Patients need to be aware of the fine print.
Can medical credit cards help hospitals address growing bad debt challenges?
Providers are likely to receive more overtures from financial services companies to get them to promote medical credit cards. Such instruments tout zero interest for a specific period of time but actually defer interest and hit consumers with high rates if they don’t pay off the debt within that period.
Medical credit cards are primarily used by dentists, cosmetic surgeons, and veterinarians. Card issuers are looking for a broader range of providers as well as larger organizations.
The biggest medical card company, CareCredit, has more than 210,000 participating providers and seeks to expand the spectrum of healthcare specialists with which it works and grow through the enrollment of hospitals, said David Salzman, vice president of communication at Synchrony Financial, which is CareCredit’s parent company.
“With patient out-of-pocket healthcare costs increasing, hospital networks are exploring financing solutions to address the revenue impact associated with difficulty in collecting patient obligations,” Salzman syas. “Growth-oriented healthcare networks are discovering that financing solutions can be an important factor in patients’ decisions to go forward with planned procedures.”
One of the newest entrants, MedZero, was recently launched by Mobile Capital Group in Kansas City and lender Sortis Holdings to provide advances to employees. Users access a cell phone application to get virtual credit cards—zero-interest loans repaid over 12 months through payroll deduction—that can be used to pay for medical expenses. Providers pay MedZero to join the network.
An Alternative to Traditional Credit Cards
As medical expenses have increased, consumers—about 27 million—increasingly have put the expenses on their credit cards, according to NerdWallet. The average American pays $471 per year in interest from medical charges, or about $12 billion.
Meanwhile, the Kaiser Family Foundation found 37 percent of Americans have taken on additional credit card debt to pay for medical costs and pegs medical debt as the nation’s top cause of personal bankruptcy filings.
Medical credit card approval rates are generally high and arrive quickly, with patients often approved on the spot in healthcare offices.
The appeal for providers—getting paid right away—is understandable, said Robert Tennant, director of health information technology policy at the Medical Group Management Association.
“Except for the merchant credit card fees, for providers, it’s a form of guaranteed payment. On the other hand, if practices were to offer patients a monthly payment plan, the days in A/R [accounts receivable] would be higher. That results in an administrative burden for the practice. If payments stop before the debt is repaid, the practice may have to send the account to collections, which is very expensive for a practice,” Tennant says.
High-deductible health plans (HDHPs) also have led to a rise in the cards, he said.
“I’m not surprised that companies like these have sprung up to fill what normally would be provided by the insurance companies,” Tennant says. “People are attracted by a low monthly rate on their insurance, only to find the deductible is a huge out-of-pocket expense, which makes these types of cards attractive to these folks.”
Industry Leaders Express Caution
Healthcare providers need to think beyond getting paid and consider the potential hardships the cards could place on their patients, says Gina Calabrese, co-director of the Public Interest Center at St. John’s University School of Law.
Her center has worked with clients who were prompted by healthcare professionals to sign on for the financing without knowing they were credit cards limited to medical procedures and purchases that carried deferred interest.
Despite growth, the medical credit cards offer little advantage over traditional credit cards for providers, said Jay Anders, MD, chief medical officer of Medicomp Systems, a medical information technology company.
Barring the exemption of merchant fees, Anders sees no benefit to providers to promote use of the cards over traditional credit cards. And he doesn’t think they’ll be around for long.
“I certainly don’t see providers or hospitals getting on board with it,” Anders said.
This article originally appeared in HFMA News.