Uncompensated care continues to grow, causing huge problems for providers. At the same time, struggling patients look to providers for relief from their financial burden. Every year, more patients fall into the dreaded gap—they don’t have the money on hand to pay within the providers’ short-term payment policy, but they don’t qualify for financial assistance, either. They need to spread out their payments over months or even years.

Several patient financing options have sprung forth to fill that gap.

In this guide for providers, we’ll first cover the reasons to consider a patient financing program, then delve into the three main types:

  • Externally funded loan programs
  • Medical credit cards
  • Internally funded loan programs

Why should providers consider a patient financing program?

There have been two major contributors to the rise of the patient financing sector:

  1. Expense growth continues to outpace revenue growth, leading many providers to aggressively cut costs and seek avenues for revenue growth.
  2. The continuing surge of high deductible health plans (HDHP) and rising out-of-pocket costs have pushed an increasing portion of medical care costs to the patient. This has led to increased A/R aging and bad debt placements.

No one wins in this environment—providers or patients.

According to Bloomberg, 8% of U.S. public and private hospitals are at risk of closing; 10% are considered financially weak. Rural hospitals are experiencing the pressures on an even greater scale, with 21% at a high risk of closing.

Meanwhile, patients experience their own set of challenges. HDHPs force more of the cost burden on patients, but with less savings and stagnating incomes, they lack the ability to pay these higher costs in full. As a result, patients too often go without care. As this 2017 Bankrate survey shows, 31% of Millennials (ages 18–36), 25% of Gen Xers (ages 37–52) and 23% of Boomers (ages 53–71) have decided not to seek medical attention due to the cost.

Not only are many patients unable to pay, but some are outright refusing to try. As per healthcare writer Evan Albright in Forbes: The next healthcare crisis may not be because there are too many Americans who can’t pay, but because there are too many Americans unwilling to pay, and as a result, we may see hospitals closing and physicians getting out of the profession in greater numbers.

While a challenge, this new reality offers opportunities for providers to increase patient loyalty and satisfaction through patient financing programs.

What are the advantages of a patient financing program?

African american doctor with good news for female patient at hospital

From a consumer standpoint, a patient financing program provides a means to handle larger out-of-pocket expenses that can’t be paid within most providers’ short-term payment policies. Offering patients the ability to stretch their payments over months or even years, rather than having to pay up-front, eases their stress and allows them to make decisions about procedures without financial pressure as the only factor. As a result, a patient financing program can serve as a tool to increase patient satisfaction and loyalty, as well as help them get the care they need.

From a provider standpoint, a patient financing program reduces the time spent following up on self-pay balances, increases cash flow, and reduces A/R aging and bad debt turnovers.

Benefits of patient financing programs:

  • Better management of out-of-pocket expenses for patients
  • Increased patient satisfaction
  • Better access to needed care
  • Reduction in team time spent on payment follow-up
  • Improved cash flow
  • Reduced accounts receivable (A/R)
  • Lower risk of bad debt

Patient Financing Program Options

There are three separate types of patient financing:

  1. External funding, either as a recourse or non-resource program
  2. Medical credit cards, issued specifically for medical debts
  3. Internal funding, as a Medical Line of Credit (MLOC)

Let’s break down the different types now.

Option 1: External Funding (Recourse or Non-Recourse Programs)

In these programs, an external lender pays the provider for services. Patients set up an account with the external vendor, who then handles the monthly payment plan. The main advantages are expedited cash flows, the elimination of long collection cycles, reduced staff burden, and reduced administration costs.

How it works:

  1. Lender pays the provider for services (though this may be delayed until the patient makes the first payment)
  2. Provider sends transition letter to patient
  3. External vendor sends welcome letter to patient
  4. Patient sets up account with vendor
  5. Patient receives statements from vendor
  6. Vendor provides contact center
  7. Patient pays monthly payment due

Externally funded programs fall into two models: recourse or non-recourse.

Recourse Programs

  • Funded by banks, venture capitalists or private equity firms
  • Payment plan administration handled by outsourced vendor
  • Interest charged to provider; fees charged to patients
  • Provider responsible for stop-pays and non-pays

A recourse program gives the lender the right to return loans that default to the provider. In return for the ability to recourse, the provider generally receives a higher payout percentage. Lenders in general work on a “sliding scale,” determining the payout percentages based on interest-free periods, interest rates, qualification requirements, and so on.

While a recourse program may provide a higher payout, providers have to budget for default recourse and fine-tune the process. As a result, the program may see less utilization and have a lesser impact on receivables.

