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A Fresh Look at Recourse Financing: Strategy to Reduce Bad Debt

The need for expanded flexible patient financing has never been greater. Maximizing a patients’ ability to pay for care satisfies simultaneous demands for providers to expand access and health equity, deepen patient centricity, and promote a return to financial health. Recourse patient loans are a time-tested model that should be regarded as an essential component of a dynamic financing toolkit. However, healthcare organizations tend to view recourse programs through a single lens. CommercePayments® will provide insights on the benefits of integrating recourse into a robust patient payment strategy.

Meeting Strategic Imperatives

Expansion of patient financing contributes directly to three urgent strategic imperatives. One is to address affordability. Americans place cost issues high on their lists of healthcare concerns (Figure 1).1

Which healthcare issues are most important to you? (Top 3)
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Patient spending is projected to increase 10% annually through 2028.2 This rising obligation can lead to deferral or avoidance of procedures.

The post-COVID need to accelerate revenue growth in order to improve profitability and promote long-term financial success is another driver. Almost half of surveyed healthcare executives regard growth as their top challenge.3

Third, financing is a key element of the strategy to bring dramatic improvement to the overall patient financial experience. Fueling this emphasis has been the rise of non-traditional healthcare providers, who continue to make inroads in primary, urgent, home health, and specialty care. These competitors bring a disruptive approach that utilizes technology and consumer retail savvy to offer patients new levels of choice and convenience in their healthcare encounters.


The central distinction between recourse and non-recourse financing is that the lender assumes the risk of default in non-recourse loans whereas the financing firm will return non-performing recourse accounts to the healthcare provider, who retains control over how the delinquent patients are handled. The non-recourse avenue involves loans that require credit checks, leaving some patients unable to obtain necessary financing unless the healthcare organization offers its own payment plan. Recourse programs typically are structured with lines of credit extended without credit review, thereby expanding the financing opportunity to a wider range of patients.

Comparing Non-Recourse and Recourse Options

Organizations frequently express a preference for non-recourse financing. However, several important factors should be considered before going this route exclusively. First, the healthcare provider will be exposed to the burden of collections for two reasons:

  • Non-recourse loan parameters will likely cause a significant segment of patients to be turned down outright, forcing them to contend with self-pay pressures.
  • Other patients will not be approved for an amount sufficient to pay for services. Non-recourse financing generally sets credit limits based on a patient’s debt-to-income ratio. A patient with a good credit history facing a $10,000 hospital bill may only be approved for $3,000 of credit based on the ratio, leaving the provider with $7,000 to collect from the patient (Figure 2).

Compare non-recourse financing and recourse financing for a patient with $10,000 bill
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Second, non-recourse financing can create an additional administrative burden for the provider and/or patient. The lender will facilitate a process to determine financing approval and underwriting. Loan documents generally require that signatures are obtained.

By contrast, recourse financing typically approves all patients, regardless of credit, for larger amounts that are usually sufficient to cover all services. This broad approval means that loan application and transaction information can be automatically transmitted from the provider to the financing company, eliminating any paperwork or approval process.

When is Recourse Financing Best Used?

It is helpful to assess where recourse programs fit in the portfolio by examining the three principal procedure categories: non-elective, elective and cosmetic. Figure 3 provides a summary guide.

Best use cases for recourse and non-recourse by procedure category
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Primarily conducted in out-patient surgery centers or office-based surgical suites and carrying little insurance coverage, cosmetic is almost exclusively non-recourse. Non-elective procedures—the preponderance of hospital activity—are especially appropriate for recourse financing. Patients vary widely in their credit scores, insurance deductibles, uninsured or underinsured status, and abilities to pay, and many would either not qualify for non-recourse loans or be approved for credit limits that represent less than 100% of need. Healthcare providers can turn to the recourse option, letting a financial institution extend and manage credit lines with minimal screening to help patients fulfill their entire payment obligations.

Elective procedures present diverse financial scenarios, particularly as to cost and insurance coverage levels. Both recourse and non-recourse can be appropriate, and consultation with an experienced lender is advised to help you navigate the best option.

5 healthcare executives from mercy health standing in a stairwell.


The Mercy health system in St. Louis encounters complex patient financing needs throughout its more than 40 hospitals and vast outpatient network. Mercy has relied on the CommerceHealthcare® Health Services Financing (HSF®) program to help patients consolidate bills and make payments through no-interest loans.

