The healthcare billing system has always been a convoluted structure that has pushed patients away. As a result of a complex reimbursement system, many patients are clueless of the total amount of payment for an office visit or a procedure until weeks after the occurrence. Even providers are unable to present a full bill at the point of sale right after the procedure is over because they themselves cannot accurately predict how much of the individual components in the procedure would be reimbursed by different insurance providers. This in turn results in non-payment by patients who are often deterred by the lack of clarity on the amounts included on the bill, significant delay on receipt of the bill after the procedure, or lack of viable financing options. Studies show that self-pay patients who pay out-of-pocket have a default rate of more than 30%.
As insurance providers including Medicare and Medicaid have increasingly attempted to lower their total reimbursement amounts, more patients are starting to pay out of pocket for many procedures. Since 2015, deductible and out of pocket costs have increased by 30%, and the average out of pocket expenses per patient stands at $4,400 per year. It is estimated that 35% of total healthcare expenditures are now paid out of pocket, which is driven by elective procedures that tend to be thinly reimbursed by insurance providers. In key elective segments including dental, orthodontics, LASIK, and several others, patients are expected to finance $58 billion in out-of-pocket expenditures by 2025. As healthcare costs continue to rise, the high deductible plans call for higher out-of-pocket participation and some patients find themselves facing the difficult prospect of having to delay or do without the treatment they want.
Managing payments and financing plans for their patients has always been a headache for doctors, especially because this effort distracts them from their main responsibility of providing care. Doctors are often ill-equipped to gauge the credit-worthiness of patients or to manage collections. Faced with accommodating or turning away patients who are unable to pay for their care, providers often create payment plans of their own, despite lacking the ability to adequately assess patient credit worthiness or resources to properly service and collect these loans. Provider collection rates today stand at about 50–70% for small-dollar procedures for insured patients, which drops to a meager 10% for self-pay patients. However, it costs four times more for providers to collect from patients than insurance providers given their lack of infrastructure to service and collect from patients.
On the other hand, there is plenty of evidence that patients are willing to make these medical payments if there were more transparency or more accessible payment options. McKinsey consumer research estimates that 57% of consumers would be willing to use a credit or debit card in a healthcare transaction if a good faith estimate of up-front costs were provided or if they could access more convenient payment mechanisms and structured payment or financing options. Over 90% of patients are willing and able to pay medical liabilities that are less than $500 per year. The industry is at a crossroads where they need to decide between improving payment capabilities to help consumers manage their healthcare financing better or risk having rising healthcare costs overwhelm consumers’ willingness and ability to pay. There are certain companies such as CareCredit that attempt to solve this problem by providing medical financing options for patients. However, these companies tend to only focus on patients with high credit scores and deny more than 50% of the patient population that apply for credit as a result of poor credit history or being underbanked.
Kli Capital portfolio company PrimaHealth Credit is an alternative patient finance platform that picks up where prime credit lenders leave off and allows healthcare providers to serve credit challenged and underbanked patients. The company’s proprietary platform and credit analytics allows more patients to say ‘yes’ to treatment, while helping providers solve the challenges of assessing a patient’s ability to pay, collecting recurring payments, and managing accounts receivable. Patients use a simple mobile application, receive instant credit decisions, and can select from several payment options. The company is currently focused on providing credit for elective procedures in areas such as dental, orthodontics, and LASIK.
PrimaHealth Credit was founded in 2014 by Brendon Kensel, who has experience leading several high-growth technology and healthcare service companies. More importantly, he was a former owner and operator of orthodontic practices, and saw first-hand how patients were struggling to pay for out-of-pocket expenses, particularly those that were credit-challenged or underbanked. It is estimated that 5.3 million patients will be denied prime credit in 2020 which amounts to a $14.2 billion opportunity for PrimaHealth Credit. The company aims to provide accessible credit options to these underserved patients, and have successfully launched in California, Arizona, Texas, Oklahoma, and Florida.
“We started the company with the vision of helping more patients access the care they need through affordable monthly payment options,” stated Brendon Kensel, CEO of PrimaHealth Credit. “We are truly excited to see the benefits that both patients and providers receive from our services.”
During the Covid-19 pandemic, the company experienced a surge in demand as more multi-unit operators were looking for ways to improve their revenue collections. By leveraging PrimaHealth Credit services, providers were able to see a production increase of 20% and boosted their cash flows by 6% of revenues as they saw a significant uptick in patient engagement and collection levels. Building on their momentum, the company is currently planning on expanding their elective financing capabilities across the nation by next year. The company is also testing out their services in certain outpatient care environments such as addiction treatment, behavioral health, and ambulatory surgery centers. The Kli Capital team is very excited to continue supporting the rapid growth of the company during its journey to deliver more accessible care to patients.
Kli Capital is a New York/Montreal-based family office started by former business operators focused on backing ambitious founders. Formerly known as BNSG Capital, the Kli Capital team has been active in the early stage investment/startup ecosystem since 2014. We have spent the majority of the past 6 years sourcing, conducting diligence, investing, and providing portfolio support for our 60+ companies.