New Financing Options for Insured Patient Self-Pay Accounts Shift Risk Away from Providers - Part One

This is the first in a three-part series on new financing options for insured patient self-pay accounts. Update: read the second part here, and the third part here.

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Once upon a time, the choices available to help patients finance out-of-pocket medical expenses were slim. With luck, healthcare providers extended the courtesy of informal payment plans or in-house financing (keeping the risk of bad debts on their books), or outsourcing delinquent accounts to collection agencies that averaged debt recovery rates around 50% at best. 

Once specialized revolving credit lines like Synchrony’s CareCredit came along, a small subset of credit-worthy patients had access to a line of credit with a promotional no-interest period. But what amounted to just another credit card was a drop in the bucket at best. CareCredit itself had its share of legal trouble, partly over the fact that its focus and operation was not centered on transparency, nor helping patients understand their healthcare financing options. Until recently, the need for better patient financial service products certainly existed, but was not nearly as dire as it is today.

In just the last few years, employers have reckoned with steeply rising healthcare costs, in part, by offering more and more high deductible health plans (HDHPs). HDHPs have grown to represent over 20% of employer-sponsored healthcare options, and some predict that within the next two years, over 50% of employers who offer health plans will only offer HDHPs. With this shift in the payer dynamic away from health insurance companies and toward patients, the need for more and better ways to finance out-of-pocket (OOP) medical expenses has arrived, and is growing exponentially. 

Necessity is the mother of invention

Emerging from this crucible is a new set of companies with impressive backers. More choice is great news, and not just for patients. Healthcare providers have a significant (and growing) stake in ensuring that patients have a range of financing options. 

Providers realize that the old way of doing business---holding open debt on the books, offering unstructured payment plans or in-house financing, or spending time and energy chasing down delinquent accounts, is too risky and inefficient. And they also know that an ounce of prevention is worth a pound of cure. Companies entering this space stand to be successful if they realize that solving the patient financial services problem is both a healthcare issue (because strapped patients are avoiding or delaying care to avoid the cash outlay and/or crippling debt---leading to more costly, less effective treatments down the line) as well as a revenue cycle management problem for healthcare providers, who rely on the patients they treat for a growing share of their operating revenue. 

Solving for common pain points 

As diverse as the new players in patient finance are, the solutions they bring to market have three important things in common:

1. They seek to shift the risk of outstanding medical debt away from healthcare providers as early in the revenue cycle as possible.
2. They recognize that healthcare borrowers will represent all colors of the creditworthiness rainbow, and their models include those who would not qualify for traditional access to consumer credit.
3. They’re leveraging technology to access the cost savings of partnerships and scale to bring the cost of borrowing within reach for more patients.

Rev Cycle Game Changers in Patient Financial Services

To varying degrees, new entrants to the patient finance game are investing in the future to help providers and patients adapt to the new reality of HDHPs and the increase in payer diversity they’ve ushered in. 

For patients, these game-changing companies are working to gently land the “You really are the payer now” news, and help patients get empowered and stay in control. The intent to provide good “whole patient” care, including healthcare financial services, is made more powerful with a combination of technology, scale, partnerships and increased access. 

For providers, both patient satisfaction and bottom line get stronger if patients know their obligations and have a manageable way to meet them up front--at, or preferably before--the point of service. The field is wide open and very hungry for simple practice management solutions that prevent debt, neutralize risk, and improve debt recovery operations. 

Game Changer Profile: Parasail Health 

The basics 

Parasail is a health tech startup seeded with venture capital from PayPal co-founder Peter Thiel and Montage ventures, and offers both patient financing and collections. Its low-interest-loan marketplace for non-elective medical bills leverages technology and scale to provide more financing choices to patients. 

How it works

• Fixed-rate payment plans with a range of options and terms (starting at 5.00% APR with no hidden fees) allow patients to pay OOP expenses from as little as $1,000 over periods of two or five years with monthly payments.
• Could soothe financial overwhelm that often spurs patients to stop paying on outstanding self-pay bills by bundling them into consolidated bills for more efficient payment.
• Patients can view and dispute bills as needed. 

What it adds to the healthcare finance game 

Broader accessibility

• High-risk borrowers, who would not typically be able to secure capital for unexpected out-of-pocket medical expenses, are not excluded
• Parasail estimates that it’s able to approve about twice the number of applicants as CareCredit 

Leverages partnerships and scale to offer low-rate loans

• The scale and nature of Parasail’s partnerships allow the company to offer patients low-rate loans when there’s an immediate need.
• Instead of positioning itself as a rival, the company integrates with billing companies and a growing list over 700 providers to provide an additional payment option for patients.
• Billing companies and providers, realizing the significant risk of bills going uncollected, are more than willing to offset loan costs to Parasail, allowing the company to offer patients low-rate loans when there’s an immediate need.    

Providers, take note 

• By design, Parasail shifts risk onto its lender network by offering a suite of products earlier in the revenue cycle, and producing up-front OOP estimates that help patients plan.
• As a result, providers secure revenue early and predictably, removing concerns about (lack of) liquidity and its implications for the practice.
• Setup is directly with patients, so providers are free of contracts, terminals, new systems, ‘tryout risk’ and costs to the practice. 

Look for our second RevCycle Game Changer profile later this week.