Hospitals offering patients no-interest payment plans

Novant Health long has had a financial assistance program for patients with incomes under 300% of the federal poverty level. But in recent years, more patients who are eligible for assistance still have gotten overwhelmed by thousands of dollars they owe for deductibles and coinsurance. Novant wanted a way to give patients more time to pay their bills without facing high interest costs.

At Novant's 12 hospitals, patients previously had the option of a payment plan carrying a 12% interest rate. But early last year, the Winston-Salem, N.C.-based system, working with vendor ClearBalance, started offering a no-interest plan with a flexible repayment time frame. It combined that with an online cost estimator so patients can get a good idea of how much they will owe before receiving healthcare services.

“That's much more enticing to our patients,” said Melanie Wilson, Novant's vice president of revenue cycle.

Since Novant introduced the program in early 2013, the default rate for patients on a payment plan has fallen from 30% to less than 17%. The system also saw a 15% increase in its cash collections from patients. Wilson said that while the system's bad-debt rate dropped less than 1%, that could be considered a success at a time when many hospitals are reporting a rise in bad debt.

Novant Health is among a growing number of hospitals and physician groups that are working with a handful of vendors to offer no-interest credit lines. These payment plans establish a formal agreement for patients to pay over time but carry no interest or penalties. They are designed to be a patient-friendly alternative to other financing products such as medical credit cards or installment loans, which have come under scrutiny for double-digit interest rates and hidden fees. While most hospitals offer some type of payment plan, companies like ClearBalance, HealthFirst Financial and CarePayment standardize that offering and provide administrative and back-office services.

Healthcare providers say the new programs are broader and more favorable to patients than medical credit cards, typically involving no interest rate or fees and having less effect on patients' credit scores. They also apply to essential healthcare services, not just elective procedures, which is the target market for other medical lending products. The benefits for providers come in the form of higher collection rates and greater patient satisfaction.

“The demand for financing for essential medical treatment has really taken off,” said Ann Garnier, chief operating officer at CarePayment, based in Lake Oswego, Ore., which provides this service to more than 190 hospitals. “We're seeing a steep rise in demand because of high-deductible plans. It's really impacting (patients') ability to access care in a timely manner.”

Some consumer advocates agree that these no-interest loan programs may be more patient-friendly than traditional medical lending products, as long as the vendors don't report defaults to credit agencies, which the vendors say they don't do. Still, they say hospitals should fully disclose to patients how entering into an agreement might affect their credit score and at what point an account might be turned over to a collection agency.

“Some of these financing plans can be useful to consumers if the consumers use these plans appropriately,” said Lorianne Sainsbury-Wong, litigation director at Health Law Advocates in Boston. “The challenge is that consumers don't really understand that they're signing up for a credit card agreement.”

The Healthcare Financial Management Association has encouraged the development of more patient-friendly billing options, particularly for insured patients who need help with growing out-of-pocket costs. Terry Rappuhn, a Nashville-based consultant who heads the HFMA's Patient Friendly Billing Project, said these programs are less likely to have an effect on a patient's credit score because they don't show up on credit reports unless a hospital turns over an unpaid bill to a collection agency. In setting up the payment plans, hospitals can also offer discounts to patients who set up auto-payments with a credit card or checking account, she added.

At Novant Health, patients who miss a payment are given three additional statements to pay the amount owed. Under the program, delinquent accounts are returned to the provider to pursue further action.

Financing previously has been available to patients for elective and cosmetic procedures in the form of interest-bearing medical credit cards. These cards started growing in popularity before the Great Recession, particularly for elective procedures such as Lasik, dental work or cosmetic surgery. They fell out of favor when the consumer lending market tightened but now are making a comeback, said Mark Rukavina, former executive director at the Boston-based Access Project who now counsels health systems on billing and collection issues.

Medical credit cards are popular with providers because they receive payment upfront while the lending institutions do the collection work. But they also expose consumers to interest rates well into double digits, and the penalties for defaulting can be steep. Some consumers do not understand the financial terms of the cards when they sign up, Rukavina said.

