Yesterday’s Wall Street Journal (When Your Doctor Sells Credit Cards) documented the growth in credit cards issued to finance elective procedures such as LASIK, plastic surgery and dental implants. The article covered the usual points but missed one important but little-known aspect of the industry.
Briefly, physicians offer the cards for procedures not covered by insurance. The cards have a zero percent interest rate and no fees, usually for the first 12 months. After that the interest rates spike and to make matters worse customers are also charged retroactive interest on their first year’s balance. Ouch! The article details the pitfalls you’d expect from cards like these, and of course there have been some abuses.
A card company spokesman quoted in the article says, “the vast majority of account holders pay off their balances before the promotion ends.” That statement doesn’t surprise me, because most people who have these elective procedures are relatively well off.
I used to think that the card issuers lost money on patients who paid off their balance during the first 12 months but more than made it up on those who took longer to pay. In fact, I once told an executive at a credit card company that they must have lost money on me, because I once had a card like this. I had been prepared to pay cash for a procedure, but decided to take the no interest offer and keep the money to invest. However, the credit card executive smiled and told me that I had still been a money maker, because the credit card issuer charged fees to the doctor for issuing the card.
A major reason doctors were willing to pay the credit care company was because it gave them a way to offer a discount without having to negotiate with the patient explicitly. That insight also helps explain why the cards charge zero interest rather than just a low interest rate. For most cardholders the credit card company really isn’t trying to make money from the financing. Rather the objective is to serve the physician by facilitating price realization and volume.
David E. Williams is co-founder of MedPharma Partners LLC, strategy consultant in technology enabled health care services, pharma, biotech, and medical devices. Formerly with BCG and LEK. He writes regularly at Health Business Blog, where this post first appeared.