If you run a medical practice in 2019, cultivating a nuanced understanding of medical financing is an important part of your job.
As health insurers cover less and charge more in deductibles, people are left to work with their doctors to find financial solutions. Patient financing is growing in popularity as a way to fill the gap.
Like medicine, finance has its own language. We assembled a cheat sheet of terms you should know:
Servicing is the process by which a company collects principal and interest from patients with an outstanding balance. Servicing includes providing an online account management portal, plus any communication through email, text, letters, or phone calls.
Servicing a loan is different than billing for services in a few key ways. One, billing doesn’t allow auto debiting of accounts, nor is there a legal obligation to pay. In addition, billing does not necessarily involve an installment agreement.
Underwriting describes the process by which a company accepts the financial liability in exchange for a payment agreement.
Underwriters are allowed to charge interest to cover the financial burden and risk they take on as part of underwriting. In addition, lenders can charge origination fees to set up and initiate the loan.
Interest is the amount a financial institution charges in addition to the principal (i.e. the amount lent to a patient, plus origination fees).
This number is calculated by using several factors — risk of default, inflation, current interest rates, and opportunity cost, which describes the lost opportunity an institution faces by lending that money out instead of investing it elsewhere. Interest rates for healthcare loans tend to be between 5.99% to 29.99% APR.
A delinquent borrower is one who has not paid their balance due on time. Lenders are obligated to follow up with delinquent borrowers in order to seek payment.
A borrower who doesn’t cure their delinquency in a timely manner can go into default, at which point their credit score is impacted and their account goes to collections. Delinquency lasting more than a couple weeks can also impact credit scores.
HFD automatically debits payment from patients on a recurring basis for the duration of the loan terms — so, in this case, a delinquent patient is one whose debit did not go through.
A cured account is one that used to be delinquent, but has been brought current by the borrower.
Once an account is cured, it won’t be reported as delinquent to credit bureaus, though previous months spent will still be documented on reports.
A default account is one that went into delinquency but was never cured by the borrower within the proper time frame. These accounts are usually transferred to collections agencies and reported to credit bureaus as default.
FICO is a private “predictive analytics” company that uses a proprietary formula to determine the creditworthiness of every borrower in the US. FICO takes data collected and documented by the three major credit reporting companies — Transunion, Equifax, and Experian — to create a score on a scale from 300 to 850.
Patients with scores below 669 are often experience difficulty getting approved for loans, or receive high interest and must offer large down payments in order to be underwritten.
Flexible patient financing
An innovative alternative to traditional lending, flexible patient financing facilitates pay-as-you-go arrangements to support care for people with low or no credit. If a patient doesn’t qualify for a traditional loan, they can enter a payment plan structured by a provider like Healthcare Finance Direct to make monthly payments for their care.
In this arrangement, the borrower signs an agreement to pay the servicer using direct debits from their account on a recurring basis. The servicer then directs payment to the practice.
Rather than using a traditional credit scoring model, HFD uses a proprietary algorithm that takes additional aspects of a person’s financial health into consideration, assigning them a score from A thru E to determine their creditworthiness.
From there, HFD services the relationship for the practice, sending them monthly installments when payment is received for the life of the agreement.
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