You may have patients who use third-party payers, usually insurance companies, and some of your patients may be paying you in cash.
But there’s an alternative option available—a patient financing company.
In this model, the financing company pays the chiropractor within a few days of the provision of services and bills the patient separately. Some potential clients coming into your office may have sticker shock when they see the costs involved to rehabilitate or correct years of spinal misalignment. It may cost thousands of dollars to provide short and long-term health care.
The cost of these health care packages is more easily managed when broken up into monthly payments. The financing company may also extend a new revolving line of credit to the potential client. This service can maximize customer retention, minimize staff time to set up and collect in-house payments, and strengthens your practice’s cash flow.
Risk management
Costs to the chiropractor can vary depending on the patient financing group with whom they choose to partner. Costs can be broken down into three categories: Upfront payments, monthly fees and processing fees per client. The financing company may charge for any combination of the three.
Upfront payments are not typical but you may come across them when there is a longer process to get you set up with software or connected to multiple lenders. Monthly fees usually come from patient financing groups that are trying to minimize the practice’s processing fee per client. Monthly fees are usually associated with companies providing larger software packages.
The main cost to the provider is a processing fee for each patient who is financed. This is similar to a credit card transaction where the office is paying 0.5 to 3 percent per transaction.
The patient financing fee to the chiropractor can range from 0 to 30 percent. Most transactions tend to be between 2.9 to 15 percent. The sliding scale is associated with the patient’s credit history and how many months you offer 0 percent financing to your client.
Clients with low credit scores are considered high risk and the patient financing company charges more to the practice to provide the funds for this service. With most patient financing companies, you have the option to provide 0 percent interest to the patient for six to 24 months. This is usually referred to as a promotional period. The longer your promotional period, the higher financing fee.
What the patient pays: Costs to the client come in two categories: origination fees and the annual percentage rate (APR). Origination fees can cost 1 to 5 percent of the total loan. APR can range from 0 to 36 percent.
During a promotional period, the APR is 0 percent. If the balance is paid off within the agreed-upon timeframe, there is no APR. But if the balance is not paid off in its entirety by the due date, the patient financer either charges deferred interest or simple interest. This can mean a big difference in payments for your patients, so take this into account when partnering with a patient financing company.
Credit requirements: This will depend on the patient financing company, but it is safe to assume all clients with prime credit scores (680-plus FICO score) and good debt-to-income ratios will qualify for an unsecured loan. Providing options for clients with lower credit scores or higher debt-to-income ratios requires partnering with the right company.
Differences between financing companies: Usually, the terms of the loan and credit requirements are where financing companies start to differentiate themselves. All patient financing companies will lend to patients with prime credit scores and good debt-to-income ratios. A 2016 study by FICO.com put the number of adults with prime credit scores at about 50 percent. There are patient financing companies that will lend to clients with credit scores below prime, but they charge a higher fee for their services because such loans tend to have a higher default ratio.
Loans and credit cards: Loans have a fixed term and a fixed APR. Credit cards (or revolving credit) will come with no definite term length and have variable APRs. Loans are more practical for one-time higher-priced services. Credit cards or revolving credit are better used for ongoing services.
Recourse for patient defaults: Recourse is the ability of the patient financing company to hold the chiropractor liable for loans that default. You may find tricky contractual language around first-payment recourse. This contract will allow the financing company to claw back the full payment if the patient does not make their first payment. Most patient financing companies will provide programs with no recourse to the practice. Be sure to look around to find a program that fits your practice best.
The application process for the chiropractor: This will usually include a business credit check (or a personal credit check if the practice is under two years old). All legal documents and insurances will need to be provided as well.
The application process for the patient: Applications are usually web-based and approval or denial can be made within a few minutes. For patients who prefer paper applications, most financing companies will have that as an option. A soft credit pull can usually provide a pre-approval or denial for that specific lender. But once the patient signs the final terms, a hard pull on their credit history will take place.
Michael Abramovic has a storied startup and technology background. His resume includes an acquired clean-tech startup and Google. He has spent most of his professional career asking questions. The riddle Michael is solving at this time involves combining social responsibility, healthcare, and financial technology. He can be contacted at michael@lendoption.com or through lendoption.com.
