the specific claim and (ii) the physician will accept payment as payment in full for all cases involving the same procedure specified for the duration of the calendar year.
G. Dental providers may participate on a case-by-case basis. Other Providers A. Physician’s Assistants and Nurse Practitioners
1. BCBSM will reimburse only for those services that the provider is permitted to provide under Michigan law.
2. BCBSM payment is based on a percentage of the physician fee
schedule. These providers may be paid directly under their own PINs or indirectly under the physician’s PIN who is supervising their provision of services.
B. Physical, Occupational and Speech Therapists
1. BCBSM will reimburse for services provided by a freestanding therapy facility of the facility is certified by Medicare.
2. BCBSM reimburses for therapy services provided under the
supervision of a physician or for a physical therapist in independent practice. The rules for an independent physical therapist practice are similar to Medicare’s rules.
IX. COLLECTING ON A JUDGMENT
A. POST-JUDGMENT DISCOVERY METHODS
1. Creditor=s Examination
a. The best way to obtain information about the debtor
b. Debtor or anyone indebted to the debtor may be
subpoenaed and questioned under oath regarding any assets of the debtor
2. Uniform Commercial Code (UCC) Searches
Any other creditors out there who have claims in front of you?
3. Real Estate Searches
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4. Motor Vehicle Searches
May obtain information on both automobiles and boats and personal watercraft
5. Private Investigators
6. Internet Searches
B. NOTIFICATION TO THE DEBTOR C. PERIODIC AND NON-PERIODIC GARNISHMENTS
There are 3 different types of garnishments Periodic garnishments Non-periodic garnishments Tax garnishments 1. Periodic Garnishments (see attached garnishment forms) a. Include payments made to our debtor on a periodic basis:
Wages Salary Commissions Land contract payments Rent
b. Examples of income exempt from garnishment
The first 75% of take home pay Friend of the court payments Higher priority garnishments Individual retirement account (IRA) Social security benefits
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Supplemental Security Income Benefits (SSI) Aid to Families with Dependent Children (AFDC) Federal Assistance Benefits (GA) Unemployment Compensation Benefits Veterans Assistance Benefits
c. A second periodic garnishment may not be issued until after
the previous periodic garnishment has expired. d. On the 92nd day another periodic garnishment is filed, so
long as enough funds were received on the previous periodic garnishment to warrant filing another periodic garnishment.
2. Non-Periodic Garnishments (see attached garnishment forms)
a. Non-periodic garnishments are garnishments of property or obligations made on a non-periodic basis, including but not limited to bank garnishments.
b. Same exemptions apply. c. Non-periodic garnishments may be served at any time
during the 90 day period. 3. Tax Garnishments
a. A garnishment of the income tax refund (credit) the defendant is entitled to from the State of Michigan.
4. Service of garnishments
a. Service of garnishment is to be within 91 days after the date the writ was issued.
b. Service may be made by serving an officer of the corporation
or the resident agent.
5. Disclosure (see attached garnishment forms)
a. The garnishee is supposed to file a disclosure within 14 days after being served with the writ.
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b. For periodic garnishments, we can then file a request for calculation sheets to find out how the amount sent to us was obtained.
c. We check for unauthorized deductions before the
percentage is calculated. d. Within 14 days after disclosure, we may serve the garnishee
with written interrogatories or notice the deposition of the garnishee.
e. The answers become part of the disclosure.
6. Payment
a. After 28 days from the date of service, the garnishee shall transmit all withheld funds as directed by the court.
b. For periodic garnishments, all future payments shall be paid
as they become due. 7. Objections to garnishment
a. The debtor may object to the garnishment, but only on a limited basis.
b. The funds are exempted from garnishment by law; c. Garnishment is precluded by the pendency of bankruptcy
proceedings d. Garnishment is barred by an installment payment order e. Garnishment is precluded because the maximum amount
permitted by law is being withheld pursuant to a higher priority garnishment or order
f. The garnishment has been paid g. The garnishment was not properly issued or is otherwise
invalid 8. Hearings on objections
a. Within 7 days of the filing of objections, the court shall notice the date of hearing on the objections within 21 days of the date the objections were filed.
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D. COLLECTION AGAINST PERSONAL PROPERTY
1. Writ of Execution Required
2. Personal property must be exhausted before creditor may attempt
to satisfy the judgment against real estate
3. Be sure to take personal property with a value well exceeding the amount of the judgment, as sale will normally net only 10%-20% of value
4. Appraisal Necessary
5. Notice of sale must be given at least 10 days prior to sale
E. COLLECTION AGAINST REAL PROPERTY
1. Executions a. Execution to collect a judgment may be issued to the sheriff
or other proper officer. b. Upon receipt of any execution the sheriff or other officer
receiving the execution shall endorse thereon the year, month, day, and hour of receipt and that time shall be the date of the execution.
c. Executions shall not be made returnable for more than 90
days from that date. d. Executions against realty shall command the officer to make
execution against the realty of the judgment debtor only after execution has been made against the personal property, and such personal property is insufficient to pay the judgment.
e. The officer who makes any sale on execution shall, in his
return, specify the articles sold, and the sum of which each article was sold.
2. The following property is exempt from execution:
a. All family pictures b. All household goods, furniture, utensils, books and
appliances, not exceeding in value of $1,000.00.
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c. The tools, implements, materials, stock, apparatus, team, vehicle, motor vehicle, horses, harness, or other things to enable a person to carry on the profession, trade, occupation, or business in which the person is principally engaged, not exceeding in value of $1,000.00.
3. Sale of the goods
a. No sale of any goods may be made by virtue of any execution unless at least 10 days notice of such sale is given and is posted in 3 public places in the city or township where such sale is to be had, and specifying the time and place where the sale is to be had.
4. Subpoenas
a. Plaintiff may file a subpoena requesting a creditor’s exam of the debtor.
b. The creditor’s exam may take place at the attorney’s office. c. If the debtor is a no show, no bench warrant may be issued. d. The creditor’s exam may take place at the court. e. If the debtor is a no show, a bench warrant may be issued. f. The attorney conducting the creditor’s exam may ask any
question related to the debtor’s income, assets, location, and employment.
5. Installment payments
a. The debtor may pay the judgment in installment payments:
i. If all parties agree on the size and frequency of the payments.
ii. If, after the debtor petitions the court, the court orders
that the debtor may pay the judgment in installments and sets the size and frequency of the payments.
b. If the court enters an order regarding payments, any
outstanding wage garnishments are suspended as of the date of the order regarding payments.
c. Even when a payment order is entered, plaintiff may file any
post-judgment remedy except for periodic garnishments.
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d. If the payments are not made as ordered, plaintiff may file a
Petition to Set Aside Order for Installment Payments. e. If no objections are made within 14 days, then after the 14
day period expires, the Order granting the petition is to be entered.
Once the payment order is set aside, then periodic garnishments may again be issued.
X. SPECIAL COLLECTION ISSUES
A. WHERE THE PATIENT IS INVOLVED IN A PERSONAL INJURY ACTION
1. Legal Newspapers
2. Other Notices of Legal Action
3. Is the debtor a plaintiff in a lawsuit unrelated to your medical bills?
4. Is the debtor a plaintiff in a lawsuit related to your medical bills?
B. COLLECTION AGAINST SPOUSES AND MINORS
1. Michigan Law - services provided to a minor are chargeable against
parents unless the minor is Aemancipated@
C. COLLECTION AGAINST MINORS
1. Probate Estates
$ Probate procedure
$ 4-month creditor period
$ Allowances to family
2. Guardianships
- Guardian responsible for making payment from the funds of the ward
- Guardian not personally responsible
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XI. MICHIGAN’S NEW JUDGMENT LIEN ACT
A. INTRODUCTION
1. Michigan’s judgment lien law, P.A. 136, became effective on September 1, 2004.
2. Judgment liens allow a judgment creditor from a court to file a
notice of judgment lien with the court that issued the judgment and record it in the land title records of the county register of deeds. The lien is effective for 5 years (subject to the life of the judgment), may be renewed, and must be paid by the judgment debtor upon conveyance, sale or refinance of the property. It requires no legal description, but must include the last 4 digits of the debtor’s social security number for identification purposes. Judgment liens cannot be foreclosed upon.
B. COMPARISON WITH ORDERS FOR SEIZURE OF PROPERTY
1. In General
a. Although both Judgment Liens and Orders for Seizure of Property, which were discussed earlier, are post judgment remedies, the former is a simpler and less expensive process.
b. Orders for Seizure of Property require involvement of a court
officer, bailiffs, sheriffs and deputy sheriffs, and police officers (collectively referred to below as “officers”).
c. Judgment liens may be filed with the court and recorded with
the register of deeds by an attorney or the judgment creditor. 2. Prior Execution on Personal Property
a. An Order for Seizure of Property / Writ of Execution may be issued by the court clerk 21 days after entry of a judgment.
b. Real property may only be levied upon if the personal
property is insufficient to meet the sum of money and costs for which the judgment was rendered.
c. Judgment liens do not permit or require seizure and sale of
personal property. They may be filed with the court that issued the judgment, certified by the clerk and then recorded with the register of deeds.
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3. Court Officer Involvement
a. MCR 3.106 sets forth procedures for officers serving Orders for Seizure of Property.
b. It requires inventory, receipts, disposition of personal
property, payment into a court trust account, retention of bills and receipts by the officer, and a report by the officer summarizing collection activities and accounting of all money or property collected.
c. These procedures are mandated because writs of execution
require the taking and selling of personal property. Accordingly, there is a need to track the disposition of the personalty and the proceeds from sale.
d. Judgment liens, on the other hand, may simply be filed and
recorded by an attorney. There is no personal confrontation with the defendant and no personal property is seized.
e. Service of the judgment lien on the judgment debtor is by
certified mail if the judgment is less than $25,000. f. If the judgment is more than $25,000, service must be
personal, but it may be made by a process server and does not require service by an “officer.”
4. Legal Descriptions
a. If the officer cannot seize and sell sufficient personal
property to pay the judgment, then the next step would be to file a Notice of Levy with the register of deeds. This provision requires that the Notice of Levy contain a “description of the premises”, i.e. a legal description. If the judgment creditor does not know the exact legal description, this must be obtained by a title search, which costs money. The Notice of Levy is filed in the “tract index” of the register of deeds.
b. A notice of judgment lien does not require a legal
description, but it does require the last 4 digits of the social security or Tax I.D. number to confirm the judgment debtor. It is recorded in the land title records of the register of deeds, typically in the “grantor/ grantee” index, and may be searched by name. Title companies have always searched by name for tax liens. Sections 2805 (a –f) of the Judgment Lien Act set forth the information that must be included on the judgment lien:
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• Case caption and docket number • Current name and address of the judgment creditor
and attorney • Name and LAST 4 DIGITS of the social security
number or Tax I.D. number, and last known address of the judgment debtor
• Current balance on the judgment (NOT the amount of
“damages” on the judgment, but the amount due at the time of filing the Notice of Judgment Lien)
• Date judgment entered, expiration date of the
judgment and expiration date of the judgment lien • Signature of the judgment creditor or attorney
5. Fees and Taxable Costs
a. Costs and fees for Writs of Execution
i. MCL 600.2559 (1) (h) provides that an authorized person be paid $32 plus mileage for service of an order to seize property, plus the actual and reasonable expense for seizing and keeping the property under the order.
ii. Section 2559 (h) provides that if the judgment is
satisfied prior to sale of the seized property by full payment of the judgment or settlement of the parties, the officer shall be paid 7% of the first $5,000 and 3% of the payment or settlement amount exceeding the first $5,000. These costs and fees are taxable to the judgment debtor pursuant to MCL 600.2405.
b. Costs and fees for Notices of Judgment Liens (see attached
Notice of Judgment Lien)
i. Certification by the court clerk (600.2805 (1)). Cost: $10, plus $1 for copy fee.
ii. Service for judgments less than $25,000 need only be
made by certified mail. iii. Service for judgments of $25,000 or more require
personal service (600.2805(4)). The service fee is not specifically addressed by 600.2559, but it should be
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no more than the fee for service of a summons and complaint, i.e. $19 plus mileage, subject to future increases.
iv. Total cost for recording with the register of deeds: $17
- $19.
