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Inside the University of Kansas Health System's Interest-Free Loan Options

Analysis  |  By Alexandra Wilson Pecci  
   May 24, 2021

The system started offering its recourse program in March 2017, giving patients the ability to make smaller payments over a longer period of time.

When it comes to offering patient financing options, Marvin Mickelson, system director of shared revenue cycle at The University of Kansas Health System, in Kansas City, Kansas, has a simple philosophy.

"It's about doing everything we can to allow the patient to get what services they want to receive and absolutely need to receive," he says.

And he wants them to get those services without worrying whether they can afford to pay for them or be ruined financially for needed healthcare.

However, revenue cycle leaders know that "simple" and "easy" are often two different things, and that's true for deciding whether to offer recourse loan programs to patients who need long-term financing.

Both recourse and non-recourse options involve third-party vendors and both options pay the hospital upfront for the cost of the patient fee, which is good news for revenue cycles because that can dramatically improve cash flow and reduce AR days.

But how those vendors handle patient non-payment differ.

Whereas recourse programs return the unpaid loan balance to the hospital for collection if the patient doesn't pay, non-recourse programs don't.

For this reason, non-recourse programs might seem like the better option for hospitals and health systems. But they come with significant pitfalls. That's because non-recourse programs are restrictive about which patients qualify. They usually require minimum credit scores and often come with higher interest rates.

Recourse programs, on the other hand, allow anyone to qualify and offer long-term, zero-interest options.

"If they've got a sizable enough balance, they can pay that over a five-year period, interest free," Mickelson says of the University of Kansas Health System's recourse program.

The University of Kansas Health System started offering its recourse program in March 2017, in addition to its internal payment plans.

Continue Reading: 5 Dos and Don'ts of Patient Payment Plans

With its recourse program, patients benefit from the ability to make smaller payments over a longer period, rather than within the six- to 10-month terms of the health system's internal payment plans, Mickelson says.

"It makes it a lot easier for them potentially to be able to afford a larger bill that they have," he says.

In addition, because of the University of Kansas Health System's designation as an independent hospital authority, they chose a vendor that would allow them to offer non-interest-bearing loans regardless of the length or term loan.

That's different from the typical 12-24-month interest-free loans.

"We're here for the people of the state of Kansas and the region," Mickelson says. "We want to make sure that they can have every opportunity to get what they need at the least amount of cost they can. So, we decided that they all needed to be interest-free loans."

Because the recourse loan program vendor pays the health system that patient balance right away, revenue cycle improvements were "virtually immediate," Mickelson says.

"We saw immediate cash flow influx," he says.

Since it was implemented, the program has lent out more than $24 million to patients. Their recourse rate—the percentage of loans that get returned to the hospital—is less than 10%.

If the loan does recourse back to the hospital, patients are offered yet another opportunity to pay before it goes to bad debt collections.

Even though self-pay accounts for just 8% of the system's AR overall, that influx of cash and immediate payment did help reduce AR.

"It moves the needle little by little," he says. "This is one way to help us along with other programs we have."

Mickelson says they don't offer their recourse program to every patient; they  offer it only for procedures that are medically necessary. If something is purely elective, such as a cosmetic surgery, the system doesn't offer it.

For patients who do get offered the recourse program, though, Mickelson says it's been a huge satisfier and can help patients plan for—and not panic about—high-dollar hospital bills.

He adds that revenue cycle staffers are "thankful" that they're able to offer this option to patients when they say they can't afford to pay their bill.

"This is one of the things that we put up front, one of the tools our financial advisors have that they can tell the patient [about] so they can be … somewhat relieved or comforted with," Mickelson says.

As a result, the system often gets thank-you notes, phone calls, and emails from grateful patients who tell them that the payment plans helped them get healthcare without having to sacrifice other things that they need. Some even thank the health system for helping them to avoid bankruptcy.

"There is a way to help the patient regardless of how difficult it may have been in the past," Mickelson says. "I encourage anybody and everybody to do something like this for their patients."

Alexandra Wilson Pecci is an editor for HealthLeaders.


KEY TAKEAWAYS

Recourse programs return the unpaid loan balance to the hospital for collection if the patient doesn't pay, while non-recourse programs don't.

Patients often don't qualify for non-recourse programs.

Because of the University of Kansas Health System's designation as an independent hospital authority, they chose a vendor that would allow them to offer non-interest-bearing loans regardless of the length or term loan.


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