Practice Management Alert

When you're setting up patient payment arrangements, keep in mind that a signed payment agreement is not the same as a promissory note, says Peter Pommersheim, Esq., with The Rogers Law Firm in Braintree, Mass.

A payment agreement "essentially is a contract pursuant to which the patient promises to pay the provider for the services rendered," Pommersheim explains. "The agreement, however, is not a negotiable instrument on its own and only would be enforceable by bringing a breachof-contract action, which generally is more difficult and time consuming than enforcing a negotiable instrument."

Alternative: A "negotiable instrument," on the other hand, is "negotiable within the general realms of commerce; i.e., the payee or holder of the note can assign or transfer the note to a third party for consideration, and then the third party has the right to receive the payments on the note and has the right to enforce the terms of the note, including its collection."

Benefits: Pommersheim notes that from a practical perspective, a negotiable instrument may prove to be more "valuable" to your practice because it gives you the flexibility to either retain the note or "sell" it to a third party, such as a collections agency or a liquidator, even if discounted. You don't have that option with a payment agreement. Furthermore, it would be easier for your practice to enforce or collect on a note that a patient has ceased paying on than to bring a breach-of-contract claim against a patient who ceases to make payments under a payment agreement.

A promissory note is "a simple form of negotiable instrument which would be governed by the Uniform Commercial Code enacted in the state in which the note is written," Pommersheim says. "A promissory note essentially is a writing signed by the maker (the one promising to pay) containing an unconditional promise to pay a sum certain in money to a payee at a definite time -- a time note is payable at a certain time (i.e., a lump sum on a date certain, an installment payment every month, etc.) or a demand note is payable in full upon the demand of the payee. The maker of the note is obligated to pay the note in accordance with the tenor of its terms -- principal amount, rate of interest, frequency of payments, etc."

Good practice: The best option for your practice might be to have both. Pommersheim suggests having a payment agreement that sets forth the specific account and repayment terms. He also recommends requiring the patient to sign a demand promissory note that states that if the patient fails to make the required payments set forth in the payment agreement, your practice can demand immediate payment on the remaining balance of the note in full.

Downside: A potential drawback, however, is that the documents become a little more complex which might put patients off.

Warning: Pommersheim warns providers to not lose sight of the underlying goal, which is to get the patient to pay something on the account rather than writing it all off.

Remember, ultimately, a payment agreement or a note is only as good as the person signing the agreement or the note. Thus, a patient who is threatened with the prospect of having her account sent to a collection agency will not suddenly become a better credit risk merely by signing either a payment agreement or a note. The patient, however, may be more inclined to work with a practice that has extended some credit to facilitate the payment of her bill, especially if you extend the payments over a reasonable period of time and you only charge nominal interest.

Best advice: Consult with your practice's attorney to see which option best suits your practice and your patient base.

Whether you opt to use a simple payment agreement or a promissory note, there are a few key pieces of information you want to make sure you have in each one, says Marge McQuade, CMSCS, CMM, a consultant and director of education for PAHCS in Florida:

• The amount of the outstanding balance

• The monthly payment amount

• Finance charge information if you're charging interest

• The date each payment is due

• The consequences of missing a payment

• The patient's signature

• The office manager's signature.

Bonus: For a sample payment plan agreement and a sample promissory note (provided by Pommersheim), email the editor, Leesa Israel, at leesai@elijournals.com with the subject heading "Payment Plan Tools."