6. Attachment and After-Acquired Property
a. A Levy from a Writ of Execution attaches when it is recorded with the register of deeds and only to the real property described on the Order.
b. A Judgment lien attaches to all property owned by the
judgment debtor in the county where it is recorded. It attaches at the time it is recorded with the register of deeds, except for after-acquired property, when it attaches at the time it is acquired by the judgment debtor.
7. Priority Versus Other Types of Liens
a. MCL 600.6051 states that a levy is a lien from the time when the notice is “deposited” with the office of the register of deeds where the property is situated. It would have priority over all liens recorded afterwards.
b. Judgment liens have priority over liens recorded after a
notice of judgment lien is recorded, with the following EXCEPTIONS set forth in section 2807 (2): Purchase money mortgages Mortgages TO THE EXTENT that proceeds are used to pay one or more of the following:
• Purchase money mortgage debt; Refinance of
purchase money mortgage debt; and Non-purchase money mortgage recorded BEFORE the attachment of the judgment lien.
8. No Equity Limits
a. Judgment Liens are limited to the amount of “equity” in the
property. The drafters of the Judgment Lien Act did not want the holder of a Judgment Lien to block the sale or refinance of property by demanding payment in full where the equity from the closing was less than the amount due on the lien. Accordingly, Section 600.2807(3) provides that when property subject to a judgment lien is sold or refinanced:
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• Proceeds due the judgment creditor are limited to the debtor’s EQUITY in the property,
• AFTER all senior liens, property taxes and costs and
fees NECESSARY to close are paid or extinguished.
b. The Michigan Creditors Bar Association (MCBA) has recommended as a “Best Practice” that costs and fees necessary to the sale include the following:
• Realtor fees • Survey • Credit report • Appraisal • Title insurance • Document preparation fee and closing fee
c. Levy on execution does not have this “equity limitation.” However, historically, judgment creditors who have levied on real estate have accepted partial payment in an amount equal to the equity for practical reasons, i.e. it makes more sense to get some money than to block a closing and get no money.
d. Partial discharge.
In the case of a judgment lien where the equity was insufficient to satisfy the judgment, the judgment creditor would issue a partial discharge of the lien, discharging it as to the specific piece of property. The judgment creditor would retain a judgment lien on any other property owned by the judgment debtor in the county in which the Notice of Judgment Lien was filed. It would also continue to apply to after-acquired property.
9. Bankruptcy
a. Section 600.2809 (5) (d) provides that a Notice of Judgment Lien may be extinguished if the debtor files bankruptcy and records a notice of discharge and a copy of the bankruptcy schedule listing the judgment debt with the register of deeds. The exception to this rule is where a judgment creditor obtains a ruling in the Bankruptcy Court that the debt was
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non-dischargeable and records this order with the register of deeds.
b. A levy from a writ of execution may survive the discharge in
bankruptcy depending on whether the lien impairs the debtor’s exemptions. To determine if the levy survives discharge, the attorney must analyze and compute facts and data, including the value of the real property, the amount the debtor may exempt, and the amount of the lien.
Each case is fact specific, but is possible for some levies to survive.
10. Expiration
a. 600.2809 provides that judgment liens expire 5 years from
the date of recording, unless:
i. Re-recorded with the register of deeds. It may be renewed by re-recording the judgment lien (see below.) Its priority will continue from the date of the attachment of the original judgment lien.
ii. The underlying judgment expires Section 2809 also
provides that judgment liens may be extinguished by recording any of the following with the register of deeds:
iii. Discharge signed by the judgment creditor or attorney iv. Satisfaction of judgment v. Court order discharging the lien vi. Bankruptcy discharge (see above)
b. A Notice of Levy expires 5 years from the date of recording.
600.6051 (2). If the judgment is still valid, a new Writ of Execution (Order for Seizure of Property) may be filed, however it will once again require levy and sale personal property, and compliance with MCR 3.106 regarding inventory, receipts, disposition, etc. Moreover, the expiration of the Notice of Levy may impact on its priority.
c. The filing of a second Levy and its priority does not relate
back to the first levy. Accordingly, any liens filed by third parties after the first levy and before recording of the second will take priority.
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11. Order to Seize Property Versus a Judgment Lien
a. First, it should be noted that Section 2817 of the Judgment Lien Act specifically states that a judgment lien is “…in addition to and separate from any other remedy…” including writs of execution. In fact, there may be times when Writs of Execution better serve the interest of the judgment creditor.
b. Judgment liens may be the preferred remedy if the judgment
creditor does not want a court officer to confront the debtor, demand money, and/or seize and sell personal property.
C. RENEWAL OF A JUDGMENT LIEN
1. Re-recording a Notice of Judgment Lien
Section 2809 provides that to renew a judgment lien, a second Notice of Judgment Lien must be filed and certified by the court that issued the judgment. It must be recorded with the register of deeds.
i. A judgment lien can be renewed only once. ii. It must be re-recorded with the register of deeds 120 days
prior to its expiration.
2. Practical Effect of a Judgment Lien
How Is the Lien Discovered and Paid?
i. When property is sold or refinanced, title companies search the “name” index (sometimes referred to as “grantor/grantee index”) for liens, especially tax liens which are filed by name only.
ii. The title company determines if the owner is the judgment
debtor by cross checking the last 4 digits of the social security number or Tax I.D. number.
iii. The title company requests a payoff letter from the holder of
the judgment lien. iv. A check is exchanged for a recordable discharge. v. This practice has worked in 44 states for over 100 years. vi. It is the same method that has been used in Michigan for
discharge of levies.
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3. What if Another Person Has the Same Name as the Judgment Debtor?
In the unlikely event that 2 people in the same county have the same name and same last 4 digits of social security number or Tax I.D. number, section 2815 provides relief for a person who claims that there is a lien filed against him/her incorrectly because of the same or similar name.
i. The person must provide reasonable proof that he/she is not
the judgment debtor. ii. He or she may demand from the judgment creditor a
recordable document that discharges the lien as to property that is owned by that person.
iii. If appropriate, a judgment creditor must record a discharge
within 14 days or face a penalty of $300 plus actual damages and costs.
iv. If the creditor does not record a discharge, the person may
bring a motion in the court that entered the judgment for an order discharging the lien. The prevailing party shall be awarded attorney fees.
4. Tenancy by the Entireties
Section 2807 (1) provides that a judgment lien does not attach to entireties property unless the judgment is entered against both husband and wife.
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XII. BANKRUPTCY ISSUES INVOLVED IN COLLECTION OF HEALTHCARE
DEBTS
A. INTRODUCTION
The filing of a bankruptcy petition is considered to be the end of the collection process by most healthcare creditors. The automatic stay has traditionally forced a creditor to stop most action with some notable exceptions, which generally do not apply to the healthcare industry. Typically, if a creditor ignores the stay and seizes property belonging to the debtor, the creditor may be held in contempt of curt and may have to pay the debtor’s attorney fees. A willful violation of the stay might even result in punitive damages in accordance with 362. Thus, for most unsecured creditors, bankruptcy, particularly a chapter 7 liquidation, has indicated that it is time to cease all collection efforts and essentially close the file with the possible exception being the filing of a proof of claim and the hope of a small dividend.
The principal bankruptcy chapters are the chapter 7 liquidation, chapter 11 business reorganization, chapter 12 farmers reorganization, and chapter 13 individual reorganization.
Significant changes have recently been made in the bankruptcy act. On April 20, 2005 President George W. Bush signed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. The effective date with regard to these statutory changes is October 17, 2005.
Some of the primary changes have occurred in areas of:
• Chapter 7 bankruptcy becoming more limited • Liability of attorneys involved in the preparation of bankruptcy • Dischargeability of certain debts such as student loans has been
tightened • Credit counseling has been mandated as part of the bankruptcy act • Tax returns are now required as part of bankruptcy filing under
Chapter 7 • Notices given to creditors include stiff new requirements • There are no more “cram downs” under Chapter 13 • There are priorities, extreme priorities, for alimony and child support
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• The homestead exception has been capped • Consumer credit disclosures are increased • Some forms of evictions are no longer stayed • Chapter 12 is now permanent and family farms can be protected
within bankruptcy • Time lines have been set, for example, it will be harder to obtain
extra time to decide about unexpired leases B. LIQUIDATION/REORGANIZATION UNDER THE BANKRUPTCY CODE
1. In General
In general the word “bankruptcy” is often used in a generic sense to describe insolvency or a debtor being out of business. Bankruptcy is actually a very specific word denoting the seeking of a remedy under the United States Bankruptcy Code. Therefore, a statement such as “The debtor is bankrupt” is almost meaningless. This is particularly true under the new amendments. It is possible for the debtor to be reorganizing under a Chapter 7 or a Chapter 13 or liquidating in a “straight bankruptcy” Chapter 7.
The use of the term “chapter” in the bankruptcy context can best be described as follows: Chapters 1-6 are provisions for filing a petition for relief in bankruptcy compensation of professionals, general definitions and provisions that apply in all proceedings under the code. Chapter 7, 11, 12 and 13 are the primary chapters for bankruptcy proceedings. Chapter 7 is a liquidation proceeding while Chapter 11 is used for business reorganization, 12 and 13 for specialized reorganization for farmers and wage earners and small businesses.
2. Chapter 7 Liquidation
Chapter 7 liquidation is commonly known as straight liquidation bankruptcy. It is the most frequently used form of bankruptcy by individuals and companies. There are both asset and no asset cases under Chapter 7. Chapter 7’s may be filed by individuals, corporations, partnerships and any other form of business. A Chapter 7 bankruptcy may be voluntary or involuntary. A Chapter 7 involves liquidation of assets, as opposed to reorganization. In other words, the individual or business simply wants to conclude matters, sell off whatever assets are subject to
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the estate in bankruptcy and then pay creditors with the proceeds of the sale of those assets. Businesses ordinarily file Chapter 7 only once because the business dissolves as a result of the proceeding. Individuals are limited to filing Chapter 7’s every 8 years (used to be every 6 years) with no discharge in a Chapter 13 allowed if a debtor has filed for Chapter 7, 11 or 12 within the past 4 years or filed a Chapter 13 petition within the last 2 years.
Under the 2005 law, Chapter 7 is considered “abusive” and there is a presumption that the debtor should actually file a Chapter 13, a 5 year reorganization plan if either 25% of unsecured claims or $6,000 of unsecured non priority claims, which ever is greater, or $10,000 can be repaid. This is where the new “means” test comes into play. The means test does not apply to a debtor if they reach a “safe harbor” level, a low level of income. For debtors that exceed that safe harbor income, a trustee, judge or any party in interest can bring a “means test” motion to convert or dismiss an abusive Chapter 7 filing under Section 707 (b). The abuse does not have to be “substantial” which was the prior standard for a Section 707 (b) motion.
Even if the means test can be avoided by such a way as having a lower income, an abuse motion can still be filed arguing that the debtor’s filing was in bad faith or that the totality of the circumstances demonstrates abuse.
