The Strategic Impact of Patient Financing.

The demand for patient financing is growing as healthcare costs continue their upward climb and individuals are asked to pay more out of pocket for their care. Insufficient financial assistance can generate a host of problems, from patients avoiding care to stymied provider collection efforts, to hindered progress on important objectives. Improved patient financing programs aren’t simply the right response to help patients, they’re also increasingly strategic in nature.

This report examines the current pressures in patient financing and explores its catalytic role in three high-priority strategies for today’s healthcare organizations: growth, patient experience, and access/equity.
 

The Ongoing Affordability Challenge

Limited personal financial resources make healthcare an unaffordable proposition for many. A few recent data points depict the extent of the problem:

• Half of U.S. adults struggle with care expenses. The issue spans insurance status and is not limited to the uninsured (Figure 1).^{[1] footnote [1]}

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• 56% of adults aged 50 and over are “very concerned” about the cost of medical care, and 16% have had trouble specifically paying for insurance, drugs or services.^{[2] footnote [2],[3] footnote [3]}
• Total average employee cost of healthcare is $7,151 in 2024, with 42% of that amount paid by the employee through a combination of payroll contributions and out of pocket expenses.^{[4] footnote [4]} Enrollment in high-deductible health plans has grown substantially in recent years, placing larger obligations on patients to pay for care.
• The pressures are unlikely to abate, as 63% of Americans age 60 to 70 view healthcare costs as a leading worry in retirement.^{[5] footnote [5]}
   

The Financing Gap

The financial constraints expressed in this data manifest themselves in patient payment problems that are fueling a need for more financing options. Fifty percent of all patients owe between $1,001 and $5,000, and one in four owes more than $5,000.^{[6] footnote [6],[7] footnote [7]} Over 15% of families carry medical debt that is past-due, with 61% of the balances over $1,000.^{[8] footnote [8]}

Providers collected only 47.6% of total patient obligation in 2022 and 2023. The collection rate drops markedly with increased amounts owed (Figure 2).^{[9] footnote [9]} Industry-wide, uncollected funds constitute 10% of total net payments, a meaningful cash flow shortfall.^{[10] footnote [10]} The issue extends to the outpatient realm as well. Collecting from self-pay customers is a very or somewhat significant daily challenge for 29% of physician practices.^{[11] footnote [11]}

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Little relief appears to be on the horizon. Forecasts envision patient spending increasing 10% annually through 2028.^{[12] footnote [12]} Financing needs can be expected to grow apace.
 

Patient Financing’s Strategic Role

Expanded financing programs would clearly help many patients. Broader assistance would also have positive ramifications for three high-profile strategies being pursued by providers (Figure 3).

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Securing long-term financial health via growth

If patients avoid elective procedures or other needed care, revenue and volume growth is negatively impacted. The concern is timely, given hard-won recovery in industry volume from pandemic lows. Hospitals have increased net operating revenue per calendar day by 7% through mid-2024 on rising volume.^{[13] footnote [13]}

Growth is essential to a sound financial position. Fitch Ratings warns of a “fundamental disconnect between revenue generation and expense requirements that may be here for the long term.”^{[14] footnote [14]} That’s why 57% of top healthcare leaders say revenue growth is their top current strategic initiative.^{[15] footnote [15]} Cost-cutting alone is insufficient.

The risk of care avoidance is real. A Gallup poll estimated that cost has induced 72.2 million people to forego necessary treatment in the past three months.^{[16] footnote [16]} Another study saw 38% of respondents admitting to skipping needed care over the prior year, again with significant percentages registered across insurance types (Figure 4).^{[17] footnote [17]}

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Patient cost pressures could impede crucial growth vectors. Outpatient care is one priority as volume is expected to climb 17% in the next decade.^{[18] footnote [18]} Virtual care is another opportunity, with a projected 23% of evaluation and management visits being conducted via telehealth by 2034.^{[19] footnote [19]} Both paths have significant dependency on chronic care, which now represents 45% of outpatient volume.^{[20] footnote [20]} Since outstanding medical debt is evenly distributed between patients with new and ongoing conditions, the threat to outpatient expansion from affordability problems is clear.^{[21] footnote [21]} Robust patient financial assistance can remove obstacles to seeking care and thereby help sustain provider growth.
 

Substantially enhancing the patient financial experience

Healthcare has directed significant attention and investment to improving the end-to-end patient experience with the aim of heightening convenience, removing process friction and reducing frustration and stress. The financial aspect of the experience is a necessary strong focus. “Consumers judge service organizations on the basis of the performance of a small number of processes,” observed an influential healthcare executive, identifying the key healthcare processes as accessibility, quality of care delivery, and “the management of payment for care.”^{[22] footnote [22]} A consumer survey found that 30% of respondents identified affordability as “most important to their healthcare experience.”^{[23] footnote [23]}

Regarding patient financing, progress has certainly been made. Almost two-thirds of patients say their organization does “a good job” when it comes to understanding their financial situation and offering payment assistance.^{[24] footnote [24]} That result also implies that further advancement is needed. So does a recent study that used a “blind shopper” approach to gather hospital financing information. It concluded that in many cases, “siloed offices handle financial assistance, billing, and upfront payment requirements at hospitals, and patients have to compile information across offices to get a full understanding of their financial options.”^{[25] footnote [25]}

