The healthcare industry is awash in consumer financing options, for everything from plastic surgery to teeth whitening to a Botox top-up and your dog’s mangled paw. 

Dermatologists, vets and dentists – the domain of many elective procedures — are primary customers of medical financing. 

Less common is low-cost financing for insured people facing an unexpected medical emergency or a $1,000 insurance deductible.

As the U.S. health system has pushed more treatment costs onto patients through higher-cost deductible plans – and overall healthcare inflation – more people have fallen into arrears on medical bills, said Brandon Pace, chief legal officer at PayZen, a San Francisco startup that’s seeking to expand the buy now, pay later installment model into the medical field.

“Effectively, what’s happened over the last several years is (medical) providers have become banks where they are funding” patients’ financial needs, Pace said. “If you think about what a hospital provider does, that’s not the business they’re in. They’re in the business of providing healthcare. They’re not in the business of financial care.”

Hospitals and other medical providers generally don’t offer patients low- or no-cost long-term financing, with the typical term being 12 months or less, according to PayZen. 

In August, PayZen announced that it had raised $32 in equity investments and landed a $200 million credit line, led by venture capital firm New Enterprise Associates.

PayZen – like many of its fintech financing peers – says it uses its data, underwriting expertise and artificial intelligence to craft tailored payment plans. In its case, that lets patients needing assistance pay higher-cost deductibles and copayments, sometimes $1,000 or more. PayZen also offers a debit card for patients to coordinate financing before a medical procedure.

The technology is designed to produce bespoke monthly payment plans that lower-income consumers can afford, increasing the prospect of fully collecting their debt. Few companies focus on addressing healthcare bills without charging fees or interest, Pace said. 

“We believe it's better for the patient, ultimately. Accordingly, we believe it’s going to be better for us,” he said.

Zero-interest wanes

The Consumer Financial Protection Bureau said in a May 2023 report on the medical financing landscape that many medical providers that once offered zero interest installment loans have been “increasingly displaced by the growing industry of medical credit cards and loan companies.” 

Such financing has proliferated in recent years, across a range of lenders. For example, Connecticut-based Synchrony Financial offers a branded Mastercard credit card, CareCredit, aimed at medical, dental and veterinarian out-of-pocket expenses. 

This credit expansion, which the CFPB last year called a “growing financialization” of healthcare, has led to a surge of consumer complaints about medical debt collectors.

Other firms focused on healthcare lending include AccessOne, Cherry Technologies, LendingClub Patient Solutions, Prosper Funding, Scratch Pay and Sunbit, with a wide range of interest rates. Wells Fargo ended its Health Advantage medical lending business last year “as it was not aligned with our long-term strategy,” a bank spokeswoman said Tuesday in an email. 

PayZen’s business plan – which Pace calls a “B2B to consumer” model – rests on recovering the difference between a patient’s unpaid balance and whatever a hospital or medical practice will agree to discount off its receivables or pay PayZen when engaging the company to service, manage or assume a debt portfolio. 

All fees rest on the provider’s side, Pace said, giving PayZen a niche in the financing industry.

“To the extent that we make money, it’s going to be how we get the patient to pay the amount that they have agreed to pay when they agreed to the treatment, whatever that was, and ultimately what the provider is willing to pay us to help them get those payments done,” Pace said.

About 20 million Americans owe roughly $220 billion in medical debt, according to a 2024 summary of Census Bureau survey data by the Peterson Center on Healthcare and the Henry J. Kaiser Family Foundation. About 6% of U.S. adults, or 14 million people, owe over $1,000 and about one percent, or three million, owe more than $10,000 in medical debt.

“High deductibles and other forms of cost sharing can contribute to individuals receiving medical bills that they are unable to pay, despite being insured,” according to the report.

Hospitals and physicians’ groups, for their part, generally don’t prefer to carry zero-interest loans if a fintech happens along with solutions that offer servicing of its collectibles portfolio, prepaid, interest-free financing to a patient or cash to acquire medical debts outright. PayZen offers all three options.

“Self-pay patient balances now account for over 30% of healthcare revenue, yet the collection rate on these balances is dismally low, ranging between 20-30%,” PayZen’s co-founder and CEO, Itzik Cohen, wrote in a December article for HIT Consultant Media, an online medical news publication. 

Cohen, a former professional basketball player from Israel, started the company in 2019 on the premise that a U.S. shift to require the insured to cover more of their nonelective medical costs was creating financial stress – and debt – among patients unable to afford many of these higher expenses.

Cohen has described his business as a “care now, pay later” model, seeking to emulate the BNPL consumer finance players. Pace said he’s not concerned about the big BNPL players moving into healthcare.

“We have worked with a few healthcare providers, but limited,” a spokeswoman for BNPL company Sezzle, Erin Foran, said Wednesday in an email. “It does seem to be a viable market to expand to in the future.” 

Regulators take note

On the regulatory front, state officials often consider PayZen’s business model akin to other companies operating in the consumer credit arena “because that’s kind of the nearest adjacent,” Pace said. 

“What I often see is regulators that are thinking about, how do we try to create protections for medical debt? They're often looking to their consumer loan protection models, and saying, ‘we should just do the same thing,’” Pace explained.

New York has enacted such a prohibition and several other states have restricted these sales or curtailed interest rates, according to The Commonwealth Fund, a healthcare research foundation. Pace said the company is focused on heading off state legislation that could hinder flexibility, including banning the sale of medical debt. 

The sale of medical debt is crucial for PayZen as it can offer many patients the chance to refinance into three-year payment plans, while many hospitals offer only 12 months, Pace said. “The patient’s stuck, the hospital’s stuck and there's nothing we can do.”

By not assessing fees or interest on its products, PayZen has to explain to regulators that it’s operating “in a very different business” than many consumer lenders, he said. PayZen doesn’t want to be among the many companies in healthcare pursuing bad debt, he said.

“If you look at the level of healthcare needs in the United States, it’s growing,” Pace said. “If you look at the level of healthcare indebtedness in the United States, it’s growing much faster. So we believe there is a massive opportunity to help people in this market.”