C. CHAPTER 7 1. Who Can File A Chapter 7 Case?
a. Any person who resides in, who does business in or who has property in the United States including sole proprietorships, dba’s, partnerships, and corporations.
b. Governments, railroads, domestic insurance companies,
banks, savings & loans associations, and credit unions may not liquidate under Chapter 7, 11 USC §109(b).
c. No person may file under Chapter 7 if he has been involved
in another bankruptcy case within the last 180 days that was dismissed by the Court for willful failure of the debtor to abide by court orders or that was dismissed upon the request of the debtor. 11 USC §109(g).
d. A husband and wife may file a joint petition under Chapter 7,
11 USC §302.
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2. Why individuals file under chapter 7
a. Most individuals who seek relief under Chapter 7 have very little equity in their property and are being pressured by creditors.
b. Once a petition is filed, future income is the debtor’s to use
free and clear from prepetition garnishments and levies. 11 USC §541(a)(6).
3. Voluntary & involuntary petitions
a. A voluntary petition is filed with the Office of the Clerk of the Bankruptcy Court in the district where the debtor has lived or maintained his/her principal place of business for the greatest portion of the last 180 days.
i. The filing of the petition invokes the automatic stay ii. The filing fee for either single or joint cases is $209.00
b. An involuntary petition may be commenced against anyone except a farmer or non-profit corporation. 11 USC §303(a).
i. An involuntary petition is commenced by the filing of a
petition by 3 creditors owed in the aggregate at least $11,625 more than the value of any lien on property of the debtor securing such claims or by a single creditor if the debtor has less than 12 creditors. 11 USC §303(b).
4. Exemptions
a. In general, exempt property may not be distributed by the
trustee, it is retained by the debtor.
i. In Michigan, debtors may exempt property under either Federal or Michigan law.
b. Federal Exemptions - the Federal exemptions are set forth in
11 USC §522(d) as follows:
i. the debtor’s aggregate interest, not to exceed $18,450 in value, in real or personal property that the debtor or a dependent of the debtor uses as a residence, or in a burial plot for the debtor or a dependent.
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ii. the debtor’s interest, not to exceed $2,950 in value in one motor vehicle.
iii. the debtor’s interest, not to exceed $475 in value in
any particular item or $9,850 in aggregate value in household goods, furnishings, wearing apparel, appliances, books, animals, crops or musical instruments that are used primarily for personal use of the debtor or a dependent.
iv. the debtor’s aggregate interest in jewelry not to
exceed in value $1,275. v. the debtor’s aggregate interest in any property not to
exceed in value $975 plus up to $9,250 of any unused amount of the exemption provided for the debtor’s residence. 6-3 The Institute of Continuing Legal Education, Bankruptcy from a Collections Perspective
vi. the debtor’s aggregate interest, not to exceed $1,850
in value in any implements, professional books or tools of the trade of the debtor or a dependent.
vii. any unmatured life insurance contract owned by the
debtor. viii. the debtor’s aggregate interest, not to exceed in value
$9,850 less any amount of property of the estate transferred in the manner specified in §542(d) in any accrued dividend or interest under, or loan value of, any unmatured life insurance contract owned by the debtor under which the insured is the debtor or an individual of whom the debtor is a dependent.
ix. professionally prescribed health aids. x. The debtor’s right to receive:
(A) Social Security benefits, unemployment
compensation, or a local public assistance benefit.
Veterans benefit. (B) Eisability, illness or unemployment benefit. (C) Alimony, support or maintenance to the extent
reasonably necessary for the support of the
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debtor and any dependents. (D) Payments under a stock bonus, profit-sharing
annuity or similar plan or contract.
c. Michigan Exemptions - The Michigan exemptions set forth in MCLA 600.6023, MSA 27A.6023 are significantly more restrictive than the Federal exemptions except regarding tenancies by the entireties.
i. The Michigan statutes permit a debtor to exempt his
homestead from legal process, provided that it does not exceed 40 acres in size and $3,500 in value.
ii. A debtor may exempt household goods, furniture,
books, etc. that do not exceed $1,000 in value. iii. Property held as a tenancy by the entireties is
immune from process by creditors of only one spouse. If the debtor elects the Michigan exemptions, the property is insulated provided that the spouse remains out of the bankruptcy and there are no joint creditors. See In the Matter of Grosslight, 757 F2d 773 (1985).
d. In a joint case, one spouse may not elect the Federal
exemptions and the other the state exemptions. If the spouses can not agree, they are deemed to have chosen the Federal exemptions.
5. Securing the debtor’s discharge
a. Only individuals may receive a general discharge of their
debts under Chapter 7. Corporations, partnerships and other entities may not. 11 USC §727(a)(1).
b. The entry of a discharge order relieves the debtor of all
personal liability on any debts that are dischargeable under the Code. 11 USC §524(a).
c. The discharge acts as an injunction against creditors’ actions
to collect discharged debts. 11 USC §524(a)(2). 6. Exceptions to discharge
11 USC §523 sets forth the kinds of debts that are not discharged in a Chapter 7 case:
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a. debts for certain taxes, including taxes that become due within the last 3 years;
b. if the creditor files a complaint and if the court so rules, debts
for obtaining money, property, services, or credit by means of false pretenses, fraud, or a false financial statement (included here are certain debts for luxury goods or services and for certain cash advances made within 60 days before the case is filed);
c. debts not listed on the debtor’s Chapter 7 papers, unless the
creditor had notice or actual knowledge of the case. The court in In re Madaj, 149 F3d 467 (6th Cir. 1998) held that debtor’s omission of creditor’s claim from her schedules in a no asset case did not prevent discharge of claim. If a no asset case, no deadline for filing proofs of claims is set, therefore creditor received notice in time to file proof of claim;
d. if the creditor files a complaint and if the court so rules, debts
for fraud, embezzlement, or larceny;
e. debts for alimony, maintenance or support, with certain very limited exceptions;
f. if the creditor files a complaint and if the court so rules, debts
for intentional or malicious injury to the person or property of another;
g. debts for certain fines or penalizes; h. debts for student loans, unless not discharging the debt
would impose an undue hardship on the debtor and his or her dependents;
i. for death or personal injury caused by the debtor’s operation
of a motor vehicle if such operation was unlawful because the debtor was intoxicated;
j. debts that were or could have been listed in a previous
bankruptcy case of the debtor in which the debtor did not receive a discharge;
k. debts arising from any act or fraud or defalcation while acting
in a fiduciary capacity committed with respect to any depository institution or insured credit union;
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l. debts which arose from the debtor’s malicious or reckless failure to fulfill any commitment to a federal depository institutions regulatory agency regarding the maintenance of capital of an insured depository institution;
m. any payment of an order of restitution issued under Title 18,
United States Code (added by the Violent Crime Control and Law Enforcement Act of 1994);
n. loans incurred to pay federal taxes that would be
nondischargeable pursuant to §523(a)(1); o. if the creditor files a complaint and the court so rules, other
than those covered in §523(a)(5) (subsection 5 above) that is incurred by the debtor in the course of a divorce or separation agreement that satisfy at least one of the following criteria:
i. the debtor does not have the ability to pay such debt
from income or property of the debtor not reasonably necessary to be expended for the maintenance or support of the debtor or a dependent and if the debtor is engaged in a business, for the payment of expenditures necessary for the operation of such business; or
ii. discharging such debt would result in a benefit to the
debtor that outweighs the detrimental consequences to a spouse, former spouse, or child of the debtor;
p. fee or assessments that become due after the filing of a
petition to membership associations with respect to the debtor’s interest in a dwelling unit that has condominium ownership, or in a share in a cooperative housing corporation, but only for the period the debtor either lived in or received rent for the condominium or cooperative unit.
7. Reaffirmation agreements
Notwithstanding the right of the debtor to a discharge, the Code allows a voluntary reaffirmation agreement of a debt provided both debtor and creditor agree. The reaffirmation agreement must satisfy the following criteria:
a. Must be valid under Michigan law. 11 USC §524(c). b. Must have been entered into before the debtor receives a
general discharge. 11 USC §524(c)(1).
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c. Must contain a clear and conspicuous statement notifying
the debtor that he or she may rescind the agreement before the debtor receives a discharge or within 60 days after the agreement is filed with the bankruptcy court, whichever occurs last. 11 USC §524(c)(2)(A).
d. Must contain a clear and conspicuous statement advising
that the agreement is not required by law. e. If the debtor is represented by an attorney, the attorney must
file a declaration stating the debtor voluntarily and knowingly signed the agreement, that the terms of the agreement do not impose an undue hardship on the debtor, that the debtor was advised of the legal effect and consequences of the reaffirmation agreement and any default thereunder.
f. If the above criteria are met, the bankruptcy court is not
required to conduct a hearing on the reaffirmation agreement. 11 USC §524(d).
g. If the debtor is not represented by an attorney, the court will
conduct a hearing on the reaffirmation agreement to determine whether to impose an undue hardship to the debtor and whether it is in the debtor’s best interests. 11 USC §524(d).
h. Even if the reaffirmation agreement is not approved, the
Code does not prohibit the debtor from voluntarily repaying a secured debt to retain the collateral property. 11 USC §524(f).
8. Redemption Of Personal Property
i. A Chapter 7 debtor may “redeem” personal property intended primarily for personal, family, or household use if property is claimed as exempt. 11 USC §722.
ii. Redemption means the debtor pays the holder of a lien the
fair market value of that property and obtains a release of the lien regardless of the amount of the indebtedness underlying the lien.
9. Chapter 7 Trustee
a. The United States Trustee appoints a disinterested person as the interim trustee in Chapter 7 cases. 11 USC §701(a)(1).
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D. CHAPTER 13
1. Who Can File A Chapter 13?
a. Any person who resides in, does business in, or has property in the United States, with regular income that owes unsecured debts of less than $307,675 and secured debts of less than $922,975 and is not a stockbroker or commodity broker may file under Chapter 13. 11 USC §109(c).
b. No individual may file if he or she has been a debtor in a
case that was dismissed within the preceding 180 days by the court for willful failure of the debtor to abide by court orders or pursuant to the request of the debtor following the filing of a request for relief from the automatic stay. 11 USC §109(g). In re Santana, 110 BR 819 (W.D. Mich. 1990).
c. A husband and wife may file jointly under Chapter 13 if they
meet the requirements set forth above except only one of them need have regular income.
2. Why Individuals File Under Chapter 13
a. The Code’s legislative history clearly expresses the policy
promoting the use of Chapter 13 by individuals in financial distress. The benefit to the debtor of developing a plan of repayment under chapter 13, rather than opting for liquidation under chapter 7, is that it permits the debtor to protect his assets. In a liquidation case, the debtor must surrender his nonexempt assets for liquidation and sale by the trustee. Under chapter 13, the debtor may retain his property by agreeing to repay his creditors. Chapter 13 also protects a debtor’s credit standing far better than a straight bankruptcy, because he is viewed by the credit industry as a better risk. In addition, it satisfies many debtors’ desire to avoid the stigma attached to straight bankruptcy and to retain the pride attendant on being able to meet one’s obligations. The benefit to creditors is self-evident: their losses will be significantly less than if their debtors opt for straight bankruptcy. HR Rep No 595, 95th Cong., 1st Sess 118 (1977).
b. For an individual debtor who qualifies for Chapter 13 relief,
Chapter 13 offers several advantages over Chapter 7.
i. the debtor is not automatically required to surrender nonexempt property for liquidation.
