Part Three

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.

Part Two

Earlier this week, I gave an overview of the healthcare financial crisis that currently exists in our country. And I challenged you, as cash flow consultants, to take a part in solving the cash flow equation by offering your financial expertise to those vendors who sell to healthcare institutions. Allow me to elaborate.

There is an underlying irony in our country’s healthcare system. Fourteen percent (or $1.2 trillion) of the United States’ federal budget is spent on healthcare every year, which is more than any other country, yet one-third of our nation’s healthcare providers operate in the red, and another one-third are barely able to stay afloat. But how can that be? An aging Baby Boom population, a steady rise in uninsured Americans and inadequacies in the payment systems of government aid programs all add elements to the healthcare financial crisis equation.

The Baby-Boomers are getting older and living longer’So much so that by 2050, it is projected that one in five Americans will be included in the oldest adult segment, according to the U.S. Census Bureau. This surge of older adults is expected to cause a substantial flux in our country’s healthcare system because of the increased need for services that treat and manage chronic and acute health conditions for the elderly.

In addition to the aging population, rising health insurance premiums and a significant increase in federal healthcare coverage add more twists to the cash flow crisis. For example, 45 million Americans went uninsured last year, and almost half (20.6 million) were full-time employees whose employers could not afford to provide them with health insurance due to costly premiums. Now keep in mind that hospital emergency rooms are required to help any patient who walks through their doors, whether or not he/she has health insurance. So what happens when they provide medical care to a patient who is uninsured? The hospitals are left to foot the bill on their own.

Furthermore, a majority of unemployed Americans living in poverty, as well as the retired elderly adult population, depend solely on federal healthcare programs, such as Medicaid and Medicare, to pay their medical bills. Both programs appear to solve the cash flow problem because they pay for medical procedures that these people would otherwise be unable to pay for. But in reality, it’s not so simple.

Both federally funded programs pay slowly and more often than not, the cost of the actual medical care is higher than these programs are willing to reimburse. In the meantime, hospitals and nursing homes are forced to take the financial hit. Thus, the never-ending cycle begins. Healthcare institutions have to wait to be paid for their services, so they are unable to pay their bills on time. In other words, healthcare providers are not the only ones who suffer in this funding crisis’their vendors suffer too.

Welcome to the healthcare financial crisis equation. As cash flow consultants, you have the power to help this cash flow problem from the ground up. By reaching out to those vendors who are selling to healthcare institutions, understanding their positions and pairing them with a funding source, you have the ability to impact the healthcare funding crisis in a positive and revitalizing way. The trick is finding the right kind of financial assistance for these vendors.

Many of you may be asking the obvious. Why couldn’t the vendor just take out a small business loan from a bank? However, conventional borrowing increases business expenses because it creates debt that must be paid back, and it normally requires additional collateral that many of these healthcare vendors do not have. Not to mention that some companies, especially smaller ones, are turned down by banks because of tight borrowing regulations and restrictions. In addition, equity financing is generally harder to find than debt financing and once found, it takes longer to arrange, which does not address the company’s original need for working capital now.

However, another financial route works especially well for these healthcare vendors’ accounts receivable factoring. A viable option for companies in the early stages of business development and /or during rapid growth, factoring is a financial solution that gives companies immediate cash to manage operations more efficiently. Through the sale of its accounts receivable to a factor, a company can maintain their present obligations, such as payroll and taxes, without having to wait months to be paid.

Now that you have taken a moment to investigate the healthcare industry’s financial crisis, it’s easy to see how time plays such a crucial role in the payment process. It’s not a question of whether or not healthcare providers will pay their vendors, it’s a question of when they will be able to pay their vendors. Because they are paid slowly and inadequately, many hospitals and nursing homes provide their vendors terms of net-60 or longer, which means that they won’t consider paying an invoice until it is at least two months old. In other words, healthcare institutions do pay their bills, but they pay slowly. So if healthcare vendors would factor their receivables, they could stabilize their cash flow and continue servicing their clients, without having to worry about when they would get paid.

