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Your Guide to Patient Payment Plans
What you need to know before you do cases on credit.
Kent Steinriede
Publish Date: October 27, 2008   |  Tags:   Financial Management

For potential patients considering cosmetic, bariatric, infertility and other elective procedures, one of the biggest hurdles is "how am I going to pay for this?" Even an insurance deductible for needed surgery can be a hardship. Patient financing plans may help your patients overcome this uncomfortable issue - and ensure that you get paid fast and in full.

Today, surgery centers don't have to be the bank. National and local lenders have stepped into the area of what is becoming known as lifestyle lending, offering loans for everything from cosmetic surgery to veterinarian bills. Of the $14 billion spent on cosmetic procedures in the United States in 2006, about $1 billion was financed, according to an article in the Aug. 16, 2007, issue of The New York Times. However, not all patient loan programs are the same (see "A Sampling of Patient Financing Programs" on page 32). Before you sign up with a lender, you have to know what you're getting into. You'll need to consider how much it will cost you, how much it will cost your patients and what the consequences are if the patients fall behind on payments. We looked into a few patient payment plans and talked to lenders and surgery facilities already offering loan programs to their patients.

Read the fine print
When Alan Douglas was looking for a patient payment plan for Surgical Care Affiliates, an Alabama-based company with more than 140 surgery centers across the country, he did his due diligence. "I went through the contracts with a fine-tooth comb," says Mr. Douglas, the company's vice president for revenue operations.

Mr. Douglas says that when considering a financing plan, figure out who'll be responsible for the debt if the patient defaults on the loan. Some contracts send the debt back to the surgery center if the lender can't collect from the patient. In that case, your center is back in the debt-collection business.

As many administrators know, billing is time-consuming and expensive. It costs $5 to $7 to generate each bill or collection letter and send it to a patient, according to the Medical Group Management Association's book, Physician Billing Process: Avoiding Potholes in the Road to Getting Paid. Mr. Douglas decided to go with a patient payment plan that offers patients no-interest loans for as long as 18 months, as well as extended payment plans for up to 60 months at 11.9 percent interest. Once the surgery center receives its money from the lender, says Mr. Douglas, he doesn't have to worry about the patient's bill-paying habits.

With this and other no-interest programs, the surgery center or physician pay a transaction fee on each bill. Depending on the length of the interest-free period, the transaction fee ranges from 5 percent to 13.5 percent of the bill. The transaction fee is more than the 2 percent to 4 percent fees for credit cards, but it's worth it, says Mr. Douglas. "I get my money on the front end and I don't have to set up a payment plan."

Some facilities limit the types of no-interest payment plans they offer. The Physicians Surgical Center in Lebanon, Pa., doesn't offer the longer-term, no-interest credit because the transaction fee for the surgery center can be as high as 13.5 percent. "We'd prefer to take a credit card," says administrator Monica Ziegler, MSN, CASC.

An outside patient payment program takes the burden off a facility's billing department. "A lot of practices bill the patient and then they get stuck with accounts receivable," says Rob Morris, vice president of marketing for CareCredit, based in Costa Mesa, Calif.

To receive CareCredit payments, a facility or physician needs to enroll in the network, but there is no set-up fee. It takes about two business days for the surgery center to be paid.

At SCA's facilities, when a staff member asks how a patient would like to pay for a procedure, she mentions the patient financing plan, along with checks and credit cards. The patient can apply for the line of credit at the surgery center, on the phone or via the Internet. Some people prefer the privacy of the Internet, while others prefer to fill out the application at the surgery center.

After the patient fills out an application, it's processed online in less than a minute. In many cases, the patient is more likely to be approved than if he were applying for a credit card. The approval rate for applicants is about 60 percent, compared with 27 percent for traditional credit cards, says Mr. Morris. The patient gets a card like a credit card that he can use at member facilities. The transaction is processed online or on a small terminal similar to those used for credit cards.

Other payment program providers, such as Unicorn Financial Services, based in Tallahassee, Fla., use a Web-based interface for applications, patient credit limits and payment tracking. Unicorn Financial Services and others also offer free promotional material, including brochures and Web banners for the facility's Web site. Most also offer on-site training and scripts to help staff members answer common questions.

Hot market for loans
Although they cost the surgery center more money, Americans have come to expect interest-free loans. "Consumer demand is driving the growth," says Susan Richardson, vice president of marketing for Unicorn Financial Services, which offers patients interest-free and low-interest lines of credit for procedures. People buy cars, televisions and couches with no-interest loans, so why not an elective surgery procedure? People often have a tendency to reason differently if there is a payment plan. The final cost becomes less important. "People think, what's my monthly payment?" says Ms. Richardson.

The more competitive the market for an elective procedure, the more likely an interest-free loan may help seal the deal. This is especially true with centers offering refractive surgery procedures, say lenders. This has also heated up competition among lenders, who reach out to surgery centers. "Our customer is the ASC, not the patient," says Ms. Richardson. Three of the largest healthcare lenders - CareCredit, CapitalOne and Unicorn - are competing for a $1 billion market, she says.

Several Internet-based lenders partner with surgery centers and compete for elective surgery loans. Some of these use informational Web sites devoted to specific procedures such as breast augmentation or liposuction to drive prospective patients to surgeons and lenders.

But not all the lenders are national. Several community-based credit unions have gotten into lifestyle lending. Since you can't repossess a pair of breast implants, most traditional banks have hesitated to enter the market because of the risk involved in unsecured loans, say lenders.