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ii. the debtor may protect cosigners on consumer debts. iii. the debtor may retain secured property and pay for it
within the plan. iv. the debtor is granted a broad discharge from
prepetition debts.
c. The primary disadvantage to filing under Chapter 13 are the debtor’s commitment of time and corresponding loss of financial freedom.
3. Extension Of Automatic Stay To Codebtors
a. In general, creditors are automatically stayed from taking
any action to collect a consumer debt of the debtor from any individual who is also liable on that debt or has secured it. 11 USC §1301(a).
b. There are 2 exceptions to the codebtor stay:
i. It does not protect an individual who has cosigned for these obligations in the ordinary course of business. 11 USC §1301(a)(1).
ii. It expires once the Chapter 13 case is closed,
dismissed or converted to a case under Chapter 7 or 11. 11 USC §1301(a)(2).
4. The Chapter 13 Plan
a. In general, the Chapter 13 debtor files a plan with the
voluntary petition, statements and schedules. b. Mandatory Plan Provisions. 11 USC §1322(a) sets forth 3
requirements that must be included in every Chapter 13 plan.
i. The plan must dedicate all or such portion of future
income of the debtor to the supervision of the trustee as is necessary for the execution of the plan.
(A) The debtor, unless ordered otherwise, must
begin making plan payments to the Chapter 13 trustee within 30 days after the filing of the plan. 11 USC §1326(a)(1).
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ii. The plan must provide for payment in full of all priority claims through deferred cash payments unless the holder of a particular claim agrees to different treatment.
iii. The plan must provide the same treatment for all
claims within a class of creditors.
c. Duration of the Plan - 11 USC §1322(d) states that a plan may not provide for payments over a period that is longer than 3 years, unless the court, for cause, approves a longer period, but the court may not approve a period that is longer than 5 years.
d. Modification of the Plan Before Confirmation - Under 11 USC
§1323, a Chapter 13 debtor may modify the plan at any time before it is confirmed.
5. Confirmation of The Plan
a. For a Chapter 13 plan to be confirmed, the debtor must
establish that it satisfied the 6 requirements set forth in 11 USC §1325(a):
i. The plan complies with all the applicable provisions of
the Bankruptcy Code; ii. All required fees, charges or deposits have been paid; iii. The plan has been proposed in good faith and not by
any means forbidden by law;
(A) The Sixth Circuit has declared that to determine whether a plan has been proposed in good faith the bankruptcy court should consider the totality of the circumstances. In re Okoreeh-Baah, 836 F2d 1030 (6th Cir 1988).
(B) The following are some of the factors the court
should consider:
(1) The debtor’s income and living expenses;
(2) The debtor’s attorney’s fees; (3) The expected duration of the plan;
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(4) The sincerity with which the debtor filed the petition;
(5) The debtor’s potential for future
earnings; (6) Any special circumstances the debtor
may be subject to, such as unusually high medical expenses;
(7) The frequency with which the debtor has
previously sought bankruptcy relief;
(8) The circumstances under which debts were incurred;
(9) The amount of the proposed plan
distribution; (10) The burden that the administration of
the plan would place on the trustee;
(11) the congressional policy that bankruptcy provisions be liberally construed in the debtor’s favor.
(C) Each unsecured creditor will receive under the plan at
least as much as he would have received had the debtor filed under Chapter 7.
(D) With respect to each allowed secured claim:
(1) the holder of such claim has accepted the plan (2) the plan provides that the holder of the claim
retain the lien and the value of the property to be distributed under the plan on account of such claim is not less than the allowed amount of the claim
(3) the debtor surrenders the property securing
such claim to the holder
(E) The debtor will be able to make all payments under the plan and to comply with the plan.
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(1) the plan must provide a reasonable cushion to protect against unexpected contingencies such as unemployment, disability and inflation.
(2) if debtor’s plan payments are premised on
unrealistic assumptions, the plan may not be confirmed.
6. Effect Of Confirmation
a. Once a Chapter 13 plan is confirmed, its provisions bind the
debtor and the debtor’s creditors. 11 USC §1327(a). b. Upon confirmation, property of the estate is vested in the
debtor free and clear of all claims and interest of any creditor unless the plan or confirmation order provides otherwise.
c. Confirmation of the plan does not signal the end of the
Chapter 13 case. To receive a discharge, the debtor must perform all the debtor’s obligations during the term of the plan.
7. Conversion, Dismissal And Modification
a. A debtor may convert a Chapter 13 case to a Chapter 7 at
any time. 11 USC §1307(a). b. A debtor may obtain the dismissal of the case at any time
provided that it has not previously been converted from Chapter 7, 11 or 12. 11 USC §1307(b).
c. The Chapter 13 trustee and creditors may request the court
to dismiss the case or convert the case to a Chapter 7 case for cause. 11 USC §1307(c).
d. Under 11 USC §1329(a), the court, on the motion of the
debtor, the trustee, or unsecured creditors, may modify a confirmed Chapter 13 plan to increase or reduce payments to classes of creditors or extend or reduce the time for such payments.
i. The modification may not extend the lift of the plan
beyond 5 years. ii. The modified plan may not conflict with other
provisions of the Code.
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8. Securing The Debtor’s Discharge
a. Once a Chapter 13 debtor successfully completes the plan, the debtor is discharged from all pre-petition debts except:
i. installment debts whose last payment is due after the
completion of payments under the plan. ii. debts for alimony, maintenance or support. iii. debts for education loans. iv. for death or personal injury caused by the debtor’s
operation of a motor vehicle if such operation was unlawful because the debtor was intoxicated.
v. claims for restitution, or a criminal fine, included in a
sentence on the debtor’s conviction of a crime.
b. A debtor who cannot complete the payments under a plan due to circumstances for which the debtor should not justly be held accountable can qualify for a discharge under 11 USC §1328(b). A hardship discharge does not release a debtor from debts that would be nondischargeable in a Chapter 7 case or from installment debts whose last payment is due after the completion of payments under the plan.
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Common Questions Asked About Chapter 7 1. What is Chapter 7 and how does it work?
Chapter 7 is that part of the federal bankruptcy laws that permit a person to discharge certain debts by filing a case in the bankruptcy court, turning all of his or her nonexempt property over to a trustee, and obeying the orders and rules of the court. A person who files under Chapter 7 is called a debtor.
2. What is a Chapter 7 discharge?
It is a court order releasing a debtor from all of his or her dischargeable debts and ordering the creditors not to attempt to collect them from the debtor. A debt that is discharged is one that the debtor is released from and does not have to pay. Some debts, however, are not released by a Chapter 7 discharge, and some persons are not eligible for a Chapter 7 discharge.
3. What debts are not released by a Chapter 7 discharge?
All debts of any kind or amount, including debts incurred in other states, are released by a Chapter 7 discharge, except those listed below. The following types of debts cannot be discharged under Chapter 7:
(1) debts for certain taxes, including taxes that became due within the last 3
years; (2) if the creditor files a complaint and if the court so rules, debts for obtaining
money, property, services, or credit by means of false pretenses, fraud, or a false financial statement (included here are certain debts for luxury goods or services and for certain cash advances made within 20 days before the case is filed);
(3) debts not listed on the debtor’s Chapter 7 papers, unless the creditor had
notice or actual knowledge of the case in time to file a claim. The Bankruptcy Court for the Eastern District of Michigan held that debtor’s omission of claim from schedules in a no asset case did not preclude discharge of claim because no deadline was set for filing proofs of claims, therefore, creditor received notice in time to permit timely filing of proof of claim. See In re Peacock, 139 BR 421 (E.D. Mich 1992).
(4) if the creditor files a complaint and if the court so rules, debts for fraud,
embezzlement, or larceny; (5) debts for alimony, maintenance or support, with certain very limited
exceptions; (6) if the creditor files a complaint and if the court so rules, debts for
intentional or malicious injury to the person or property of another;
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(7) debts for certain fines or penalizes; (8) debts for student loans that became due within the last 7 years, unless not
discharging the debt would impose an undue hardship on the debtor and his or her dependents;
(9) for death or personal injury caused by the debtor’s operation of a motor
vehicle if such operation was unlawful because the debtor was intoxicated; (10) debts that were or could have been listed in a previous bankruptcy case of
the debtor in which the debtor did not receive a discharge; (11) debts arising from any act or fraud or defalcation while acting in a fiduciary
capacity committed with respect to any depository institution or insured credit union;
(12) debts which arose from the debtor’s malicious or reckless failure to fulfill
any commitment to a federal depository institutions regulatory agency regarding the maintenance of capital of an insured depository institution;
(13) any payment of an order of restitution issued under Title 18, United States
Code (added by the Violent Crime Control and Law Enforcement Act of 1994);
(14) loans incurred to pay federal taxes that would be nondischargeable
pursuant to §523(a)(1); (15) if the creditor files a complaint and the court rules, debts, other than those
covered in §523(a)(5) (subsection 5 above) that are incurred by the debtor in the course of a divorce or separation agreement that satisfy at least one of the following criteria:
(a) the debtor does not have the ability to pay such debt from income
or property of the debtor not reasonably necessary to be expended for the maintenance or support of the debtor or a dependent and if the debtor is engaged in a business, for the payment of expenditures necessary for the operation of such business; or
(b) discharging such debt would result in a benefit to the debtor that
outweighs the detrimental consequences to a spouse, former spouse, or child of the debtor;
(16) fee or assessments that become due after the filing of a petition to
membership associations with respect to the debtor’s interest in a dwelling unit that has condominium ownership, or in a share in a cooperative housing corporation, but only for the period the debtor either lived in or received rent for the condominium or cooperative unit.
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4. What persons are not eligible for a Chapter 7 discharge?
Everyone is eligible for a Chapter 7 discharge except the following persons:
(1) those who have been granted a discharge in a Chapter 7 case filed within the last 6 years;
(2) those who have been granted a discharge in a Chapter 13 case filed
within the last 6 years, unless payments under the plan in such case totaled 100% of the unsecured claims or 70% of such claims and the plan was proposed in good faith and was the debtor’s best effort.
(3) those who file a waiver of discharge in their Chapter 7 case that is
approved by the court; (4) those who conceal, transfer, or destroy their property with the intent to
defraud their creditors or the trustee in the Chapter 7 case; (5) those who conceal, destroy, or falsify records of their financial condition or
business transactions; (6) those who make false statements or claims in their Chapter 7 case, or
who withhold recorded information from the trustee in the case; (7) those who fail to satisfactorily explain any loss or deficiency of their
assets; (8) those who refuse to answer questions or obey orders of the bankruptcy
court, either in their case or in the case of a relative, business associate, or corporation; or
(9) the debtor is not an individual.
5. Who may file under Chapter 7?
Any person who resides in, who does business in, or who has property in the United States may file under Chapter 7, except a person who has been involved in another bankruptcy case that was dismissed within the last 180 days on certain grounds. It may not be wise, however, for a debtor to file under Chapter 7 if he is not eligible for a Chapter 7 discharge or if some of his debts will not be released by a Chapter 7 discharge. Also, it may not be wise for a debtor with sufficient current income with which to repay a substantial portion of his debts within a reasonable period to file under Chapter 7, because the court may dismiss the case as constituting an abuse of Chapter 7.
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6. How much does it cost to file under Chapter 7?
The filing fee is $209.00 for either a single or joint case. If a debtor is unable to pay the filing fee when the case is filed, it may be paid in installments, with the final installment due within 120 days. The period for payment may later be extended to 180 days by the court if a valid reason exists for doing so. The entire amount of the filing fee must ultimately be paid, however, or the case will be dismissed and the debtor’s debts will not be discharged. The fee charged by the debtor’s attorney for handling the Chapter 7 case is in addition to the filing fee.
