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Healthcare Providers Take Note: Suing Debtors in Small Claims Court Just got A Little Easier

Most doctors, dentists and other healthcare providers have patient accounts with balances of a few thousand dollars or less on which they struggle to collect payment from their patients. Providers often send demand letter after demand letter, but to no avail. Afraid of the cost and time involved in pursuing a legal remedy, including fear of having to spend time away from the office to testify at trial, providers can be hesitant to use the legal arena to pursue these low dollar collection accounts.

A recent Indiana Court of Appeals decision shines light on the advantages of using the small claims process.

The Indiana Court of Appeals, reviewing a small claims court decision, held that the only piece of evidence, an unsworn letter between a dentist and his patient regarding dental work, was admissible hearsay evidence and it was permissible for the court to base its judgment solely on the letter.

In Hitchens v. Collection Specialists, Inc., Dr. Laconi talked with his patient, Mr. Hitchens, about replacing a broken bridge implant.  Despite his uncertainty about the costs, Hitchens said that he wanted to continue with the procedure. So Dr. Laconi ordered the parts and Hitchens returned to Dr. Laconi’s office for several appointments. Dr. Laconi filed insurance claims on Hitchens’ behalf and received partial payment as Hitchens reached the cap on his insurance policy, with a remaining balance of $3,440.00.  In attempts to receive payment, Dr. Laconi’s office contacted Hitchens by phone and through mail, but did not receive a response.

What a common fact pattern for many healthcare providers!

Dr. Laconi assigned the debt to a collection agency that filed a claim in small claims court. At trial, the collection agency offered into evidence a letter from Dr. Laconi in which he described his perspective of the events, specifically that Hitchens wanted to proceed with the treatment and that he never stated he was unhappy with the treatment he received.  Hitchens objected to the admission of the letter as evidence, arguing that it was essentially unsworn testimony that was not subject to cross-examination in court.  The small claims court overruled the objection, citing the nature of small claims trials.

Hitchens next testified in his defense, stating that if he had known the repairs would cost so much, he would not have gone through with them.  However, the court entered judgment in favor of the collection agency against Hitchens and he appealed.

On appeal, Hitchens argued that the trial court erred when it admitted Dr. Laconi’s unsworn letter because allowing Dr. Laconi to testify through a letter prevented Hitchens from being able to cross-examine Dr. Laconi and that the trial court erred because its decision was based entirely on unsworn hearsay testimony.

The Indiana Court of Appeals rejected these arguments, holding, “Small claims trials are meant to be informal, with the sole objective of dispensing speedy justice between the parties according to the rules of substantive law.” The court also cited Small Claims Rule 8 which provides that small claims courts are not bound by the statutory provisions or rules of practice, procedure, pleadings, or evidence except provisions relating to privileged communications and offers of compromise. Therefore, hearsay evidence is admissible in small claims actions.

Hitchens acknowledged that hearsay is admissible in small claims actions but argued that this evidentiary rule does not “trump the right to cross-examine a witness under oath.”  The Court of Appeals stated that the small claims court did not expressly deny Hitchens a chance to cross-examine Dr. Laconi, as Hitchens could have subpoenaed Dr. Laconi as a witness himself pursuant to Small Claims Rule 8(B).

The Appellate Court also rejected Hitchens argument that hearsay cannot be the sole evidence supporting a judgment, holding, “Although Dr. Laconi’s letter was the only evidence that there was an agreement between Dr. Laconi and Hitchens regarding the dental work, it was admissible hearsay evidence, and it was permissible for the small claims court to base its judgment on the letter.” The Appellate Court did note that the letter, although it was unsworn, did have Dr. Laconi’s signature on it and the collection agency verified all the information.

The court reiterated the purpose of small claims courts,

“The whole point of having a separate small claims process is to provide a quick, less expensive alternative to a full-blown trial. It is precisely these goals which would be the most compromised by the accretion of procedural and evidentiary regulations, regardless of their merit, which is why the non-substantive rules applicable in small claims proceedings are few indeed.”

Take Action

Don’t let unpaid accounts bring down your practice.  Instead of spending untold hours making endless telephone calls or sending numerous demand letters to debtors, use the small claims process as a quick, easy and inexpensive alternative to collecting debts.  As the case above demonstrates, the small claims court rules are much more relaxed than other courts, and the evidence needed for a judgment may simply be an unsworn signed letter, indicating the work between the patient and the provider.  Most providers already send these types of letters to their patients with outstanding accounts.

A judgment can be enforced by a court, so instead of relying on a debtor’s empty promise to pay, post-judgment remedies such as a wage garnishment exist to enforce payment.  Hiring a law firm that specializes in collections is key to getting the most bang for your buck in your collection efforts.  Law firms specializing in collections know the methods and have the resources to best navigate the small claims process.  Furthermore, hiring a law firm that specializes in collections allows healthcare providers to do what they do best, which is serve your patients.

KDDK has specialized in serving healthcare providers in collection efforts for more than 50 years.  Our special knowledge, resources and experience allows us to effectively serve our clients with great results.  We also have the expertise in dealing with common issues such as locating debtors, dealing with Medicaid issues, and finding sources of payment from debtors.

For additional information about collections or creditors rights, please contact KDDK attorney Pat Thomas at (812) 423-3183 or pthomas@KDDK.com; or contact any member of the KDDK Bankruptcy, Collection and Creditors’ Rights Practice Team.

About the Author

Patrick C. Thomas

Pat Thomas, an attorney at Kahn, Dees, Donovan & Kahn, LLP (KDDK), in Evansville, Indiana, primarily practices as a civil litigator and defense trial attorney. Hardworking, dedicated and competitive, Pat assists individuals, businesses and governmental entities in claims pertaining to commercial law, contract, insurance, employment law, real estate, and municipal law.