Bad debt is accounts receivable (money owed) that cannot be collected from the patient and is written off as uncollectable. If you turn a patient account over to a third-party collection agency, the account is considered bad debt and is written off. If money is received on the account in the future, the amount is returned to the A/R and the payment is posted.
Many practices write off the bad debt but do not turn the account over to collections. If the patient requests services from the practice in the future, the patient must pay off the bad debt balance first before being seen in the practice.