Patient Financing 101: The Basics You Need to Know

The rising cost of healthcare is placing a greater financial burden on patients, making it harder for many to afford necessary medical care. At the same time, healthcare providers are facing declining reimbursements and increasing operational costs, making it critical for them to collect patient payments efficiently. In this landscape, patient financing has become an essential tool to bridge the affordability gap and ensure that patients can access care without financial strain. 

What Is Patient Financing? 

Patient financing allows individuals to spread the cost of their medical care over time, rather than paying the full amount upfront.  For patients, financing makes healthcare expenses more manageable, and for providers, it ensures that they receive payment without placing an overwhelming burden on patients at the time of service. 

How Does Patient Financing Work? 

Most healthcare providers partner with third-party financing companies that manage payment plans for patients. When a patient opts for financing, the provider often receives payment from the financier upfront, and the patient repays the financing company over time. Depending on the financing model, patients may be able to select from different repayment terms, interest structures, and plan durations to best fit their financial situation. 

Recourse vs. Non-Recourse Financing 

One of the most important distinctions in patient financing is whether the option is recourse or non-recourse financing.

• Recourse Financing: In this model, a hospital partners with a patient financing company and sends their patient balances to the financing partner to manage and collect payment. Should a patient fail to pay, the debt is returned to the healthcare provider, who shares the risk of patients not paying their bill with the patient financing company.  

• Non-Recourse Financing: When a patient account becomes delinquent under this model, it remains with the patient financing vendor; however, this model often necessitates interest charges or deferred interest, which can exacerbate patient financial burdens. Unlike recourse financing, nonrecourse models place the burden  of risk solely on the financing vendor, resulting in fewer patients qualifying and disparate repayment terms based on their financial circumstances.   

Understanding the difference between these two financing structures can help patients and providers make informed choices. To learn more, check out this detailed guide on recourse vs. non-recourse financing. 

Understanding Interest and Different Financing Options 

When considering patient financing, it’s essential to understand how different financing models apply interest and fees. 

Interest and APR 

Interest rates, often measured as an Annual Percentage Rate (APR), determine how much extra a patient will ultimately pay for their financing. APR is the percentage of the loan amount that a borrower must pay back in addition to the principal (the original amount borrowed). High APRs can significantly increase the total cost of medical care, while low or zero-interest plans can help patients save money over time. 

Medical Credit Cards 

Medical credit cards are designed specifically for healthcare expenses. They often offer an initial zero-interest promotional period, but once that period ends, high-interest rates may apply. Many patients are caught off guard when they realize that failing to pay off their balance within the promotional period results in steep retroactive interest charges. For a comparison between zero-interest financing and medical credit cards, visit this guide.  

Deferred Interest Plans 

Deferred interest plans may seem like a good deal at first, as they often advertise no interest for a certain period. However, if the patient does not pay off the balance in full by the time the promotional period ends, interest is often applied retroactively to the original loan amount- not just the remaining balance. This can leave patients with unexpectedly large bills and financial strain. Learn more about the risks of deferred interest here. 

Zero-Interest Financing 

Zero-interest financing is one of the most patient-friendly options, allowing patients to pay for their care over time without accruing any interest. Unlike medical credit cards or deferred interest plans, zero-interest financing programs do not retroactively apply interest and do not rely on promotional periods that expire. This ensures greater transparency and affordability for patients. 

Benefits for Providers 

For healthcare providers, offering patient financing can significantly improve financial stability and patient satisfaction. The Patient Financial Engagement Playbook highlights that as more patients struggle with medical debt, providers are becoming increasingly reliant on patient payments to maintain operations. However, traditional billing and collection methods often result in uncollected balances and frustrated patients. 

By incorporating financing solutions, providers can: 

• Improve cash flow by receiving upfront payments from financing partners. 

• Reduce collection costs since third-party financiers manage payment plans, eliminating the need for aggressive and costly collections. 

• Enhance patient engagement by offering clear, flexible payment options that patients can commit to without fear of financial hardship. 

Patient financing has become a strategic tool to improve financial outcomes for providers while maintaining strong patient relationships. To learn more about the impact on providers, watch this video. 

Benefits for Patients 

For patients, medical debt is a growing crisis. Financing solutions offer a way to manage these costs without delaying or foregoing necessary care. 

The key benefits for patients include: 

• Increased accessibility to care, ensuring they receive treatment when needed. 

• Reduced financial stress by allowing payments to be spread over time. 

• Zero-interest and low-interest options, helping patients avoid high-interest medical credit cards or deferred interest plans that can lead to unexpected charges. 

Financing options also improve the overall patient experience, making it easier for individuals to plan their medical expenses without fear of surprise bills. To learn more about how patient financing benefits patients, check out this video. 

Patient financing is an essential part of today’s healthcare landscape, offering a lifeline for patients struggling with high out-of-pocket costs and a valuable financial tool for providers looking to maintain revenue and patient satisfaction. By offering structured, transparent financing options, healthcare organizations can help patients access the care they need without the fear of unmanageable medical bills. 

As healthcare consumerism grows, providers who prioritize patient financial engagement, through clear communication, upfront cost estimates, and flexible financing, will be better positioned to serve their communities while securing their financial health.