Over the past couple of weeks, I have posted two parts of the healthcare cash crunch series that originally appeared in the American Cash Flow Journal, and was re-posted on PRN Funding’s web site. I first discussed the financial irony in our country’s healthcare system. Then in the second post, I described how factoring brokers and cash flow consultants can help resolve the healthcare industry’s cash flow problem by matching vendors who sell to healthcare institutions with the appropriate factors. Finally, I will conclude the series with an in-depth look on how to find the right kind of factor for your healthcare clients.
Each year, the United States’ government allots $1.2 trillion towards healthcare spending. However, one-third of our nation’s hospitals is currently operating in the red, and another one-third is barely able to stay afloat in the industry. Herein lays the financial paradox. Even though 14 percent of the federal budget is dedicated to healthcare every year, there are complexities in the government-run Medicaid and Medicare programs, which slows down the reimbursement process. In addition, an aging Baby Boom population and the recent increase in uninsured Americans are also placing unwanted tension on the healthcare system.
The aging Baby-Boomer generation is only the beginning of a new surge in the oldest adult segment of the American population. According to the U.S. Census Bureau, one in five Americans will join the 65-plus age group by the year 2050. The overflow of elderly adults will place a significant amount of stress on the healthcare system because the surge in elderly adults will drastically increase the demand for services that treat and manage chronic and acute health conditions.
Another important matter to keep in mind is the growing number of uninsured people in our country. A whopping 45 million Americans were uninsured last year, and almost half (20.6 million) were full-time employees whose employers opted not to provide health coverage because premiums were too expensive. In addition, the majority of unemployed Americans living in poverty as well as elderly retired adults rely on Medicare and Medicaid to pay their medical bills. Even though the government provides health insurance coverage for those who could not afford it otherwise, Medicare and Medicaid are notorious for making inadequate payments. More often than not, these federal programs pay slowly and the medical costs are often higher than the plans are willing to remit. And thus, the circular pattern begins. Healthcare institutions have to wait to be paid for their services, so they don’t have enough funds to pay their bills on time. Translation: Lying at the base of this slow-paying pyramid and perhaps suffering the most from the cash crunch are those vendors who sell to healthcare institutions.
This is where factoring brokers enter the cash flow equation at the base along with those vendors. As cash flow consultants, you possess the necessary ability to reach out to vendors who sell to healthcare institutions, recognize their unique position in the healthcare cash flow equation and match them with an ideal funding source. In other words, the solution to this complicated problem lies in your hands. All you have to do is find the right kind of financial assistance for these specific vendors. But before you jump the gun, allow me to elaborate a bit more on the funding options that are available to these vendors.
The most practical funding solution for these healthcare vendors is accounts receivable factoring. Oftentimes, when companies are just starting out or going through a period of rapid growth, their cash flow gets out of sync with their business goals. For example, a company might want to expand, but slow payments from current clients prevent them from having enough immediate cash to service new clients or to add employees to their payroll. By selling their accounts receivables to a factor, a healthcare vendor can maintain their present responsibilities to payroll and operations, without having to wait months for the healthcare institutions to pay them.
When handling these kinds of healthcare deals, it’s important to understand how time comes into play with the invoicing process. Because they are paid slowly or inadequately, many nursing homes and hospitals provide their vendors terms of net-60 or longer, which means that they won’t even consider paying an invoice until it is already two months old. So it’s not so much a question of whether or not healthcare institutions will make payments on an invoice, it’s more of a question of when they will be able pay their vendors. If vendors that serve healthcare providers were to factor their slow-paying invoices, they could easily alleviate their cash flow problems by gaining immediate cash, rather than wondering how long it will take to get paid by their customers.
Now that you understand how factoring can help the healthcare financial crisis, it’s time for you to choose the right factor for the job. First, be careful not to confuse third-party medical receivables with healthcare vendor receivables. Third-party medical receivables introduces a third party to the invoicing process. For example, when an elderly person goes to the doctor for a check-up, that person will pay a co-pay for the visit in conjunction with his/her insurance, who will pay the remainder of the bill. Because there are three parties involved in the payment process (the patient, the insurer and the doctor’s office), the factoring deal is referred to as third-party medical receivables.
Conversely, there is another side to healthcare receivables, which often goes unnoticed in the factoring industry, known as healthcare vendor receivables. Healthcare vendor receivables come into play in the factoring industry anytime a medical provider chooses to purchase products or services from a vendor outside of its facility. For example, a hospital could hire a temporary nurse staffing agency to fill vacancies during the holidays.
There is no question that both third-party and vendor-side receivables can and should take advantage of the cash flow opportunities that factoring has to offer. Instead of waiting months to be paid in the healthcare industry, factoring creates an opportunity to stabilize a company’s cash flow by advancing immediate working capital.
With that said, you are already familiar with those companies dedicated to working with third-party medical receivables. It is equally important to also recognize and work with those companies who are dedicated to the vendor-side of healthcare receivables in order to solve for all variables of the cash flow equation.
Take heed when choosing a factor for each deal; do your research, and put yourself in your healthcare clients’ shoes. One of the main things that you learned during your consultant training is that deals involving medical receivables should be sent to a particular factor that specializes in that area. The same holds true for healthcare vendor-receivables. Yes, an all-purpose factor will be able to handle the vendor receivables just as professionally as a factor who deals only with healthcare vendor receivables. Still, one holds an important advantage over the other. The factor who is dedicated to serving the healthcare vendor industry has an extended expertise in the field. The vendor factor understands the unique operating procedures, specific vocabulary and trends that are associated with the healthcare vendor industry, so they are better able to serve those businesses.
Think of it this way: If you were having heart pains, who would you rather visit’your primary care physician or a cardiologist? Both have the capability to diagnose the cause of the heart pains, but the cardiologist works with hearts everyday, while the PCP may only occasionally encounter a heart problem. The choice is yours, as it is with your clients when picking a factor. And more often than not, you and your clients would choose the person or company who knows the most about your particular dilemma.
So there you have it. In the past three articles, I have gone into tremendous detail about the healthcare financial crisis and shown you where cash flow consultants fit into the equation. You learned the causes of the cash flow problem in the healthcare industry and how you can be part of the solution. Remember that there are factors out there who offer a valuable service to the vendor-side of the industry, and teaming your clients up with those factoring companies helps three-fold. First, the vendors can continue to serve healthcare providers without having to wait to be paid. Second, healthcare institutions can continue to provide the best quality medical attention and offer premier facilities to their patients. And last, but certainly not least, you can increase your own cash flow by matching your healthcare clients with a factor who also understands the healthcare industry and who will get the deals done.
NOTE: The Cash Poor Series was initially written as a three-part series written by Nikki Flores for the American Cash Flow Journal, which is no longer in publication. It was also published on PRN Funding’s web site.