As doctors and hospitals turn to GE, Citigroup, and smaller rivals to finance patient care, the sick pay much more
by Brian Grow and Robert Berner
In a lucrative new form of fiscal alchemy, a growing number of hospitals, working with a range of financial companies, are squeezing revenue from patients with little or no health insurance. April Dial's dealings with Hot Spring County Medical Center in Malvern, Ark., illustrate how the transformation of medical bills into consumer debt means quicker cash for medical providers but tougher times for many patients of modest means.
Dial, a 23-year-old truck-stop waitress who earns $17,000 a year plus tips, suffers from Type 1 diabetes. Sudden drops in her blood sugar level have sent her to the emergency room four times in the past three years. In September she spent three days at Hot Spring, including two in intensive care, fighting complications from her ailment. The bills came to more than $14,000. Dial's job offers no health insurance.
Until recently her mother, Carolyn, who waits tables at the same roadside diner, sent Hot Spring $100 a month under the nonprofit hospital's longstanding zero-interest payment plan. Dial says she couldn't make payments herself because she spends more than $150 a month for other treatment and insulin.
Sophisticated Help
In October she learned that Hot Spring had transferred her account to a company called CompleteCare, one of the many small firms fueling the little-known medical debt revolution. Enticed by the enormous potential market of uninsured and poorly insured patients, financial giants such as General Electric (GE), U.S. Bancorp (USB), Capital One (COF), and Citigroup (C) are rapidly expanding in the field or joining the fray for the first time. CompleteCare informed Dial that under the complicated terms of her newly financed debt, her minimum monthly payment had shot up more than fourfold, to $455. Dial says she doesn't have anywhere close to that amount left over after rent, food, and other doctor visits: "Every extra dime I have goes to paying medical bills."
Collecting from "self-pay" patients like Dial has long been the bane of medical administrators. When they don't get paid immediately, hospitals typically recover around 10¢ on the dollar owed, even when they hire collection specialists. So hospitals and clinics are bringing in more sophisticated help. They are transferring patient accounts wholesale to finance experts, banks, credit-card companies, and even private equity firms. Many of these third parties use credit scores and risk-analysis software to price the debt and impose interest rates as high as 27% on past-due bills.
Among hospitals, nonprofits like Hot Spring County Medical Center are more likely than for-profit rivals to join forces with finance firms. Fewer nonprofits have effective in-house collection departments, and in many regions a higher proportion of patients at nonprofits lack insurance. "Hospitals can't just be an interest-free finance vehicle," says Todd Cole, director of patient accounting at TriHealth, a $2 billion pair of nonprofit hospitals in Cincinnati. "The world of $5 sent to the hospital and they will never send me to collections, never sue me—that world has gone away," he adds. TriHealth sells patient accounts at a steep discount to firms that specialize in collecting delinquent consumer debt. "Hospitals need their cash," Cole says. "It is the lifeblood that supports the doctors, the nurses."
Crafty Cards
For hospitals and outside firms to obtain that cash, someone has to pay. The people most likely to feel the pain are often those least able to afford it—patients who lack private insurance but who are not poor enough to qualify for charity care or government benefit programs. The pool of self-pay patients is mammoth: Some are among the nation's 47 million uninsured; others are among the 16 million whose plans offer scant coverage or have deductibles as high as $10,000. Several recent studies have shown that medical debt is a leading cause of personal bankruptcy filings.
A host of nimble firms like CompleteCare in North Little Rock, Ark., began exploring this terrain years ago. Bigger players have jumped in more recently, although the market remains fragmented and reliable market share information isn't available. U.S. Bank, a U.S. Bancorp unit, finances about $2 million in patient debt per month through a medical-benefit firm, charging most customers annual interest of 13.5%, and as much as 24% on late bills. General Electric's powerful financial arm markets its CareCredit card to dentists, plastic surgeons, and some hospitals, with loan volume expected to hit $5 billion this year, up 40% from 2006. Citigroup and Capital One now offer similar cards. "Everybody is saying
is the next horizon—whether it is lines of credit or credit cards," says June St. John, a senior vice-president at Wachovia (WB), which is exploring the business. Whetting all these appetites is the $250 billion consumers pay in medical expenses out of their pockets, an amount that doesn't include insurance premiums. That's an estimate for 2005 from the consulting firm McKinsey & Co. The figure could hit $420 billion by 2015.
BusinessWeek's investigation of the fast-expanding medical-finance field has uncovered hazards, however. Many patients say they don't realize their debts are being shifted to such interest-charging middlemen as GE Money Bank, the unit that issues the CareCredit card. That's what happened to Alice Diltz when she visited Hillside Dental Care in Queens, N.Y., in October, 2005. Diltz, a 68-year-old part-time hospital aide, needed implants for two rotting teeth and three missing ones. The Hillside staff told her she would have to pay $7,450. But her dental insurance, provided by her retiree husband's policy, offered only $200 for extractions. Diltz paid $250 from her pocket and signed up for what she says she thought was an installment plan directly with the clinic. In fact, she signed an application for CareCredit, which was labeled as such, but in small print. Diltz says neither Hillside dentist Ben Mokhtar nor his staff mentioned a credit card.
While having her teeth pulled, Diltz began to bleed heavily. She got scared and left the dental office after the extractions. Four days later she canceled the implants, assuming her dealings with Hillside were over. But several weeks later she received a bill from CareCredit for $7,000. Hillside had transferred that amount to the credit-card company, which in turn paid the clinic about $6,300 up front. Diltz says she called CareCredit to dispute the charge, but bills kept arriving. Several weeks later, she says she called again and objected in writing. But GE told her she had missed a 60-day deadline and couldn't reverse the charge.
((rest of article @ following link)):
http://www.businessweek.com/bwdaily/dnflash/content/nov2007/db20071120_397008.htm?chan=top+news_top+news+index_best+of+bw
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