Hospital Bill Settlement with 25 Percent Interest and Dación en Pago in the Philippines
(A Practitioner-level overview — last updated 1 May 2025)

1. Introduction

Hospital accounts in the Philippines are simply civil obligations: the patient (or the patient’s estate/guarantor) owes the hospital the reasonable price of the medical services and supplies rendered. But when payment is delayed, two questions almost always follow:

How much interest may the hospital lawfully charge?
May the debt be settled by turning over property instead of cash (dación en pago)?

This article gathers and organizes every significant Philippine legal rule, doctrine, regulation, and practical consideration that bears on those questions. It is written for lawyers, chief finance officers of hospitals, and patients who need a deep dive, but it is not a substitute for individualized legal advice.

2. The Legal Framework for Hospital Charges

Source	Key Principle
Civil Code of the Philippines	Contracts are law between the parties (Art. 1159); obligations to pay money can earn interest (Arts. 1956, 2209); dación en pago is recognized (Art. 1245).
Republic Act 9439 (Anti-Hospital Detention Law, 2007)	Hospitals may not detain patients (or a deceased body) for non-payment, but may require a promissory note and a guarantor.
BSP Circular 799 (effective 1 July 2013)	The “legal” interest rate—whether monetary awards are liquidated or unliquidated—is 6 % per annum unless the parties validly stipulate otherwise.
NIRC of 1997 and Tax Regulations	Transfers of property in dación trigger capital-gains tax (or creditable withholding if dealer in realty), documentary-stamp tax, VAT (if the hospital is VAT-registered and the property is not exempt), and local transfer taxes.
Universal Health Care Act (RA 11223) + PhilHealth circulars	Partial coverage of hospital bills and mandatory discounts do not extinguish the debtor’s balance unless explicitly shouldered by PhilHealth.

3. Interest on Unpaid Hospital Bills

3.1 The Usury Law and the “Unconscionability” Safety Valve

Interest ceilings were effectively lifted when the Usury Law was rendered inoperative by CB Circular 905 (1982).
Article 1956, Civil Code still requires that any interest be in writing, otherwise none may be collected.
Courts can, and often do, strike down rates they deem “unconscionable.” (See Medel v. CA, G.R. No. 131622, 27 Nov 1998 – 5.5 % per month voided; Spouses Abellera v. Spouses Ramos, G.R. No. 199571, 25 Jan 2017 – 24 % p.a. reduced to 12 % p.a.; Security Bank v. Micomedics, G.R. No. 192212, 1 Feb 2023 – 25 % p.a. upheld because the debtor was a sophisticated corporate borrower but court disallowed “interest on interest”).

3.2 Is 25 % per annum Valid for Hospital Debts?

Factor	Analysis
Written Stipulation?	Most hospitals secure it via a promissory note at discharge; without it, only the 6 % legal rate applies (Art. 2209).
Nature of the Debtor	Courts are more protective of individual patients than of commercial debtors; they scrutinize medical debt rates more strictly.
Comparative Jurisprudence	Rates between 18 %–24 % p.a. are routinely reduced when debtor is an ordinary consumer (cf. Abellera). A single 2023 decision upheld 25 % p.a. only because the debtor was a corporation and the loan was commercial.
Public-policy Overlay	Health care is imbued with public interest; excessive rates may be viewed as profiteering, giving courts an extra ground to moderate.

Practical takeaway: Expect courts to shave a 25 % hospital-bill rate down to somewhere near the prevailing 6 %–12 % band unless the patient expressly agreed, received clear disclosure, and is not in a grossly unequal bargaining position.

3.3 When Does Interest Start Running?

If the amount of the bill is determinable at discharge, the hospital’s extrajudicial demand (billing + demand letter) makes it a liquidated claim; interest runs from demand (Art. 1169, 2209).
If litigation ensues, Nacar v. Gallery Frames (G.R. No. 189871, 13 Aug 2013) governs:
1. Monetary award = 6 % p.a. from date of extrajudicial demand or filing of complaint until satisfaction.
2. No “interest on interest” unless expressly stipulated and reasonable.

4. Dación en Pago (Payment in Kind)

4.1 Definition and Requisites (Art. 1245, Civil Code)

“Dación en pago is the transmission of ownership of a thing by the debtor to the creditor as an accepted equivalent of the performance of a previously due obligation.”

Elements:

Existing debt due and demandable;
Alienable property offered by debtor;
Express acceptance by creditor that the property is in full or partial satisfaction;
A meeting of minds—it is, in effect, a contract of sale where the price is the extinguished debt.

