Medical Financing: When a Credit Score is not enough
Access to the mainstream finance system in America is limited to people who have good credit. For patients who need help covering medical costs, access to credit can determine who gets care and who doesn’t.
Nearly 20% of American adults are under-banked — a term that describes people who use alternatives to traditional finance systems, such as check cashing, payday lending, and so on. Minority and immigrant populations are disproportionately underbanked due to a variety of reasons. As many as 14% of American consumers have no credit standing whatsoever.
Many unbanked or underbanked individuals would otherwise qualify for traditional loans based on their income. But because they don’t have a qualifying FICO score, they’re locked out in most cases. This disparity in credit access becomes particularly stark when paying for healthcare and related medical procedures.
At Healthcare Finance Direct, we’re in the business of making sure people get the care they need, no matter their credit score. In doing so, we also help medical providers ensure that their patients receive care, while still receiving payment for their work.
How Healthcare Finance Works
The healthcare finance world is notoriously tricky to navigate.
Individual practices spend a lot of resources securing payment, and many don’t have the infrastructure, staff, or expertise to enable individual recurring payment plans.
On the patient side, high deductibles are becoming the norm. More than 20% of health plans for adults aged 30-45 come with a deductible of $1,300 or more (while 58% of Americans have less than $1,000 in the bank for emergencies).
Health plans only partially cover — or don’t cover — a number of procedures and medical devices deemed “elective,” including everything from hearing aids to LASIK surgery to orthodontics.
The result? Loans. Healthcare lending is a booming industry. Many lenders like CareCredit, Alpheon, and Greensky specialize in stop-gap medical loans to cover deductible balances, dental and vision, and elective procedures.
Usually, these lenders offer repayment terms that charge no interest or deferred interest for the first six to twelve months. However, they have strict credit scoring guidelines — only around half of the applicants get approved. People who have bad credit or no credit don’t have access to this system.
Healthcare Finance Direct is a third-party patient financing organization that structures and executes payment plans that don’t hinge on FICO credit scores. Instead, we use collected data from hundreds of thousands of patients to determine lending risk and set rates based on the likelihood of default.
We developed a proprietary algorithm that examines nine independent factors to determine a patient’s likelihood to default on payments. Then, we built a program around that data.
Our algorithm uses stability as a counterweight to credit score. In doing so, we put the spotlight on a more important repayment metric than access to credit. Stability can be measured in how long a person has stayed at one job or how long they lived at one address. It can also include factors about their consumer lifestyle.
The HFD algorithm takes this information (together with data from credit reports, which will warn of recent bankruptcies and evictions) and assigns a risk score. Patients who are at higher risk of default may have to pay a higher down payment to mitigate that risk.
Our programs are customized for each medical provider. That means the algorithm can be adjusted to consider a number of factors traditional loan underwriters can’t.
Then, we service and implement mature, time-tested payment plans with direct debit payment. Our plans cut down on the administrative burden and ensure that a medical practice gets paid. For companies with existing payment plans in place, HFD can improve repayment rates and streamline operations, freeing up employees to do the work that matters.
Does it work?
The fact is that FICO scores aren’t the last word on lending risk. Our own data proves this: out of a sample of 20,000 patients, we found that patients that had no credit score paid their bills just as well, on average, as patients in the 575-599 range — a range considered “fair” by many metrics.
The disproportionate focus on a bank- and creditor-centric lending criteria for healthcare results in people being turned away, even though they’re perfectly capable of paying their bills. We think that’s wrong — not to mention, it’s bad business.
Learn more about the flexible patient financing revolution and what it means for your practice.