7. Where is a Chapter 7 case filed?
In the office of the clerk of the bankruptcy court in the district where the debtor lived or maintained his or her principal place of business for the greatest portion of the last 180 days.
8. Under what conditions should a husband and wife both file under Chapter
7?
Both husband and wife should file if some of the debts to be discharged are owed by both spouses. If both spouses are liable for some of the debts and if only one spouse files under Chapter 7, the creditors often try to collect from the nonfiling spouse.
9. May a husband and wife file jointly under Chapter 7?
Yes. A husband and wife may file a joint petition under Chapter 7, using the same set of forms. Also, only one filing fee is charged for a joint case.
10. When is the best time to file under Chapter 7?
The answer depends on the status of the debtor’s dischargeable debts and nature of the nonexempt assets. The debtor should following these rules:
(a) It is not wise for a debtor to file under Chapter 7 if it is anticipated that
substantial additional debts will be incurred in the near future, because it will be another 6 years before the debtor is again eligible for a Chapter 7 discharge.
(b) If a debtor is due to receive an income tax refund or other asset that is not
exempt, the debtor should not file under Chapter 7 until after the refund or asset has been received and disposed of. If the debtor files under Chapter 7 before the refund or asset has been received and disposed of, he will lose the nonexempt portion of the refund or asset because it will later have to be turned over to the trustee in the Chapter 7 case.
(c) All nonexempt property or money acquired by a debtor through
inheritance, life insurance, or a divorce within 180 days after the filing of a
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Chapter 7 case becomes the property of the trustee in the Chapter 7 case. Therefore, if a debtor anticipates acquiring any money or property through any of these means within the next 180 days, he should not file under Chapter 7 at this time.
11. How does filing under Chapter 7 affect lawsuits and attachments that have
already been filed against the debtor?
The filing of a Chapter 7 case automatically stays most lawsuits and attachments that have been filed against the debtor. A few days after a Chapter 7 case is filed, the court will mail a notice to all creditors ordering them to refrain from any further action against the debtor. If the debtor cannot wait this long, it is permissible for him or his attorney to notify one or more of the creditors of the filing of the case. Any creditor who intentionally violates this court order may be liable to the debtor in damages. The most common actions not affected by the filing of a Chapter 7 case are criminal proceedings and actions for the collection of debts for alimony, maintenance, or support from exempt property or from property or funds acquired or earned by the debtor after the case was filed.
12. May employers or government agencies discriminate against persons who
file under Chapter 7?
It is illegal for either private or governmental employers to discriminate against a person as to employment because that person has filed under Chapter 7. It is also illegal for local, state, or federal government units to discriminate against a person as to the granting of licenses (including a driver’s license), permits, and other similar grants because that person has filed under Chapter 7.
13. Will a person lose all of his property if he files under Chapter 7?
Under the state and federal laws, certain properties are declared to be exempt and cannot be taken by a person’s creditors, except those with valid mortgages on the exempt property. A debtor is allowed to keep his unmortgaged exempt property in a Chapter 7 case, and must turn only his nonexempt property over to the trustee in the case.
14. When must a person go to court in a Chapter 7 case and what happens
there?
The first court appearance will be about a month after the case is filed, for a hearing calls the “meeting of creditors.” At this hearing, the debtor will be put under oath and questioned about his money, property, and debts the trustee. In many Chapter 7 cases, no creditors appear in court; however, if a creditor does make an appearance, he will be allowed to question the debtor.
15. What happens after the meeting of creditors?
After the meeting of creditors, the trustee may contact the debtor regarding the
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collection or existence of nonexempt property, and the court may issue orders to the debtor. These orders may require the debtor to turn certain property over to the trustee, or provide the trustee with certain information.
16. What is a trustee in a Chapter 7 case, and what does he do?
The trustee is an officer of the court, appointed to gather the debtor’s nonexempt property, turn it into cash, and pay the money out to the proper creditors. In addition, the trustee has certain administrative duties in a Chapter 7 case, and is the officer in charge of seeing to it that the debtor performs the duties required of him in the case. A trustee is appointed in a Chapter 7 case, even if the debtor has no property for the trustee to collect.
17. What are the debtor’s responsibilities to the trustee?
The law requires the debtor to cooperate with the trustee in the administration of a Chapter 7 case, including the collection by the trustee of the debtor’s nonexempt property. If the debtor does not cooperate with the trustee, then his case may be dismissed and his debts may not be discharged.
18. What happens to the property that the debtor turns over to the trustee?
It is usually converted into cash, which is later used to pay the administrative expenses of the trustee and to pay the claims of creditors. The trustee is permitted to pay himself a fee, which is based on a percentage of the amount collected from the debtor.
19. What happens if the debtor has no nonexempt property for the trustee to
collect?
If, from the debtor’s Chapter 7 forms, it appears that the debtor will have no nonexempt money or property, a notice will be sent to the creditors advising them that there appears to be no assets from which to pay creditors, that it is unnecessary for the creditors to file claims, and that if assets are later discovered the creditor will then be given an opportunity to file claims. A trustee will be appointed, however, even if the debtor has no nonexempt assets for the trustee to collect, and the debtor must cooperate with the trustee.
20. What do creditors with mortgages against the debtor’s property do in a
Chapter 7 case?
Creditors with valid mortgages against the debtor’s property are usually permitted to repossess or foreclose on the property, if the value of the property does not exceed the amount secured by the property. A creditor must prove the validity of his mortgage and obtain a court order, however, before repossessing or foreclosing of any property, and the debtor should not turn any property over to a creditor until a court order has been obtained. If the value of the mortgaged property exceeds the amount secured by the mortgage, the creditor might not be
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allowed to repossess the property. The debtor is permitted to retain certain property even if there is a valid mortgage against it, and the debtor may redeem certain mortgaged property from the creditor by paying less than the amount secured by the mortgage (see Question 22, below).
21. What do unsecured creditors do in a Chapter 7 case?
If the debtor has nonexempt assets, unsecured creditors may file claims with the court within 90 days after the date of the meeting of creditors. The trustee examines these claims and files objections to those that he deems improper. When the trustee has collected all of the debtor’s nonexempt property and converted it to cash, and when the court has ruled on any objections filed against the claims of creditors, the trustee distributes the funds according to certain priorities. Administrative expenses, claims for wages, salaries, and contributions to employee benefit plans, claims for the refund of certain deposits, and tax claims are given priority, in that order, in the distribution of funds by the trustee. If there are funds remaining after the payment of these priority claims, they are distributed pro rata to the remaining unsecured creditors. If the debtor has no nonexempt assets, the creditors are notified not to file claims.
22. May the debtor keep any of his mortgage property in a Chapter 7 case
without paying off the creditor?
A debtor may retain certain mortgaged personal and household items, such as household furniture, appliances and goods, wearing apparel, and tools of trade, without paying the creditor anything if the items are exempt and if the mortgage against the property is not a purchase-money mortgage. A debtor may also retain exempt property that is subject only to a judgment lien without paying the creditor anything. A debtor may retain certain exempt personal, family, or household items by paying to the creditor only an amount equal to the value of the items, regardless of how much is owed to the creditor.
23. How is a debtor notified that his discharge has been granted?
Most courts send a form called “Discharge of Debtor” to the debtor and to all creditors. This form is a copy of the court order releasing the debtor from his dischargeable debts, and it usually serves as notice that the debtor’s discharge has been granted. It is usually mailed about 4 months after the case is filed, unless the trustee or a creditor has filed an objection to the discharge of the debtor, in which case a hearing must be held so that the court can rule on the objection. If the debtor’s discharge is not granted, the court must inform the debtor of the reasons for not granting it.
24. What if a debtor wishes to repay one or more of his discharged debts after
filing under Chapter 7?
A debtor may repay as many of his discharged debts as he wishes after filing under Chapter 7. By repaying one creditor, a debtor does not become legally
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obligated to repay any other creditor. The only discharged debts that a debtor is legally obligated to repay after filing under Chapter 7 are those for which the debtor and the creditor have entered into a reaffirmation agreement that meets with certain requirements of the bankruptcy l. Unless a debt is covered by a valid reaffirmation agreement, a debtor is not legally obligated to repay (or continue repaying) any discharged debt, even if the debtor has made one or more payments on the debt since filing under Chapter 7, has agreed in writing to repay the debt, or has waived the discharge of the debt.
25. How long does a Chapter 7 case last?
A chapter 7 case begins with the filing of the case and ends with the closing of the case by the court. If the debtor has no nonexempt money or property for the trustee to collect, the case will most likely be closed shortly after the debtor receives his discharge, which is usually about 4 months after the case is filed. If the debtor has nonexempt money or property for the trustee to collect, the length of the case will depend on how long it takes the trustee to collect the assets and perform his other duties in the case.
26. What should a person do if a creditor later attempts to collect a debt that
was discharged in his Chapter 7 case?
When a discharge is granted, the court enters an order prohibiting the creditors from later attempting to collect from the debtor any debt that was discharged in the Chapter 7 case. If a creditor violates this court order he may be held in contempt of court and fined; and he may be liable to the debtor in damages. If a creditor later attempts to collect a discharged debt, the debtor should give the creditor a copy of the order of discharge and inform him that the debt has been discharged under Chapter 7.
27. Does a Chapter 7 discharge affect the liability of other parties who may be
liable to a creditor on a discharged debt?
A Chapter 7 discharge releases only the debtor. The liability of any other party on a debt is not affected by a Chapter 7 discharge. The only exception to this rule is in community property states where the spouse of a debtor may also be released from certain community debts.
28. What is the role of the attorney for a consumer debtor in a Chapter 7 case?
The debtor’s attorney performs the following functions in a Chapter 7 case of a typical consumer:
(1) Analyze the amount and nature of the debts owed by the debtor and
determine the best remedy for the debtor’s financial problems.
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(2) Advise the debtor of the relief available under both Chapter 7 and Chapter 13 of the bankruptcy laws, and the advisability of proceeding under each chapter.
(3) Assemble the information and data necessary to prepare the Chapter 7
forms for filing. (4) Prepare the petitions, schedules, statements and other Chapter 7 forms
for filing with the bankruptcy court. (5) Assist the debtor in arranging his assets so that he can retain as much of
them as possible after the Chapter 7 case. (6) Filing the Chapter 7 petition, schedules, statements and other forms with
the bankruptcy court, and, if necessary, notifying certain creditors of the commencement of the case.
(7) If necessary, assisting the debtor in redeeming certain personal property
and in setting aside certain mortgages or liens against exempt property. (8) Attending the meeting of creditors with the debtor.
(9) If necessary, preparing and filing amended schedules and certain
statements and other documents with the bankruptcy court in order to protect the rights of the debtor.
(10) If necessary, attending the discharge and reaffirmation hearing with the
debtor and assisting the debtor in reaffirming certain debts and in overcoming obstacles to the granting of his Chapter 7 discharge. The fee paid, or agreed to be paid, to an attorney representing the debtor in a Chapter 7 case must be disclosed to the bankruptcy court and must be approved by the court. The court will allow the attorney to charge only a reasonable fee for representing the debtor. It is customary for the debtor’s attorney to collect all or most of his fee before the case is filed.
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Common Questions Asked About Chapter 13 1. What is Chapter 13 and how does it work?
