The Capital One Message to Orthodontists: BEWARE!

With a name that includes “Financial Solutions” we had more than our fair share of traffic in Boston (AAO Annual meeting) at the Acceptx booth  from practices asking if we offer third party financing.  Almost every one of these visitors were former Capital One clients looking for a competitor to fill the gap.  Acceptx does not offer third party financing (as of today), so I would send them to visit Springstone or Chase (didn’t see CareCredit or Citi at the show — though they might have been), and then ask them “do you offer third party financing often?”

Their response was also the answer to the question “Why did Capital One leave orthodontics?’   They answered, “No, we almost never offer it, but we want to have it available in case we need it some day.”

That answer is also the answer to the question,   “Why does it make sense for all of the third party financing companies to leave orthodontics?” Think about what you would do if your referring GP started offering orthodontics and only sent to you a few cases — most of which were tough to get done, not profitable, and many of which were not credit worthy (for many of you this example is too close for comfort — I know).   You are smart, so you would start by looking for other referring dentists and eventually you would say “send your orthodontic cases to someone else.”

So what should orthodontic professionals do to keep third party lenders from leaving orthodontics all together?  Get a little balance in your practice.  Don’t move every case to third party lending, and don’t avoid third party lending like many do today. To help you understand what I mean, let me try and address a few of the common arguments for and against third party financing.

1. Third Party Financing is Expensive:  FALSE.  This is just NOT true.  Let’s examine the math…. most offices have set their pricing at a point that allows them to offer a discount (usually of 5%) for those who pay in full.  Almost every practice allows customers who pay in full to pay via credit card (Visa, Mastercard or American Express) and I have personally audited dozens of offices and I know that no matter what your credit card processor told you during the sale, you are paying at least 3.5% to process that credit card.  So, if a third party charges you 8-10% of your fee what is the true cost to you?10% – 5% (pay in full credit) – 3.5% (credit card processing fee) = 1.5% — You end up paying about 1.5%  for the privilege of getting your cash today and not having to worry about collecting money from that individual in the future.

   Most offices will spend more than 1.5% to follow-up on in-house accounts to keep them current, and if not the doctor should be able to invest the money and make more than 1.5% in 12-24 months (if you can’t you need to find or fire a wealth adviser).

2. My Practice is Worth More if I Have More Patients Paying Monthly (pay in full accounts are bad business): TRUE — But your practice benefits at the expense of your personal wealth.  In other words, you and your practice are not the same entity — even if you are the sole owner and operator.   Sit down with a wealth manager and you’ll learn that  you’ll make far more money in your life if you get paid in cash and learn to invest the future earnings of your practice.  When it is time to retire, your practice may sell for less than others, but the wealth you have built over the years using the money pulled from your practice will more than make up for the difference in the selling price.For years orthodontists have been asking the WRONG question.  If you ask — “How do I maximize the value of my practice?” — you’ll get the answer — “build a consistent monthly revenue stream.”  But if you ask the question, “How do I maximize my personal wealth?” — you’ll get the answer — “take the money and run to an investment adviser and put it to work for you outside of your practice.”

   NOTE:  This financial strategy requires some discipline and most of the consultants, spouses and staff I have spoken with worry that their doctor does not have the discipline to keep their doors open if they get paid in full.   I believe these critics are wrong, but if they are right there are people and tools that can create discipline for you.

3. Forcing Patients to a Third Party Financier Will Reduce Case Acceptance:  TRUE. Forcing them to do anything (pay with Visa only, come to your office only on Tuesday, sit upside down in your chair, etc.) will reduce case acceptance.  I’m NOT advocating 100% third party financing, but rather I’m suggesting a thoughtful approach to use third party financing to help win more case acceptance.  Some patients WILL not use a bank/credit card/etc to pay for services, others won’t even use your in-house no-interest financing.  In our day and age (and in every other medical/dental profession) billions and billions of dollars in business are done every day through third party lenders and consumers are becoming more and more comfortable with the use of credit (in other words third party lenders are not a scary as they once were).If I were an orthodontist, I would want my treatment coordinator to first and foremost communicate the message that “money is not going to keep you from treatment, WE WILL FIND A WAY TO MAKE THIS WORK FOR YOU AND YOUR BUDGET.”  Then s/he would offer a discount for pay in full, secondly s/he would offer one or two third-party financing options and if there was the least resistance s/he would make it clear that there are plenty of in-house options that could work for them.

   Its a balanced approach that doesn’t force patients to borrow from a third party, but that also doesn’t hide the application form on the top shelf in the break room never to be seen or discussed except as a last resort.

Orthodontists should interpret Capital One’s decision as a warning to them that they may not have third party lending as an option in the future.  Orthodontists should consider the consequences of having more and more players pull out.  I believe that even hard line “in-house” only practices see a need for third party lenders.   Orthodontists need to recognize that though these banks and brokers are motivated by profits, they also provide an important service.  Orthodontists can be better customers, better partners and make sure these lenders are profitable enough to stay in the space.

Orthodontics is a $10 Billion opportunity, but your fellow medical and dental professionals are producing $440 billion a year in uninsured debt opportunity.  These parties could leave and may never feel the impact of their departure.  That would be a shame.

Be Smart!
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