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Frequently Asked Questions Medical Accounts Receivables Why do I need funding (factoring) if I have a line of credit at my bank? How much do you have on the line? Did you sign personally and guarantee the line? Is the line of credit sufficient for your needs? Have you requested an extension or increased limit on the line? Accounts Receivable Funding can offer an alternative funding solution that would provide working capital without dealing with a credit limit, borrowing funds, or personally guaranteeing the loan. Bank lines are routinely outgrown. As a business grows, the bank line of credit can have difficulty keeping up with the growth. Also, as we have discovered in the past few years, many lenders are withdrawing financial support from this sector. There is no assurance that the line of credit will be available in the future, so having a replacement plan will be a prudent business decision. It’s also a much smoother process to do this in advance of the notification that the line of credit will not be renewed. Why do I need funding (factoring) when I get my Medicare claims paid in two weeks? Because many commercial insurance carriers and other claims paying programs delay reimbursement of claims. Many healthcare providers have begun to rely on “Medicare” reimbursement as a more consistent payment source. Medicare has the ability to pay claims more consistently; however, it is usually the lowest paying of all providers. So there is both good news and bad news. Medicare can pay quickly. But this is only likely if all of the following things happen:
If the submitted Medicare claim clears all of the above items, it is possible that the provider can be paid in 14 business days or about three and a half weeks. If there is any problem with the claim, the collection time accelerates to 45 - 60 days — minimum. The provider has the option to choose which claims to fund and when. We would like to fund the Medicare claims, but that decision is left to the client. Does underwriting take long? The basis for providing funding rests with an understanding of the value of the receivables the funder is purchasing. For commercial transactions, this is straightforward, and everyone understands value. An invoice for $2000 worth of widgets is worth $2000. The seller expects that the buyer will pay this invoice for the stated amount — $2000. A medical claim for $2000 is worth varying amounts depending on which insurance carrier (or Medicare/Medicaid) is responsible for paying the claim for the insured member. Practitioners will have contracts with many insurance companies (the payors). They will also have agreed — in advance — to accept reduced amounts as full payment when claims are submitted under the terms of those contracts. Underwriting and auditing of a healthcare client prior to funding is the preferred way to understand what a healthcare facility or provider is receiving so an appropriate advance rate can be determined. In short, this takes time to accomplish. It also depends on the completeness and accuracy of the provider’s record keeping. Do I have to payoff my bank line? Some practitioners have other encumbrances that may be secured by their receivables. Some banks, finance companies, and even leasing companies may take a security interest in the receivables in exchange for granting credit or providing financing. Unless the bank will subordinate to the factor’s priority interest in the receivables, it will insist on being paid in full. If there are sufficient receivables for the funder to purchase, the bank may be paid off with the first funding. Occasionally, a payment schedule can be implemented with the funder paying the bank as claims are purchased. I have been told you cannot assign Medicare receivables; it’s illegal. This is correct, as far as the claim for the service provided is concerned. The government has a contract with the provider (hospital, clinic, doctor, pharmacy, etc.) to provide services in exchange for a payment. Medicare regulations that govern the contract specifically state that payment of the “claim” can only be made in the name of the provider, no one else. The provider cannot sell the claim and tell Medicare to pay a third party. The remittance (payment) for the claim can be sent to a bank (lockbox) in the name of the provider who controls the lockbox account. Once the claim has been converted into proceeds, those funds are assignable as they are no longer a claim. Medicare has paid the claim, and the provider has cashed the check. At this point, the funds can be assigned or transferred to a third party without violating any provision of the contractual agreement between the provider and Medicare. Does this mean I don’t have to collect anymore? No. The funder is a financial intermediary. It has no authority to change or modify any claim submitted to any carrier. The funder is not in any position to contact any carrier for payment as they do not represent the provider. The only information the funder has is a copy of the billing record that was submitted to the insurance carrier. Requests for additional documentation, claims that are denied, pended, or underpaid remain the responsibility of the billing and collections company to address, modify, or correct. It not only has a contractual obligation to the provider; it is the only one that can access the necessary documentation and data to support the information requested. * [From: The American Cash Flow Journal; Medical Receivables Parts 8 & 9 by William Owen.]
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