Small to midsize hospitals can struggle with limited cash flow, just like any other company across industry lines. Medical insurance companies and claim payments are a prime source of revenue, but the payout can be a lengthy process. Any stalls in the claims processing and approval system can cause cash flow to get 30 to 180 days behind, a cycle that is damaging when there are still many expenses to be paid to keep the hospital running. Hospitals are put in a tough financial position when ongoing expenses aren’t met by slow revenue. Medical factoring becomes a way to increase cash flow.
Using Financing for Capital
It is practically impossible to encourage the insurance company to speed up their end of payment processing, so you may be forced to look at an alternative. Medical receivables factoring is a financing solution that gives hospital funds for immediate use by using open claims as collateral. Expected and delayed payments are converted into a predictable cash flow that can be used to pay for daily expenses, payroll, investments, or new equipment. Reliability in cash intake makes it easier to manage the ins and outs of hospital administration more effectively.
Working With Factoring Companies
Medical claim factoring works a lot like any other accounts receivables factoring, with the hospital partnering with a company specializing in medical factoring. Open insurance claims that are factored receive an advance on a portion of the claim, though the rate of the advance will vary on the contract between lender and hospital. The average received is about 75% of the net payable. The factoring company then assumes control of collecting on the claim. When the claim has been settled, the factoring company rebates the remaining 25% back to the hospital after withholding a financing fee.
Fees are determined for a number of reasons. The quality of the claims submitted, the size of the financing needs (such as recurring or one-time exchanges), the length of time it takes for claims to be paid, and how effective the hospital’s medical collections are are generally factors in negotiating a fee rate. Larger accounts tend to receive volume discounts and lower financing fees.
To make your medical factoring plan successful, choose your factoring company wisely. If possible, work with a lender that will provide over-advances or an advance that exceeds the usual lending limit. This can help free up more cash and eliminate persistent capital problems that occur seasonally or are predictable according to the demographic element of hospital users.