Managed In-House Payment Plans: A Patient Financing Solution

The Consumer Financial Protection Bureau (CFPB) monitors lenders who provide healthcare financing. Its mission is to govern how mortgage and consumer financing is marketed to consumers. The bureau sets policy for lenders that addresses market interest rates set by institutions, cardholder and loan agreement language transparency, and any other go-to-market activities that may negatively impact the consumer. In the past, the CFPB has taken a strong stance against popular deferred payment plans offered by healthcare finance companies, finding that plans were unfairly vague in disclosures to patients regarding the interest rates charged when the patient was unable to pay the treatment amount during the interest-free promotional period. The bureau also found that medical practices (including dental) were engaging in deceptive enrollment practices that created confusion for consumers. As a result, the CFPB mandated changes in disclosures and greater transparency in terms and conditions on the base product and any promotional products offered at the time treatment was coordinated.

Today, the CFPB is partnering with the Department of Treasury and the Department of Health and Human Services and is expected to take action to promote more transparency and compliance regarding the provision of payment plans for treatment. Practices, therefore, must pay close attention to the plans they present to patients. If they are using third-party financing, they should ensure that the plans are transparent and simple, offer fair interest rates, and that patients can understand the outcome of the financing arrangement.

In 2024, dental practices face the combined headwinds of higher interest rates and increased scrutiny on the merits of healthcare financing to consumers. Since May 2022, the federal interest rate has increased from 1% to 5.5%, a dramatic jump that has put pressure on capital markets and lending sources. Some lenders have dropped out of financing healthcare treatments, and others have increased fees or rates to accommodate the higher interest rates. This puts pressure on collections as fewer options are available.

Because of these changes in the lending environment, some practices are moving to in-house payment plans. While payment plans may seem easy to implement and administer, in practice they are not and can inject legal risk into a dental practice. A practice should consider a professionally managed in-house patient financing program that has bank oversight, as it is important for the practice to be in compliance with state lending laws. A managed in-house financing program with bank oversight can help ensure that the practice is compliant with state laws. A program with bank oversight is typically subject to FDIC audits and review.

These programs typically have no merchant fee, and some may share the collected interest with the provider. Typically, the provider's program manager can set up a specialized program for the practice tailored to its patient base. The practice can set the approval criteria for the program. Patients apply for the program through a lending platform much like any third-party financing platform. Approvals are based on the specific credit criteria established by the practice. If approved, the patient will need to pay a down payment for the treatment.

Typically, there is an origination fee charged to the patient at the time the patient signs for the loan. This fee usually ranges from 1% to 3% of the loan amount and is collected by debit or credit card in the loan signing process. From there, the patient receives a bill from the plan provider on behalf of the practice; the practice does not have to engage in billing or collecting the payment. If the patient does not pay the loan, the plan provider typically notifies the practice of the default, and the practice in turn will have to take action on collecting the outstanding balance. Such programs provide an effective and compliant option for treatment payment plans.

In conclusion, practices considering implementing an in-house payment plan should strongly consider using a professionally managed in-house financing program that has bank oversight. Partnering with a provider who offers a well-governed program can be a rewarding experience for the practice and result in higher collection rates.

Barry Trexler
President and Chief Executive Officer, Tua Financial Technologies, LTD (tuafinancial.com)