Health credit programs: safety net or predatory lending?

NY state investigation puts veterinarians on the defensive

Published: October 04, 2010
By Edie Lau

An investigation into consumer complaints alleging that health-care practitioners are pushing patients into the hands of predatory lenders has veterinarians on the defensive about client financing programs.

Veterinarians and veterinary staff question why they’re considered to blame if clients fail to pay their health-care credit bills on time and get hit with high interest charges.

A lively discussion was sparked on the Veterinary Information Network (VIN), an online professional community, and elsewhere when the New York State Attorney General’s Office in August announced an investigation into CareCredit and the medical offices that promote CareCredit, a patient financing program owned by GE Money.

In a news release about the announcement headlined "Health care credit card scheme preys on seniors and vulnerable patients," Attorney General Andrew Cuomo’s office reported that it has received hundreds of consumer complaints alleging that:

— Health care providers misled them that CareCredit comes interest-free when in fact interest is charged when balances aren’t paid off following a promotional period of six to 18 months.

— Services proposed but never performed were charged to CareCredit accounts, and account holders were unable to obtain refunds.

— Medical offices pressed clients to use CareCredit even when clients had the cash to pay.

The Attorney General’s investigation found that CareCredit "charges the providers a fee for the right to offer the cards and then rebates part of the fee based on the amount of money the providers generated through CareCredit sales," the announcement stated. "This kickback arrangement, plus CareCredit’s payment in full to providers within two days of the charge, creates an incentive for providers to push consumers to use CareCredit rather than other methods of payment."

CareCredit is the oldest and largest consumer health-care financing program in the country, with more than half of all veterinary offices in the country participating, according to a written statement provided to the VIN News Service by the company.

The program, originally called Dencharge, was started more than 20 years ago by a dentist for dental patients. The company was purchased by GE Money in 2003. Today, in addition to dentistry and veterinary services, CareCredit provides financing in the fields of audiology, chiropractic, cosmetic medicine, dermatology, hair restoration, optometry and Lasik surgery and weight loss.

Participating medical offices have the option of offering their clients financing terms of 6-, 12- or 18-months deferred interest; and/or extended payment plans of 24, 36, 48 or 60 months at a rate competitive with standard bank credit cards. The CareCredit APR for extended financing APR currently is 14.9 percent.

Clients who take the deferred interest option and pay off their balances during the prescribed period do not pay interest. Those who miss the deadline or are late with a monthly payment are assessed interest from the date of purchase, currently set at 26.99 percent APR, according to the company website. The penalty APR is 29.99 percent.

"We have helped over 20 million human and animal patients get needed care for 20 years," the company stated in its response to the VIN News Service. "...Health care providers elect to make CareCredit available so that clients with limited cash or credit lines, or who choose not to use them, can select and pay for optimal treatment."

It added: "More than 80 percent of all account holders who select a deferred-interest plan pay their accounts in full before the end of the promotional period and incur no interest."

Health care offices that offer CareCredit pay a fee to the credit card company for each transaction. The transaction fees vary depending upon the length of the promotional period — the longer the period, the higher the merchant fee.

In its written response to questions from VIN News Service, CareCredit did not answer whether it gives fee rebates to those offices that bring the credit card company a certain amount of business, as alleged by the Attorney General.

One observer of the banking industry, Kevin McKechnie, said that while he does not have specific knowledge of any given credit card company’s dealings with merchants, the idea that vendors might earn rebates for generating lucrative credit transactions isn’t shocking.

"What would be the incentive of the veterinarian to offer these programs absent some remuneration?" said McKechnie, who is executive director of the American Bankers Insurance Association. "If you want all these services, you have to have an economic model that prompts them to flourish."

In examples of predatory lending practices, the Attorney General’s Aug. 4 news release seemed to focus on dental offices; a listing of health-care providers that had been subpoenaed showed six dental providers, three laser and/or cosmetic surgery centers and one chiropractic practice.

However, Lee Park, a press spokesman, said the investigation is ongoing and that veterinary offices have been implicated in some complaints.

"This office has received complaints of blatant misrepresentation," Park said. "We’re not saying that all veterinarians that offer financing are bad. We have an ongoing investigation that has uncovered deceptive practices among some providers that have been pushing this payment option."

But a blog post on National Public Radio’s website headlined, "How veterinarians help predatory lenders" tarred the profession in one broad stroke. Written by Kaiser Health News, the story provoked distress and indignation in veterinary circles.

A prevailing view among practitioners who discussed the issue on VIN and also by veterinary staff members in a related online community, Veterinary Support Personnel Network (VSPN), is that money management is a client’s personal responsibility.

Dr. Karen Tinkham, a practitioner in Milford, N.H., wrote that she personally had used CareCredit to pay for $3,000 in unexpected dental expenses. "The absessed tooth is fixed and I get a $3,000 interest-free loan for a year," she said. "If CareCredit weren’t available, what were my options? EIther not get the care I need, or pay interest on another card. Is that being preyed upon? I consider it being assisted in a very generous way!"

Elizabeth Van Allen, a certified veterinary technician in Commerce City, Colo., works in an emergency practice that offers CareCredit. In her post, she noted that clients are briefed thoroughly on the benefits and risks of the program.

