Medical Receivables Financing
The Rx for Ailing Cash Flow
The current adverse financial structure of the healthcare industry has placed hospitals, medical groups, private practitioners and other providers in a perilous position. Cumbersome and bureaucratic third party billing systems with long time-to-collection waiting periods have resulted in inconsistent cash flows and limited capital for growth. Nationwide, two-thirds of physicians work in practices that are set up as small business. Payment cuts 18% over four years, together with soaring malpractice premiums and other overhead costs, have threatened to put such practices out of businesses. More than 50% of doctors have deferred plans to purchase much-needed new equipment, and 30% either have laid off staff or are planning layoffs in the near future.
What Factoring “Is Not:”
o A Loan – Factoring is the sale of your medical claims for services already delivered
o Offered By Banks – Factoring is not an asset-based loan, nor is it a debt facility similar to those offered by banks.
Why not simply pick up the phone and call a bank for a loan to get through the crisis? Many of you already tried that and have been surprised to find that the average practice may not have sufficient credit and assets with which to secure adequate working capital. Additionally, the traditional banking loan application and approval process is long and involved. Debt is created for the practice to repay, and personal guarantees are required. The practice becomes less desirable for resale or acquisition.
Unlike bank lines that can tie up all of your assets, factoring involves only your third party medical claims
o No collateral other than accounts receivables
o No financial guarantees
o Unlimited amount of dollars
Factoring provides working capital without adding debt to your balance sheet. There is no predetermined maximum limit. This working capital arrangement is not limited in amount as many bank products are nor is it subject to banking “regulations.”
Surveys of physicians have identified the following immediate needs:
The creation of solid dependable cash flow
Decrease in the reimbursement interval between the time service is provided and payment is received
Increase in the overall percentage of claims collected
Reduction in administrative costs
Ready availability of cash for new equipment, expansion of office space, the addition of new partners, and practice marketing
This “wish list” would be complete if access to this working capital could be created debt-free. The physician practice would then have the financial freedom to focus on business growth and patient satisfaction, instead of focusing on how to meet the next payroll or malpractice premium payment. Is such a solution possible? Fortunately, the answer is YES!