Debunking the 3 Patient Statement Myth

Overview

There is a common myth in behavioral health that sending patients three billing statements meets the legal “regular & customary collection effort” compliance requirement.

Though this is a common patient billing and collection practice in revenue cycle management, from a compliance adherence perspective, the question is whether sending three patient statements constitutes a sufficient “regular and customary collection effort” as required under applicable healthcare fraud and abuse laws.

The answer is no!

Regulators have made it clear that the long-standing “three patient statements” practice does not satisfy the legal standard for a “regular and customary collection effort.” Simply mailing three patient statements without additional follow-up efforts does not meet the threshold for a bona fide collection effort under the:

• Anti-Kickback Statute (AKS)

• Civil Monetary Penalties Law (CMP) – Beneficiary Inducement Provisions

• Medicare Cost Reporting Requirements (42 C.F.R. § 413.89; PRM Chapter 3 § 310)

• Eliminating Kickbacks in Recovery Act (EKRA 18 U.S. Code § 220)

Continuing with a “three-statement only” policy creates legal exposure and can be construed as an implied prohibited financial inducement or de facto waiver of patient financial responsibility due to cost-sharing obligations being effectively waived or not pursued.

Regulatory Background - Federal Fraud & Abuse Standards

The Department of Health and Human Services (HHS), Office of Inspector General (OIG), and Centers for Medicare & Medicaid Services (CMS) have consistently held that “reasonable collection efforts” must involve more than just billing statements.

Required elements typically include: 

• Multiple statements or invoices

• Telephone outreach

• Follow-up letters or collection notices

• Referral to collections (if not prohibited by internal policy)

• Documentation of financial hardship, where applicable

• Email or text engagements

The Department of Justice and AHLA’s 2020–2023 enforcement summaries explicitly note that failure to collect or routinely waiving patient financial obligations constitutes a form of remuneration under parallel anti-kickback frameworks, and by extension EKRA, when done “to cause patients to seek or remain in treatment programs.”

Federal guidance from CMS, OIG, and DOJ establishes that a bona fide collection effort requires multiple forms of outreach, documentation of hardship, and consistent adherence to documented financial clearance policies. Simply sending statements without additional follow-up is not enough to meet the required standard.

Citations:

CMS PRM-I §310: Requires “a genuine, rather than a token, collection effort.”

81 Fed. Reg. 88368 (2016): Defines a “reasonable collection effort” as what a prudent provider would do in the ordinary course of business.

Eliminating Kickbacks in Recovery Act (EKRA 18 U.S. Code § 220) “receives any remuneration.”

Regulatory Background - Behavioral Health Context

While behavioral health organizations serve financially vulnerable populations, waiving patient obligations without proper documentation or follow-up risks being interpreted as an implied illegal inducement under the CMP, AKS, and EKRA.

Even in cases of charity or hardship, lack of documented policy adherence increases Payer audit and enforcement risk.

Risk of Non-Compliance

Failure to follow a robust, compliant patient financial management process could result in:

• Claim claw backs from commercial Payers.

• Loss of eligibility for Medicare bad debt reimbursement.

• Regulatory scrutiny by CMS, OIG, or state agencies.

• Violations of federal inducement laws, especially if selective or inconsistent waivers are granted.

• Ethical and reputational concerns, particularly in cases involving self-pay or out-of-network patients.

• Felony criminal penalties under EKRA include up to $200,000 per count and up to 10 years in prison per violation.

Recommended Action Plan

To align with Federal, State, and Industry Standards, best practices include:

1. Update Financial Policy

Define clear collection steps including statement cadence, phone calls, mobile engagement, hardship review, and (where appropriate) third-party collections. Policies should include financial engagement scripting and documented hardship (“scholarship”) eligibility policy adherence.

2. Document All Contact Attempts

Keep electronic detailed record of date, time, and method of contact (calls, emails, letters, texts).

3. Implement Financial Hardship (“Scholarship”)

Review Maintain a standard method and detailed record of determining financial hardship eligibility, including income verification and sliding scale documentation before waiving balances.

4. Cross Department Training & Policy Adherence

Ensure alignment and communication across admissions, clinical, and revenue cycle teams on compliance policies & practices.

5. Audit for Consistency

Periodically review electronic financial records to confirm efforts and waivers align with policy and to ensure Payer Audit readiness.

Conclusion

A mission to provide compassionate, accessible care must be supported by operational and compliance practices that withstand Federal, State, and Payer scrutiny. Mailing three patient statements without additional financial engagements falls short of the regulatory standard and exposes any organization to unnecessary and avoidable risk.

Industry leaders increasingly advocate for Electronic Financial Records technology as the foundation for a comprehensive, well-documented Patient Financial Management Strategy—one that ensures regulatory compliance, promotes ethical patient financial engagement, and strengthens operational accountability.

This white paper is not intended to be legal advice.

We recommend you discuss any questions or concerns regarding your compliance requirements with your legal counsel.