The U.S. Mortgage Crisis: Its Effect on Healthcare Debt By Mitch Patridge This article is reprinted from the March 2008 issue of Revenue Cycle Strategist. Will the declining housing market affect healthcare collections? You bet! Until the recent subprime mortgage crisis burst the housing bubble, homeowners were able to tap into increased property values to meet other financial obligations, including healthcare bills. But the tightening of underwriting standards and rapid decline in housing prices has limited the consumer’s ability to access capital. The end result is an increasing inability for many consumers to meet financial commitments—a situation that will clearly affect the healthcare industry as providers attempt to collect from patients. How will the mortgage meltdown affect hospital collections? There are several clear trends. Impact on Healthcare Debt Over the past five to seven years, consumers paid out-of-pocket healthcare costs in a number of ways. Many patients took advantage of the housing bubble and paid healthcare bills by tapping into their new-found home equity by taking cash out and by refinancing their homes. Concurrently, to compete with the home mortgage market, underwriting standards for unsecured debt (e.g., credit cards) were loosened, providing many consumers with the ability to use credit cards to pay healthcare debt. But this is no longer the case. The meltdown in the housing market has caused a general tightening throughout the consumer lending market. Underwriting standards for mortgages have significantly tightened, and many credit card issuers have followed suit, cutting back offers to less creditworthy customers and lowering credit limits. A healthcare cost survey found some startling statistics. Fifty-two percent of all respondents had depleted their nest eggs to pay healthcare costs, and 15 percent had declared bankruptcy. In today’s financial climate it is difficult, and often impossible, for consumers to tap into home equity or obtain consumer credit lines (e.g., credit cards) to pay hospital bills. Often, those consumers are using credit cards to meet their daily needs and are already at their credit limit. Combining the credit crunch and housing crisis with escalating healthcare costs can lead to disastrous results. The survey also showed that most people have less discretionary income to spend, yet out-of-pocket healthcare costs are skyrocketing and are expected to continue to do so. One industry spokesperson noted, “There are only so many ways to stretch a budget, and mortgage, credit card, and auto payments will always take precedence over hospital and doctor bills.” Preparing for the Worst Out-of-pocket healthcare costs will continue to rise, and patients will have increasing difficulty paying their debt. There are steps providers can take to help their patients pay their healthcare bills.
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Here are suggestions collected from hospitals that are addressing these challenges: • Provide your patient financial services (PFS) department with additional tools that enable them to increase efficiencies, automate work processes, and improve customer service. • Stay competitive with other hospital programs. In addition to providing your patients with excellent healthcare services, offer superior patient financing options. • Develop clear charity guidelines, and make sure hospital staff are adequately trained and adhering to those guidelines. • Develop an internal collection policy, and have the PFS department adhere to the guidelines. • Consider partnering with a lender instead of offering internal patient payment plans. • If you partner with a lender, make sure to optimize your results by choosing a partner experienced in patient finance. • Develop a relationship with a patient loan company that can quickly approve and fund patient loans. It's time to meet the challenges of the new economic situation with innovative solutions. Doing so will improve your hospital's bottom line as well as the overall patient experience. Mitch Patridge is CEO, CSI Financial Services, San Diego (mpatridge@csifinancial.com).
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