Installment Plans Gain Hospital Acceptance
If you want a face lift but your heart sinks at the price and your insurance company refuses the bill, your local hospital soon may give you the option to pay for the operation in the same way that you might pay for a new refrigerator.
A growing number of hospitals in Orange County and nationwide are trying to boost business and hasten payment for services by offering financing plans that allow patients to pay monthly installments for cosmetic surgery and other medical treatments typically not covered by insurance. These credit plans also are assisting patients in paying that part of the medical bill not covered by insurance.
Plans recently introduced by such traditional consumer finance agencies as Household Finance and Chrysler Financial Corp. are providing hospitals with “non-recourse financing,” meaning that the hospitals get paid up front and the finance companies take full responsibility for collecting on loans made to patients.
One company pioneering non-recourse medical financing is Hudson & Hudson, a medical consulting firm in San Francisco. Two years ago the company began offering a financing service to plastic surgeons, and last November it expanded to hospitals, said John Lee Hudson, who is a senior partner in the firm along with his wife, Shana.
Hudson said that so far he has introduced his financing package, including the plans of a variety of national and regional financing companies, to the offices of more than 400 plastic surgeons and 100 hospitals nationwide, including three in Orange County--Chapman General, Buena Park Doctors and Anaheim General.
Most hospitals say it is too early to gauge the success of the new financing. But they say it holds promise of assisting patients who are faced with increasingly larger co-payments, deductibles and restrictions on their medical insurance coverage.
Hospital officials also say installment financing is expected to improve the cash flow at hospitals that are struggling under burdens of bad debt and delays in payments from government insurers like Medicare and Medicaid, private insurance companies and private-paying patients.
Richard Carpe, a hospital consultant at Laventhol and Horwath in Costa Mesa, said the Hudson & Hudson program is a “great idea.”
“I think it would be a boon to many hospitals if they would more effectively market creative financing packages to their patients,” Carpe said.
John Kramar, administrator of Chapman General Hospital in Orange, said that hospital is offering the Hudson & Hudson program primarily to increase the business of the approximately 12 plastic surgeons on the hospital’s staff. He said the program is being marketed in the physicians’ offices.
Kramar said a specialized line of credit will prompt more people to seek cosmetic and other elective surgery. According to several Orange County physicians, the cost of cosmetic surgery in Southern California ranges from about $1,400 for an eyelid tuck to $8,000 for a major face lift, more than most people want to charge on their credit cards.
The Hudson program offers to finance up to $10,000 in medical bills for qualified applicants, who then have up to five years to pay off the loan. The interest demanded for the loan is not cheap, ranging from 18% to 21%, equivalent to most credit-card charges. But John Hudson said he recommends that hospitals offer discounts to patients equivalent to the interest. In turn, he argues, the hospitals can forgo the equally high cost of unpaid bills.
“The advantage of (the Hudson & Hudson) program is that you get paid up front and don’t have to worry about any collection activities,” said Woodrin Grossman, chairman of the health care industries division of the accounting firm of Price Waterhouse.
Grossman added that financing companies generally have more clout in collecting on bills than hospitals. “There are always people who feel that it is OK not to pay a hospital bill. They believe the hospitals won’t go after you as hard,” he said.
Hospitals agree to pay Hudson & Hudson an annual fee of $1,000 to $2,500 and a small percentage of the amount of money paid to them through the financing program. Hudson & Hudson in turn provides marketing consulting services and promises that loans will be promptly processed, usually in a matter of hours.
Critics Tell Fears
Critics of such financing plans express concern that some patients may get in over their heads and become disgruntled with not only the finance program but with the hospital and doctor that recommended it.
David Langness, vice president of communications for the Hospital Council of Southern California, said hospital-affiliated financing programs are controversial because “a lot of hospitals don’t want to put themselves in the position of lenders. Although an outside finance agency takes over, the patient gets all the papers and fills out the applications at the hospitals.”
But Langness did not deny the potential appeal of such financing. “I think it is an idea worth exploring. More and more as the funding crunch gets worse, we will have to explore funding mechanisms of every sort,” he said.
Some hospitals and doctors say they have discovered that financing qualifications have been so strict that numerous patients have been refused loans--which poses yet another sticky public relations problem.
Income Limits
Dr. Paul D. Mabie, a Fullerton plastic surgeon, has been offering Chrysler First Financial financing through Hudson & Hudson for over a year, said Pam Mullen, his office nurse. But Mullen said that only about three patients have used the financing. Many others, she said, are young single women who could not meet the loan criteria, which include having an annual household income of at least $30,000.
Scott Leggett, admitting manager at Buena Park Doctors Hospital, said in the four months the hospital has contracted with Hudson & Hudson, it has submitted 20 loan applications. But only one patient qualified, he said.
Leggett said that the qualifications of the loan program are geared for more affluent people desiring cosmetic surgery. By contrast, he said, his hospital wants to extend financial assistance to a broad spectrum of hospital patients, who on the average owe the hospital $1,000 to $1,500 on bills not covered by insurance when they are discharged.
Leggett said that without special financing, most patients have up to 90 days to pay, after which their bill may go to a collection agency that keeps 40% of the money it collects. Like other hospitals, Leggett said, Buena Park Doctors Hospital’s bad debt has been growing--from 20% to 25% of monthly revenue five years ago to about 35% of monthly revenue this year.
Lender Referrals
Barbara Jennings is director of the billing and collection office for four Jupiter Hospital Corp. hospitals in Los Angeles and Orange counties, including Anaheim General and Buena Park Doctors. In an attempt to qualify more patients for loans, the chain has begun telling patients about Household Finance Corp., which Jennings said is generally considered to have more lenient loan requirements than other lenders.
Diane Haddon, senior account executive of the Long Beach office of Household Finance, said she began contacting hospitals a few months ago when she noticed that many people coming to her company for loan consolidations had gotten into financial difficulty because of unpaid medical bills.
“I approached hospitals and told them that they could save some money if they referred their patients to me,” she said. Jennings said she is hoping to approve 60% to 65% of the patients who apply for the nonsecured consumer loans, with interest rates ranging from 19% to 24%.
Household Retail Services, another unit of Household Financial Services, has test marketed financing for dentistry, plastic surgery and general medical treatment for about a year. It has contracted with health maintenance organizations and other firms that provide services to doctors and hospitals, said Tony Pallante, vice president of sales for the Western region of Household Retail Services.
‘Cautious About It’
Pallante said health care providers’ demand for medical financing has been great, but Household Retail Services has stepped gingerly into the waters. “We have inquiries almost every week and we frankly have been cautious about it until we had some experience with the portfolio,” he said.
But now, Pallante said, the company feels the results of the program are favorable enough to warrant more aggressive expansion. He said the approval rate for medical loan applications is about the same as for other credit programs, 50% to 60%. He said the interest rates also tend to be lower than Visa or Master Card, running from 16% to 20%. Most borrowers, he said, pay off their loans in 13 to 14 months.
Pallante said his company now is negotiating a contract with Hudson & Hudson that may involve the issuing of credit cards that can be used at Hudson & Hudson contract hospitals.
Hudson said he expects to have private label credit cards available for hospitals within 60 days. “People with certain income will automatically get a card,” Hudson said. “It will cause hospitals to win that same consumer loyalty that retailers have enjoyed for years.”
