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Medical debt is a serious problem for patients and healthcare providers. Fortunately, hospitals and health systems can take steps to protect their revenue and help patients afford care. 

For millions of Americans, medical debt leads to a financial crisis, putting them at risk of poverty or even bankruptcy. For millions more, debt is a source of stress and aggravation. And for hospitals and health systems, outstanding patient balances mean decreased revenue, increased expenses, and the specter of writing off millions of dollars in bad debt.

How big of a problem is medical debt? Here are some facts from a recent Kaiser Family Foundation study:

  • The estimated total medical debt in the U.S. is $195 billion.
  • About 23 million people—9% of American adults—owe more than $250 in medical debt.
  • 13 million people owe between $1,000 and $5,000.
  • Approximately 1% of adults, or 3 million Americans, owe more than $10,000.

Medical debt is a significant problem for patients and health systems, and its effects can last for years. And while removing medical debt from consumer reports is a step in the right direction, it doesn’t address the core problem of healthcare affordability.

Fortunately, hospitals and health systems can help patients manage medical debt and afford the care they need. Keep reading to see how medical debt became such an issue and what health systems can do to alleviate the problem.

Why Is Medical Debt An Issue for Patients and Providers?

Healthcare costs continue to rise and now account for 19.7% of the country’s gross domestic product, according to a fact sheet published by the Centers for Medicare & Medicaid Services (CMS). 

CMS projects that costs will continue to increase at an annual rate of 5.4%, rising from $4.1 trillion in 2020 to $6.2 trillion by 2028. More than 90% of Americans have some type of health plan, says the Petersen-KFF Health System Tracker, but growing numbers of them are in high-deductible health plans (HDHP) with annual deductibles of $1,000 or more for an individual.

High deductibles, rising prices, increasing premiums, higher copays, and more cost-sharing means that out-of-pocket costs are growing for many Americans, up to an annual cost of $1,650 per person, according to Fierce Healthcare.

Here are more alarming facts about the effects of medical debt:

  • Medical debt is the leading cause of personal bankruptcy in the U.S., according to the National Consumer Law Center (NCLC).
  • Patients with medical debt may be reluctant to get the care they need. One in 11 adults say they have delayed medical care because of the cost, according to Petersen-KFF.

How Does Medical Debt Affect Hospitals and Health Systems?

The effects of medical debt can be significant for the financial wellbeing of hospitals and health systems.

A survey of healthcare executives by Sage Growth Partners revealed that 36% said their health systems were holding more than $10 million in unpaid medical debt. 

About half the executives surveyed by Sage Growth Partners estimated their hospitals could recover about 10% of that debt. At the same time, 21% of executives said their health systems used neither an in-house collections department nor a third-party collection agency.

With millions of dollars in bad debts and little likelihood of recovering that money, hospitals and health systems should consider proactive measures to reduce their exposure to bad debt by helping patients afford the care they need.

What Can Hospitals and Health Systems Do to Help Patients Manage Medical Debt?


A growing number of hospitals and health systems have realized that the best way to deal with medical debt is to proactively help patients manage their medical bills. By doing that, health systems can help ensure patients get the care they need while increasing their revenue and lowering expenses simultaneously.

In addition, when hospitals and health systems work to prevent medical debt, it can help improve the patient experience and public reputation and build trust among patients and the community.

The Financial Health Network recently published a report outlining what health systems can do to help patients manage medical debt. Here are some ways hospitals and health systems can help patients afford their medical care and avoid oppressive medical debt.

Identify Which Patients Could Have Trouble Paying Their Bills

Health systems that want to help patients afford healthcare and manage medical debts should start by understanding their patient population completely. Hospitals and health systems should know the following information about the communities they serve:

  • Income and other inequities: According to the U.S. Federal Reserve, more than one-third of consumers cannot afford to pay an unexpected bill of $400 or more.
  • Health plan coverage: 11.8% of Americans between 18 and 64 do not have health insurance, says the U.S. Department of Health & Human Services.
  • Social determinants of health (SDoH): While income is one of the most critical SDoH factors, other factors can significantly affect the population’s general health, and the amount of healthcare patients may need. Among those factors are quality diet, physical exercise, excessive alcohol use, and smoking.

The more health systems know about the communities they serve, the more they can proactively identify patients who could struggle to pay for their medical care–and connect those patients to flexible payment options.

Provide Financial Counseling To Support Informed Decisions

Healthcare is complex, so health systems may need financial counseling to help patients make informed decisions about their care and the cost. To help, hospitals and health systems should:

  • Make sure that conversations about costs are part of every patient’s care. This may require providing care teams with financial education and training.
  • Provide financial navigation services to help patients learn about and access any available financial assistance programs.
  • Use price transparency tools to help patients estimate out-of-pocket costs for their care.
  • Make patients aware of other programs and tools they can use to manage debt and afford the care they need.

Educate and Provide Patients With Alternative and Affordable Medical Bill Payment Methods

In a national survey, American adults told the Federal Reserve that when faced with an unexpected medical expense they could not pay, they would pay the bill by:

  • Putting it on a credit card to pay off over time (15%)
  • Borrowing from a family member or friend (9%)
  • Selling something to cover the cost (6%)
  • Using a bank loan or line of credit (2%)
  • Using a payday loan, deposit advance, or overdraft (1%)
  • Not paying the bill (12%)

Health systems and hospitals that intervene to help patients before they incur medical debt have a better chance of protecting their revenue and assisting patients in avoiding financial hardship. One way health systems can achieve that goal is by offering patients alternative, affordable ways to pay their bills.

Healthcare affordability solutions such as PayZen’s 0% interest, no-fee payment plans allow patients to break their bills into affordable payments, choose the right plan for their needs, and pay the cost of their care in monthly installments over time. Hospitals and health systems are paid right away for the care they provide—minus a management fee—and don’t have to be concerned with collecting bills or writing off bad debt.

Final Thoughts 

Patients may be reluctant to seek medical care because they’re concerned about incurring medical debt. When hospitals and health systems listen to patient concerns and proactively help patients with financial planning, they can help patients afford the care they need and better manage their medical debt.

Learn more about how patient financing platforms, such as PayZen, can help health systems accelerate their cash flow, reduce bad debt, and help their patients simultaneously. Request a demo today.


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