Healthcare providers explore no-interest loans to help patients pay for care, say move cuts bad debt

As patients become healthcare consumers, some health systems are rolling out zero-interest loan programs to help boost collections, often partnering with a vendor to handle the process.

It's essentially a mortgage for healthcare costs, and it's an option that's beginning to take off.

Ed Caldwell, chief revenue officer at CarePayment, said interest in these products has increased due to the fact that the patient has now become healthcare's third-largest payer, which has increased what patients owe for receiving care.

"That's the first problem," said Caldwell. "The amount of out-of-pocket spending the consumer assumes is out of control, and the average American can't come up with, for example, $2,000 in 30 days."

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The loan programs have been around for years, he said, but the Affordable Care Act sped up the need for these kinds of consumer loans. They're typically offered to patients during payment discussions, when it becomes evident that the patient won't be able to cover their bill in a single payment. A typical offer might be for the patient to pay gradually over the course of 12 months, which Caldwell said takes the worry out of the clinical encounter.

In a common scenario, the hospital gets some of the money up front, perhaps around 75 to 85 cents on the dollar. The vendor participating in the loan program would make its money off of that spread.

"From a provider's perspective, that's beneficial, because that's a patient that ultimately would have gone to bad debt," said Caldwell. "They had no means of paying that. Now the hospital can collect on that debt."

Dawn Davidson, net revenue management leader at Ascension Health, said that since her outfit has partnered with financial planning company ClearBalance to offer patients a zero-interest loan option, cash flow has improved and debt recovery has increased.

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Their program typically offers payment over a period of 18 to 20 months and features discounts for the consumer if they're able to pay their bill within a certain time period. Because Ascension is outsourcing its cost to collect, there are sometimes fees involved. But Davidson said the financial benefits outweigh the cost of outsourcing.

"It's really taken off, and the benefits have been phenomenal," she said.

Davidson said several things should be considered before outsourcing, including an assessment of the value of the program. ClearBalance, for its part, offers a peer-reviewed assessment tool that compares a hospital's current financial performance with a projection of how it would perform after initiating a loan program, thereby helping administrators decide whether to contract with a vendor or keep operations in-house.

Caldwell said an important factor is communication: letting the public know that the option exists, and that the hospital will be involved in its execution.

"I may be a patient in south Texas, and I get introduced to the loan through the bank, and I have no idea of the connection to the provider," he said. "The information should be co-branded to the hospital. It should be clear that the hospital is sponsoring the loan program."

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He said the audience for such programs are generally consumers who have insurance.

"They want to pay their bill; they just can't pay it right now. When you give them the option to pay over time, it gives them the option to adhere to their financial obligation. You build satisfaction and loyalty through that," Caldwell said.

The rising prominence of high-deductible plans have made zero-interest loans more attractive to consumers, said Davidson. The idea, she said, was that since patients carried more responsibility, they would pay more attention to their healthcare costs. Ascension has seen that this isn't always the case; often patients aren't paying close attention to their bills and the costs of certain services and procedures. Many of the high-deductible plans on offer are labeled as "premium" plans, which Davidson said gives patients a false sense of confidence.

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"Meeting consumer expectations ranks highly," said Davidson. "I think that's on everyone's mind: How does consumerism play into this without hurting a hospital's financial performance? There are things they're doing to provide lower-cost options to compete with what's out there. To do that, they're also looking to restructure their own costs to make things more efficient so they can offer these things to the patient."

Caldwell said hospitals that have adopted the CarePayment model have seen a 77 percent reduction in bad debt -- leading not only to financial improvement for the hospital, but an increase in patient satisfaction and loyalty, and better adherence to compliance in the regulatory environment.

"That's the whole goal," he said.

Twitter: @JELagasse