According to the U.S National Library of Medicine and the National Institutes of Health Medline dictionary the word “stat is an adverb for the latin word: STATIM. Statim is an adverb that means immediately or without delay. When a persons arrives at the hospital emergency room with a gunshot wound, the staff might say, “We need to get this patient to surgery stat!” meaning immediately, now. In a medical situation “stat” connotes extreme urgency. Does your medical business need to accelerate cash flow with accounts receivable financing “stat”?

One of the greatest challenges for medical professionals is managing their accounts receivable. Medical accounts receivable typically are the largest asset on their balance sheet. It typically takes 60 to 120 days or more to collect medical accounts receivable because of the long reimbursement process from third party payors, such as Medicare, Medicaid, and commercial insurance companies. The collection process is long and complex. Disputes regarding payment amounts are common. Medical accounts receivable financing accelerates cash flow to pay for expenses such as payroll, malpractice insurance, rent, inventory and advertising.

What are the types of medical professionals that may qualify for medical accounts receivable financing? The following is a partial list: hospitals, medical centers, rehabilitation centers, medical laboratories, surgical centers, sports medicine centers, MRI imaging centers, physical therapy centers, substance abuse clinics, physical therapy centers, manufacturers and/or distributors of medical devices, and physician’s practices whether general or specialized from A to Z such as anesthesiologists, gastroenterologists, obstetricians, and Zygote – Morula Specialists.

How lengthy is the process to obtain medical accounts receivable? It generally takes four to eight weeks to obtain funding because of the unique issues presented. The commercial finance company must perform extensive audits and analysis of the prospective client’s financial situation. They need to determine that the business is and will be a “going concern”. They need to examine billing practices which often are outsourced. This may require a separate audit of a third party. And they need to examine the forseeability of collection of the outstanding accounts receivable by auditing the accounts receivable aging reports from a historical collection perspective. In other words, how much of the amounts owed will be collection losses? How much will actually be collected?

What are other unique issues regarding medical accounts receivable financing? There are potential bankruptcy issues, lien priority issues and the “big bad wolf” issue: after a commercial finance company has purchased medical accounts receivable, the federal government can assert lien priority on the assets of a bankrupt medical company. One example of this is the case of American Investment Financial (“AFI”) versus the US also known as the internal revenue service.

AFI loaned over $800,000 to a pediatric and urgent care clinic. The clinic defaulted on their financial obligations to AFI and also defaulted on their tax obligations to the federal government. It was undisputed that AFI had followed the rules correctly in terms of filing their liens and perfecting their security interests. Nevertheless, the court held that pursuant to Federal law, after a 45 day statutory safe harbor period had passed, the government’s lien took priority. AFI lost hundreds of thousands of dollars because of federal tax law and IRS regulations. It is no wonder that commercial finance companies look very carefully before they purchase medical accounts receivable.

Commercial finance companies will generally advance an amount equal to 70% to 80% of a borrowing base, which may be called “the aggregate amount of eligible accounts”, “net realized value” or “net expected collections”. You can expect the following items to be excluded from your borrowing base: accounts which are subject to dispute, counterclaim or setoff; accounts of any account debtor who has filed or has filed against it a petition in bankruptcy; accounts owed directly by patients or customers.

The bottom line: medical accounts receivable financing, or medical factoring, is more difficult to obtain than other types of factoring because of the legal risks and business risks faced by the lenders. The process to obtain medical accounts financing usually takes much longer than accounts receivable financing for other industries, such as a manufacturer. This good news is, once the credit facility is established, funding can take place in a day or less from your request for financing. You can have medical accounts receivable financing “stat”!

Copyright © Gregg Financial Services

www.greggfinancialservices.com

Kris Koonar By:


The medical industry faces the challenge of keeping their practices or medical institutions functioning smoothly for the need of timely working capital. The health care industry is bogged down by the growing accounts receivables from their patients’ providers of medical insurance carriers. The medical fraternity also faces the difficulty in keeping tracks of invoices and the billing process; this diverts them from their mainstream work of providing medical care to their patients. Accounts receivable financing is fast emerging solution to this specialized sector.

Many accounts receivable financing companies offer services to the medical world, which act as a respite for securing cash to run their daily operations smoothly. These financing companies have customized processes specific to this segment. In simpler terms, medical factoring or medical accounts receivable financing means selling off the accounts receivables accrued by the medical institution to the financing firm. The claim owed to the patients’ medical insurance provider by the patients’ medical insurance carrier is the accounts receivable in this case.

Medical practice provides its service to the patient and the medical insurance company is billed on behalf of the patient, this is the receivable accrued by the medical industry. The medical industry then approaches the accounts receivable financing industry and sells these accounts receivables which in turn releases about 80% to 95% of the net collectible amount for a small fee ranging from as low as 1% to 5%. The funding company assumes the responsibility of collecting the receivable amount from the medical insurance companies and pays up the balance amount once the entire amount is collected from the insurance company.

The medical industry in this way can gain a lot of advantages by selling off their receivables. Most funding companies release funds in about one to two days. The funding companies also provide regular reports to update and enhance the billing process. The ready cash flow also increases the ability of the medical industry to get discounts from their suppliers for regular and timely payments. The capital can be rightly used to enhance services and stimulate growth by attracting and retaining good support staff. The balance sheet will also have a positive effect, as accounts receivable financing is different from a loan. It just advances the cash that will otherwise come in after 30 to 60 days. It is just a conversion of a non-liquid asset, the account receivable into a liquid asset, cash. Thus the debt capacity of the medical institution also remains strong.

Thus, with the help of medical receivable financing the medical practice can reap the benefits of fast and continuous cash flow streaming in to stimulate the growth and expansion of medical facilities. Other benefits also include enhanced business efficiency, by electronic updates on billing, tracking and collections. A wide range of medical industry professionals can get the advantages of this type of hassle free financing. This includes hospitals, nursing homes, surgeons, physicians, osteopaths, oral surgeons, and treatment centers, like rehab, dialysis and surgery centers. Imaging and medical laboratories and even ambulance providers can benefit from this effective funding solution.