MEDICAL RECEIVABLES FACTORING/FUNDING: An Alternative Funding Approach
A Financial Care Plan for Physicians, Hospitals and other Health and Medical Providers
A Valuable Asset
Accounts Receivable (A/R), is likely a healthcare service's and medical provider's, single largest balance sheet asset. A provider with third party claims has the ability to unleash the power of this otherwise "lazy" asset (A/R) into a powerful tool that will meet all current cash needs including practice or service growth and development. Medical Account Receivable Funding (MARF) is a non-traditional financing method that has significant benefits when compared to traditional bank financing.
You can meet the challenge of rising costs, diminishing reimbursement, increasing demands caused by the "baby boomer" population and changing technology. Rising costs threaten the practice's and the provider's income. Rapidly changing technology threatens a provider's ability to offer the most up-to-date services. Growing patient demand will crowd facilities causing patient dissatisfaction. Access to additional working capital will overcome all of these challenges.
Traditional asset based loans or lines of credit have limited benefit and flexibility. While a business loan or line of credit may help in the short term, it is unlikely to continue to solve increasing working capital needs. The line of credit's arbitrary credit ceiling and the required negative cash flow for repayment limits its usefulness. Unless the bank is willing to increase this artificial ceiling, the practice or service can expand no further. All of its credit is utilized and its collateral is held by the bank. In addition, bank loans almost always require personal guarantees that are not required by MARF.
MARF Advantages
The key characteristics of this financing:
- It creates no balance sheet debt.
- It is fast and simple.
- It does not require long applications or business plans.
- It is available when you need it and there is no cost when not used.
- It has no artificial limits, and the financing grows as the volume grows.
- It places no restrictions on the use of the money.
- It does not intrude into your business.
- It improves the service's balance sheet by increasing liquidity.
- It is accounted as a discount from revenue not as an expense.
- It is contingent upon the payor's credit worthiness not the providers.
Typical Uses
Medical Accounts Receivable Funding (MARF) uses the provider's existing asset, accounts receivable, to provide the cash infusion necessary to:
- Add additional providers
- Add support staff
- Purchase new equipment
- Add a new service
- Create consistent cash flow for operations
MARF accelerates the providers' payments from their third party payors such as insurance companies, HMO's or Medicare/Medicaid. It enables providers to receive the majority of their net collectables within two days of billing, thus providing consistent, predictable cash flow for routine operating expenses.
How Does Medical Accounts Receivables Funding (MARF) Work?
The medical funding process is very simple. MARF is a way of financing, in which a funding company provides providers with advance payments based on their outstanding third party claims. It works as follows:
- The doctor's/service's billing department submits their third party claims to the appropriate third party payor electronically.
- The pertinent claim information is downloaded seamlessly through an electronic interface to the funding system and within 48 hours of the download the advance is available for use by the provider.
- The funder calculates the actual amount paid by insurance companies (called the net collectible) and advances to the provider up to 80% of that amount within 48 hours.
- The funding company waits to be paid by the third party payor.
- After the claim is paid the remaining 20% is called the "reserve." The reserve belongs to the provider/client less the funder's fees and underpayments, if any, from other claims.
- The funder's fee is a discount (similar to a credit card) rather than an interest rate.
Some Benefits of Funding Medical Receivables
MARF is ideally suited for growing, successful medical practices, hospitals and other healthcare service providing care to patients and billing the third party payors. A sound strategy for growing income is using their improved debt free cash flow to expand services to grow their top line, bring in new technology, reduce operating expenses or for any other practice improvements. This method of funding produces peace-of-mind because the cash necessary for any expenditure is always available.
Many providers offset some or all of the associated fees by taking advantage of prompt pay discounts offered by their vendors. This is but one way to offset the MARF discount fee.
Reports provided by the funding source can improve the productivity of the practice's/service's billing and collecting.