| These are difficult times for the heatlhcare industry. | | | | and the cost of the due diligence audit. |
| Revenues in general have slowed due to the | | | | If the provider agrees to the terms, he signs the Letter |
| recession, as more people have lost their jobs and | | | | of Intent and submits a check for the amount of the |
| heath insurance. Elective surgeries and procedures | | | | due diligence audit. The audit is necessary for the |
| have also declined. To compound the problem, | | | | factor to review the practitioner's billing and collection |
| Medicare is offering lower reimbursement rates and | | | | system, analyze the collections history by payer, and |
| insurance companies are taking longer to pay. Medical | | | | determine the average percentage of the gross billings |
| invoice factoring is an important tool now more than | | | | that are expected to be paid. The net collectible |
| ever to bring much needed working capital into the | | | | percentage will be applied to invoices that are |
| practice or hospital. | | | | submitted for factoring. |
| Accounts receivable factoring has been in existence | | | | If the factor is comfortable with the results of the due |
| for centuries, but is relatively new for the medical and | | | | diligence, a contract is drawn up which states in |
| dental industries. Medical invoice factoring is available | | | | specific terms how the relationship will work for both |
| for third party billings only. These are government | | | | parties. I always advise to my clients that they review |
| programs like Medicare, Medicaid and various state | | | | the contract very carefully, or have their lawyer look it |
| programs and insurance companies such as Blue | | | | over so they will feel comfortable about what they are |
| Cross and Aetna. Patient responsibility charges such | | | | signing. I only represent medical invoice factoring |
| as copays, deductibles, and elective surgeries cannot | | | | companies that produce contracts that are straight |
| be factored. | | | | forward and relatively easy to comprehend, so there is |
| Medical invoice factoring in a nutshell | | | | not likely to be any :"surprises" in the document. Once |
| Simply put, it is the purchase of a medical practice, | | | | the contract is signed, funding can begin immediately. |
| clinic, or hospital's third party receivables at a discount. | | | | How Invoice factoring is different than a bank line of |
| The factoring company advances 75% to 85% of the | | | | credit |
| expected net collectible value of the billings in | | | | Many banks aren't comfortable loaning money to |
| immediate cash, which is wired directly to the | | | | medical and dental providers when the collateral is their |
| provider's bank account. The remaining amount (15% | | | | third party accounts receivable. That's why they place |
| to 25%) is called the reserve and is remitted back to | | | | restrictions on the credit line. With medical accounts |
| the medical or dental provider when the government | | | | receivable factoring, funding is normally limited only by |
| or insurance company pays the bill less the factoring | | | | the pool of third party receivables. There are other |
| fee charged during the period. | | | | differences: |
| Setting up an invoice factoring arrangement | | | | - Factoring is not a loan, so it will not negatively effect |
| The types of initial information required on the front | | | | the provider's balance sheet |
| end varies from factor to factor. But generally, a | | | | - Unlike most bank loans, a personal guarantee is not |
| completed application that requests basic information | | | | required |
| about the practice, past two years financial | | | | - No additional collateral is needed |
| statements, articles of incorporation or LLC operating | | | | - The credit score of the provider is not an issue |
| agreement, and a current third party accounts | | | | Medical invoice factoring has grown substantially in |
| receivable aging report are required. If the factor likes | | | | volume in 2009 as banks have pulled back on their |
| what they see, they will issue a Letter of Intent, | | | | lending. Although the financing costs are typically |
| otherwise known as a term sheet. This document | | | | greater than conventional loans, the influx of cash flow |
| states the proposed terms of the arrangement, such | | | | allows the provider to count on a stable working |
| as the advance rate, fee percentage per thirty days, | | | | capital base to maintain or grow their practice. |