On July 7, 2023, the Consumer Financial Protection Bureau (CFPB), U.S. Department of Health and Human Services (HHS), and U.S. Department of Treasury (Treasury) issued a Request for Information (RFI) on medical credit cards and other high-cost specialty financial products to better understand their prevalence, patients’ experiences with them, and the incentives driving providers to offer these products. The RFI is intended to build on recently published CFPB research, which found that these products have become more prevalent in recent years and are likely harming patients who do not appear to fully understand the financial risks associated with them.
What Are Medical Financing Products?
Medical financing products, like medical credit cards and installment plans, are offered to patients to ostensibly help them cover out-of-pocket health care expenses. They are frequently marketed to patients through trusted providers like doctors and nurses, but they are serviced through third-party financial services companies. These products used to be offered to patients to cover the costs of elective procedures not otherwise covered by their insurance such as dental, fertility, or cosmetic care. However, in recent years, their use has ballooned and these products are now offered to cover routine medical care and emergency services provided at hospitals and doctors’ offices. For example, one company offering medical credit cards, CareCredit, went from having 4.4 million cardholders and 177,000 participating providers in 2013 to 11.7 million cardholders and 250,000 participating providers in 2023.
In the past, providers used to offer installment plans to uninsured and/or low-income patients at zero or low interest rates as an accommodation, but recently providers have begun to partner with financial services companies to offer more structured loan arrangements. Such installment plans or loans provided in partnership with financial companies tend to charge market-level or higher interest rates. The CFPB report published earlier this year found that some financial services companies specifically target patients with low credit scores, while others target patients seeking specific procedures like fertility treatments. The RFI finds that many of these medical installment loan companies are backed by private equity firms.
How Do These Products Harm Patients?
Patients turn to these products when they are faced with sudden or high out-of-pocket medical expenses and lack access to ready cash or other lines of credit. Many times, patients who sign up for these products are unaware that they might be eligible for no- or low-cost care through a hospital’s financial assistance program. In their RFI, CFPB, HHS, and Treasury (the tri-agencies) find that hospitals and financial services companies might not be making reasonable efforts to determine when a patient is eligible for financial assistance before offering them a medical financing product. Use of these products can also interfere with insurance coverage, make it difficult for patients to dispute inaccurate medical bills or to negotiate a lower price with the provider.
Patients might be presented with offers for these products at times of great stress or pain, when it is harder for them to fully comprehend their financial options. The CFPB report even finds that some patients are enrolled in these products without their consent or knowledge. Given that most of these credit cards and loans are offered in a hospital or a doctor’s office, patients might not always realize that they are entering into an agreement with a third-party financial services company.
Interest rates for these medical financing products tend to be higher than general purpose credit cards. The CFPB report found that the typical annual percentage rate (APR) for medical credit cards is about 27 percent whereas the average APR for a general purpose credit card is 16 percent. Many medical financing products attract patients with zero or low interest offers for a set period of time, most often for a year. Once this deferred interest period ends, the interest rate increases significantly. If a patient cannot pay off their balance fully by the end of the promotional period, they will owe interest on the entire original purchase amount and not just the balance remaining at the end of the promotional period. Though these offers can be beneficial for patients who are able to pay off their balances within the promotional period, low-income patients and those who might not understand the terms of these products end up facing worse financial outcomes.
The CFPB report found that, between 2015 and 2020, 20 percent of purchases made under a deferred interest promotion became subject to deferred interest at the end of the promotional period. Patients with lower credit scores were more likely to have shorter promotional periods and were more likely to become saddled with deferred interest at the end of the promotional period. This deferred interest can add about 23 percent of the original purchase amount to the patient’s balance. The report found that patients incurred a total of approximately $1 billion in deferred interest on health care purchases between 2018 and 2020.
In the RFI, the tri-agencies further express concern about providers and financial services companies potentially using these medical financing products to avoid restrictions on credit reporting and protections against aggressive debt collection practices that otherwise apply to medical debt. Though the three national credit reporting agencies—Equifax, TransUnion, and Experian—have agreed to not report medical debt for bills under $500 or which are under a year old, these protections do not apply to medical bills paid using medical financing products. Further, using a medical financing product can impact patient credit scores even more directly through “hard credit checks, increased credit line utilization, decreased average account age, or eventual account closure.”
