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A 2019 Federal Reserve report noted that more than one-fifth of adults had unexpected medical expenses of between $1,000 and $1,999. With the average deductible more than $1,500, it’s no wonder healthcare providers are turning to patient financing to aid collection efforts.

Yet, are healthcare providers ready to be lenders?

What Is Patient Financing?

Patient financing is when a healthcare provider becomes a lender for the amount owed by a patient. There are many variants to financing medical services, but they essentially all result in the provider holding the balance until the patient pays the amount in full.

Is Patient Financing New?

No. Healthcare organizations have always sought lending solutions for cash flow problems. Patient financing offerings have been in the market since the nineties. Patient financing is the strongest and most mature offering for elective procedures, such as cosmetic surgery.

What About Patient Financing for Non-Elective Procedures?

Non-elective procedures are medically necessary and/or essential to the patient. The market for such procedures is fraught with challenges and churn of business models and lending structures. Despite the challenges, non-elective procedures garner attention because it is the largest slice of the $3.5 trillion healthcare economy.

What Are the Models for Non-Elective Patient Financing?

  • Self-funding occurs when the provider carries the amount due as a receivable. Then, the provider tries to collect directly from the patient.
  • The recourse lending model occurs when the provider works with a lender. First, the provider must pass the lender’s underwriting criteria. As patients elect to join the program, their receivable is then funded to the provider by the lender. The funding is given to the provider in exchange for a one-time discount fee and ongoing service fees. The lender recovers losses from the provider if the patient doesn’t pay.
  • The non-recourse lending model also occurs when the provider works with a lender. However, while the provider agrees to the lender’s terms and fees, it’s the patient who must pass the underwriting criteria. The lender bears any losses without recourse to the provider. The lender can accept or deny the patient based on its underwriting. If the patient is denied, the provider is not funded by the lender.

What Is the Downside of Financing for Non-Elective Procedures?

  • Recourse models have high recourse rates for patients with weak credit and poor ability to pay. Therefore, providers do not receive much value in exchange for all the fees charged by the lender.
  • Non-recourse lending may result in patients facing very high-interest rates and fees. For the lender, this is the only way to offset potential losses. Additionally, the lender will probably deny patients who have weak credit and are more likely to need lending.

What Are Alternatives to Patient Financing?

For providers who prefer to remain self-funding, payment plans offer an attractive alternative to working with a lender. Payment plans can yield high collection rates without the fees associated with lending. However, to be effective, providers must deploy payment plans with robust collection processes and industry solutions with high technical standards for security and compliance. In effect, the self-funding model powered by payment plans replaces the lender with technology and collection best practices.