Medical Receivables Funding Gives Providers Much Needed Capital


by Kent Harlan - Date: 2007-03-04 - Word Count: 390 Share This!

A major hospital and nursing home company just reported a 14% drop in net income for the fourth quarter of 2006 from the same period last year. The company's CFO said the drop was attributed almost exclusively to lower Medicare reimbursement rates. Although still very profitable, the company expects continued erosion of profits as further reimbursement rates are expected.

For smaller groups, the problems are magnified. The Medicare reimbursement decreases, along with skyrocketing malpractice insurance premiums and slow time-to-collection waiting periods from third party payors have placed many providers in a precarious position. A large percentage of doctors have postponed much needed equipment purchases and laid off staff or are planning layoffs in the near future.

These providers have no ability to change the laws regarding Medicare reimbursements, but they can take matters into their own hands by using their assets more efficiently. Medical receivables funding, or factoring, allows the provider to receive immediate cash for their third party billings. Third party payors are commercial insurance companies, HMO's, PPO's, Blue Cross/Blue Shield, Medicare, Medicaid, and state entitlement programs. Ordinarily, the provider must wait anywhere from 30 to 90 days to collect their payments after the service has been performed. Factoring changes all that.

Factoring is not a loan: it is the sale of your medical third party receivables. It is not an asset based loan or a debt facility that banks offer. Unlike bank lines that can tie up all your assets, factoring only encumbers your medical receivables. In addition, it is an off balance sheet transaction. In other words, your balance sheet does not reflect debt as a result of factoring. This can be important in the event the practice is for sale or new partners are being added.

The advantages of factoring medical receivables are numerous:

• It provides a stable and dependable cash flow

• There is no predetermined limit of funding. The amount funded is only limited by the pool of your third party receivables

• No personal guarantees are required

• No collateral other than medical receivables

• Capital is made available for expansion, equipment, or just paying bills on time

Which providers are candidates for factoring?

• MRI Centers

• Home health agencies

• Rehab centers

• Durable equipment suppliers

• Medical labs

• Substance abuse clinics

• Dialysis facilities

• Hospitals

• Physician Groups

• Physical therapy centers

• Outpatient facilities

One of the criticisms of factoring is the cost. However, increased competition has allowed providers to enjoy a lower cost of capital, which makes factoring medical receivables even more attractive.


Related Tags: medical, funding, cash flow, factoring, accounts receivable, working capital, healthcare finance

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