Credit cards and finance lines for medical care

    Lenders push risky credit for everything from cancer to Botox

    Last updated: July 2008

    When you're buying a new car or a plasma TV, you're on guard against high-pressure sales pitches and finance schemes that benefit the seller's bottom line rather than yours. But such tactics are probably the last thing you'd expect at a doctor's or dentist's office.

    Yet credit cards and finance lines that can reach exorbitant interest rates are being pitched to consumers seeking medical care, either directly or through their medical professionals.

    Lenders tout this as a way for patients to cover medical needs or elective procedures. Citi Health Card offers plans at "participating providers that allow you to get the treatments you need right now." A promo for CapitalOne Healthcare Finance says, "Expert cosmetic surgery and procedures like liposuction, hair restoration, tummy tucks, and more are now within reach."

    The cards and financing are promoted to doctors, dentists, and veterinarians as a way to make more money and get paid promptly. GE Money CareCredit provides this testimonial from Laser Elite, a hair and skin clinic in McLean, Va.: "Having CareCredit has definitely had a positive impact on our business. It helps us attract more patients and has increased our sales by 25 percent."

    Moreover, hospitals are checking credit scores of patients and even offering their own cobranded credit cards.

    Medical providers certainly should be paid for reasonable costs. But with consumers already sagging under record debt loads and medical credit lines reaching $40,000, the growing use of this kind of credit raises significant issues:

    • Interest rates can jump to as much as 27.99 percent retroactively. That's the rate Chase HealthAdvance's zero-interest plan charges, for example, if you miss a payment or don't pay off the debt in the promotional period. By contrast, the average fixed-rate credit card charges 11.9 percent, according to Bankrate.com.
    • Consumers report that they sometimes feel pressured by medical providers to finance needed medical care, in some cases while sedated or recovering from treatment.
    • Doctors and dentists have financial incentives under these arrangements to encourage patients to sign up for more expensive treatments and to steer them to extended financing plans that take a smaller cut of the practitioner's fee.
    • When hospitals persuade patients to tap unused credit, those patients can lose the power to bargain for discounts or even obtain charity care.

    CapitalOne spokeswoman Pam Girardo defends the finance plans, saying they offer patients flexibility. "And medical practices win because it allows the doctors to spend more time caring for their patients rather than completing paperwork or having awkward discussions with patients about financing and credit decisions," Girardo says.

    Consumer-credit experts say they are concerned nonetheless. "By persuading patients to use these financing plans, doctors and hospitals benefit because they get paid right away," says Howard Dvorkin, who founded a nonprofit agency, Consolidated Credit Counseling, in Fort Lauderdale, Fla. "But they can turn into terrible traps for consumers because card issuers know from experience that the majority will end up having to pay these double-digit rates."

    New market for card companies

    Some of the biggest names in the consumer-credit business are mining the area of patient and medical financing because the potential for profit is so big.

    About $45 billion worth of consumers' out-of-pocket medical costs is charged on credit cards now, but that number could more than triple, to $150 billion, by 2015, according to a recent report from McKinsey & Co., a management consulting firm. "Plastic will play an increasing role as patients' out-of-pocket medical costs continue to grow, and they finance those expenses in the ways they would finance any consumer debt," says Richard Gundling, a vice president at Healthcare Financial Management Association, a professional group.

    But paying for chemotherapy on credit isn't quite the same as charging a plasma TV, and it's usually more costly.

    Patients' out-of-pocket medical payments are projected to rise from $269 billion in 2007 to $464 billion by 2017, according to the federal Centers for Medicare and Medicaid Services. Peel off even a small bit of that in fees, and you're talking about a lot of money, says Mark Rukavina, director of the Access Project, a national health-care advocacy group.

    GE Money CareCredit says its financing is primarily used for elective procedures such as teeth whitening, Botox treatments, and Lasik eye surgery, as well as for necessary dentistry not covered by insurance. But it also is last-resort financing for uninsured or underinsured patients with urgent medical needs, says Claudia Lennhoff, executive director of Champaign County Health Care Consumers, a nonprofit consumer health-advocacy organization in Champaign, Ill. "The consumers who come to us for help when they are struggling with CareCredit debt are desperate people who were required to provide payment for an appendectomy or cancer treatment at the time of service," Lennhoff says. "Health-care providers steered them into these finance plans with rates that they didn't understand. This is really the medical equivalent of subprime mortgages."

    GE Money spokeswoman Cristy Williams says almost 80 percent of its medical-financing customers pay off the full amount in the promotional period. But Federal Reserve Board figures show almost 60 percent of households with regular cards carry a revolving balance.

