The Pros and Cons of Recourse and Nonrecourse Patient Financing

Instead of choosing, some hospitals are offering both types of programs, but that approach has its own set of complications.

One of the key differences among patient financing partners is whether they offer recourse or nonrecourse payment plans. The differences can be confusing, so it’s worth taking the time to understand the benefits and disadvantages of each.

First, let’s define these terms. With recourse payment programs, patient financing companies return non-paying patient accounts to hospitals or health systems, so the provider controls how to handle these difficult cases. With nonrecourse loans, patient financing companies retain accounts and decide what tactics to use to pursue unpaid patient balances. 

Exploring various patient payment options is becoming increasingly important for hospitals and health systems as more patients take on greater financial responsibility for their healthcare costs. For example, 68 percent of patients who owed $500 or less and were not involved in a patient financing plan did not pay off the full balance in 2016, according to a June 2017 TransUnion survey. That number is going to jump to 95 percent by 2020, predicts TransUnion.

Before revenue cycle leaders can decide which type of financing program makes the most sense for their organizations, it’s important to understand why their hospitals want to offer patient financing in the first place.

To answer that question, here are five steps for evaluating recourse versus nonrecourse patient financing.

Discover what’s best for the majority of your patients. Recourse programs accept all eligible patient accounts that hospitals refer to them, which is generally anyone who can pay a minimum of $25 per month. In addition, recourse options offer revolving credit lines at no- to low-interest rates and affordable monthly payments.

Nonrecourse programs typically require credit scores of at least 640, which excludes almost one-third of Americans. This population is often made up of patients who need installment payments the most. In addition, nonrecourse programs also charge anywhere from 5-20 percent interest, depending on term length and credit score. Patients with higher credit scores qualify for lower rates.

Determine the impact to your bottom line. With recourse programs, the majority of financing companies immediately fund the full balance of all referred patient accounts, minus a service fee. Because the typical collection rate for recourse programs hovers around 90 percent, hospitals and health systems see improved cash flow, an increase in net revenues, and reduced bad debt, even when accounting for service fees.

Nonrecourse programs operate in a similar fashion, funding the full balance owed to hospitals, with some charging the equivalent of merchant fees, once patients apply and are approved for loans. Patients also pay for the program through interest charges.

Understand the implementation process and requirements. Recourse programs act as a seamless extension of hospitals, following their policies, brands, and service guidelines. Getting a financing program up and running can vary from less than 30 days to several months. The process follows a checklist that covers how accounts will be transferred over, funding setup, and any technical integration and requirements.

With nonrecourse programs, hospitals don’t have to develop an implementation process because they can give patients information about the loan program and then patients contact the finance partner. It is up to patients to apply for financing.

Identify how day-to-day administration will work. With recourse programs, hospital revenue cycle staff explain payment options to patients. Financing firms usually provide initial training to hospital staff to ensure the conversations are accurate and effective. Then most financing companies turn to automation to minimize the work for the provider. Revenue cycle staff flag accounts of patients who show an interest in financing and that information is automatically transferred to the financing company.

From there, financing companies handle all patient communications and payments, with the majority of financing firms co-branding their materials with their hospital or health system clients, depending on providers’ preferences. Most financing firms offer phone support as well as online access to reports, so providers can track and analyze program performance.

Non-paying accounts are typically sent back to providers via electronic files, and providers determine the next best actions.

Nonrecourse programs don’t require day-to-day involvement of providers’ revenue cycle staff other than distributing information about the financing option. If patients are not accepted, the company will notify patients and providers.

Evaluate the overall patient experience. In addition to accepting more patients, recourse companies offer patient support, including access to highly trained customer service representatives. Many offer multiple enrollment, payment, and account management options including online, mobile, phone, and mail.

Many nonrecourse companies operate mostly or entirely online, which serves patients well who want to make digital payments. For patients that need further assistance, phone support and live chat are available.

What’s Right for Your Organization?

Instead of choosing, some hospitals and health systems are offering both types of programs. But that approach has its own set of complications, especially if providers want flexibility to move patients between financing firms. In addition, hospitals and health systems must ensure staff are following federal and state rules for non-discriminatory consumer lending practices, so monitoring multiple financing firms for regulatory compliance may present challenges.

These considerations are important and have real implications for your patients, revenue cycle staff, processes, and your organization. Of course, there are also some real differences among the various nonrecourse companies as well as among recourse financing firms, but deciding if recourse versus nonrecourse programs best suits the needs of organizations and communities is a great starting point for introducing new options to help patients pay for care.

Tammie Coon is vice president client relations and product development, HealthFirst Financial, and is a member of HFMA’s Oregon Chapter.

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