Debunking the Myths Around Patient Financing

As if news of record-high hospital bankruptcies and healthcare staff burnout wasn’t enough to shine a spotlight on the importance of revenue cycle management, just click around GoFundMe for additional evidence of the fallout from the healthcare affordability crisis. 

“GoFundMe has become a go-to for patients trying to escape medical-billing nightmares,” writes Elisabeth Rosenthal, an ER physician turned healthcare journalist, in her recent article in The Atlantic. Medical fundraising is the most common category of fundraiser the platform hosts, the author writes, going so far as to say some healthcare finance professionals are actually suggesting its use. 

The healthcare payment system is complex, and there isn’t one solution to affordability. But there is widespread agreement that healthcare systems need to take new approaches. And the latest Deloitte survey of healthcare CFOs shows that these leaders are looking at high impact levers to reduce costs and improve profitability, including improving revenue cycle and improving their offerings. 

Payment plans serviced in-house – which are very commonplace now – fall short of meeting today’s patient needs. Providers are limited on the amount of time they can carry those receivables on their books, and plans are typically structured in 12 month terms. That doesn’t work for most patients with a balance. More than half (56%) require more than 12 months to pay their balance, and need longer-terms payment plans. 

Embedding patient financing options into the billing process presents a very clear solution for providers and patients to balance affordability and increase collectability. Simply put, patient financing gives patients longer payment terms to fulfill their financial responsibility, allowing more patients to pay that would otherwise end up in bad debt. Providers that adopt it see immediate results, freeing cash trapped in A/R for reinvestment. Patients get options to ease the financial burden of carrying medical debt. 

Patient financing is rapidly evolving from the traditional medical credit cards and other financial vehicles and mechanisms providers and patients may be familiar with, and which now have the attention of federal regulators. The CFPB is examining the role of medical credit cards and loans as it looks to develop rules that will relieve consumer medical debt, specifically, to bar medical debt from consumer credit reports. (States like Connecticut are taking even more aggressive steps – working to cancel medical debt for thousands of residents).

These traditional options offer less favorable terms to those with poor capacity to pay, and are limited and inflexible. Patient financing is also not the same as the Buy Now Pay Later point of sale products consumers may be familiar with. 

Patient financing is designed to offer better, longer terms to those most in need. Conflating patient financing with these other options can cause confusion and hold up strategic buying decisions. 

A good first step is debunking some of the major misconceptions about patient financing – which I’ll do here.

What misconceptions slow adoption of offering patient financing options?

Myth: Patient financing is the same as Buy Now Pay Later.

Patient financing is sometimes conflated with another financial product – Buy Now Pay Later (BNPL). The no-questions-asked, point of sale line of credit has come under fire both for its potential impact on the financial well-being of consumers, as well as sustainability of BNPL businesses. It is the polar opposite of patient financing.

There are two reasons why.

• They enable very different business goals. The end goal of BNPL is to drive up the average cart price for the retailer. The retailer then receives the full amount of the unsecured, very short-term loan (six weeks) for a low-ticket purchase (on average, $135). Interest kicks in if consumers don’t pay on time. Patient financing is a viable option when the hospital is not likely to receive the full amount of the bill, and likely to be forced to write it off to bad debt. The patient most likely isn’t choosing the “purchase” and has little to no control over its actual cost – and would benefit from having a longer term (with no threat of interest) to pay it down. 

• They operate on very different business models.  Recall that BNPL providers fund the entire purchase price upfront. For this, they charge merchants a transaction fee, and consumers are then charged a flat late fee or high interest fee if they don’t pay the long according to the terms. Patient financing, on the other hand, funds providers for a discounted portion of outstanding receivables. 

Fact: With the right partner, patient financing is not BNPL. It is tailor-made for the complexities and unique economics of the healthcare industry. 

Myth: Patient financing comes with high, unclear interest rates. 

Consumer-friendly is not a moniker attached to typical installment loans and medical credit cards. This is largely because they use the traditional markers that deem patients credit-worthy. As a result, the loans come with high or unclear interest rates, high denial rates, and one size fits all payment terms. They are not ideal for providers because they are often recourse based, preventing providers from clearing the balance off their books.

It’s not surprising then that when asked what would be the most important parts of offering patient financing, healthcare financial leaders want them to be completely different from medical loans. 

Fact: Patient financing should be available interest-free for all patients who need to access it. It should be non-recourse and come with no surprise fees. 

Myth: Medical financing offers force patients out of the patient portal and payment experience. 

When asked what would be the most important parts of offering patient financing, the top requirement was having a partner that will manage plans serviced in-house and financed plans (90%) and embedding that functionality in the patient portal (86%). Financial leaders know that patient payment experience is important on a number of levels – and it matters to them. One of the best parts of their jobs, in fact, is the feeling that what they do actually helps people. 

The right financing partner has deep experience in integrating software with the system of record, bringing together data in the EHR system and external data sources to build a complete risk profile and serve up the right, personalized payment options to the patient online.

A vendor experienced with enterprise software integration is critically important to make sure: 

• Everything looks the same to the patient. They click and pick a plan, and can enroll in minutes, sans the paper-heavy process and separate applications such financing plans often come with.
  
• Providers enjoy the same, streamlined payment ease. Automated cash application eases reconciliation. Behind the scenes, the vendor should do the work of routing that payment to the right recipient – whether it is the provider or the company underwriting the loans – streamlining reconciliation.

Fact: Patient financing should be purpose-built for the unique challenges and considerations involved in managing medical bills.

The affordability crisis in healthcare has two faces – those of the patients, struggling to pay bills and often contemplating life-altering choices to pay for care, and the providers, struggling to stay open due to a confluence of factors, but one of which is predictable cash flow that drives high yield over traditional payment plans. Patient financing can help patients better afford their healthcare expenses while also ensuring providers are able to collect payments and deliver care.

Picture: MrIncredible, Getty Images