    Concern is running so high in California that the legislature is considering a bill to prohibit predatory marketing of high-interest credit for dental care. CareCredit was cited by consumer health groups in several cases that spurred the legislation, including one in which the patient says she was signed up by the dentist's office for $8,000 worth of dental work while sedated.

    GE Money says that providers are trained to clearly represent CareCredit to their patients and that a company survey shows high customer satisfaction.

    Even if a procedure is a matter of choice, there's plenty to be cautious about. Chase's online marketing aimed at patients proclaims that "you can enjoy the option of having to pay no interest at all." It could be a good deal if you pay it off within the promotion time. But if you don't or miss a payment, you'll be hit with interest rates of up to 27.99 percent.

    Doctors or partners?

    Some experts worry about blurring traditional lines of responsibility. "When you have doctors promoting cards and loans with unconscionable finance terms as if they were sales agents for the lenders, it raises serious ethical issues, given the trust patients place in physicians, whose first obligation should be to their patients," says Gina Calabrese, a clinical law professor at the nonprofit Elder Law Clinic at St. John's University School of Law in New York City.

    The potential conflict is underscored by how the financing plans are pitched to health-care providers.

    For example, ChaseHealthAdvance says, "Patients are more likely to book full comprehensive treatment plans" because of the financing, also noting that unsecured lines of credit are "the riskiest form of consumer lending."

    With 6.8 million cardholders and more than 90,000 participating health-care providers, GE Money CareCredit is among the leaders in health-care financing. Its marketing material for doctors emphasizes how offering the card "can significantly impact your bottom line."

    CareCredit also allows providers to find out whether a patient will be approved for financing, "before the treatment or fee discussion," by submitting a patient's name and address for a credit-worthiness review.

    Consumer Reports examined CareCredit marketing material that a New York City area dentist received when he contacted GE Money at our request. The brochure claims that patients are likely to delay treatment because "the average American only has about $300 available credit on their consumer credit cards" and urges doctors to offer the plan so they can get immediate payment.

    If a patient were to finance $1,000 worth of dental work on CareCredit's no-interest, 18-month payment plan, the dentist would be paid by GE Money, minus 13.5 percent of the total as a "processing fee." The processing fee for merchants is usually 2 percent or less.

    If a patient opted for an extended-payment plan over two to five years, CareCredit would take only 5 percent of the dentist's fee, and the patient would pay interest at an initial annual rate of 11.9 percent that could rise to 23.9 percent if he or she failed to pay off the balance in the specified time.

    Doctors thus are given a financial incentive to have patients stretch out payments at double-digit interest rates from the start. The American Dental Association is among many professional medical groups that endorse CareCredit, adding to patients' perception that financing is a wise choice.

    The prospect of swift payment from a finance company may also provide incentives for some dentists or doctors to perform expensive procedures.

    When Siya Kuweza, a New York City municipal employee, took her 17-year-old daughter to a dentist for an exam in July 2007, she says she was told that the girl needed extensive dental work that wouldn't be fully covered by insurance. Before treatment began, Kuweza says she was told by office staff that she should fill out an application to borrow $7,325 through CapitalOne Healthcare Finance. She was approved immediately, and the dentist performed five root canals on her daughter that day.

    "He's a doctor, so you think you're doing the right thing to follow his advice, but my daughter's mouth became so swollen and she was so sick afterward that we canceled the rest of the treatment and went to another dentist," Kuweza says. It took months for the dentist to refund most of the money that had been charged for the uncompleted treatment.

    Attorneys for Kuweza's municipal employees union are investigating whether the teenager received proper treatment and are negotiating on Kuweza's behalf to have negative information about the debt removed from her credit report.

    Hospitals check credit reports

    James and Terri Wilkerson face a $13,000 debt.

    Hospitals increasingly are checking patients' credit reports or using scoring that rates ability to pay. Just walking into a hospital to request treatment for which you'll owe a portion of the bill gives a hospital permission to obtain a credit score or report, according to Jennifer Coxwell, who manages health-care relationships for credit report giant Equifax.

    Equifax says use of its Payment Predictor and related systems is rapidly gaining favor with hospitals. Coxwell says the system can benefit patients by helping hospitals identify those who may qualify for financial assistance. But it also allows hospitals to determine whether patients have any available credit on existing credit cards. Thus they can try to persuade them to put the charges on their cards.

    Jim Bentley, a senior vice president of the American Hospital Association, says his group recommends that hospitals get a patient's permission or wait until billing has been done before checking credit reports. He also says, "As patients are obligated to pay more out of pocket under Health Savings Accounts and higher deductibles, we all have to do our best to make sure patients understand the terms if they are offered commercial credit."

