Under the knife, in the red

Buy now, pay later – a sales approach associated with fridges and backyard Jacuzzis – is increasingly an option for financing elective medical procedures.

Fertility treatments, cosmetic surgery, veterinary care and orthodontia can be approved on credit within minutes, as more medical practices team up with financing companies like GE CareCredit, CapitalOne HealthAdvance and M-Lend.

But experts warn that in a turbulent economic climate, consumers should take care before committing – because interest rates and late fees skyrocket if a payment is missed.

The draw can be lucrative: Great Expressions Dental Centers, a Bloomfield Hills, Mich.-based chain that offers financing through CareCredit and CapitalOne, advertises: “For a limited time only, receive $1,000-off comprehensive orthodontic treatment (braces) with no money down and interest-free monthly payments!”

A $2,000 procedure would cost about $111 a month, if following CareCredit's 18-month no-interest plan. Or, if one chose an extended payment plan, the same procedure could cost $44 a month over five years, with a standard 11.9 percent interest rate. Over time, that means a consumer would pay $2,640 – or $640 extra.

But accounts in default, according to the company's Web site, can end up accruing up to 28.99 percent interest rates, and any late payments are charged an additional $35 monthly.

“It's a good setup because unlike doctors, credit card companies are great at extracting payments,” said John Pottow, an associate professor specializing in bankruptcy law at the University of Michigan Law School. “It's sort of a win-win situation for them. If a customer defaults, the doctor still gets paid, and the credit card company can charge interest.”

Medical practices are seeing growth in the number of clients opting for these payment methods. Financing through CareCredit, a subsidiary of General Electric, is offered in about 35,000 practices nationwide.

“Especially in difficult economic times, people are looking for alternative ways to pay for elective procedures,” said Dr. Robert Beitman, who offers financing for patients who seek Lasik vision correction surgery in his West Bloomfield, Mich., practice. “Very few of our payments come from personal checks or cash, because people often don't have that at their disposal anymore.”

Beitman said that about half his patients pay for surgery on personal credit cards, and about 30 percent to 40 percent opt for GE CareCredit – an option that has gained a great deal of popularity, he said, in the past two years since his practice began offering it.

“We get paid immediately depending on the finance plan our patients have chosen,” said Beitman. “In other words, our cash flow isn't impacted – other than the fact that we're paying more to CareCredit than we would to a credit card.”

He said that his office might turn over 1 percent of the procedure's costs to Discover Card and 3 percent to 4 percent to American Express – while financing companies take about 5 percent to 14 percent of the doctor's fees. In turn, according to Steve Schoof, a spokesman for CapitalOne Healthcare Finance, practices can “focus on medical care, rather than engaging in awkward financial discussions.”

A 2007 report from corporate analysis company McKinsey Inc. said that $45 billion in medical costs is being paid for on credit today – a figure that could reach $150 billion by 2015.

“If you look at the trends, the number of elective procedures financed on credit will continue to move forward,” said Shubham Singhal, the Detroit-based coauthor of the study.

Singhal said that most medical costs paid on plastic result from uninsured patients who need urgent, costly medical procedures.

“The way we've looked at it, one of the biggest things is the rising consumer burden – and using financing the right way to help consumers pay for their medical needs.”