Medical Account Receivables: Reviewing The Special Needs Of The Health Care Sector
Financing in the healthcare sector can be problematic. Whilst medical account receivables are available that could be factored or used for securitisation these are usually outstanding to insurance companies or the government. Whilst the government will pay after approximately 30 days the insurance companies will take at least 120. Finance institutions and banks recognize the specialized needs of the healthcare sector and have been creative in their responses.
A medical practice, like any other business, needs cash to survive. A new medical practice, in its first five or six years of operation has a particular need for strong cashflow as cash reserves are low following the set up of an environment suitable for a clinician. Accounts receivable in medical billing is, unfortunately, not straight forward. Amounts due are from third parties - the medical insurance companies and government healthcare schemes. On the few occasions when the patient is responsible for the accounts receivable in healthcare, finance companies will rarely offer financing options. To complicate matters further, there can be more than one third party responsible for accounts receivable in healthcare, which can make collection challenging. Also, medical insurance companies frequently dispute medical bills and seek adjustments. Once the finance company has factored the invoice such an adjustment increases the risk for the factoring company. Regular changes in government legislation can move the goal posts regarding reimbursement from government sponsored healthcare agencies which leaves both the healthcare provider and factoring company unsure of the future values of the medical practice accounts receivable. A medical practice will often enter into an agreement with a medical insurance company to provide discounted health care. Although the insurance company may be billed for the full cost of the treatment the insurance company will only expect to pay a percentage of that invoice total. These arrangements have to be taken into account when organizing financing on medical account receivables as it means the factoring company can only advance a much reduced proportion of the total invoice to ensure they are able to recover what is due to them. The health care sector is one of the fastest growing areas of the economy and, recognizing this, West Asset Management and other finance companies have developed special solutions for medical accounts. It is not just doctors who seek assistance with accounts receivable in healthcare. There are many associated medical equipment and supplies companies, staffing agencies and nursing homes who are affected by the prolonged credit terms demanded by the medical insurance companies. It is essential that any factoring partner understand the medical sector and its special needs. They must be able to accurately value the medical practice accounts receivable to ensure that an adequate buffer of funds is available to cover any invoice adjustments and their own charges. Communities need health care providers and it is in everyone's best interest that ways are found to ensure the local medical practice has sufficient cash flow to manage its day to day financial obligations. |