In-house financing has its rewards

Take-home

An in-house financing program can provide many benefitscan grow the business in terms of the number of procedures performed, while saving money paid in third-party discounts, and even create new revenue streams as interest comes in on monthly payments.

Mr. RichardsonBy Bob Richardson

As we continue to transition out of the credit crisis that began in 2008, many medical practices are exploring new ways to move beyond survival mode and consistently grow their practices again.

While many patients still struggle with financial and credit issues, practices can adopt new payment plan strategies to serve this group and deliver the care they need, while growing their eye-care businesses.

Financing dilemmas

Though private insurance, Medicare, or Medicaid will cover the majority of essential, vision-saving procedures, financing issues can still present a barrier between you and your patients. Some procedures or upgrades may not be covered, or potential patients may have trouble covering a co-payment.

Furthermore, third-party financiers have significantly reduced their approval rates, slashing the number of surgical leads physicians can accept. With financing approval rates as they are, it is entirely possible that only 10% to 15% of interested patients can end up booking a surgery. Not to mention that the approval often comes with a 6% to 10% discount fee paid to the financier.

This is the great dilemma of the third-party financing paradigm.

It’s not easy to turn down care for those in need, but when the numbers do not add up, you’re left without a choice. Making a serious impact on your business stream-while opening up more options to your patients-requires looking past the third-party model and into more innovative solutions.

It’s no wonder many ophthalmologists are beginning to take financing into their own hands, allowing them to choose whom they accept, and extend their own credit to finance procedures.

If executed correctly, an in-house financing program can grow the business in terms of the number of procedures performed, while saving money paid in third-party discounts, and even create new revenue streams as interest comes in on monthly payments.

Opening doors to care

Let’s take a look at a few ways ophthalmologists can use these resources as an avenue to provide care.

First off, we’ll take the example of a patient seeking a $6,000 procedure-$3,000 of which covers hard costs-without coverage from insurance. This patient has some money to put down, but simply cannot cover the entire payment out-of-pocket.

Rather than turn the patient away, the physician can formulate a payment plan that works for the patient while minimizing his or her own risks. The paramount concern in this scenario is structuring a down payment that covers the hard costs and paying the rest over time, including interest.

That way, even if the patient immediate defaults on the payment plan right after the procedure-the worst of all worse case scenarios-the practice’s total loss is minimized.

However, physicians who are already utilizing this system-employing best practices-are reporting a 95% to 98% return rate on these kinds of payment plans, with interest paid on the remaining $3,000.

Though most physicians prefer to have all of their money up front, keep in mind this is net-new business. Without the payment plan, the patient would have to be turned away.

Second, let’s assume our patient has insurance, but has a $2,000 co-payment on the above procedure, and cannot pay out of pocket. Since the insurance is already paying $4,000-covering our hard costs, and then some-a payment plan can be used to cover the gap. Since hard costs are covered, the down payment can be more modest, but it is still prudent to collect something in case of a default.

Finally, what if a procedure is already covered by insurance, but the patient is considering a lens upgrade? If he or she cannot afford it at the moment, it makes sense to work with the patient to finance it, so the lens can be implanted during the procedure and save the trouble of a second surgery.

Once again allowing the patient to pay as you go is not as ideal as getting all the money upfront, but in this particular instance, the financing route makes the upgrade possible, thus generating extra revenue.

All of the above solutions are also possible with third-party financing. Keep in mind a third-party financier will often require 6% to 10% of the entire payment, including that crucial down payment. Thus, if a $6,000 procedure requires a $3,000 down payment, the practice is required to pay out $240 to $600 to the financing company. And that’s only if the patient is approved for financing in the first place.

Proper execution

Taking financing into your own hands can help open the door to steadier bookings, but here’s the truth. If not executed correctly, these programs can very quickly become more trouble than they are worth.

Without using best practices and an efficient billing system, administrative headaches and upkeep can snowball.

The good news is, modern technological tools not only can take care of structuring, tracking, and billing the financing plans, but also aid in evaluating the risk of potential customers.

The very beginning of the process-evaluating a potential customer-is a critical first step and should begin with setting parameters on a number of key risk factors.

Modern automated software can run credit, banking, and fraud checks at the click of a mouse, and that mouse click may very well be the end of the evaluation for more safety conscious doctors.

If all the results meet a pre-set minimum, then it is time to schedule the procedure and set the payment plan. Those that meet the set standard will carry the smallest default risk, making this system a safe bet for those looking to book a few extra procedures a month.

However, in today’s credit environment, this hard threshold generally represents only a small part of the picture, and can easily exclude many individuals who are more than capable of paying off their payment plans.

An administrator with override capabilities can make final approval decisions based on a number of factors much deeper than those mentioned above. In these cases, the terms of the payment plan can be customized to include higher down payments and interest rates to account for a greater risk, all of which can once again be customized at the click of a button.

Physicians who relax their requirements slightly, and make exceptions for certain profiles will be able to approve more people (and thus book more patients), but may see a slightly higher default rate in the long run.

The level of acceptable risk is ultimately up to you and the needs of your practice. The important thing is utilizing an automated system to keep your office staff from getting sucked into an administrative quagmire.

We’ve seen practices attempt to launch their own in-house financing plans, and organize all their payment plans on a spreadsheet. They allocate time from one employee as a billing manager, spending a few hours each week tracking and collecting the payments.

Within the first month, they have 50 payment plans on the books. However, out of those 50, about 5 to 10 default each month.

Suddenly the billing manager’s workload has doubled, as he or she must spend hours making calls and attempting to collect the payments. Given that he or she still has a day job, this extra task has now become a headache, and falls by the wayside as his or her daily work needs to get completed.

The result is that more payments slip through the cracks. All in all, this results in a loss for the business.

Unfortunately, the above example is all too common, and it is no wonder many physicians have come to the conclusion that in-house financing is a bad idea, or at least out of their reach.

However, if the business utilizes an automated system to track and collect payments,-along with a system to run banking, credit, and fraud checks, manage compliance issues, and automate the overall process-all of the above operational deficiencies can be mitigated.

Running the proper checks on potential customers can reduce missed payments. Advanced loan servicing software can take care of all the billing and collecting duties required of an overworked billing manager.

With the proper tools and framework, many ophthalmologists are seeing in-house financing as a realistic alternative to traditional methods, allowing them to say “yes” to more vision-saving procedures, while growing their practices at a comfortable rate.

Bob Richardson is president of ExtendCredit.com. Readers may contact Richardson at 888/364-2808 or Bob.Richardson@extendcredit.com

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