Private financing of patients: a dubious economic model?

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A recent report from NPR and Kaiser Health News highlights how hospitals are partnering with private lenders. They want to offer patient financing, allowing lenders to profit from hospitalized 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, do provide loans. These are similar to Buy Now, Pay Later (BNPL) in many other industries. Others, like Synchrony, offer CareCredit credit cards that customers can use to pay off medical debt. The general idea is the same: hospitals outsource certain payment plans to third-party companies who make money on the interest they charge. Patients are not required to avail themselves of these options. But those who do are usually short of cash. And they may find it harder to pay the bills with the interest piling up.

Brian Riley, director of credit at Mercator Advisory Group, notes that financial firms specializing in healthcare payments are not new. “Companies like Synchrony have been doing this 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 offer a wide range of services, ranging from those outside of insurance coverage, to elective services, to covering the gap between deductibles and insurance.

Interest rates for medical financing

While interest rates for medical financing are generally lower than a typical credit card, interest can add hundreds or thousands of dollars to medical bills. For example, UNC Medical Center partners with AccessOne to provide debt collection options for patients. Many of AccessOne’s plans have variable interest rates that now charge 13%. The NPR article provides a shocking example of how this level of interest adds up to medical debt: “Someone with a hospital bill of, say, $7,000 who signs up for a five-year financing plan at 13% interest will pay at least $2,500 more to settle this debt.

According to a Kaiser Family Foundation survey, about 50 million adults have a financing plan to pay a medical or dental bill, a quarter of whom pay interest. That’s 12.5 million Americans paying interest on medical debt.

It is a profitable business:

As Americans are swamped with medical bills, patient financing is now a multibillion-dollar business, with private capital and big banks lined up to cash in when patients and their families can’t pay for care. According to an estimate by research firm IBISWorld, profit margins exceed 29% in the patient financing industry, seven times what is considered a strong hospital margin.

Health Care Lending in the Broader Payments Landscape

The trend for hospitals to offer customers financing through third-party companies is part of a larger trend in financial payment systems, such as BNPL. BNPL allows consumers to finance their purchases at checkout, with a series of micro-payments paid over a period of time. It’s basically a convenient loan option, with a payment plan. In recent years, BNPL has become increasingly popular. According to a report by NerdWallet, in the year ending in

In August 2022, it was used by about 30% of Americans.

BNPL has migrated into every industry, from big box stores to travel, and now, healthcare. But BNPL sometimes does not take into account the financial health of a buyer and can sometimes extend credit to people who cannot actually repay it. On the other hand, BNPL payments that are paid on time are usually interest-free, making them a good option, and more attractive in some cases than some of the medical payment options discussed earlier.

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