She has personal experience with both. In an interview by e-mail, Van Allen said she has used CareCredit to pay for surgery for her pets and foster animals. The last time she tapped the account — to cover a full-mouth dental extraction on her cat — she got hit with the interest.

"I had fully planned on being able to pay off the CareCredit within the 6-month time period," Van Allen said. "But I fell behind on other bills and (that) had a cascade effect where I was just trying to make some kind of payment for all of my bills instead of not paying them.... I am now still trying to pay off a bill that is over $400 with a 29.99 percent APR. ... Paying off CareCredit with that interest rate is incredibly difficult."

All the same, Van Allen does not blame CareCredit. "I perfectly understand what I signed up for," she said.

Although veterinarians and veterinary staff were in agreement that those who sign up for credit are responsible for their own financial affairs, one point of debate was whether practices have a moral and customer-service obligation to make sure clients comprehend the details of a financing program.
Jeff Stillinger, a practice management consultant and Certified Veterinary Assistant in Texas, says no. "When we stick our noses into it, there is a higher probability of misrepresenting CareCredit to the client," he posted on VSPN, "which would then become a liability to the practice. To avoid liability, the less said by the practice, the better."

On the broader issue of budgeting for pet health care, however, Stillinger said the veterinary community can do better by clients. "We in the industry have failed miserably with reminding the client they need to budget and save," he wrote. "I have never once been handed, or handed out, a puppy/kitten package that contains such information. We don’t have to go overboard and do it for them, or teach them how. That’s not our responsibility. We simply need to remind them it needs to be done."

Dr. Naomi Kirschenbaum, co-owner of Aptos-Creekside Pet Hospital in Aptos, Calif., has a similar perspective on the importance of budgeting for pets but disagrees that the details of a financing plan should be left to the credit card company to convey to clients.

"I resisted offering this type of payment for years," she wrote on VIN. "I felt strongly that the finances of a family should be factored into the decision-making process for family pets. I did not want to encourage or participate in furthering a client’s debt. Yes, you could argue that this is none of my business, but I did look at it this way....

"However, in the last several months with the changing economy, many clients have asked us to carry their balance for a few months, and one or two said they wished we took the CareCredit card. We do carry balances, but it’s a lot of clerical work and following up. At some point, looking at the accounts receivable and staff time, it seemed reasonable to be paid upfront even with a larger percentage going to the credit card company."

In June, Aptos-Creekside began offering Citi Health Card, a financing program for consumers comparable to CareCredit but with a lower merchant transaction fee (3.99 percent for the 6-month plan vs. 7 percent with CareCredit, according to office manager Judy Paulson).

Kirschenbaum said she and her partner selected two staff members to speak with clients interested in the financing option. "They have thoroughly reviewed the information from the lender and will go over the details with clients. They are in the midst of actually creating the protocol for discussion with clients," she said in an interview by e-mail.

Although Kirschenbaum remains uneasy about peddling loans, she wrote on VIN: "I think it can be offered in a way that sticks to my original comfort about client debt for veterinary services, balancing not having the practice carry the debt with responsible clients making an informed decision to utilize this resource."

Two veterinary trade groups that recommend CareCredit to their members have been drawn into the New York state investigation. They’ve been asked by the Attorney General’s Office the reasons for their endorsement of the program, what prior due diligence was conducted and whether they receive any compensation for the endorsement.

The American Animal Hospital Association (AAHA) has designated CareCredit a "preferred provider" since 1995, according to association spokesman Jason Merrihew.

To be chosen as a "preferred provider," a business must fill a need of AAHA members; be reliable; have previous experience serving the veterinary profession; be capable of supporting a national program; offer unique exclusive benefits for AAHA members; have a history of high-quality service; and be willing to tailor its operations to include a customized program for the association and appoint a dedicated representative, Merrihew said.

The company also must pay an annual "royalty" that’s applied toward the cost of managing and promoting the Preferred Business Providers program and help support AAHA initiatives, Merrihew said. He declined to divulge the amount.

Separately, CareCredit donated $50,000 in each of the past two years to AAHA’s Helping Pets Fund, which gives grants for veterinary care for pets that have been abandoned or whose owners are under financial hardship.

AAHA’s selection of CareCredit as a "preferred provider" prompted the New York State Veterinary Medical Society (NYSVMS) in 1995 to review the company for its own program of recommended vendors, according to Barbara Ahern, NYSVMS legal counsel. For the program, the society looks for businesses that provide a needed or desired service by its veterinary members at competitive rates, she said.

Like AAHA, the society assesses a "royalty" from the companies it recommends. "It is because we’re doing part of their marketing," Ahern said. "They’re getting the business because we agree to promote (them)."

Ahern said the payment varies from company to company. In the case of CareCredit, she said, the royalty is based upon the number of NYSVMS member practices that sign up with CareCredit in a given month, as well as the aggregate volume of usage of CareCredit financing by participating NYSVMS members.

Ahern did not say how much the company has paid in royalties in past years.

Because of the concerns raised by Attorney General Cuomo, Ahern said the society has advised its members to take special care in how they describe CareCredit to clients.

"I would say that ... they should say these two things," Ahern suggested: "This is a credit card and you will be charged interest after the introductory period. Read the information carefully before you sign."

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