Almost 40% of Americans recently reported they were deferring medical care due to the cost of treatment.1 This is particularly true for Americans with low incomes, who have reported cancelling treatment for even the most serious conditions due to an inability to pay for necessary services.
Financial institutions have attempted to bridge this financial divide by offering “medical payment products”, such as medical credit cards and installment loans, that allow patients to immediately access credit and pay for care. However, federal regulators have begun to scrutinize the effects these products are having on patient medical debt, and whether providers could better serve patients in the financial navigation of their health care costs.
Medical Bill Financing and Debt
The Consumer Financial Protection Bureau (CFPB) was established under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 with the goal of protecting consumers from unfair, deceptive, or abusive practices relating to financial matters. Since at least 2014, the Bureau has been focused on the medical debt burdens patients face, particularly related to inaccurate medical debt data sent to collections. Recent oversight actions taken by the CFPB regarding medical debt data and its impact on patients’ credit scores have resulted in medical debt relief for many Americans.2
The financial and health burdens of medical debt continue to impact patients and families across the United States, and the CFPB has continued to monitor patient complaints related to medical bills and study industry trends. Patient payment and financing of medical bills is now under significant scrutiny, particularly where Americans pay off medical bills by taking on other forms of debt, including mortgages, credit cards, and bank loans. Financing of this type can change the way the debt is characterized: for example, debt from a medical bill paid by credit card where the credit card payment is delinquent is reported as credit card debt, not medical debt. As such, it is not currently tracked as medical debt—nor subject to state and federal requirements that minimize financial harms that can follow large medical expenses.
Medical Payment Products
In some cases, an individual’s medical debt may be financed not through an existing credit card or bank loan, but through a medical-specific credit card or installment loan. These types of “medical payment products” are limited to the cost of medical procedures or services and may be further limited to providers in the medical credit card’s network. Initially introduced to cover elective services (including non-covered services like fertility treatments, auditory devices, and dental services), these products are now used to pay for basic medical treatment and emergency healthcare services. These products may be offered to patients at multiple times, including before an expensive scheduled service, at the point of service, or even when the patient has already received a statement.
According to the CFPB, financing companies that offer medical payment products “rely heavily on medical service providers’ promotion of lending products to their patients.” Facilities and providers often agree to offer medical payment products to patients because the financial institution provides timely payment for services rendered, minimizing the administrative burdens and financial risks providers face from other sources. Financial institutions may also tell facilities and providers that these products offer an opportunity for improved patient satisfaction.
Worryingly, the CFPB notes that in some cases, patients who may be eligible for financial assistance or charity care programs might instead be directed toward a medical credit card or installment loan.3 These concerns, coupled with healthcare cost transparency initiatives and scrutiny from the public and regulators over not-for-profit hospitals’ financial reports, are leading regulators to question whether providers are offering patients medical payment products in lieu of properly informing patients of existing financial assistance options.
Medical Debt Collides with Price Transparency and Hospital Profits
Last month, the CFPB hosted a hearing on medical billing and collections issues, with a focus on their investigation of medical payment products. In his opening statements, CFPB Director Rohit Chopra noted concerns that while medical payment products often offer patients a promise of cost savings and convenient payment plans, many patients are ultimately worse off financially than if they had not used a medical payment product. The CFPB hearing reported that medical payment products often offer complex “deferred interest” promotions that consumers do not fully understand, which can cause patients to be charged high interest rates4, hidden fees, or other additional costs beyond the billed services. Since 2018, the CFPB found that Americans have paid $1 billion in deferred interest loans for healthcare charges, in stark contrast to marketing materials telling patients about zero-interest promotions. Additionally, the Bureau believes that patients using medical payment products may be charged higher amounts, such as the chargemaster price, than they would have otherwise been responsible for with applicable self-pay or other discounts.
During the hearing, consumer and patient advocates testified about the negative impacts of medical payment products, patient challenges accessing financial assistance and charity care, and general pricing concerns. In conjunction with medical payment products, advocacy groups noted that current healthcare cost transparency initiatives are not always useful to consumers, stating that the availability of chargemaster prices is not meaningful or useful because that rate is so rarely the actual charge for which a patient is responsible. As a result, patients may not understand the true cost of their care and unnecessarily pursue medical payment products for lines of credit in excess of their actual need.