Why Are Providers Partnering With Financial Companies To Offer These Products?
Financial services companies market these products heavily to medical providers by offering quick and risk-free payments as well as reduced administrative burden and costs for the providers. Typically, when a patient cannot pay their bill, the provider has to mail them periodic billing statements, handle disputes, potentially negotiate lower payment amounts, and hire debt collectors. However, when a patient ends up using a medical financing product, the provider receives full payment within days through the financial services company and does not have to engage in any of the billing and collections activities mentioned above. Financial services companies also incentivize providers to sign up more patients for these products by offering providers a discount on management fees when providers sign on more patients or by offering them a share of the profits. Further, some financial services companies tout their ability to help providers sell patients expensive services that they do not need.
Even providers who used to offer no- or low-interest loans to low-income patients have started to contract with these companies just to shed the risk and burden associated with managing patient billing and collections. Financial services companies also market their services as helping patients afford their health care bills and tell providers that making these products available to their patients will result in supposed goodwill. Financial services company train medical providers to sell and market these products, while providing financial application software that makes the process of enrolling patients in these products quick and seamless.
What Is The Administration Doing About These Products?
The tri-agencies have issued this RFI in a bid to learn more about the problems with these products as well as to understand the policy solutions that might be available to them. First, the RFI broadly seeks market-level information on “the scope, prevalence, terms, and impacts” of medical financing products. The tri-agencies are seeking data and comments on interest rates and fees associated with these products, total outstanding debt on these products, trends of use, demographics of users, health equity implications of these products, level of market concentration among financial services companies who offer these products, and ownership of financial services companies offering these products.
Second, the tri-agencies are also more specifically interested in learning more about the marketing of and enrollment in medical financing products, “how and when patients are offered these products, what information patients are given about these products, and how patients make decisions about utilizing these products.” They are concerned about the position of trust that medical providers hold and the undue influence they might have in selling these products as a result. They are interested in learning if the increased availability of these products is limiting the availability of zero and low-interest payment plans traditionally offered by the providers themselves. They are also seeking information on how these products might be negatively affecting patients’ ability to access financial assistance or health insurance benefits, and to what extent patients are using these products to pay incorrect bills.
Third, the tri-agencies are further seeking information on how these products affect patients’ “financial, physical, and mental health.” They want to learn more about the “interest charges, default rates, credit reporting practices, and collections practices associated with medical payment products.” They are further interested in understanding whether and how these products are contributing to providers denying care, patients delaying or avoiding care, and patients experiencing increased mental stress.
Fourth, the tri-agencies are also seeking comment on the incentives that financial services companies are offering providers to get them to promote medical financing products, as well as what kind of training and support they are offering providers. The tri-agencies are looking into whether these incentives might violate certain federal laws put in place to penalize kickbacks among health care providers. They are also interested in learning about how insurers’ claims management and reimbursement policies might be contributing to providers’ decisions to lean more on these medical financing products.
Fifth, the tri-agencies want to know how these products interact with certain key federal protections related to health care charges and billing. More specifically, they are seeking information about whether providers are charging higher prices to patients using these products, and whether providers are disclosing these higher charges as required by federal transparency laws and the No Surprises Act’s good faith estimate provision. The tri-agencies are also interested in understanding how these products interact with the notice and consent requirements under the No Surprises Act for out-of-network patients.
Finally, the tri-agencies are seeking input on best practices for providers who offer these products and how the tri-agencies can encourage providers to adopt these best practices. They are also asking commenters to submit policy recommendations on actions the agencies should take to better understand the impact of these products and regulate this industry. They are also asking individuals to comment on their personal experiences with these medical financing products. In addition to including general list of market-level and individual-level questions, the RFI also organizes its inquiries by agency based on their individual jurisdictions and oversight authorities.
Maanasa Kona, “The Biden Administration Takes Aim At Medical Financing Products,” Health Affairs Forefront, July 11, 2023, https://www.healthaffairs.org/content/forefront/biden-administration-takes-aim-medical-financing-products. Copyright © 2023 Health Affairs by Project HOPE – The People-to-People Health Foundation, Inc.