How Medical Factoring Can Provide Hospital Financing
Hospitals often have cash flow problems because it takes insurance companies between 30 and 180 days to pay out claims for hospital expenses. Medical receivables factoring is a form of health care financing that can help hospitals to solve this cash flow problem. Here is how medical factoring can help the hospital.
How Medical Receivables Factoring Helps
A medical factoring company will work with a hospital to purchase their medical receivables for a cash amount upfront. Typically, the company will pay the hospital 75% of the value of the receivables. Then, the factoring company collects the amounts due for the receivables. When all the payments have been collected, the company will pay the hospital the remaining 25%, minus the fees for doing the factoring. Of course, if some claims are not paid, this amount will have to be subtracted as well.
The fees charged for medical factoring will vary depending on the quality of the receivables, the time it takes to collect and the collections process being used. Large hospitals will be able to negotiate volume discounts to lower the fees.
The cash flow problems experienced by hospitals can sometimes be severe. A payment of 75% of the amount of the receivables may not be enough to keep the hospital’s finances afloat. This is where factoring over-advances come in. A factoring company that provides over-advances agrees to pay a greater percentage of the receivables than normal. They do this because they understand the unique financial situation of hospitals.
The medical factoring company will visit the hospital initially to determine the soundness of the hospital’s finances. The company will perform due diligence in examining the financial records of the hospital, the office procedures and the collections process. This review could take a couple of weeks, and the hospital will be charged a fee for the review. In most cases, this is worth it because it will establish the factoring rate that will be allowed. If everything checks out, over-advances will be permitted, helping the hospital to stay ahead of its health care financing dilemma.
Types of Problems Solved by Medical Factoring
Medical factoring can help hospitals that are experiencing financial losses, going through restructuring, having cash flow problems, going through bankruptcy or having tax problems. As long as the hospital has quality medical receivables as an asset to be sold, a factoring company should be able to help.
Medical receivables factoring can be a great help to hospitals that are experiencing problems with their finances. It can provide immediate cash to a hospital that is floundering financially. Medical factoring companies understand the unique needs of hospitals and can help with stable health care financing.