Why do doctors offer credit cards? It helps them avoid discounting
July 19th, 2011 by 
David E. Williams of the Health business blog
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.
Posted in Economics, Physicians | 
2 Comments »
July 20th, 2011 at 7:51 am
Dave, “facilitating price realization and volume” sounds like something from the backnotes of an online MBA class. Maybe “making it easier to arrive at firm prices, with more patients, without haggling?” Sort of a “gimmick” of contemporary marketplace culture?
To be clear, I like that the card companies recognize that cards function in that fashion, and I also like that at least some clinicians recognize that application of some of those gimmicks actually makes their practices – and probably their patients – healthier.
August 3rd, 2011 at 3:28 pm
[...] David Williams of The Health Business Blog points out another reason physicians sign up with medical credit card companies. It allows them a way to offer a discount (zero interest payments options) without actually having to discount their services. [...]