The evidence suggests that patient experience would benefit from greater availability of financing, a more streamlined process to obtain it, and an emphasis on convenience and consistency. These measures would likewise promote two related experience goals:

• Price transparency compliance. As they strive to fulfill requirements for services, pricing clarity and “no surprises” billing, health systems, hospitals and groups can integrate financing into the conversation. Price comparisons must account for the “totality of financial assistance” beyond just services costs to give patients a true picture of their options.^{[26] footnote [26]}
• Improved competitive positioning. There has been a well-documented influx of non-traditional retail competitors that offer highly convenient care and often affordable pricing. This competition is one source of the rising consumerism of patients. While the ultimate trajectory of these competitors is unclear, traditional providers can use patient financing to contribute to positive experiences that enhance their market position.
   

Reducing disparities in health access

Access to quality care varies considerably across U.S. socioeconomic populations. Reducing such disparities has been a long-time goal — one that’s now become a hospital accreditation standard through Joint Commission.

Access variability can be gauged through various financing-related data. The percentage of adults carrying medical debt that is past due is 26.4% for those with incomes at or below 100% of the federal poverty level (FPL) and ranges steadily downward to 4.3% at 600% or more of FPL.^{[27] footnote [27]} The same study also noted that the debt data reveals inequities based on race, ethnicity and disability status, as well as income. Health insurance is also precarious for many, based on financial position, as shown in Figure 5 capturing intent to drop coverage.^{[28] footnote [28]}

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Patient financial assistance is often unevenly distributed. Hospitals initiate partial repayment plans to past-due accounts for almost 25% of patients under 100% FPL versus 44% for those over 250% FPL.^{[29] footnote [29]} Some of the lower income cases are handled via charity care or applications to Medicaid. Nevertheless, financing options are clearly more available for higher income individuals. Broadening the reach and extent of financing represents a meaningful opportunity to attain more equitable health access.
 

Solution: Roadmap to More Strategic Financing

Unleashing the benefits that can accrue from a more expansive financing portfolio is challenging for the many organizations with neither the resources nor the desire to assume a bank-like role. Collaborating with a well-resourced financial institution is a proven path to offering a wider array of options that meet patient and provider needs alike.

Statistics are limited on the extent of current use of third-party financing. One recent study put the rate at 19% (including the use of medical credit cards).^{[30] footnote [30]} Momentum appears to be building as healthcare organizations look to outsource more functions to help them achieve a variety of objectives. Over the 2023–2024 period, 61% of hospitals and group practices planned to expand use of third parties for patient financing options.^{[31] footnote [31]}

When evaluating outside-led organizations to manage financing programs, look for these desirable features:

• Financing flexibility. Zero interest rate lines of credit with no credit check and longer terms can be tailored to individual patient needs. Many organizations have been successful with a dual structure in which they directly finance smaller dollar amounts and rely on a bank to manage obligations for ranges such as $1,000 up to $50,000. The credit line approach also offers flexibility for patients as they can add subsequent care charges to the line without a new loan process. The solution avoids high interest charges found with many credit cards or loans.
• Preservice financing. Consider extending financing based on preservice estimates. This consumer-friendly option offers peace of mind in advance of care and supports price transparency discussions. Only 45% of hospitals with financing programs stated that they permit patients to apply prior to services rendered.^{[32] footnote [32]}
• Active patient communications. Optimizing a program involves using multiple touch points to communicate to patients regarding the availability of flexible, affordable financing. An external organization should help internal staff with scripts and consistent messaging and should be clear and helpful in its own communications with patients.
• Full loan servicing and administration. The organization should evidence diligent program management skill that saves internal staff time and expense.
• Single-vendor responsibility. Some financing vendors use third-party lenders to make the loans to patients or manage crucial processes. Distributing such responsibilities to multiple agents can introduce risk to program administration as well as patient experience.
   

Characteristics of a Strong Financing Entity

In addition to the desirable program features, an outside financial institution should possess several characteristics that are foundational to success (Figure 6):
 

Five Characteristics of a Strong Financing Institution

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• Financial strength to support program stability and scalability.
• Policies that optimize flexibility and are positive for organizations and their patients.
• Disciplined program management processes for effective loan administration from processing to patient communication to reporting.
• Strong, secure technology for patient data management, integration with provider portals and financial systems, and accommodation of internal workflows.
• Healthcare knowledge and expertise, including thorough understanding of the myriad governmental regulations and bank lending non-discrimination rules.
   

Conclusion

Affordability challenges persist and addressing them is assuming greater urgency, given today’s difficult financial landscape. Expanding patient financing with the right organization offers a proven, easy-to-implement path to help patients in the near term. Further impetus derives from the positive contribution to growth, patient financial experience and health access. This multiplier effect should elevate the priority of financing programs on the agenda of all healthcare leaders.

CommerceHealthcare^® solutions are provided by Commerce Bank.

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