Chapter 13 is that part of the federal bankruptcy law that permit a person to repay all or a portion of his or her debts under the supervision and protection of the bankruptcy court. Under Chapter 13, the person filing the case, who is called the debtor, submits a plan for the repayment of all or a portion of his debts to the court, which must approve the plan for it to become effective. The court prohibits the creditors from attempting to collect their claims from the debtor and permits the debtor to make regular payments in the amounts called for in the debtor’s plan to the Chapter 13 trustee for the period of time specified in the plan. The Chapter 13 trustee collects the money paid in by the debtor and disburses it to the creditors as set forth in the debtor’s plan. Upon the completion of the payments called for in the plan, the debtor is discharged from any liability for the remainder of his debts.
2. How does Chapter 13 differ from Chapter 7?
Under Chapter 7, the debtor loses all or most of his nonexempt property and is released from liability for his dischargeable debts. Under Chapter 13, the debtor is usually permitted to keep his nonexempt property, is required to pay off as much of his debts as is feasible, and is released from liability for the balance of his dischargeable debts. More debts are dischargeable under Chapter 13 than are dischargeable under Chapter 7.
3. When is Chapter 13 preferable to Chapter 7?
Chapter 13 is usually preferable for the debtor who –
(1) wishes to repay all or most of his unsecured debts and has the income with which to do so within a reasonable time,
(2) has valuable nonexempt property or exempt property pledged as security
for debts, either of which he would lose if he filed under Chapter 7, (3) is not eligible for a discharge under Chapter 7, (4) has one or more substantial debts that are not dischargeable under
Chapter 7, or (5) has sufficient assets with which to repay his debts, but needs temporary
relief from his creditors in order to do so.
4. How does Chapter 13 compare with a private debt consolidated service? Under Chapter 13, the court possesses powers to aid the debtor that private debt consolidation services do not have. For example, the court has the power to prohibit creditors from attaching or foreclosing on the debtor’s property, the
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power to force unsecured creditors to accept a Chapter 13 plan that does not pay their claims in full, and the power to discharge a debtor from unpaid portions of debts. Private debt consolidation services have none of these powers.
5. What is a Chapter 13 discharge?
It is a court order releasing a debtor from all of his or her dischargeable debts and ordering the creditors not to attempt to collect them from the debtor. A debt that is discharged in one that the debtor is released from and does not have to pay. There are 2 types of Chapter 13 discharges: one that is granted to a debtor who has completed all of the payments called for in his plan, and one that is granted to a debtor who is unable to complete the payments called for in his plan due to circumstances for which he should not justly be held accountable. The discharge granted upon the completion of a Chapter 13 plan discharges more debts than the other type of discharge.
6. What debts are not released by a Chapter 13 discharge?
The Chapter 13 discharge granted after the completion of all payments under a Chapter 13 plan releases a debtor from all debts except:
(1) debts that are repaid outside of the plan, (2) debts for alimony, maintenance, or support, (3) installment debts whose last payment is due after the completion of
payments under the plan, (4) debts incurred during the time the plan was in effect that were not paid
under the plan, (5) student loans, (6) for death or personal injury caused by the debtor’s operation of a motor
vehicle if such operation was unlawful because the debtor was intoxicated, (7) for restitution, or a criminal fine, included in a sentence on the debtor’s
conviction of a crime.
The Chapter 13 discharge granted when a debtor is unable to complete the payments under a plan due to circumstances for which he should not justly be held accountable releases the debtor from all debts except:
(1) secured debts, (2) debts that are paid outside the plan, (3) installment debts whose last payment is due after the completion of
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payments under the plan, (4) debts incurred during the time the plan was in effect that were not paid
under the plan, and (5) the types of debts not discharged by a Chapter 7 discharge set forth in
§523(a) of the Bankruptcy Code. 7. What is a Chapter 13 plan?
It is a written plan presented to the bankruptcy court by a debtor that states which of the debtor’s debts should be paid, how much should be paid on each debt, how much of the debtor’s earnings or other property should be paid to the Chapter 13 trustee, how long the payments should continue, which debts should be paid outside of the plan, and certain other technical matters.
8. What is a Chapter 13 trustee?
A Chapter 13 trustee is an officer of the court appointed to collect payments from the debtor, make payments to creditors in the manner set forth in the debtor’s Chapter 13 plan and administer the Chapter 13 case until it is closed. The Chapter 13 trustee is required to perform certain other technical duties in a Chapter 13 case, and the debtor is required to cooperate with the Chapter 13 trustee.
9. What debts may be paid under a Chapter 13 Plan?
Any debts whatsoever, whether they are secured or unsecured. Even debts that are nondischargeable, such as debts for alimony, maintenance, or support, may be paid in a reasonable manner under a Chapter 13 plan.
10. Must all debts be completely paid off under a Chapter 13 plan?
No. Certain debts such as debts for taxes and fully secured debts, must be paid in full under a Chapter 13 plan, but only an amount that the debtor can reasonably afford must be paid on most debts. The unpaid balance of most debts not paid in full under a Chapter 13 plan may be discharged upon the completion of the plan.
11. Must all unsecured debts be treated alike under a Chapter 13 plan, or can
more be paid on some that on others?
If there is a reasonable basis for doing so, unsecured debts may be divided into separate classes and treated differently. It may be possible, therefore, to pay certain unsecured debts in full, while paying very little on others. An unsecured debt is a debt that is not secured by a valid mortgage or lien.
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12. How much of a debtor’s income must be paid to the Chapter 13 trustee under a Chapter 13 plan?
Usually all of a debtor’s disposable income for a 3-year period must be applied toward the making of payment sunder a Chapter 13 plan. “Disposable income” means income which is received by a debtor that is not reasonably necessary for the maintenance or support of the debtor and his or her dependents.
13. When must the payments to the Chapter 13 trustee begin and how often
and by whom must they be made?
The Chapter 13 payments must begin within 30 days after a Chapter 13 plan is filed with the court, and a Chapter 13 plan must be filed with the court within 15 days after the case is filed. The payments must be made regularly, but in most cases they can be made weekly, bi-weekly, or monthly, whichever is most convenient for the debtor. If the debtor is employed, some courts require the Chapter 13 payments to be made by the debtor’s employer; otherwise, the payments can be made either directly by the debtor or by his or her employer.
14. How long must a Chapter 13 plan last?
A Chapter 13 plan must last for 3 years, unless all debts can be paid off in full before that time. However, a Chapter 13 plan can last for as long as 5 years, if the debtor has a valid reason for doing so.
15. Is it necessary for all creditors to approve a Chapter 13 plan?
No. A Chapter 13 plan must only be approved by the court in order to become effective. The court cannot approve a plan unless secured creditors are dealt with in the manner described in the answer to Question 16, and unsecured creditors are permitted to file objections to the plan.
16. How may secured creditors be dealt with under Chapter 13?
There are 4 methods of dealing with a secured creditor under Chapter 13:
(1) he may accept the proposed plan, (2) he may be allowed to retain his lien and be paid the full amount of his
secured claim under the plan, (3) his collateral may be surrendered to him, or (4) he may be dealt with outside the plan.
It is important to realize that a secured creditor is considered to have a secured claim only to the extent of the value of his secured interest, which cannot exceed the value of the property securing the claim. For example, if a secured creditor
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has a mortgage on an automobile, and if the automobile is worth $500, then that creditor has a secured claim for only $500, regardless of how much is owed to him. If the debtor is in default to a secured creditor, the default must be cured within a reasonable time. Also, interest must be paid on secured debts.
17. How are debts that have been consigned or guaranteed by someone else
handled under Chapter 13?
If a consumer debt that has been consigned or guaranteed by another person is being paid in full under a Chapter 13 plan, the creditor will be prohibited from collecting the debt from the other person. However, if the debt is not being paid in full under the plan, the creditor will be permitted to collect the unpaid portion of the debt from the other person.
18. Who is eligible to file under Chapter 13?
Any natural person may file under Chapter 13 if the person – (1) resides in, does business in, or owns property in the United States, (2) has regular income, (3) has unsecured debts of less than $290,525 (4) has secured debts of less than $871,550, (5) is not a stockbroker or commodity broker, and (6) has not been a debtor in another bankruptcy case that was dismissed
within the last 180 days on certain technical grounds. A person meeting the above requirements may file under Chapter 13 regardless of when he or she last filed or received a discharge under either Chapter 7 or Chapter 13.
19. May a husband and wife file jointly under Chapter 13?
A husband and wife may file jointly under Chapter 13 if each of them meets the requirements listed in the answer to Question 18 above, except that only one of them need have regular income and their combined debts must meet the debt requirements listed above.
20. When should a husband and wife file jointly under Chapter 13?
If both spouses are liable for any substantial debts, they should file jointly under Chapter 13, even if only one of them has income. Also, if both of them have regular income, they should usually file jointly.
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21. May a self-employed person filed under Chapter 13?
A person meeting the eligibility requirements in the answer to Question 18 above may file under Chapter 13 if his business is not incorporated. A debtor who owns his or her own business is normally permitted to continue to operate the business during the Chapter 13 case.
22. May a chapter 7 case that is still open be converted to Chapter 13?
A pending Chapter 7 case may be converted to Chapter 13 at any time, if the case has not been previously converted to Chapter 7 from Chapter 13.
23. Where is a Chapter 13 case filed?
A Chapter 13 case is filed in the bankruptcy court in a district where the debtor has lived, and his or her principal place of business located, or had his or her principal assets located, for the greatest portion of the last 180 days.
24. What fees are charged in a Chapter 13 case?
There is a $194.00 filing fee charged when the case is filed, which may be paid in installments, if necessary. In addition, the Chapter 13 trustee assesses a fee of approximately 10% on all payments made under the plan. These fees are in addition to the fee charged by the debtor’s attorney.
25. Does a debtor lose any of his property in a Chapter 13 case?
Usually not. Under Chapter 13, debts are normally repaid out of the payments made to the Chapter 13 trustee and not out of the debtor’s property. However, if the debtor has considerable nonexempt property and cannot make sufficient payments to pay enough of his debts to satisfy the court, some of his property may have to be used to pay creditors. Also, if a secured creditor is not being paid under the plan, he may be permitted to repossess the property securing his claim if the debt owed to him is not paid.
26. How does filing under Chapter 13 affect lawsuits and attachments against
the debtor?
The filing of a Chapter 13 case automatically stays all lawsuits, attachments, garnishments, and other actions by creditors against the debtor and his property for as long as the Chapter 13 case lasts. A few days after the case is filed, a notice is mailed by the court to all creditors advising them of the automatic stay. The creditors may be notified sooner by either the debtor or his attorney, if necessary. Creditors are not permitted to file lawsuits or attachments against the debtor during the pendency of the Chapter 13 case, and, if the debtor is granted a Chapter 13 discharge, they will be prohibited from attempting to collect any discharged debt from the debtor after the case is closed.
27. What is required for confirmation of a Chapter 13 plan?
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The court will confirm a Chapter 13 plan if:
(1) the plan complies with the legal requirements of Chapter 13, (2) all required fees, charges and deposits have been paid, (3) the plan has been proposed in good faith and not by any means forbidden
by law, (4) each unsecured creditor will receive under the plan at least as much as he
would have received had the debtor filed under Chapter 7, (5) it appears that the debtor will be able to make the required payments and
comply with the plan, and (6) each secured creditor has been dealt with in the manner described in the
answer to Question 16 above.
28. When does a debtor have to appear in court in a Chapter 13 case?
Most debtors have to appear in court at least twice; once for a hearing called the meeting of creditors, and once for a hearing on the confirmation of the debtor’s Chapter 13 plan. The meeting of creditors is usually held about a month after the case is filed. The confirmation hearing may be held on the same date as the meeting of creditors or at a later date. The debtor’s testimony should not be lengthy at either hearing, however. If difficulties or unusual events arise during the course of a case, additional court appearances may be necessary.