Consumer advocates and regulators have raised strong concerns about these credit cards, fretting that patients are taking on more medical debt than they can handle and putting themselves at risk for large interest payments and hidden fees, particularly if they default on a payment. These programs have come under scrutiny in states such as New York, where Attorney General Eric Schneiderman in November issued a consumer alert about predatory lending practices. The federal Consumer Financial Protection Bureau in May released a study that found current credit-scoring models overstate the effect of medical debt on a consumer's creditworthiness—even when overdue bills are paid in full.

Those concerns are part of what has prompted some hospitals to hire companies like ClearBalance and CarePayment. For smaller hospitals in particular, outsourcing helps them by having a third party track the amounts due and process payments. These companies also may advance hospitals at least some of the owed funds and act as a marketing partner to promote the program.

DeSoto Memorial Hospital, a 49-bed facility in rural Arcadia, Fla., has offered a no-interest patient financing program through CarePayment since Dan Hogan took over as chief financial officer in 2009. He had been a hospital CFO in Michigan during the auto industry crisis and he saw that as finances grew tighter, many patients delayed needed care. That's when he first started working with CarePayment, offering no-interest financing programs. He continued that relationship when he moved to DeSoto.

For DeSoto, the program offers a balance between helping patients who may not be able to immediately pay in full and stretching the hospital's limited resources for uncompensated care. For patients in the emerging “consumer-directed” plans, “there's a lot more out-of-pocket and deductibles,” Hogan said. “It's just a lot more and bigger numbers.”

About 12% of DeSoto's revenue went toward uncompensated care in fiscal 2012, up from 10% the previous fiscal year, according to a financial report filed last year. The report described DeSoto's two-pronged strategy for decreasing uncompensated care—boosting the volume of patients with commercial or government insurance and conducting credit reviews at the time of service so that patients who need financial assistance can be identified earlier in the collections process.

CarePayment helps DeSoto track billing amounts due and process payments. In addition, it offers marketing support in the form of brochures as well as radio and TV spots that tout the option of paying over time. Hogan said the program is helpful from a marketing standpoint in appealing to consumers who have put off elective procedures. “This is a method to get you some financing at 0% rates,” he said. “We try to make it as easy as we can.”

He estimated that the service has increased his hospital's overall collection rate by about 1%, and there are investment returns in getting paid more quickly. He calculated another 1% return from marketing and goodwill.

CarePayment makes money not from collecting interest but from the fees it charges hospitals to administer the payment plans. It declined to disclose those fees. The company's client base has tripled since 2013, Garnier said.

The average patient balance in CarePayment accounts is about $1,500, and payments are spread over 25 months. Garnier said her company does not send account holders to collection agencies. Instead, if an individual does not make payments for 90 days, the account is closed and sent back to the hospital to adjudicate.

Rukavina said the effect of these payment plans on patients' credit scores will vary by vendor. For patients, the relevant question is at what point the account will be turned over to collection agencies.

“The majority of lenders really don't report to credit reporting agencies if the individual is working with them,” said Sainsbury-Wong at Health Law Advocates. “It's at the discretion of that provider when they do report to collection agencies.”

Garnier said providers historically have not felt pressure to be aggressive about pursuing delinquent balances because the bulk of their revenue came from insurers. “Now the providers can't afford to ignore the self-pay patients,” she added.

Two years ago, Memorial Healthcare, a 134-bed facility in Owosso, Mich., added a financing program through CarePayment as part of its broader effort to match patients who need financial assistance to programs that can help them. That includes helping uninsured patients enroll in an Obamacare exchange plan or sign up for Medicaid.

The no-interest financing program helped fill the gap for underinsured patients—those whose plans don't cover a particular service or that feature high cost-sharing. “It does an awful lot to help patients with a desire to pay,” said Memorial President and CEO Brian Long.

While Memorial runs a credit check on all patients who apply for financing, Long said the payment plan does not affect patients' credit scores because the hospital underwrites the liability for nonpayment. What the credit score determines is whether CarePayment will pay Memorial the full billing amount upfront, based on a strong credit score, or pay the hospital as the patient's payment installments arrive each month.

If a patient defaults, then the hospital pursues its normal process for adjudicating the account, Long said.

As a result of the program, even as Memorial's volume of self-pay patients has grown, bad debt has declined by $500,000, or 7.5%. “I think we've done a good job of helping patients by offering a number of tools,” Long said.

Follow Beth Kutscher on Twitter: @MHbkutscher