Patient financing optimizes reimbursement and promotes consumer loyalty

As consumers shop for the right care experience, they also consider the right financial experience.

According to the ClearBalance® 2018 Healthcare Consumerism study, 79 percent of respondents will ask their provider about payment options. Further, 94 percent expect their provider to proactively offer affordable options to repay their medical bill, including long-term financing.

Most health system leaders understand that patient pay is a critical component of reimbursement. Treating patients as true consumers who will make a deliberate choice about their healthcare provider has become the required way of doing business. As a result, creating a strong patient financing program is an essential strategy—one that holds significant impact for consumer loyalty and the bottom line.

Industry trends support the need for patient financing

Over the past five years, the steady increase in the amount consumers pay in medical bills has driven healthcare leaders to find ways to engage patients in establishing a sustainable collection model ranging from prompt pay discounts to long-term financing. Now is the time for providers that have not moved to this model to follow suit. The continued popularity of high-deductible plans translates into an insurmountable out-of-pocket cost burden for many consumers. According to the Advisory Board, 19 percent of U.S. workers have deductibles greater than $2,000, and 35 percent of U.S. households have less than $2,500 in liquid assets.

Though consumers expect to owe some cost for their care, they want to know the amount and understand their payment options sooner rather than later. Our consumerism study revealed that an overwhelming majority—89 percent—of respondents need more than 12 months to repay their healthcare costs. Providers should contact patients regarding their financial responsibility before medical service and be prepared to guide them to the right payment option, including a long-term plan. Patient engagement begins with proactive communication and collaboration.

Patient engagement promotes consumer loyalty

We’ve found that 52 percent of patients who use long-term financing return to the provider repeatedly because they are confident any financial barriers are resolved through their payment plan. Therefore, they can focus on the care experience. Without a payment plan, many patients—36 percent—said they would delay or defer care, which hinders health systems’ ability to fulfill a mission of engagement and health for their communities. Rather than missing an opportunity to build consumer loyalty, health systems in fact are making it financially convenient and more attractive for patients to return the next time they need care. It pays off in terms of patient feedback.

Repeat use was a recurring theme we found in our most recent healthcare consumerism study. For example, among all the respondent write-in comments, one patient interviewed states, “I’m grateful for the no-interest payment options the hospital provides. I’m a single mother with a special needs child and my own health issues. I’ve used the payment plan repeatedly for 15 years. It fills a huge need.”

Financial impact of a patient financing program—the tangibles

The quantitative outcomes of a patient financing program are related to two areas of impact: income statement and balance sheet.

Income statement—bad debt expense reductions. When patients cannot pay in full today, the ability to engage them early in the process with an affordable financing option ensures that providers receive payment quickly. Long-term patient financing also is proven to reduce bad debt write-offs and decreases the need for high-priced collections agencies. If a long-term payment arrangement is not offered, patients face a higher probability of bad debt.

In an environment where many health systems still see an annual increase in bad debt, our provider partners experience a 6 percent decrease in total bad debt expense year over year. For a provider with $1 billion in net patient revenue, this translates to nearly $4 million in reduced bad debt from patient pay.

Balance sheet—cash acceleration and reduction in AR days as financial drivers. With a patient financing program, providers are typically paid for the patient’s out-of-pocket cost at the point of financing. Conversely, if the provider collects the account internally, the AR lingers on the balance sheet and yields cash over time as the patient pays down the receivable. Furthermore, our results show greater patient adoption for patient financing compared to internal payment plan adoption—up to 20 percent to 50 percent greater participation. Across our partner health systems, we also see an average reduction in AR days from 2.5 to 3.5 days.

• 260 percent return on investment
• 6 percent drop in bad debt expense
Suggested quote: Within 12 months, our customers average 6 percent reduction in bad debt, 3 days reduction in AR and overall ROI of 260 percent.

Three strategies to build a sustainable patient financing program

For organizations that want to offer a patient financing program, make sure you consider these variables:

1. Understand ROI of internally managed short-term versus outsourced long-term payment plans. Understanding how a short-term payment plan (six months or less) compares to a longer-term payment plan (seven-plus months), in terms of cost to manage and expected ROI, helps quantify where you’ll get the biggest bang for a patient financing program. Be sure to consider “hidden and unintended costs,” such as payment platform transaction fees, increased internal staff hours and the time-value of money. In our experience with health systems nationwide, it’s best to outsource patient financing of six months or longer. Internal management of patient financing with longer duration—even through a self-service payment platform—typically costs the health system more in time, effort, transaction fees and other costs.

2. Offer patients an interest-free payment option to ensure satisfaction and adoption. If your goal is program adoption, interest-free financing will generate far greater participation—generally by 50 percent. Among our healthcare partners, 90 percent use interest-free programs. Organizations that feel an interest-bearing program is needed should limit the patient’s portion to a 3 percent interest rate.

3. Make patient engagement a top priority. According to our research, consumers want and expect to hear their options to pay out-of-pocket costs. Adopt a “pre-service to next-service” mentality to communicate payment options throughout the patient’s care and payment cycle. Use a partner that blends high-tech digital convenience with high-touch human interaction to elevate the customer service experience and prevent payment abandonment rates.

Finally, make sure your health system is aligned with the patient experience and financial outcomes that you want to achieve. Implementing a sustainable patient financing program can increase patient collections, optimize reimbursement and promote consumer loyalty.

About the Author:
Peter Thompson serves as the revenue cycle strategist for ClearBalance, a patient financing services company dedicated exclusively to healthcare. Prior to joining ClearBalance in 2004, Thompson worked with Cardinal Health where he was involved with strategic mergers and acquisitions. He can be reached at:

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