What is patient financing and how does it work?

Optimizing Patient Financing in Today’s Environment

In our rapidly evolving healthcare landscape, as patients take on more of their healthcare financial responsibilities, many do not have the money upfront to pay for the care they want or need at the moment they need it. A staggering 37% of people cannot cover a $400 emergency, unplanned expense.¹

There are a variety of health financing options that try to remedy this situation by allowing patients to pay for their services over several months or years. One option, a strategy known as patient financing, involves the healthcare provider becoming the lender for the amount owed by the patient. While this may work in some cases, it also places the organization at risk of losing revenue due to unpaid bills.

To avoid assuming this payment risk and collection expense, there are several alternative healthcare financing methods organizations can explore as patient payment solutions: health and wellness credit cards, internally and externally funded loan programs, and a range of healthcare payment models, from value-based reimbursement to alternative payment models. These methods are beginning to take root: in 2018, 36% of healthcare payments were tied to alternative payment models.²

Patients want to be educated about these alternative options for paying for their healthcare. Results of a recent CareCredit study show that more than a third of patients would like to learn about payment plans when receiving a medical bill—a number that doubles among younger patients (ages 18-34), with almost 64% saying they want information about payment options to be included in their medical bills.³ The study also indicates that patients want transparent and easy access to cost information at every phase of their healthcare journey. They want to understand the scope of their out-of-pocket expenses and whether any solutions can make payment easier. When going through a particularly stressful time, they want reassurance and support.

Health systems and staff have the opportunity to help patients understand and plan for their financial responsibilities by having clear conversations about cost and financing options. This empowers patients to take control of their healthcare finances and demonstrates that providers truly care about a patient’s financial and physical well-being. These conversations can go a long way in differentiating a practice and developing trusting relationships with patients.

There are several trends in healthcare payments that deserve attention. Out-of-pocket spending grew 4.6% to $406.5 billion in 2019, or 11% of the total national health expenditure.⁴ Patients are becoming increasingly cost-sensitive as deductibles rise, including the emergence of high-deductible private insurance plans designed to help reduce monthly premiums. Many report forgoing care in fear of high out-of-pocket costs. Fifty-six percent of adult patients are worried their out-of-pocket medical expense could lead their household into bankruptcy.⁵

At the same time, we are seeing healthcare consumerism take firm hold, especially in response to Coronavirus (COVID-19). People who have come to expect convenience and personalization from their retailers, entertainment channels and transportation services now want and expect it from their healthcare providers too.

We also see healthcare consumers taking a more active role in paying for their care. The rise in healthcare consumerism, coupled with the pandemic experience, means that patients want alternative payment options. They will expect to make contactless payments at the point of care and digital payments that allow them to pay their medical bills from the comfort and safety of their homes. In fact, research shows that 61% of patients would consider switching providers for a better payment experience.⁶ As such, hospitals and health systems must continue to shift their payment processes away from manual, human-dependent approaches to online payment systems. The substantial increase in the use of telehealth services driven by the pandemic may be here to stay, creating a need to better integrate telehealth offerings with payment and revenue cycle technology.

These new market realities demand innovations in healthcare payment solutions. At this point, the majority of hospitals and health systems need to adapt their payment and financing practices to better address consumer demands for greater convenience. For example, in a recent study, 77% of consumers said they wanted to enroll in eStatements from providers, yet only 23% of consumers receive them.⁷

Still, we are seeing a change. More health organizations and patients have begun using patient portal apps, which often integrate a healthcare billing system with a patient’s electronic medical records. Technological innovation will make real-time payments at the point of care more realistic. Greater use of third-party financing solutions can give patients a sense of security while giving healthcare professionals time to focus on providing care rather than collecting payments.