Ask anyone in the healthcare industry what the most challenging part of their job is and chances are they won’t say working long hours or treating patients. They’ll say “getting paid.” Whether they’re part of a physician practice, home health service, imaging center, or medical equipment supplier, the frustration is the same. Medical billing is a complicated and drawn-out process that can take up to 6 months. The long delay between when services are rendered and when bills are paid can create serious cash flow problems for providers.
Medical factoring solves this problem by giving healthcare providers access to cash instantly for invoices that are due to be paid by Medicare, Medicaid, or private insurance companies. Healthcare providers can sell their accounts receivable to a financing company like Xynergy Healthcare Capital and get 80% of the value immediately. The rest (minus the factor’s fee) is released when the invoice is settled.
How Does Medical Factoring Work?
Once a healthcare provider has established an account with a factoring company, transactions are quite simple. Here’s how it works:
- The healthcare provider chooses which claims to submit to the factoring company for immediate payment. Factoring is flexible. In any given month, providers can submit as many or as few claims as they want.
- The factoring company pays the provider 80% of the estimated value of the claim within 24-48 hours. In exceptional cases, same-day funding might be available.
- When the invoice is settled, usually within 60 to 180 days, the factoring company releases the remainder of the claim – minus the factor’s fee.
- The transaction is a sale, not a loan, so the healthcare provider does not incur any debt.
What Are the Advantages of Healthcare Factoring?
While they’re waiting for insurance companies to settle claims, healthcare providers still have to pay employees, order supplies, and keep the lights on. In the past, providers had to rely on loans or lines of credit to cover operating costs and ease cash flow pressures.
Factoring provides a flexible, affordable solution that lets healthcare providers pay their bills without going into debt. This is particularly helpful at a time when operating costs are rising for healthcare practices but insurance reimbursement rates are declining.
Cash is available within 24 to 48 hours of claim submission. Providers can factor claims on an as-needed basis, choosing which invoices to submit and when. The transaction is a sale, not a loan, so there is no ongoing cost and it does not impact the provider’s balance sheet or credit rating.
Who Qualifies for Medical Accounts Receivable Factoring?
Healthcare factoring is ideal for any provider that has been in business for at least six months, provides medically-related services, equipment, or supplies, and bills private or government insurance programs at least $50,000 per month.
Factoring firms like Xynergy Healthcare Capital buy invoices that are due to be reimbursed by third-party payers like commercial insurance companies, HMOs, Medicare or Medicaid. They do not handle claims that are the patient’s responsibility.
The types of providers that benefit the most from medical accounts receivable financing include:
- Physicians and Physician Groups
- Home Healthcare Providers
- Medical Labs
- Nursing Homes
- Transportation Providers
- Imaging Centers
- Substance Abuse Centers
- Compounding Pharmacies
- Physical Therapy and Rehabilitation Centers
- Outpatient Surgical Centers
- Cancer Care Centers
- Long-term Acute Care Hospitals
- Durable Medical Equipment Suppliers
How Much Does Medical Factoring Cost?
Factoring fees generally range from 1.5% to 3% of the estimated value of the invoice per 30 days. The percentage depends on variables like the volume of invoices that the provider submits and which third-party payer is responsible.
The amount that HMOs and other payers actually reimburse can vary widely for the same procedure, depending on which plan a patient has. Companies that specialize in healthcare factoring do a lot of research to estimate the real value of each claim. This generally involves analyzing the provider’s past payment history.
Cash advances and factoring fees are based on how much the factoring company expects will actually be paid – the Net Realizable Amount (NRA) – not the face value of each invoice. Factoring is not a loan, it is the discounted sale of an invoice.
What is the Difference Between Medical Factoring and Collections?
Factoring firms like Xynergy Healthcare Capital are not debt collection agencies and do not handle distressed assets. Xynergy only purchases current invoices that are due from creditworthy third-party payers. Qualifying invoices can range from newly generated invoices to those that have been billed in the last 90 days, but accounts must be current.
How Do You Get Started With Medical Factoring?
It takes about two weeks for a new provider to get started with medical accounts receivable factoring. Getting started requires an underwriting audit that is essentially a financial X-ray of the provider’s financial health.
Xynergy Healthcare Capital does not charge any fees for the qualifying audit, which:
- Validates the provider’s internal controls
- Establishes a net collectible valuation of the provider’s receivables on a claim-by-claim, payor-by-payor basis, using your actual reimbursement history
- Provides the provider with a financial overview that often identifies areas of lost revenue
Every healthcare provider is unique, as are its challenges. Whether you need factoring to improve your cash flow or grow your business, the first step is to contact Xynergy Healthcare Capital for a risk-free assessment.
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