The CFPB appeared to be very receptive to the advocacy groups; they stated that the Bureau is already investigating these groups’ concerns and regulatory action is on the horizon. The hearing signaled impending changes to achieve several federal policy goals related to medical expenses, including meaningful price transparency, accessible financial assistance policies, and concerns related to medical payment products.
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Request for Information on Policy Changes
To that end, the CFPB joined the U.S. Departments of Health and Human Services (HHS) and the Treasury to collectively issue a Request for Information (RFI) related to medical payment products. The RFI includes several sets of questions for stakeholder feedback, including general market-level and individual inquiries, as well as agency-specific questions related to their respective areas of expertise:
These questions specifically seek input on potential policy actions for the agencies’ consideration to address overlapping concerns.6
Affordable Patient Care & Recommended Provider Practices
Heightened regulatory scrutiny and potential enforcement policies give healthcare providers an opportunity to improve the patient financial experience and help prevent patients from taking on medical debt. Healthcare organizations should begin by critically examining their own price transparency, cost estimating, billing, financial assistance, and collection practices.
Health care organizations should continue to consider refocusing their efforts to improve the patient experience through upfront financial navigation solutions that provide patients with transparent information on treatment costs, financial obligations, and payment options. Health care organizations should also work cross-functionally to reduce claims processing friction that could ultimately result in patients receiving unexpected bills (for example, failure to obtain required prior authorization for services).
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Medical payment product policies and procedures. For facilities and providers who offer medical payment products to patients, existing policies and procedures should be reviewed and updated to ensure that patients are screened for eligibility to: (1) enroll in a health plan; or (2) receive financial assistance and charity care, before the patient is given information about medical payment products. When those products are offered, facilities and providers should also ensure the patient understands the terms of the product to avoid taking on avoidable medical debt. Increasing understanding of these products will also allow organizations to help consumers make informed decisions about how to pay for medical services.
Patients with heightened risks. Medical debt is a hurdle to patient access to care and can exacerbate existing health equality problems. Healthcare providers should proactively identify and support patients who are at risk of medical debt and minimize potential future harm. Consider expanding your organization’s payment plan options and making patients aware of financial assistance as early as possible.
1 A Gallup poll reported 38% of Americans had deferred or cancelled treatment over cost concerns in 2022, the highest percentage recorded since Gallup began polling that question in 2001.
2 In June 2022, the R1 Regulatory Team shared insights and analysis into CFPB action to alleviate medical debt burdens and the negative credit score impact of medical debt reported to nationwide consumer reporting agencies (NCRAs). As of April 11, 2023, all three NCRAs—Equifax, Experian, and TransUnion—have removed medical collections under $500 from consumer credit reports, impacting the credit reports of approximately 22.8 million people with an average 25-point increase in their credit score.
3 These concerns can be compounded by the relationships patients have with their healthcare providers. There is a possibility that patients’ trust in their providers could have a patient feel pressured into signing up for a medical payment product or be less likely to fully understand the terms and conditions of repayment.
4 The average interest rate for a typical medical credit cards is 27%, compared with the 16% average rate for general purpose cards.
5 HHS is concerned that anti-kickback regulations may be implicated by the offering of medical payment products., depending on how financial institutions have incentivized "the referral or recommendation" of those products.
6 Comments on the RFI should be submitted no later than September 11, 2023, to ensure consideration.
Disclaimer: This article is for educational purposes only. Not intended to be used as, or constitute legal or medical advice. Our statements are on behalf of R1 only and, in turn, are not intended to reflect or otherwise represent the viewpoints or positions held by R1 customers. This article contains predictions on future trends in healthcare, including on regulations not yet published. Readers are cautioned not to place undue reliance on such predictions.
Kathryn Beard, JD, is Manager of Regulatory Compliance & Regulatory Affairs for R1 RCM.