These are tumultuous times in the healthcare industry. As the industry continues to grow so too does the burden of increased regulations, bigger bureaucracies and rising costs. The strict reimbursement guidelines and arduous billing and documentation requirements under the Affordable Care Act translate into fewer dollars and a longer wait for receivables by healthcare providers. For larger providers, it may mean fewer profits, but for smaller providers that count on cash flow for survival, it can be a threat to their existence. Healthcare receivables management is imperative to avoiding these nightmares.
It’s Never Been Easy for Healthcare Providers: Enter Healthcare Receivables Management
Working in the healthcare industry has always been frustrating for providers who are at the mercy of insurance companies and government agencies. It is not uncommon for providers to wait up to six months for reimbursement from an insurance company. When they finally hear from the insurance company or Medicare, it is often to challenge the cost of services, which is an indication they shouldn’t expect a remittance for payment anytime soon.
Meanwhile, providers must tend to other patients, trying to provide them with timely and high-quality care in the face of shrinking cash flow. Very often providers turn to cost-cutting measures, such as reducing their hours, limiting their services or turning away patients in an attempt to maintain the quality of care. The impact effects the entire healthcare supply chain.
Healthcare Receivables Management Options for Smaller Providers are Limited
When the need for a cash infusion arises, many healthcare providers turn to the banks or commercial lenders for financing. While a business loan or line of credit may solve the problem in the short term, they may not be very effective as an ongoing solution. For many smaller providers, access to traditional lending options may be limited anyway due to strict business lending requirements. For those that can meet the requirements, the application and approval process can take weeks, which doesn’t help them address their immediate need. Regardless, taking on any kind of debt during times of unsteady cash flow is not a good idea.
Healthcare providers need a more reliable and flexible way to manage the gap between services provided and payments by third-parties. They need a steady, more reliable source of working capital financing that is always available when they need it.
A/R Receivables Factoring Offers the Optimal Solution
Healthcare factoring, also referred to as medical factoring, is a form of invoice factoring where a factoring company advances payment to a healthcare provider based on its outstanding receivables. Invoice factoring is a well-established financial management practice that occurs in any type of industry. However, because of the intricacies of managing the insurance claims process, healthcare factoring requires specialization that can only be provided by a medical or healthcare factoring company.
Healthcare factoring can benefit providers in several ways:
- Invoice factoring accelerates payments to be received in days, not months.
- Nor credit qualification for the provider; factor relies on customers’ credit worthiness
- Factoring accounts receivables is not a loan so there is no impact on the provider’s financials
- No limits on the amount that can be advanced
- Ability to factor invoices as needed for flexible financial management
- Eliminates tedious administrative of claims processing and collections; the factoring company worries about this instead.
How Medical Receivables Factoring Works
Once the factoring facility is established, the provider can begin submitting invoices. The process is streamlined and predictable from that point forward.
- After submitting a bill to a third-party payor, the provider submits a copy to the factoring company.
- The factoring company verifies the invoice in connection with the services rendered by the provider.
- The factoring company advances up to 85 percent of the collectable invoice value, holding the rest in reserve to cover possible billing discrepancies.
- You will receive funds within 48 hours.
- When the invoice is paid, the factoring company deposits the funds held in reserve. Then they deduct a factoring fee which ranges from 1 – 3% per month.
Healthcare Receivables Management is the Ideal Financial Management Tool
Factoring is determined by the client’s ability to pay, therefore your credit does not matter.. Therefore access to capital is never in doubt. Since there are no limits on the amount of advances, factoring can become an effective financial management tool as the business continues to grow. With the problem of slow payments solved, healthcare providers can focus on what they do best, which is to provide high quality health care.