Why is Medical Factoring So Hot Now?

Managing a medical office is difficult, especially from a financial perspective, and this situation has been made much more of a challenge due to the Affordable Care Act.

Fortunately, one of the most significant – and most common – sources of cash flow problems can be fixed with the right solution.

Slow-paying medical claims

The most common source of cash flow problems for medical offices is slow payments from insurance companies with payments taking anywhere from 35 – 120 days or longer. Furthermore, these problems can really impact a medical practice when it’s growing quickly and doctors least expect it. Expenses can and often due get ahead of revenues creating additional cash flow concerns.

To make matters worse, the massive billing changes mandated by the Affordable Care Act aka Obamacare, the switch to ICD-10 medical billing codes, resulting in an increase from 13,000 to nearly 70,000 codes, has caused a slowdown in collecting accounts receivable and a decrease in the amounts received due to incorrect coding. In addition, implementing ICD-10 codes is estimated to cost medical practices anywhere from $83,290 to more than $2.7 million.

Medical factoring can finance medical insurance claims in just a few days, after account setup, providing funds to pay employees, suppliers, and rent. More importantly, it provides predictable cash flow to facilitate running your medial offices and can provide the money needed for expansion and expensive equipment acquisition.

What is Medical Factoring?

Medical factoring helps companies that bill private insurance companies, Medicare, or Medicaid, and have cash flow problems due to slow payments or reduced payments due to miscoding. This type of financing is commonly used by healthcare providers and medical professionals of all specialties.

How does medical factoring work?

Our programs finance slow-paying claims in two installments. The first installment, the advance, is deposited to your account soon after you submit the claims for financing. The advance ranges from 75% to 85% of the expected claim payment. The second installment, the rebate, provides the remaining funds and is deposited to your account as soon as the claims are paid by the insurance company and the transaction is settled.

Most medical factoring companies structure transactions as follows:

  1. You submit a batch of claims to the finance company.
  2. The finance company deposits the advance to your bank account.
  3. Claims are paid on their regular schedule in 30 – 120 days.

Medical factoring improves cash flow

Medical receivables factoring has advantages over other solutions that make it an ideal solution for small medical offices:

  • It adapts and grows with your revenues
  • It has simple qualification requirements
  • It can be deployed quickly

The cost of factoring your medical receivables varies based on the size of the financing facility, the creditworthiness of your insurance providers, and other criteria. Our solution provides a number of benefits, including:

  • Better cash flow
  • More predictable revenues
  • Reduced expenses
  • Can free up cash for expansion
  • Flexibility – the line can grow with your business
  • Quick setup times

Our solution can help healthcare providers that bill private insurance or Medicare/Medicaid for medical services and need to get paid sooner. Some examples include:

  • Easy qualification requirements
  • Medical offices
  • Imaging centers
  • Hospitals
  • Nursing providers
  • Surgery facilities
  • Diagnostic centers
  • Home healthcare agencies
  • Durable medical equipment providers
  • Nursing homes
  • Pharmacies
  • Hospices
  • Medical supply companies
  • Medical staffing companies
  • And more…

Qualifying for medical factoring is relatively easy. Your company must:

  • Bill medical insurance providers, Medicare, or Medicaid
  • Bill at least $40,000 per month
  • Follow good medical billing procedures
  • Be free of liens
  • Not have serious tax problems

Financing your medical receivables usually helps your business if the following apply to your company:

  1. You work with private insurance companies, Medicare, or Medicaid
  2. Your cash flow problems are due to slow-paying claims
  3. You need money to pay operational expenses
  4. You invoice at least $40,000 per month.

Can Medicare and Medicaid Provider Payments Be Financed?

Unfortunately, the problems with collecting medical accounts receivable do not just involve insurance patients and claims alone: Medicare and Medicaid claims have not fared any better.

However, using factoring can be a challenge because factoring companies require that the providers assign the financial rights of their insurance claims to them but Medicare and Medicaid often forbid medical providers from assigning claims to third parties. For many healthcare providers, this problem may seem insurmountable.

When factoring your Medicare or Medicaid claims, the financial rights of the claim must be assigned to the medical factoring company. The problem is that this type of assignment is not supported by most Medicare or Medicaid programs, as they only pay the provider of the service – without exception. Often, this is a stumbling block in the financing process.

Fortunately, there is a way to handle this situation.

Solving the problem

This problem can be solved by keeping the bank account information as is but changing its operation model to a sweep account, sometimes referred to as a managed account. This type of account preserves ownership but gives the factoring company full operational control. Since the medical provider still owns the account, Medicare/Medicaid can still remit payments to it.

Since the factoring company has control, they can sweep the account on a regular basis to collect payments and settle invoices. When done correctly, this strategy allows the factor to secure their position and allows you to finance your Medicare and Medicaid receivables.

For more information on medical factoring or to start the approval process, please contact us.