29. What if the court does not approve a debtor’s Chapter 13 Plan?
If the court does not approve a Chapter 13 plan proposed by a debtor, the debtor is permitted to modify the plan and seek court approval of the modified plan. If the debtor does not wish to change his proposed plan, he may either convert the case to a Chapter 7 case or dismiss the case. If the Court does not approve a plan, it will usually set forth the reasons so that the plan may be appropriately modified.
30. How are the claims of creditors handled under Chapter 13?
Creditors must file their claims with the bankruptcy court within 90 days after the first date set for the meeting of creditors in order for their claims to be allowed. Unsecured creditors who fail to file claims within that period will be barred from filing a claim, and after the completion of the plan their claims will be discharged. A debtor may file a claim on behalf of a creditor if he wishes to do so. When the claims have been filed, the debtor is notified and given an opportunity to file objections to any claims that he disputes. When the objections have been ruled on, and the claims approved by the court, the Chapter 13 trustee will begin
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making payments to unsecured creditors as called for in the Chapter 13 plan. Payments to secured creditors and to special classes of unsecured creditors may begin earlier if desired.
31. What if the debtor is temporarily unable to make his Chapter 13 payments?
If the debtor is temporarily out of work, injured, or otherwise unable to make the payments required under his Chapter 13 plan, the court may suspend the case until he is able to resume the payments. If it appears that the inability to make the required payments will continue for an extended period, the debtor may be permitted to modify the plan, or the case may be dismissed or converted to Chapter 7.
32. What if the debtor incurs new debts or needs credit during a Chapter 13
case?
Only 2 types of credit obligations or debts incurred after the filing of the case may be included in a Chapter 13. These are: (1) debts for taxes that become payable while the case is pending, and (2) consumer debts arising after the filing of the case that are for property or services necessary for the debtor’s performance under the plan and that are approved in advance by the Chapter 13 trustee. Any other debts or credit obligations incurred after the case is filed must be paid by the debtor outside the plan. Some courts issue an order precluding the debtor from incurring any new debts during the case unless they are approved in advance by the Chapter 13 trustee. Therefore, if a debtor needs credit or wishes to incur a debt after the case has been filed, he should obtain the prior approval of the Chapter 13 trustee.
33. What if the debtor later decides to discontinue the Chapter 13 case?
A debtor has the right to either dismiss a Chapter 13 case or convert it to a Chapter 7 case at any time, regardless of his reason for doing so. However, if a debtor simply stops making the required Chapter 13 payments, the court has the power to compel the debtor, or his employer, to make the payments and to comply with the orders of the court.
34. What happens if a debtor is unable to complete his Chapter 13 payments?
A debtor who is unable to complete his Chapter 13 payments has 3 options: (1) he may dismiss the Chapter 13 case, (2) he may convert the Chapter 13 case to a Chapter 7 case,
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(3) if he is unable to complete the payments due to circumstances for which he should not justly be held accountable, he may seek to close the case and obtain the second type of a discharge described in the answer to Question 6 above.
35. What is the role of the debtor’s attorney in a Chapter 13 case?
The debtor’s attorney performs the following functions in a typical Chapter 13 case:
(1) Examining the debtor’s financial situation and determining whether
Chapter 13 is a feasible alternative for the debtor, and if so, whether a single or a joint case should be filed.
(2) Assisting the debtor in the preparation of a budget. (3) Examining the liens or security interest of secured creditors to ascertain
their validity or avoidability, and taking the legal steps necessary to protect the debtor’s interest on such matters.
(4) Devising and implementing methods of dealing with secured creditors. (5) Assisting the debtor in devising a Chapter 13 plan that meets the needs of
the debtor and that is acceptable to the court. (6) Preparing the necessary pleadings and Chapter 13 forms. (7) Filing the Chapter 13 forms and pleadings with the court and paying, or
providing for the payment of, the filing fee. (8) Attending the meeting of creditors, the confirmation hearing, and any other
court hearings required or called in the case.
(9) Assisting the debtor in obtaining court approval of his Chapter 13 plan.
(10) Inspecting the claims filed in the case, filing objections to improper claims, and attending court hearings thereon.
(11) Assisting the debtor in overcoming any legal obstacles that may arise
during the courses of the Chapter 13 case. (12) Assisting the debtor in obtaining the discharge of as many debts as
possible upon the completion or termination of the plan. The fee charged by an attorney for representing a debtor in a Chapter 13 case must be approved by the bankruptcy court. The fee must be reviewed and approved by the court whether it is paid prior to or after the filing of the case, and whether it is paid directly to the attorney by the debtor or by the trustee out of the
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debtor’s Chapter 13 payments. The court will approve only a fee that it deems to be reasonable.
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XIII. PHYSICIAN COMPLIANCE PLANS
A. DO I NEED A COMPLIANCE PLAN?
Given the increased focus on fraudulent activities by healthcare providers, the recommendation that organizations adopt a Acorporate compliance program@ is extremely timely as there are a number of benefits to implementing an effective program. A well-established corporate compliance program can protect a healthcare company in the midst of a legal crisis by shielding the company from suffering harsher penalties or stricter sentences. Equally as important, a corporate compliance program can reduce the likelihood of potential violations by clarifying to employees what behavior is acceptable and what is intolerable. Also, an effective corporate compliance program can help management detect violations early enough to enable the company to proactively correct a potential problem. Finally, a corporate compliance program can assist a company to gain credibility with the government as a law-abiding organization in the event of an investigation.
B. WHAT IS A COMPLIANCE PLAN?
Corporate compliance programs were originated in 1991 as part of the Federal Sentencing Guidelines as a means to determining whether a corporation=s criminal penalties should be reduced. Specifically, the Federal Sentencing Guidelines provide that an organization=s culpability will be lessened Aif the offense occurred despite an effective program to prevent and detect violations of law.@
The Federal Sentencing Guidelines include 7 minimum objectives that an organization must meet in order for a corporate compliance program to be considered an Aeffective program to prevent and detect violations of law@:
1. The organization must have established compliance standards and
procedures to be followed by its employees and other agents that are reasonably capable of reducing the prospect of criminal conduct.
2. Specific individual(s) within high-level personnel of the organization
must have overall responsibility to oversee compliance with such standards and procedures.
3. The organization must have used due care not to delegate
substantial discretionary authority to individuals who the organization knew, or should have known, through the exercise of due diligence, had a propensity to engage in illegal activities.
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4. The organization must have taken steps to communicate effectively its standards and procedures to all employees and other agents, e.g., by requiring participation in training programs or by disseminating publications that explain in a practical manner what is required.
5. The organization must have taken reasonable steps to achieve
compliance with its standards, e.g., by having in place monitoring and auditing processes that are designed to detect criminal conduct by its employees and other agents and publicizing a reporting system whereby employees and other agents can report criminal conduct by others within the organization without fear of retribution.
6. The standards must have been consistently enforced through
appropriate disciplinary mechanisms, including, as appropriate, discipline of individuals responsible for the failure to detect an offense. Adequate discipline of individuals responsible for an offense is a necessary component of enforcement; however, the form of discipline that will be appropriate will be case-specific.
7. After an offense has been detected, the organization must have
taken all reasonable steps to respond appropriately to the offense and to prevent further similar offenses, including any necessary modifications to its program to prevent and detect violations of law.
The Federal Sentencing Guidelines also state that failure to prevent or detect the offense does not mean that the compliance program was per se ineffective; instead, A[t]he hallmark of an effective program to prevent and detect violations of law is that the organization exercised due diligence in seeking to prevent and detect criminal conduct by its employees and other agents.”
In addition to the Federal Sentencing Guidelines, which set forth the elements of what must be included in a corporate compliance program, the OIG has promulgated several sets of Aguidances@ for particular segments of the healthcare industry on what it believes should be included in this type of organization=s corporate compliance program. To date, the OIG has issued guidance for: (1) clinical laboratories; (2) home health agencies; (3) hospitals; (4) Medicare+Choice Organizations; (5) third party medical billing companies; (6) skilled nursing facilities; and (7) hospices.
Although the first document that the OIG published on corporate compliance programs (which was related to the clinical laboratory industry) referred to the document as being a Amodel@ corporate compliance program, the OIG recognized that no one document can B or should B serve as a Amodel@ for an entire segment of the healthcare industry. Therefore, the OIG now refers to these documents as
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Aguidance@ and has stated that the document itself is not a compliance program but a statement of the OIG=s notions on the basic procedural and structural elements to be included in an organization=s compliance program. To this end, within each such document, the OIG sets forth both its general views on the value and fundamental principals of corporate compliance programs and then provides specific elements that it believes should be considered by an organization when developing and implementing a compliance program.
Although the phrases Acorporate compliance program@ and Acorporate integrity agreement@ are often confused, they mean very different things. Although both address the concept of ensuring that an organization act in a compliant manner, they are distinguishable by the fact that a Acorporate integrity agreement@ is an actual agreement that a healthcare company has entered into with the government as part of a global settlement of a government investigation.
Although a corporate integrity agreement requires that the healthcare company adopt a corporate compliance program, the provisions of a government imposed corporate compliance program, inevitably, are more burdensome and involve more substantial oversight by outside experts and the government. For example, one particularly burdensome aspect of many corporate integrity agreements is the requirement that the healthcare company submit annual reports to DHHS certifying compliance (or noncompliance) with the company=s corporate compliance program.
Although organizations that have not entered into a corporate integrity agreement with the government need not include provisions in their corporate compliance programs that are as burdensome as the requirements imposed by a corporate integrity agreement, they should stay abreast of the types of requirements being included in corporate integrity agreements, as they serve as guidance on the government=s current views on the elements that it would like to see incorporated into a corporate compliance program.
C. OIG COMPLIANCE PROGRAM GUIDANCE
The Department of Health and Human Services= Office of Inspector General (AOIG@) has issued guidance to help physicians in individual and small group practices design voluntary compliance programs. The final guidance, entitled the AIndividual and Small Group Physician Compliance Program Guidance@ (ACompliance Program Guidance@), was released on the OIG Web site (http://olg.hhs.gov) on September 25, 2000, and was published in the Federal Register on October 5, 2000, 65 Fed. Reg. 59434.
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The Compliance Program Guidance contains a step-by-step roadmap for implementing a voluntary compliance program. This approach is an effort by the OIG to help encourage compliance by providing direct guidance to physician practices as to where to begin development of a compliance program. The Compliance Program Guidance itself provides great flexibility as to how a physician practice could implement compliance efforts in a manner that fits with the practice=s existing operations and resources.
It is important that this program is voluntary. This guidance is simply that, a guidance to assist physician practices in developing and implementing a voluntary compliance program if the practice chooses to do so. This is neither a regulation nor a requirement. While it may serve as a mitigating factor should the practice become involved in a settlement with the Government, it is not an aggravating factor that would result in the practice being assessed a penalty for the failure to have a compliance program in place.
The Compliance Program Guidance differs substantially from previous guidance issued from the OIG. This is reflected in the 3 key themes set forth in the guidance: Flexibility, Errors v. Fraud, and Active Application of Compliance Principles v. Formal Process.
1. Flexibility
One overarching theme of the Compliance Program Guidance is its emphasis on flexibility. This can be seen in the continued reiteration of outsourcing and collaboration as options for practices to utilize when developing a compliance plan. For example, physician practices can share a compliance officer with other practices or outsource that role depending on the practice=s particular circumstances. Practices are encouraged to participate in education and training programs sponsored by the hospital where the physician has staff privileges or to develop an education and training program in coordination with another physician practice.