Mercy values the bank’s agile responsiveness and sensitivity.
“Commerce understood patient needs and developed a truly humanitarian solution that helps ease their minds and support their recovery.”

To read the full story, click here.

The Right Approach to Recourse

Collaborating with the right bank or financial firm is an essential ingredient in conducting an effective, profitable recourse program. Just “finding a bank” is insufficient. CommerceHealthcare® advises distinguishing between financial institutions based on five critical characteristics (Figure 4):

Financial strength, healthcare knowledge and experience, solid technology platform, comprehensive program management, the right policies
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Financial strength

Driving growth and expanding health access via recourse financing require the ability to offer credit lines to a wide range of patients at very low or interest free rates. Healthy, asset-rich banks bring the stability and scalability necessary to support the program.

The right policies

Two components are vital. First, lines of credit must be extended at significant levels (up to $50,000, for example) and with virtually automatic approval in order to cover the most patients and reduce friction in the process. Second, in the event an account defaults, your financial organization should refund all the transaction fees you have incurred. This policy substantially decreases your financial exposure to non-performing recourse situations and maintains an incentive for your financial organization to service the accounts.

Comprehensive program management

Beyond default rates, the concern most frequently registered about recourse is addition of complexity and cost to the organization’s revenue cycle. Health systems, hospitals and physician practices are not financial institutions and shouldn’t have to play the role of a bank. A financial firm providing disciplined, end-to-end loan administration from processing to patient communication to reporting relieves burdens on your staff.

Strong, secure technology platform

Technology is a key underpinning to a recourse program. Your vendor should have a unified platform capable of scaling as you grow and robust enough to manage patient data, integrate with your portal and financial systems, and respect your internal workflows. Application programming interface support for data integration is an important IT feature. A vendor with strong cybersecurity infrastructure and protocols is another requirement given healthcare’s heavy exposure to attack.

Healthcare knowledge and expertise

Your financing group must be highly cognizant of industry trends to enable program adaptation as external requirements change. In addition, they must thoroughly understand the myriad of governmental regulations and lending non-discrimination rules. Relying on a single trusted financial institution for compliance brings peace of mind.


A well-executed recourse financing program puts you on the road to rapid realization of numerous benefits:

  • Grow revenue and strengthen competitive position. With many competing providers offering varied financing options, your ability to eliminate financial barriers through frictionless, low or interest free loans will yield desirable incremental volume and increased market share.
  • Boost patient access to care. Recourse adds another “arrow in the quiver” to address the challenging need to make care affordable. Patients are incentivized to make the right care decisions, driving better outcomes.
  • Reduce bad debt and improve cash flow. The combination of a comfortable credit line and close loan monitoring from an experienced financial institution fosters strong payment adherence and minimizes defaults. Evidence suggests that patients are more likely to make payments when dealing with an independent financial institution. The result is better overall cash flow and fewer bad debts for providers.
  • Enhance patient financial experience and patient satisfaction. Patients have the dignity of covering their medical debt and dealing privately with a financial institution to pay off their bills at an affordable 0% or low interest rate. Patients also value the credit line’s ability to add repeat/chronic care charges without creating a new loan application. Organizations that offer these tailored recourse financing options will garner patient satisfaction and brand loyalty.
  • Maintain control of patient financing. Since defaulted recourse loans are returned by the lender, your organization determines its preferred policies and approaches to disposition. Many healthcare providers do not want to relinquish control, fearing reputation risk or divergence from stated social mission.
  • Reduce servicing expenses of managing in-house payment plans. Let the bank handle recourse program administration, enabling you to reallocate staff to higher priority projects.
  • Streamline enrollment. Frequently, only verbal approval is needed for a patient to enroll in the recourse program.


The case for recourse loans is multifaceted. Many providers are successfully utilizing the strategy and deriving the benefits of a highly flexible patient financing program. Adoption of the recourse option merits full consideration by all.

CommerceHealthcare® solutions are provided by Commerce Bank.


  1. Beryl Institute and Ipsos, Consumer Perspectives on Patient Experience in the U.S., July 2023.
  2. Kalorama Information, Out of Pocket Spending in Healthcare, July 2023.
  3. A. Kayser, “The No. 1 Healthcare Challenge, Per 150 Leaders,” Becker’s Hospital Review, August 15, 2023.