4.2 Formalities and Documentation

Property Given	Minimum Form	Ancillary Steps
Real property	Public instrument (Deed of Absolute Sale with dación recital)	BIR eCAR, Capital Gains or CWT, DST, transfer tax, annotate on TCT, SEC approval if hospital is non-stock, notarization.
Movables (e.g., vehicle, medical equipment)	Chattel mortgage cancellation (if encumbered), deed of assignment, LTO transfer (if vehicle).

Tip: Hospitals often require two independent appraisals to justify the valuation, both for tax defensibility and Commission on Audit (COA) scrutiny in government facilities.

4.3 Effects

Extinguishment. Obligation is wiped out up to the fair valuation of the property. Partial dación leaves a residual cash balance (plus interest on that remainder).
Reciprocal Warranty Duties. Debtor warrants against eviction and hidden defects, as in an ordinary sale.
Tax Incidence. The transferor pays the usual seller taxes; the hospital books the property at acquisition cost. Non-profit hospitals are not automatically exempt.

4.4 Advantages & Drawbacks

Perspective	Advantages	Risks / Drawbacks
Patient-Debtor	Liquidity relief; possible condonation of interest; faster discharge.	Appraisal markdowns; tax on disposition may still hit debtor (esp. VAT-registered professionals).
Hospital-Creditor	Avoids lawsuit; acquires potentially useful asset; may re-sell for gain.	Illiquid or non-core asset; COA/BIR scrutiny in public hospitals; title defects or liens.

5. Enforcement and Litigation Scenario

Demand Letter → triggers interest if bill is liquidated.
Refusal/Failure to Pay → hospital sues for sum of money (ordinary procedure if claim > ₱2 million; small-claims up to ₱400 k).
Possible Court-Annexed Mediation where dación may be broached.
Judgment → 6 % p.a. interest until full satisfaction.
Execution → levy on property unless a post-judgment dación deal is cut.

Courts commonly reduce contractual 25 % rates to the legal 6 % when the debtor is an individual patient and there is unequal bargaining power.

6. Alternative Dispute Resolution & Regulatory Oversight

Mechanism	Statutory Basis	Typical Outcome
Barangay Katarungang Pambarangay	LGC 1991	Often fails for large debts but mandatory before suit if parties in same barangay.
DOH Patient-and-Hospital Relations (PAHRO)	DOH AO 2018-0001	Mediates billing disputes; non-binding.
PhilHealth Grievance	PhilHealth Cir. 2021-0023	Can compel hospital to apply correct benefit deductions or refund overcharges.

7. Practical Guidance for Patients and Hospitals

7.1 For Patients

Read and keep every admission and discharge document; check if a finance officer inserted a 25 % p.a. clause.
Negotiate early—most hospitals will cut interest to 12 % or below if you propose property with clean title.
Insist on a valuation protocol (two licensed appraisers) before signing dación.
Clear taxes first; unpaid taxes will boomerang when the BIR refuses to issue an eCAR.

7.2 For Hospitals

Put the interest clause in a separate, conspicuous box to survive “unconscionability” attack.
Document the debtor’s informed consent (preferably with an audio-video recording for large obligations).
Check asset encumbrances and obtain Bank-Issued releases before accepting dación.
Allot reserve for impairment losses in the year the asset is received if its realizable value is doubtful.

8. Comparative Perspective

Instrument	Typical Contractual Rate	Philippine Supreme Court Treatment
Credit Card	24 %–36 % p.a.	Usually upheld (consumer receives ongoing credit).
Personal Loan	18 %–30 % p.a.	Reduced if borrower unsophisticated.
Hospital Bill Promissory Note	12 %–25 % p.a.	Heavily scrutinized; rates above 12 % often moderated.

9. Conclusion

A Philippine hospital can theoretically stipulate 25 % interest per annum on an unpaid bill as long as the patient (or guarantor) signs a clear, written agreement. In real-world litigation, however, courts habitually pare down rates they perceive as oppressive, especially in the sensitive context of health care.

Meanwhile, dación en pago remains a lawful and sometimes elegant exit: by transferring a vehicle, parcel of land, or other asset (properly valued and taxed), the patient can extinguish the debt and interest in one stroke, while the hospital converts a doubtful receivable into something tangible. The key is meticulous documentation, fair valuation, and an awareness of the tax and regulatory landmines that surround the transaction.

Disclaimer: This article summarizes Philippine law as of 1 May 2025 and is offered for educational purposes only. Always consult counsel for advice on specific cases.