Patient financing with Doug Hammond
Dr. John Jameson
This month, Dr. John Jameson speaks with Doug Hammond, the director of sales for CareCredit, a company used by more than 30,000 health-care practices nationwide as their payment plan.
Dr. Jameson: Why do practices need patient financing? Why would a practice become involved with these types of systems?
Hammond: A practice needs a patient-financing system for three key reasons. One of the biggest reasons is that 77 percent of Americans can`t write a check for $500 out of their monthly cash flow. That doesn`t include moving money out of savings or a money-market account. People spend their money on mortgages, rent, etc. They haven`t planned to write a check for $500, so writing a check for treatment fees can be very difficult.
Second, the average American keeps his or her credit card within $300 to $400 of the available credit limit, meaning there`s not a lot left over for paying for a treatment plan. We are a plastic society.
Third, medical studies have shown that 33 percent of patients delay needed treatment for financial reasons.
With those factors in mind, running a practice on cash, check, or credit card is going to limit what you can do. People need some sort of patient financing. The alternative is running an accounts receivable program, but that is such a costly way to do business. It costs the average practice 21 cents on the dollar just to run one of those programs. It`s a large number, and that`s just the physical costs. There`s no devaluation of the dollar factored in. The longer you wait to collect on an accounts receivable, the less that money is worth to you. If you look at just the costs of billing in accounts receivable as its own entity, the cost to bring $20,000 back to the practice is approximately 42 percent of that money. The mistake that a lot of practices make is that they view it in the cost affecting receivables versus the whole.
Dr. Jameson: What types of programs are available for practices today?
Hammond: Two different types of patient-financing programs are available because there are two types of credit available for the consumer - revolving credit and term credit. Revolving credit is similar to a bank card, such as a Best Buy, Sears, J.C. Penney, etc. It`s something that can be used over and over again, in our case for health-care services. The patient pays a small monthly payment and he or she can use it any time and anywhere as long - as there is credit available. Generally, interest-free financing options are offered, which is something that patients absolutely love. It has been used in retail establishments for some time. Just look at your Sunday newspaper. How do appliance stores get you to buy a wide-screen TV? They do it with interest-free financing. It`s very popular for large-ticket items.
I don`t feel that doctors compete with each other. As a patient myself, I go to my dentist because he is a good dentist. I know that I`m being treated right. But, I have a certain amount of discretionary income. If a doctor wants to be competitive for that discretionary income and do higher treatment services, he or she has to have a patient-financing program. This gives the doctor the same tools as retail outlets. It`s what the patient is used to, and it`s what the patient likes. A term financing program is available for larger cases, such as cosmetic procedures. This is similar to an auto loan. It`s a fixed period of time - usually from two to five years - with a low interest rate -such as 9.9 percent. This allows a person to stretch out the payments over an extended period of time and pay low interest.
Dr. Jameson: What kind of service fees can doctors expect when they become involved with these patient-financing programs?
Hammond: Service fees vary by program and acceptance rate within the program. The doctor simply needs to make a decision on what type of patient-financing program he or she wants in the practice. In my opinion, one key thing to stay away from are recourse programs - where you are paying a service fee, yet the doctor could be held responsible for a patient defaulting on a loan.
A good patient-financing program does charge a service fee, which is obviously a little higher when you are with an interest-free program. My company has a standard 5 percent fee. With a 12-month, interest-free, patient-financing program, that could be around 6.9 percent. But, it`s far less than the 42 percent we discussed earlier. The bottom line is that no matter what a company charges for its patient-financing program, the practice will be paying a lot less than it would if it was doing everything internally. I tell doctors to compare it to cash. Many practices will give a courtesy for an upfront cash payment. Any patient-financing program that is worth its weight will do the equivalent.
Dr. Jameson: It sounds like there are a lot of benefits to the practitioner to use this in the practice. What are the patients` opinions of having health care financed this way?
Hammond: Wherever they go, the patients are accustomed to paying for their services when they receive them. We made the comparison to Sears earlier. It`s the same here. Patients like interest-free financing. Who wouldn`t want an interest-free loan? Patients want the convenience of walking in, getting the financing done, and walking out with the dentistry or the wide-screen TV that they need today. I once heard that doctors, in general, were the number-two lenders of money behind banks and financial institutions. Most of their loans are given interest-free with no credit checks! Where else can you receive a service and walk out without having to pay for it? Financing is something that patients are used to seeing and it`s something they like. Patients react very positively to getting their dentistry and financing done today.
Dr. Jameson: It sounds as if the financing aspect actually can become part of the dental team`s activity. So, are there assistance programs available from financing companies for the practice?
Hammond: Absolutely. The patient-financing program should become one of a menu of options to help the patient say "yes" to treatment today. Patient-financing companies realize this, and will provide training and support. Having initial training is fairly standard today, but ongoing support really can help the practice. That facet is something that can separate one patient-financing company from another. Anybody can put out a patient-financing product, but it`s how the company teaches verbal skills, role-playing, scripting, and things of that nature that will help the practice feel comfortable with presenting it. The practice has to believe in what it is offering to the patient. You have to believe it is good for the practice and good for the patient. The visual aspect also is important. A big percentage - around 70 to 80 percent - of Americans are visually oriented. Our company puts out a lot of visual products for the practice to use in the presentation of financing. Having strong visual aids to go along with verbal skills is very important. We put out 10 different visual aids. A practice won`t use all of them, but the doctor can pick out two or three that best fit his or her financing philosophy.
Dr. Jameson: How can a practice`s bottom line expect to benefit immediately from having a patient-financing program?
Hammond: If a practice rearranges its financing options to incorporate a patient-financing program, stops being in the "billing business," and lets the patient decide what he or she wants by using a menu option before the treatment is performed, the practice will see an immediate increase of 10 to 40 percent in case acceptance. Why? The patient-financing program offers patients smaller monthly payments than the practice could have ever offered if it was doing all of this by itself.
Financing companies have the ability to stretch those payments out. If practices tried to do this, they would be out of business. Also, when practices stop being in the "billing business," they will see an immediate increase in cash flow because they`re no longer waiting for the money. Because it`s a non-recourse program, we take no risk and the money is put in right away. We take the time to bill and collect, which is a tremendous help to the practice. Now, instead of financial options, there are financial opportunities. It`s a win-win-win situation. The practice wins because it is doing more treatments, and they are treatments that the practice wants to do. The financing company wins because it makes money. But the bottom line is that patients win. The patients receive the dentistry they want and need today, and they are able to afford it.