| A major hospital and nursing home company just | | | | Factoring is not a loan: it is the sale of your |
| reported a 14% drop in net income for the fourth | | | | medical third party receivables. It is not an asset |
| quarter of 2006 from the same period last year. | | | | based loan or a debt facility that banks offer. |
| The company's CFO said the drop was attributed | | | | Unlike bank lines that can tie up all your assets, |
| almost exclusively to lower Medicare | | | | factoring only encumbers your medical |
| reimbursement rates. Although still very profitable, | | | | receivables. In addition, it is an off balance sheet |
| the company expects continued erosion of profits | | | | transaction. In other words, your balance sheet |
| as further reimbursement rates are expected. | | | | does not reflect debt as a result of factoring. This |
| For smaller groups, the problems are magnified. | | | | can be important in the event the practice is for |
| The Medicare reimbursement decreases, along | | | | sale or new partners are being added. |
| with skyrocketing malpractice insurance premiums | | | | The advantages of factoring medical receivables |
| and slow time-to-collection waiting periods from | | | | are numerous:o It provides a stable and |
| third party payors have placed many providers in | | | | dependable cash flowo There is no predetermined |
| a precarious position. A large percentage of | | | | limit of funding. The amount funded is only limited |
| doctors have postponed much needed equipment | | | | by the pool of your third party receivableso No |
| purchases and laid off staff or are planning layoffs | | | | personal guarantees are requiredo No collateral |
| in the near future. | | | | other than medical receivableso Capital is made |
| These providers have no ability to change the | | | | available for expansion, equipment, or just paying |
| laws regarding Medicare reimbursements, but they | | | | bills on time |
| can take matters into their own hands by using | | | | Which providers are candidates for factoring?o |
| their assets more efficiently. Medical receivables | | | | MRI Centerso Home health agencieso Rehab |
| funding, or factoring, allows the provider to | | | | centerso Durable equipment supplierso Medical |
| receive immediate cash for their third party billings. | | | | labso Substance abuse clinicso Dialysis facilitieso |
| Third party payors are commercial insurance | | | | Hospitalso Physician Groupso Physical therapy |
| companies, HMO's, PPO's, Blue Cross/Blue Shield, | | | | centerso Outpatient facilities |
| Medicare, Medicaid, and state entitlement | | | | One of the criticisms of factoring is the cost. |
| programs. Ordinarily, the provider must wait | | | | However, increased competition has allowed |
| anywhere from 30 to 90 days to collect their | | | | providers to enjoy a lower cost of capital, which |
| payments after the service has been performed. | | | | makes factoring medical receivables even more |
| Factoring changes all that. | | | | attractive. |