2. Innocent Errors v Fraudulent Conduct
Another theme of the Compliance Program Guidance is the distinction between errors and fraud. Many physicians expressed a concern that the OIG focused on innocent billing errors. The OIG believes the great majority of physicians are honest and committed to providing high quality medical care to Medicare beneficiaries. Under the law, physicians are not subject to civil or criminal penalties for innocent errors, or even negligence. The Government=s primary enforcement tool, the civil False Claims Act, covers only offenses that are committed with actual knowledge of
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the falsity of the claim, reckless disregard, or deliberate ignorance of the truth or falsity of a claim. The False Claims Act does not cover mistakes, errors or negligence. The OIG is very mindful of the difference between innocent errors (Aerroneous claims@) and reckless or intentional conduct (Afraudulent claims@).
A voluntary compliance program can help physicians identify both erroneous and fraudulent claims and help ensure that submitted claims are true and accurate. It can also help the practice by speeding up and optimizing proper payment of claims, minimizing billing mistakes and avoiding conflicts with the self-referral and anti-kickback statutes. Additionally, it can reduce the possibility that the Health Care Financing Administration or the OIG will conduct an audit.
3. Active Application of Compliance Principles v Formal Process
In another departure from previous OIG compliance guidance, the Compliance Program Guidance does not state that physician practice must have all 7 elements of a traditional, full-scale compliance program in place in order to have a working compliance program. Instead, the Compliance Program Guidance states that practices should try to implement as many of the elements as is practical for the financial and staffing resources of that practice. The emphasis is on the practice incorporating the active application of compliance principles in its practice and making compliance a part of the practice culture. This is in recognition of the fact that many physician practices cannot adopt a rigid, formal and costly compliance program. However, all practices can implement at least some of the compliance elements and are encouraged to incorporate those into the practice. The OIG=s goal in issuing this final guidance was to show physician practices that compliance can become a part of the practice culture without the practice having to expand substantial monetary or time resources.
Step-By-Step Approach
Here are the 7 steps set forth in the Compliance Program Guidance that the OIG suggests practices follow when implementing a voluntary compliance program. While these steps are voluntary, the implementation of many of these suggestions makes good business sense for the practice. Additionally, each of the steps can be implemented in a way that makes sense for that individual physician practice. $ Conduct internal monitoring and auditing $ Implement compliance and practice standards
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$ Designate a compliance officer or contact $ Conduct appropriate training and education $ Respond appropriately to detected offenses and develop corrective
action $ Develop open lines of communication $ Enforce disciplinary standards through well-publicized guidelines.
Conclusion
Many practices were concerned that the OIG would set a particular number of physicians to define a small group practice. The OIG has not set a numerical standard for the definition of small group practice. A small group practice should instead be determined by the feasibility of the practice to implement the elements of a compliance program based on the practice=s financial and staffing resources. Larger practices may be able to fully implement all 7 elements of a full-scale compliance program. In fact, the final guidance also provides direction to larger practices in developing compliance programs by recommending that they use both Compliance Program Guidance and previously issued guidance, such as the Third-Party Medical Billing Company Compliance Program Guidance or the Clinical Laboratory Compliance Program Guidance, to create a compliance program that meets the needs of the larger practice.
The goal of the OIG in issuing this final guidance was to show physician practices that compliance can become a part of the practice culture without the practice having to expend substantial monetary or time resources. Implementing a compliance program may actually benefit the physician practice by helping streamline the practice=s business operations and helping ensure the practice is paid correctly.
XIV. RECENT ISSUES IN COLLECTION
A. HEALTH CARE FRAUD AND BILLING ISSUES
1. Medicare Fraud Includes, But is Not Limited to:
a. Billing for more expensive services at a higher service fee
than was provided
b. Falsifying certificates of medical necessity, plans of treatment and medical records to justify payment
c. Billing for services not furnished
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d. Soliciting, offering or receiving a kickback
e. Billing separately for services that should be included in a
single service fee
f. Misrepresenting the diagnosis to justify payment
2. The DOJ=s Approach
3. Protection From Medicare Fraud:
a. Never give your Medicare or Medicaid number over the telephone or to people you do not know
b. Beware of health care providers and suppliers that use telephone calls and door-to-door selling as a way to sell you goods or services
c. Be suspicious of companies that offer free medical equipment or offer to waive your co-payment without first asking about your ability to pay
d. Beware of health care providers who say they represent Medicare or a branch of the federal government, or providers who use pressure tactics to get you to accept a service/product
4. Problem Areas
a. Home health providers that offer non-medical transportation services or housekeeping as Medicare approved services
b. Ambulance companies that bill Medicare for non-emergency trips
c. Suppliers that bill Medicare for medical equipment for beneficiaries in nursing homes
d. Physicians that give the wrong diagnosis on the claim form so Medicare will pay
5. Reporting Medicare Fraud and Abuse
a. If a patient has a questionable charge on their bill, they can
call the provider, the Fiscal Intermediary (for Part A bills) or the Medicare carrier (for Part B bills). If they believe that a health care provider may be cheating or abusing the
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Medicare program, they should call the Medicare carrier or intermediary that sent them the payment notice. Their name, address and telephone number appear on the payment notice
b. After a patient calls the Medicare carrier or Fiscal Intermediary, they may also call the Inspector General=s hotline at 1-800-HHS-TIPS (1-800-447-8477) or TTY for the hearing and speech impaired 1-800-377-4950.
B. COMPLIMENTARY PROFESSIONAL MEDICAL SERVICES
Physicians that offer free goods or services (including the waiver of copayments and deductibles) to other physicians or their families may be subject to civil monetary penalties under the provision prohibiting inducements to beneficiaries, section 1128A(a)(5) of the Social Security Act (the AAct@), or the anti-kickback statute, section 1128B(b) of the Act, in the circumstances presented. In section 1128A(a)(5) of the Act, Congress specifically addressed the issue of providers offering remuneration to Medicare and Medicaid beneficiaries in order to influence their selection of a particular provider by authorizing the imposition of civil monetary penalties against such providers. Moreover, free services may implicate the criminal anti-kickback statute which prohibits offering anything of value to any Aperson@ to reward or induce referrals (including self-referrals) for items or services reimbursable under any federal health care program.
Application of Section 1128A(a)(5) of the Act
Section 1128A(a)(5) of the Act provides for the imposition of civil monetary penalties against any person who:
offers or transfers remuneration to any individual eligible for benefits under [Medicare or a state health care program] that such person knows or should know is likely to influence such individual to order or receive from a particular provider, practitioner, or supplier any item or service for which payment may be made, in whole or in part, under [Medicare or a state health care program].
See also 65 Fed Reg 24400, 24416 (April 26, 2000) (to be codified at 42 CFR ' 1003.102(b)(13)). Section 1128A(i)(6) of the Act defines Aremuneration@ for purposes of section 1128A(a)(5) of the Act as including, among other things, Atransfers of items or services for free or for other than fair market value.@ Unlike the anti-kickback statute, section 1128A(a)(5) of the Act is solely concerned with remuneration offered or transferred to Medicare or state health care program beneficiaries.
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Application of the Anti-Kickback Statute
The anti-kickback statute makes it a criminal offense knowingly and willfully to offer, pay, solicit, or receive any remuneration to induce referrals of items or services reimbursable by any federal health care program. See section 1128B(b) of the Act. Specifically, the statute provides that:
Whoever knowingly and willfully offers or pays [or solicits or receives] any remuneration (including any kickback, bribe, or rebate) directly or indirectly, overtly or covertly, in cash or in kind to any person to induce such person B to refer an individual to a person for the furnishing or arranging for the furnishing of any item or service for which payment may be made in whole or in part under a federal health care program, or to purchase, lease, order, or arrange for or recommend purchasing, leasing, or ordering any good, facility, service, or item for which payment may be made in whole or in part under a federal health care program, shall be guilty of a felony.
Id. Thus, where remuneration is paid purposefully to induce referrals of items or services for which payment may be made by a federal health care program, the anti-kickback statute is violated. By its terms, the statute ascribes criminal liability to parties on both sides of an impermissible Akickback@ transaction. For purposes of the anti-kickback statute, Aremuneration@ includes the transfer of anything of value, in cash or in-kind, directly or indirectly, covertly or overtly.
The statute has been interpreted to cover any arrangement where one purpose of the remuneration was to obtain money for the referral of services or to induce further referrals. United States v Kats, 871 F2d 105 (9th Cir. 1989); United States v Greber, 760 F2d 68 (3d Cir.), cert denied, 474 US 988 (1985). Violation of the statute constitutes a felony punishable by a maximum fine of $25,000, imprisonment up to 5 years, or both. Conviction will also lead to automatic exclusion from federal health care programs, including Medicare and Medicaid. The OIG may also initiate administrative proceedings to exclude persons from federal and state health care programs or to impose civil monetary penalties for fraud, kickbacks and other prohibited activities under sections 1128(b)(7) and 1128A(a)(7) of the Act. Remuneration from a physician to a patient that is intended to induce the patient to obtain professional services implicates the anti-kickback statute. For example, the routine waiver of Medicare Part B coinsurance B a payment obligation required by federal law B implicates the anti-kickback statute, as would offers of cash or other valuable gifts that are intended to
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induce patients to order services paid for in whole or in part for a federal health care program. Free services offered by a provider to federal health care program beneficiaries may have monetary value and implicate the anti-kickback statute, if the requisite intent to induce self-referrals is present.
The Stark II, Phase II interim final rule was effective July 26, 2004. It created an entirely new exception for professional courtesy. The regulation defines “professional courtesy” to mean “the provision of free or discounted health care items or services to a physician or his or her immediate family members or office staff.
Requirements of the Professional Courtesy Exception
1. Courtesy must be offered, if at all, to all physicians on staff or in the
service area.
The professional courtesy must be offered to all physicians on the entity’s medical staff or in the entity’s local community or service area, without regard to the volume or value of referrals or other business generated between the parties. In other words, the entity must consistently provide professional courtesy to all physicians (this includes not just medical doctors, but osteopaths, dentists, podiatrists, optometrists and chiropractors as well), limited only according to whether the physician is or is not a member of the entity’s medical staff, or according to whether the physician is or is not “in” the entity’s local community or service area.
2. The services provided by professional courtesy must be a type the
entity routinely provides.
3. The professional courtesy policy must be reduced to writing and approved by the entity.
4. The entity must exclude federal program beneficiaries from its professional courtesy policy.
The professional courtesy must not be offered to a physician (or
immediate family member) who is a federal health care program beneficiary, unless there has been a good faith showing of financial need.
5. If the entity waives a required copayment for a privately insured patient, it must tell the insurance carrier.
6. The arrangement must not be otherwise unlawful.
The arrangement must not violate the antikickback statute or any other
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federal or any other federal or state law or regulation governing bill or claims submission.
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Conclusion
The Stark II exception for professional courtesy will have little effect in the real world except, perhaps, to further discourage any physician offices who may still be extending professional courtesy to physicians.
C. HIPAA ISSUES
D. MISCELLANEOUS ISSUES If you have any questions about the issues raised in these materials, please contact Mr. Christopherson at [email protected] or 231-929-0500.
The opinions expressed in these materials are intended for general guidance only. They are not intended as recommendations for specific situations. The laws, rules, regulations and statutes are subject to change. As always, please consult a qualified attorney for specific legal guidance. S:\JAC\CD\INTERNET\2009 WEBPAGE ARTICLES\BILLING AND COLLECTING FOR THE HEALTCARE INDUSTRY.DOC