    If you finance medical bills on a credit card, you lose leverage to negotiate payments directly with health-care providers, who may charge self-paying patients up to five times more.

    The pressure to "charge it" can come when you're most vulnerable, as James Wilkerson of Petersburg, Va., discovered after he was rushed to an emergency room by ambulance in January 2007, when he nearly died of complications from chemotherapy for lymphoma. Wilkerson says he was placed in financial peril when the ambulance took him to Southside Regional Medical Center, a for-profit hospital, rather than to a nonprofit hospital where his expenses had been fully covered by the hospital's charity program. Since being diagnosed with cancer in late 2006, Wilkerson has been too ill to work, and his wife, Terri, has to cover living costs for the couple and their two children on her $18,000 income from a job with the American Legion.

    Wilkerson says after he returned home, hospital representatives began calling several times a week about the $28,000 bill for his four-day stay. He says they did not discuss whether he qualified for the hospital's charity-care program or offer to negotiate a reasonable monthly payment plan. The hospital obtained a copy of Wilkerson's credit report, which showed he had a Chase card he had forgotten about with available credit of $13,000. "I didn't even know we had it because we usually throw away all of the credit card offers we get in the mail, but the people from the hospital were threatening to put a lien against our home or freeze our bank account if we didn't agree to use the card for the hospital bill," he says. The couple agreed to charge $13,000 on the card, which the hospital accepted as payment in full. They made the first two months' payments of about $260 but could not keep up and sought legal help.

    "I've been doing legal aid work for 20 years and I've never seen anything like this," says Dale Pittman, their attorney. "This is a couple with a good credit history, raising two kids and dealing with a devastating illness, yet still managing to hold it together until the hospital puts the wolf at their door by pushing them into a credit card with predatory terms." The credit card's annual percentage rate is up to 29.99 percent, and late fees of $39 are charged for each month they miss a payment while Pittman attempts to negotiate with the hospital and Chase.

    Chase officials would not comment for this story. A spokeswoman for the hospital says it helps patients get charity care, adding, "We did reach a deeply discounted and mutually acceptable payment plan for the care he received at our hospital, and we respectfully disagree with the allegations made by Mr. Wilkerson."

    Calls for more scrutiny

    Kery, Maryann, and David Jandris have thousands in medical debt.

    The growing ties between the lending and health-care industries are attracting legislative scrutiny because most of the nation's hospitals are tax-exempt and are expected to provide charity care. Sen. Chuck Grassley, R-Iowa, ranking member of the Senate Finance Committee, says nonprofit hospitals "are cozying up to banks, debt buyers, and credit-card companies to extract the highest rates of payment from the uninsured or underinsured." He wants clear requirements for the charity care that hospitals must provide to qualify for tax exemptions. Consumers Union, the nonprofit publisher of Consumer Reports, supports the effort.

    Coping with illness in the family can trigger a financial crisis even for people covered by health insurance, says Steffie Woolhandler, an associate professor of medicine at Harvard.

    Case in point: Maryann Jandris of Lehigh Acres, Fla., lost her $60,000-a-year accounting job after she took a leave of absence to help her 22-year-old daughter, Kery, through intestinal surgery and nine hospitalizations. Expenses such as co-pays up to $50 each for her daughter's nine prescriptions have wiped out more than $30,000 in savings.Maryann and her husband, David, are making minimum payments on $4,000 of medically related debt, some of it now at a 29.49 percent rate. Their mortgage lender, Wells Fargo, began foreclosure proceedings in March. "It's amazing how one illness can start a downward spiral that destroys everything you've worked so hard for," Jandris says.

    The links between the credit and health-care industries hinder efforts to control health-care costs, says Elizabeth Warren, a consumer-debt expert and Harvard law professor. "When card issuers can make the same extraordinary rates of return on medical debt as they do on iPod and sneaker purchases, they become powerful political stakeholders who profit from escalating medical costs and reduced insurance coverage," she says. "They make health-care reform that much harder to achieve."

    Doctors' groups endorse medical credit

    The Web site for GE Money's CareCredit card lists endorsements from 31 state medical and veterinary associations and 11 national groups, including the American Dental Association, American College of Eye Surgeons, American Society of Plastic Surgeons, American Society of Bariatric Physicians, and American Animal Hospital Association.

    The groups that answered our requests for comment said the programs offer useful options for their clients. But Steffie Woolhandler, an associate professor of medicine at Harvard, says, "It's disgraceful for medical associations to be endorsing credit cards for health-care bills because it's a terrible idea for patients." GE Money says dental offices are primary users of CareCredit because dental insurance often covers less than half the cost of treatment.

