Private Patient Financing: A Sleek Term for a Questionable Business Model – PaymentsJournal

A recent report from NPR and Kaiser Health News highlights how hospitals are partnering with private lenders. They want to offer financing to patients, allowing lenders to profit off of hospital patients. Hospitals have long offered interest-free payment plans for medical bills. These new arrangements involve private banks and specialized financial services companies, offering payment plans that charge interest.
Some of these companies, including AccessOne and MedCredit Financial Services, are effectively providing loans. These are similar to Buy Now, Pay Later (BNPL) in many other industries. Others, such as Synchrony, offer CareCredit credit cards for customers to use in paying off medical debt. The general idea is the same: hospitals contract out some payment plans to third-party companies who make money off the interest they charge. Patients are not required to avail themselves of these options. But those who do are typically strapped for cash. And they can have a harder time paying the bills with the interest that accrues.
Brian Riley, Director of Credit at Mercator Advisory Group, notes that financial firms specializing in healthcare payments are not new. “Companies such as Synchrony have done it for years,” he said. “Synchrony operates a successful business that focuses on a wide range of medical services—from hearing aids to dental implants.”
These solutions run a wide range of services, from those that fall out of the range of insurance coverage, to elective services, and covering the gap between deductibles and insurance.
While interest rates for medical financing are typically lower than for a typical credit card, the interest can add hundreds or thousands of dollars to medical bills. For example, the UNC medical center partners with AccessOne in providing debt collection options for patients. Several of AccessOne’s plans have variable interest rates that now charge 13%. The NPR article provides a jarring example of how this level of interest adds to medical debt: “Someone with a $7,000 hospital bill, for example, who enrolls in a five-year financing plan at 13% interest will pay at least $2,500 more to settle that debt.”
According to a Kaiser Family Foundation poll, about 50 million adults are on a financing plan to pay off a medical or dental bill, with a quarter of them paying interest. That’s 12.5 million Americans that are paying interest on medical debt.
It is a profitable business:
As Americans are overwhelmed with medical bills, patient financing is now a multibillion-dollar business, with private equity and big banks lined up to cash in when patients and their families can’t pay for care. By one estimate from research firm IBISWorld, profit margins top 29% in the patient financing industry, seven times what is considered a solid hospital margin.
The trend of hospitals offering customers financing through third party companies fits into a broader trend of financial payments schemes, such as BNPL. BNPL allows consumers to finance purchases at check out, with a series of micro-payments paid over a stretch of time. It is essentially a convenient loan option, with a payment plan. Over the past few years, BNPL has become increasingly popular. According to a report by NerdWallet, in the year ending in
August 2022, it was used by around 30% of Americans.
BNPL has migrated into industries all over the board, from big-box stores, to travel, and now, into healthcare. But BNPL sometimes does not take into account a buyer’s financial health, and can sometimes extend credit to people who can’t actually pay it back. On the other hand, BNPL payments that are paid on time are typically interest free, so this makes it a good option, and more attractive in certain cases than some of the medical payments options discussed earlier.

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