On that note, it is important to understand that there are two ways that a factoring company can handle healthcare receivables. One way introduces a third party (i.e. Medicaid, Medicare or private insurance company) to the invoicing process. For example, when you go to the doctor for a cold and you have health insurance, your doctor’s office sends a claim to your insurance provider after you have paid your portion (or co-pay), which bills your insurance company for the remainder of the bill. Because there are three parties involved (you, your doctor’s office and your insurance provider), the factoring deal is referred to as third-party medical receivables, which many of you are already very familiar with.

On the other hand, there is a vendor side to healthcare receivables, which oftentimes goes unnoticed in the factoring industry. A good way for any business to save money is to outsource work that the company does not specialize in. This works especially well for healthcare providers. For example, a nursing home could hire another company to cook all of their food and run their cafeteria services or a hospital could hire a temporary nurse staffing agency to meet it speak demand periods. Whatever the case, the bottom line is that each of these vendors end up waiting much longer to be paid than it would take for a traditional commercial transaction. Thus, these kinds of vendors could and should take advantage of all the benefits that factoring has to offer. So now that we have narrowed down the financing field to factoring, the next step is finding the right factor for the job. What are the pros and cons between choosing a big factor or small one, a general factor or a specialty one? Please stay turned for the next factoring blog post, which will go into further detail about these differences and more, and find out which type of factor would make the best fit for your healthcare clients.

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.

Part One

The climbing cost of healthcare has been among the top issues in this year’s elections, and it should be on your list of concerns too, because within the healthcare industry lies an immensely untapped potential for financing that is in dire need of your cash flow expertise. Allow me to explain the situation and then show you where you fit into the healthcare financial equation.

According to the Agency for Healthcare Research and Quality’s Web site, the United States spends a larger portion of its gross domestic product (GDP) on healthcare (nearly one-seventh) than any other major industrialized country, and it has been one of the fastest growing areas within the federal budget for the past several years. In other words, a large portion of all U.S. economic expenditures (14 percent or $1.2 trillion) is spent on providing healthcare to Americans. On the surface, this appears to be a good thing because if more money is budgeted for healthcare, then more people can benefit from it. Yet there’s an underlying irony’an increasing number of healthcare providers continue to operate in the red. In fact, according to the American Hospital Association, one-third of America’s 5,000-plus hospitals are actually losing money, while another one-third is barely breaking even.

So who’s to blame for this financial crisis? Most would assume that healthcare institutions are the ones to blame. It is easy to jump to the conclusion that the institutions are abusing the system and that they are not using their allotted sums appropriately. However, in reality there are a number of culprits on the playing field, and only one of them is healthcare institutions. An aging population, an increasing number of uninsured Americans and slow-paying government aid programs all play a part in cramping the budgets of hospitals, physicians, employers and consumers.

Over the past 50 years, our nation’s population has aged significantly. The Baby Boomers are quickly approaching their 65th birthdays, which will place them in the oldest adult segment of the American population. (In fact, the U.S. Census Bureau projects that over 20 percent of the American population will be included in the oldest segment by 2050). According to The 2003 Chartbook on Trends in the Health of Americans, the surge in elderly adults will place tremendous stress on America’s healthcare system during the 21st century, because additional services will be necessary to treat and manage their chronic and acute health conditions. Not to mention there will be over 40 million retired elderly adults depending solely on Medicare to cover their medical bills next year, a problem that I will delve into later in the article.

In addition to the ‘baby boom’ generation getting older, our younger generation has received the short end of the stick when it comes to healthcare coverage. Medicaid usage and the percent of uninsured Americans has been on the rise since 1984. The 2003 Chartbook on Trends in the Health of Americans reported that in 2001, adults aged 18-24 were most likely to lack health insurance coverage (16 percent went without for the year) and those 55-64 were least likely. In addition, the Denver Post reported that the number of uninsured young adults aged 25-34 ‘jumped dramatically’ during 2003, from 9.8 million to 10.3 million. Rising health insurance premiums and overall poverty rates have both contributed to the 45 million Americans who went uninsured last year, as reported by The New York Times.