Factors to consider:

  • Financing company has the right to hold providers liable for patient defaults
  • Provides a higher provider payout percentage
  • Providers must budget for recourse loan payments
  • Providers need to have staff available to manage invoicing, as well as to handle non-pay and stop-pay accounts
  • Generally less restrictive qualification requirements
  • May require an application process
  • May delay provider payment until patient makes first payment

Non-Recourse Programs

  • Independently funded
  • Payment plan administration handled by third-party vendor
  • No interest or fees charged to providers or patients
  • Provider not responsible for stop-pays and non-pays
  • Providers granted the option to buy back accounts

Non-recourse programs provide greater revenue certainty, as providers don’t have to account for recourse payments. The vendor handles stop-pays and non-pays, simplifying the revenue cycle for providers. However, since the lender is taking on a greater risk, these programs are generally accompanied by lower payout percentages and may have stricter qualification requirements.

Providers should also consider how patients are communicated with as the lender owns the account through bad debt, and the provider has no control over the process.

Factors to consider:

  • Gives providers cost certainty
  • Reduced administration costs and staff burden, as provider doesn’t need to handle payment plan administration or non-pay and stop-pay accounts
  • Provides a lower provider payout than other options
  • Generally higher qualification requirements
  • Risk of more aggressive collection tactics against patients
  • May require an application process
  • May delay provider payment until patient makes first payment

Considerations for Both

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As with any third-party relationship, providers must protect their patients by making sure their outsourced vendors and vendor partnerships meet all compliance, auditing and security requirements. Some lenders engage in portfolio sales, which may be affected by 501r regulations.

Even though patients will be dealing with a third-party vendor for their payment account, they will still associate their experiences—positive or negative—with the provider. It is essential that the vendor offers compassionate, patient-centric service.

Does the program offer…

  • Compassionate, respectful communication?
  • Flexible payment plans consistent with patient needs?
  • Easy payment options, including an intuitive online platform?
  • A dedicated customer service team with patient-friendly hours?

Option 2: Medical Credit Cards

Medical credit cards provide a revolving credit that can be used strictly for medical expenses. As a completely external option, providers should understand what types of services and procedures the lender will and will not cover.

As with other revolving credit which is not backed by collateral, medical credit cards typically offer 0% short term interest options followed by high trailing interest rates (often 14%–18%). This can be a hard sell for patients, and therefore a less effective marketing tool for providers.

Factors to consider:

  • Completely external, so doesn’t require additional staff for plan or invoice management
  • Stricter qualification requirements for patients
  • Generally requires an application process
  • May not cover certain medical services or procedures
  • Revolving credit
  • High interest rates
  • Less effective marketing tool

Option 3: Internal Funding/Medical Line of Credit (MLOC)

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In an internally funded loan program, the provider offers patients a Medical Line of Credit (MLOC) that allows them to make monthly payments. The provider sets the interest rates and loan terms for patients, as well as any qualification requirements they choose.

Providers retain ownership of their receivables and decide how they are managed, including bad debt collections. Loan account administration can be handled in-house by the provider or outsourced to a billing company or vendor partner.

An internally funded program also allows providers to shift a medical balance to a loan balance while creating a performing annuity.

One of the biggest benefits of internal loan programs is their effectiveness as a marketing tool and market differentiator. As the healthcare marketplace becomes more consumeristic, a payment plan can be the deciding factor in determining where to get a needed procedure. With an internal program, providers can brand and market their plan how they wish.

When done well, an internal loan program can also be a strong patient retention tool, as patients want to stay with the provider who offers the program they already know.

Factors to consider:

  • Provider has control over interest rates, loan terms and qualification requirements
  • Provider has control over application process
  • Can cover all services
  • Provider retains entire receivable
  • Provider owns the account through bad debt
  • Need for more internal staff if handled in-house; if outsourced, vetting needed to ensure patient-friendly service and regulatory compliance
  • Additional balances added via addendums
  • Effective marketing tool and market differentiator
  • Promotes patient retention

If the provider chooses to outsource billing and collections for their loan program, the same considerations apply as with externally funded programs. Providers must protect their patients by making sure all third parties meet patient privacy and security requirements. Even more so than with external programs, patients will associate their experiences with the provider, so compassionate, patient-centric service is a must.

RevCycle MLOC Program

If you’re a provider considering an internal medical loan program, RevCycle offers an MLOC program. You can help alleviate your patients’ financial burden while reducing your A/R and collections costs, all while gaining an important marketing and patient retention tool.

Our MLOC program:

  • Provides the tools and resources to become a licensed creditor
  • Provides a formal written loan contract template for your patients
  • Delivers marketing brochures
  • Manages all administrative functions, letter service, workflow and patient communication
  • Offers staff training or ABS patient negotiation options
  • Provides reporting to monitor program effectiveness

Call (715) 486-2100 or send us a message for more information on our MLOC service, to request a price quote, or to include us in your RFP. All inquiries are welcome. We look forward to hearing from you!