Bank loans signed in the hospital leave patients vulnerable

Laura Cameron, three months pregnant, tripped and fell in a parking lot and landed in the emergency room in May. She was flat on her back — scared, in pain and attached to a saline drip — when a hospital representative came by to discuss how she would pay her bill.

Although both Cameron and her husband, Keith, have insurance, her time in the ER probably would cost about $830, the rep said. If that sounded unmanageable, she added, the couple could take out a loan through a bank that had a partnership with Mercy Hospital.

She was “fairly forceful,” recalled the 28-year-old Cameron, who lives in Fayetteville, Ark. “She certainly made it clear she preferred we pay then or we take this deal with the bank.”

Hospitals are increasingly offering “patient financing” strategies, cooperating with banks and other financial institutions to provide on-the-spot loans to make sure patients pay their bills.

Private doctors’ offices and surgery centers have long offered such no- or low-interest assistance for services not covered by insurance or to patients paying by themselves for an expensive test or procedure with a fixed price. But health experts say promoting bank loans at hospitals — and, particularly, in their emergency departments — raises concerns.

For one thing, the cost estimates provided are likely based on a hospital’s list price and may be far higher than the negotiated rate ultimately paid by most insurers. Patients may feel they have no choice but to sign up because they need treatment — and the quick loan process means they may well be signing on for expenses they cannot afford to pay.

What initially seems like a tempting solution may not be such a great deal in the end, suggests Mark Rukavina, an expert in medical debt and billing at Community Catalyst, a Boston-based advocacy group.

“If you pay 0% interest on a seriously inflated charge, it’s not a good deal,” he said.

Yet it takes stepping back to understand that, which isn’t always easy in an era of higher deductibles, narrower provider networks and patients shouldering larger portions of their medical expenses. In 2016, the federal government estimates, consumers spent $352.5 billion out-of-pocket on healthcare.

Many patients have trouble coming up with cash to pay those bills, meaning hospitals have a harder time collecting what they are owed. To solve their problem, about 15% to 20% of facilities nationwide are teamed up with lenders to offer loans, said Bruce Haupt, chief executive of the loan-servicing company ClearBalance. He expects that percentage to grow, as do many industry analysts.

The process begins with a hospital estimate of a patient’s costs, which takes insurance coverage into account. A billing representative then lays out payment plans, often while the patient is still being treated, and a loan sign-up can take place right away, often without a credit check.

Once back home, the patient writes monthly checks to the lender, which has paid the hospital and keeps a designated percentage of the bill as its fee.

Proponents view financing as a useful alternative to medical credit cards, which can surprise users with high interest rates. The partnerships enable hospitals to offload the headache of administering monthly payment plans and pursuing collection.

Federal law requires any lender be transparent about its loan terms — the interest rate, payment schedule and other charges — and that protection extends to any patient signing up in the hospital.

Still, an on-the-stretcher pitch leaves patients little opportunity for due diligence.

“The hospital potentially is charging the patient the full, what I would call ‘whack rate’ for their care,” said Kathleen Engel, a research professor of law at Suffolk University in Boston and an expert in consumer credit and mortgage finance. “They try to collect the debt.”

Johns Hopkins University professor Gerard Anderson, an expert on healthcare pricing, has a related concern. “What’s the charge [lenders are] using to determine what’s a reasonable amount to pay?” he said.

At Florida-based Orlando Health, which works with ClearBalance, loans typically range from $3,000 to $7,000, said Michele Napier, the health system’s chief revenue officer. The most debt a patient has taken on — about $13,000 — was because of a high-deductible insurance plan, she said.

“All of a sudden a catastrophic event occurs, and to have $13,000 in the bank account is a lot to ask,” Napier said. Default rates vary across the country, with 20% rates seen in places such as Texas and Louisiana. In other areas, about 6% of patients ultimately cannot pay off their loans.

“Some of these people are destined to default,” Engel said. “If you have to get a loan for $500 for medical care, that means you are really living at the margins.”

Laura Cameron was suspicious of her $830 hospital bill estimate because she had good insurance coverage from her job as a subject librarian at the University of Arkansas. She and her husband, a cancer survivor, already had extensive experience with the healthcare system and its costs. No one had ever asked either to pay upfront, even when he owed tens of thousands for his treatment.

“It just felt so uncomfortable to us that they would try to push us through a bank, which is designed to make a profit,” Cameron said.

The couple declined Mercy Hospital’s loan option and refused to discuss payment until she was back home and received her insurance statement.

A spokeswoman for the Rogers, Ark., facility said its loan option is a consumer-friendly strategy. “We’ve heard from many patients that they appreciate receiving this information as soon as possible because it relieves their worry about paying the costs of their care,” Sonya Kullmann said.

In the end, the Camerons owed only $150 — the co-payment for her emergency visit. “It felt to us like it could screw someone over who wasn’t aware about how to work that system,” Laura Cameron said.

But she remembers feeling intimidated as she lay on the gurney in the ER. “It can be scary feeling like you owe someone money.”

Consumer tips

Consumers — especially those whose insurance doesn’t cover a particular procedure, doctor or treatment — can end up on the hook for thousands of dollars in medical bills.

How do you make sure you’re getting a good financing deal? Here’s some advice from financial experts.

• Wait. Don’t commit to a payment plan until you’re home and recovered. A loan may be the best option, but it’s hard to make a good decision under pressure.

• Do your research. There are organizations that focus on helping with medical bill payments. Nonprofit hospitals are legally required to provide financial assistance for certain low-income patients; figure out if you qualify.

• Bargain. Find out what Medicare, which covers elderly and disabled people, pays for the same treatment. Don’t pay above that amount.

Luthra writes for Kaiser Health News, an editorially independent publication of the Kaiser Family Foundation.