For example, expensive healthcare premiums make it harder for employers to afford coverage for their employees, creating an uninsured working class. According to the Washington Post, the proportion of the working class who received health insurance through their employers fell to 60.4 percent in 2003, (down from 61.3 percent in 2002,) the lowest level in a decade. Within that uninsured working class, 20.6 million people were full-time employees. Add in the fact that emergency rooms are obligated to care for any patient that comes through their doors, regardless of whether they have insurance or not, and what do you get? Answer: Millions of uninsured people who visit the emergency room to receive medical attention and who also rely on the hospital to foot the bill.

To make matters worse, the U.S Census Bureau reports that poverty rates have been steadily increasing over the past few years (12.3 percent in 2002, translating to 34.6 million people, see figure 1), forcing a majority of the less fortunate population to either go uninsured or rely on Medicaid to pay their medical bills. Neither option is a promising solution to the healthcare cash crunch equation because the facilities cannot count on being recompensed directly and adequately for their obligated medical actions. Hence, the increase in uninsured Americans and those who rely solely on Medicaid and Medicare has had a tremendous affect on the United States’ healthcare institutions.

Title XIX of the Social Security Act, commonly known as the Medicaid program, is the largest source of funding for medical and health-related services for America’s poorest people. However, since its launch in 1965, Medicaid’s costs have rapidly increased, paying an average of $3,935 per person to healthcare vendors in 2000, as reported by The Official U.S. Government Site for People with Medicare (www.medicare.gov). On the other hand, the Medicare program was created in 1965 under title XVIII of the Social Security Act. Designed to provide basic hospital and medical coverage for adults aged 65 and above who are no longer working and therefore are unable to pay for healthcare, Medicare’s costs has also increased rapidly, and it currently covers 41 million Americans.

Although Medicaid and Medicare programs can be beneficial for underprivileged and elderly Americans in need of healthcare, American medical institutions and their vendors don’t fare quite as well in this cash crunch equation due to sluggish and inadequate payments from the above federal programs.

Because each state has its own unique way of filing for government healthcare coverage and because of capped expense amounts, federal insurance plans like Medicaid and Medicare make their payments slowly, sometimes taking months to deliver funds and in many cases, the government-mandated payments don’t cover the actual cost of providing care. Accordingly, healthcare institutions such as hospitals and nursing homes take a longer time to pay their own invoices. As a result of their inadequate financial resources, these hospitals and nursing homes suffer from dwindling human and technological resources. So in an effort to save money, facilities are forced to make cuts in staffing and special treatment programs, pass on costly technological advances and start outsourcing more general positions, which creates a whole new world of vendors who sell to hospitals and nursing homes. (Think: janitorial services, cafeteria workers, temporary nurse staffing agencies, medical staffing and medical transcriptionists, to name a few.)

Here is where you enter the equation. As cash flow consultants, it is your mission to ‘make the cash flow’ in companies, is it not? You take it upon yourself to find businesses needing funds, and then you match the client with a company who can supply them with adequate working capital. When searching for funding, it is imperative that you understand your client’s business, and it is equally as important for the actual company providing the funds to understand your client’s business. A bond is made between you, your client and the funding company, which means that all parties involved need to be familiar with the others’ intentions and wishes going into the deal in order to make the best financial arrangement. But with so many different types of funding to choose from, vendors look to you to help them sift through the information, which makes it even more critical for you to understand your client’s business and their specific funding needs. This can be challenging when working exclusively with vendors serving healthcare institutions because it is such a specialized industry, filled with unique working opportunities, complicated lingo and elaborate payment methods.

So let’s revisit that cash crunch equation once again. Healthcare institutions need money to help patients, increase technology and pay their vendors. But because it sometimes takes months for hospitals and nursing homes to be paid for their services, they are forced to take additional months to pay their own vendors for their services. In the meantime, those vendors suffer because they can’t make payroll or pay taxes. So they reach out to consultants like you to help them find a way to stabilize their cash flow. Lucky for you, you understand their frustrations with the healthcare financial crisis (on account of this article), and you are fully capable of setting up a deal with a funding company who also understands the healthcare industry. And thus, the cash crunch equation is solved thanks to you.

Want to learn how you can help even more? Stay tuned for the next blog post, which will go into further detail about the financing options that are available to these vendors, and find out which one holds the missing piece to the healthcare cash crunch puzzle.

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.