About four years ago, Linda Cook, RN, the patient coordinator at Reconstructive and Aesthetic Surgeons in Toledo, Ohio, started looking for a loan program to offer to cosmetic surgery patients. She was hoping to find a bank where she could refer patients for loans to pay for elective procedures. The banks were cold to the idea. "They didn't want to do it," says Ms. Cook.

Finally, Ms. Cook met with a representative from the non-profit Toledo Area Community Credit Union, which had a lifestyle lending program. The credit union was willing to offer unsecured loans for the surgery center's patients.

The credit union loans have worked well for the Toledo facility and the local credit union. "A lot of people like to work within the community," says Ms. Cook.

In the last few years, more credit unions have been offering unsecured loans to their customers to fund cosmetic surgery, adoptions, veterinary bills and mobility equipment for disabled persons. For a patient, these loans are usually a better deal than a credit card because there are no fees and lower annual interest rates, usually between 9 percent and 18 percent. The interest rate depends on the borrower's credit history and the term of the loan.

"We'll consider up to 120 months," says Tim Crosby, credit manager at the Toledo credit union, which makes about three lifestyle loans per month. Since the Toledo credit union began offering the loans about four years ago, it has made about 60 loans with no defaults. Ten surgery centers in the Toledo area currently refer patients to the credit union.

Credit union loans usually apply no fees to the surgery center and the payment can be made in advance or on the day of the procedure. If the procedure generates more than one bill - such as one for the surgeon, one for the anesthesiologist and one for the facility - the credit union can cut separate checks for everyone, says Brenda Heusterberg, vice president for Arrowhead Credit Union's Retail Direct lifestyle lending program. The credit union, based in San Bernardino, Calif., works with 17 plastic surgeons in southern California and does between 10 and 50 loans per month.

Credit unions often ask that the patient apply for the loan in person. "We've found that they're more comfortable coming in and talking about it," says Barry Shaner, president of the Toledo Area Community Credit Union. In the meeting, the patient does not have to mention what type of surgery it will be.

Avoid the iron fist
How a patient will be treated if he falls behind on payments is a question to ask when looking at payment plans, says Mitch Patridge, chief executive of CSI Financial Services in San Diego, Calif., which offers loans to patients for elective surgery and for patients with outstanding balances at hospitals.

Remember that as a healthcare provider, you're part of a community and have a reputation to maintain in the community. "If you've got aggressive tactics, word gets around," says Mr. Patridge. A third-party lender or collection agency that doesn't treat patients with respect will ultimately tarnish the reputation of the surgery center in the eyes of potential patients.

Just as important, make sure that patients who chose to use a payment plan understand what they're getting into. Nobody likes to feel as if they've been tricked. If there's a no-interest period, explain what happens at the end of that period. Is there a balloon payment? Do the rates go up? If the rates will change if the patient is late or misses a payment, tell him. It's best to be straightforward, says Mr. Patridge.

Don't go overboard
Once you've learned everything you can about patient financing programs, go easy on the number of programs you participate in, says Ms. Cook. "Try to limit the options, because it's never as simple as it sounds." Each program has its own nuances and learning curve. The Reconstructive and Aesthetic Surgeons facility accepts credit cards, the M-Lend payment plan and credit union loans. Otherwise, says Ms. Cook, patients can bring in a paper bag filled with cash. "Some people do."

Having a loan program in place can help your center's case volume and maybe even generate return visits. Cosmetic and elective procedures are no longer only for the rich. Patient financing opens many surgery centers, especially those performing cosmetic procedures, to a less-wealthy demographic that wouldn't be able to afford many procedures if they couldn't pay in installments.

Sometimes the option of a low-cost payment plan provides the nudge that a potential patient might need to schedule a procedure. Dentists have known this for more than two decades. Similarly, plastic and refractive surgeons have been quick to offer financing for their patients. And as Medicare and health insurance companies become less willing to pay for a growing number of procedures, healthcare loans will become more common for elective procedures as well as those partially covered by payors. These days, many patients are using credit cards and home equity credit lines to pay for procedures. However, for patients who don't feel comfortable with these payment options, many surgery centers have begun to offer their patients outside financing options.

A Sampling of Patient Financing Programs

Capital One Healthcare Finance
Products: No-interest financing and extended payment plans.
Cost to surgery center: 5% to 12.9% of transaction.
Interest rate for patient: 0% to 23.99%.

Products: No-interest financing and extended payment plans.
Cost to surgery center: 5% to 13.5% of transaction.
Interest rate for patient: 0% for 3 to 18 months; 11.9% for 24- to 60-month plans.

CSI Financial Services
Products: No-interest revolving lines of credit.
Cost to surgery center: Varies, depending on volume and terms of loans.
Interest rate for patient: 0% to 15%.

Enhanced Patient Financing
Products: No-interest revolving lines of credit and extended payment plans.
Cost to surgery center: $55 enrollment fee, plus 5% to 12.99% transaction fee.
Interest rate for patient: 9.99% to 23.24%.

M-Lend Financial
Products: No-interest revolving credit and installment loans up to 60 months.
Cost to surgery center: None.
Interest rate for patient: 0% for 12 months, then 7.9% to 18.9%.

Unicorn Financial Services
Products: No-interest financing and extended payment plans.
Cost to surgery center: 8.99% to 13.5% of transaction; 6.99% for 36-month extended plan.
Interest rate for patient: 0% for 12 to 24 months. Begins at 11.99% for 36-month plan.

Credit Unions
Products: Unsecured term loans for up 120 months.
Cost to surgery center: None.
Interest rate for patient: 9% to 18%.