    The ADA's association with GE Money extends to other programs. The ADA says its "Give Kids a Smile" program, which offers screenings and some free dental care, is funded in part through $225,000 in donations from CareCredit, as well as support from chewing-gum manufacturer William Wrigley Jr. Co.

    What you can do

    Once you've paid an out-of-pocket medical bill with a loan or credit card, you lose your ability to negotiate the repayment amount and terms. Here's what you need to know:

    • Hospitals are required by federal law to provide care in a medical emergency. Always ask for an itemized bill and check it for accuracy, because billing errors are common, according to the Access Project, a national health-care consumer advocacy group based in Boston.
    • If you can pay at the time of service, providers may be willing to cut your bill by more than 50 percent to avoid the expense of billing. When negotiating discounts or any payment terms, ask to speak to the manager of patient accounts. Get any agreements in writing.
    • When you're dealing with a hospital, request a copy of its financial assistance guidelines to see whether you qualify for free or discounted care. Although non-profit facilities are supposed to volunteer such help, consumer advocates report they often don't inform patients about these options unless they're asked.
    • Providers generally structure plans to be paid off in no more than 24 months, but negotiate a longer term if necessary to ensure that you will be able to afford the monthly payment, because your account can be sent to a collection agency if you are paying less than the agreed-upon amount. Any interest charged is likely to be at a lower rate than a commercial lender's.
    • If relying on credit is your only option, shop for the best general-purpose credit card deal rather than take a health-care credit card or loan marketed through your doctor or hospital. Zero-interest offers are a good deal only if you're absolutely sure that you will be able to pay the balance in full during the interest-free period. If you can't be sure you'll be able to pay on time, Curtis Arnold, founder of CardRatings.com, suggests putting medical charges on one of your existing credit cards and then transferring that balance. Among the best deals recently available: Blue or Blue Cash from American Express, which both offer a 4.99 percent rate for the life of the balance with a 3 percent transfer fee, and Pentagon Federal Credit Union's 2.99 percent rate for the life of the balance with a 1 percent transfer fee.

    Medical credit financing

    CapitalOne Healthcare Finance

    Pitch to patients: "If your doctor is not currently signed up with our program, our sales consultants will contact him/her."

    Pitch to doctors: "Many patients using our programs have indicated that they would not have had treatment if our programs were not available."

    Percentage of doctor's fee that lender keeps: Up to 12.99% on no-interest loan for 18 months, up to 7.5% on installment loan of 18 months to five years.

    Finance terms: No interest up to 24 months (if balance not paid in full, retroactive APR of 22.99%) or fixed APR of 1.99% to 25.99%.

    Chase HealthAdvance

    Pitch to patients: "So go ahead and schedule that procedure you have always wanted."

    Pitch to doctors: "Refrigerators, carpet, televisions, even tires are advertised with interest-free financing. This is what attracts consumers."

    Percentage of dentist's fee that lender keeps: 4.9% on no-interest loan for three months, up to 13.9% on no-interest $5,000 loan for 24 months, 4.99% on extended-payment plans. (Rates may vary for other health-care professionals.)

    Finance terms: No interest for up to 24 months (if balance not paid in full, retroactive APR of up to 27.99%) or fixed APR of 11.99% to 27.99%.

    Citi Health Card

    Pitch to patients: "Some things in life can be put off. Fortunately, quality health care doesn't have to be one of them."

    Pitch to doctors: "Some patients/clients may be too embarrassed to ask if financing is available. The biggest obstacle to treatment acceptance is often affordability."

    Percentage of doctor's fee that lender keeps: 10.95% on no-interest loan for 18 months with a balance of $599 or more, 4.5% on extended-payment plan.

    Finance terms: No interest for up to 18 months (if balance not paid in full, retroactive APR of 21.98%) or fixed APR of 12.96%.

    GE Money CareCredit

    Pitch to patients: "Maybe you'd like a brighter smile or better vision. Maybe you want to freshen your look. Or maybe your family pet needs a surgery you didn't plan for."

    Pitch to doctors: "The average American only has about $300 available credit on their consumer credit cards and cannot comfortably write a check for more than $500 out of their monthly cash flow."

    Percentage of doctor's fee that lender keeps: 13.5% on no-interest loan for 18 months, 5% on extended-payment plans.

    Finance terms: No interest for up to 18 months (if balance not paid in full, retroactive APR of up to 23.9%) or fixed APR of 11.99%.


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