With high-deductible health plans and self-pay patients increasingly becoming the norm, healthcare providers know they need to find new ways to collect the money they are owed.
Now some hospitals and health systems are finding success by offering zero-interest loan programs to patients who need time to pay down hefty medical bills.
Tim Nguyen, corporate controller at Palomar Health, a 690-bed system based in San Diego, says his organization's leadership team decided to offer a zero-interest loan program with flexible terms because it was becoming harder to collect from self-pay patients.
Although the health system has offered financing to patients for years, last year it began working with a new vendor to provide interest-free loans with more flexible payment terms, Nguyen says.
The new vendor offers loan terms of up to six years, allows patients to freeze the account for a few months without penalty, and lets patients rework monthly payment amounts, if necessary.
"Most people want to pay. They want to do the right thing, but if it is a choice between putting a meal on the table or paying their hospital bill, what are they going to do? We asked 'how do we make it easier for the patient to do the right thing and pay the bill?' The whole objective is to be patient-centric, not hospital-centric. We have to walk in the patient's shoes to find out their challenges and address them," Nguyen says.
The health system now pays the interest charges instead of passing them onto patients, but Nguyen still considers the program to be a big success because it has substantially improved collection rates and overall revenue.
"With the previous vendor… we had a 49.2% average collection rate. With the new vendor, the collection rate is 88%, which is great. Another benefit for the hospital is cash flow. The company fronts us the money so they are taking the risk. It gives us money in advance; it's good cash flow for us. So far, they have paid us $4.7 million up front," Nguyen says, noting that the vendor's maximum recourse is 18%.
The new program has also improved patient satisfaction. "Now people feel like we are trying to work with them. They have more time to pay, and we are willing to freeze payments and rework their payments to make it more manageable. We are very flexible with patients, and the feedback we get is that they like it," Nguyen says.
Philip Skinner, system director revenue cycle at St. Vincent Health, a member of Ascension Health, which serves 47 counties in central and southern Indiana, tells a similar story. Two years ago, St. Vincent moved its financing program to a new vendor to provide zero-interest loans and a more generous timeframe for repayment.
"We had a change of heart," Skinner says. "We are a Catholic organization. Our mission group looked at what we were doing and the options we were offering. For customer relations reasons, what we wanted to do was to offer patients a program where we would absorb the interest. … We have designed the program for all credit scores, and patients can sign up for terms up to 72 months."
"Obviously, there is a cost to St. Vincent, but it is a low interest rate, and it is prorated for us based on the expected term of the agreement," he adds.
Skinner says St. Vincent has reaped multiple rewards since starting the new program, not the least of which is that the vendor pays the balance in full to the health system up front. For patients with strong credit scores, the payment is made immediately; for patients with a credit score below 600, the balance is paid as soon as the patient makes the first payment, thereby demonstrating a propensity to pay.
"The beauty of the program is you have the money in the bank. We get funded the full amount minus the fees, and the account becomes a zero balance account in our AR. Depending on what you are getting on your investments, you can make a good percent on your cash in the bank. Also, you don't have statement costs, and you don't need as many collectors to do the follow-up work," Skinner says.
Although the health system does have to repay any accounts where the patient becomes delinquent, this occurs only rarely and the financial risk is low, he says.
"We do have a very low recourse rate. On the accounts that recourse, we have to pay back the outstanding balance of the loan, but we get back the unearned portion of interest."
Skinners says another advantage is that patients are more likely to pay a bill that comes from a bank rather than a hospital. "Any literature you read says hospitals are low on the scale of where people place value for paying a bill. If the statement is coming from a bank, they are more likely to take it seriously."
The loan program is also a good way to identify patients who might qualify for charity care, Skinner says. "If someone can't pay $50 per month toward a bill, you need to dig into that and identify if they are eligible for charity care. That saves time and money."
Skinner reports that through the loan program St. Vincent is recovering about 90% of the balances while simultaneously improving its patient satisfaction.
"By the time you factor in the value of the interest on that money and the additional staff time you would need to manage those accounts, it is win/win. … There are also positives that are hard to measure. The biggest value proposition here is it is fantastic customer service."