Securing Debt Financing a Challenge for Healthcare Providers

The cover story in the February 25th issue of Modern Healthcare describes the difficulty many hospitals, nursing homes and other healthcare providers are having in securing debt financing for their institutions. The basic problem is that the subprime mortgage market turmoil has made most lenders very cautious in providing debt financing at all, and if it is available, the interest rates being charged have jumped to the point that healthcare providers just cannot afford the steep fees. This has affected even very large, well-established health systems such as Multicare Health System, Christus Health and SSM Health Care. It has not been unusual for interest rates to increase from 3.9% to 15%, and even 20%. Many health care providers are unwilling to sign-up for long-term debt at these rates. Therefore, many healthcare providers are looking for short-term financing vehicles to use while the interest rates for debt settle down to more favorable long-term rates. While this type of short-term financing has been difficult to find, a well-established firm in Boca Raton, FL, Sun Capital HealthCare, Inc. does provide a good solution.

Sun Capital HealthCare, Inc. is a premier funding source for healthcare providers. They provide a cash-infusion by purchasing accounts receivable backed by third party payors. They are a very stable, reliable and ethical firm with more than twelve years of experience within the industry. During that time, they have purchased almost $4 billion in accounts receivable. They are frequently called on to help healthcare providers that have a cash-flow problem, or need funds for expansion, but chose to not add debt to their balance sheet.

Their Medical Accounts Receivable Funding solution can provide the working capital healthcare providers need without a lengthy contract, thereby providing a financial "bridge" until the more traditional lending sources become available again at a reasonable fee. They have the ability to move quickly to provide working capital so that healthcare providers do not have to sign long-term contracts for debt financing at today's extremely high rates.

Hospitals Hit Hard By Bond Market

According to a recent article in the Minnesota Star Tribune, two major Minnesota hospitals are facing a serious financial situation. The weekly interest payments on their outstanding debt are soaring, putting them in a credit squeeze. This is attributed to investors moving away from bonds backed by insurers who face substantial exposure resulting from the subprime mortgage market. Consequently, some bonds aren't being bought and other deals are being done only at higher interest rates.

This growing trend puts more pressure on CFO's to refinance their debt and add other financing methods to their fiscal strategies. One such tool is medical accounts receivable funding. It utilizes a non-performing asset, a healthcare provider's accounts receivable, to generate debt-free working capital. Since the costs of this funding program do not fluctuate with interest rates, healthcare executives can plan their financial strategies based on a predictable cash flow.

Medical Accounts Receivable (MAR) Funding As a Working Line Of Credit

MAR Funding can be used as a "reserve working capital line," for medical providers. The flexibility inherent in this kind of finance allows providers to use their third party insurance claims (already billed and awaiting payment) to fund daily needs as they occur. Funds for such use can literally be placed in the provider's account and can be available for use within 48 hours of such deposits.

Many medical providers experience "highs" and "lows" in cash flow as a result of insurance and governmental payors protracting payments for a litany of reasons. Paying for supplies, payroll and other daily operational expenses found in medical practices can be easily accomplished by opening an account with a MAR Funding company, specifically Sun Capital HealthCare, Inc. Not all financial institutions offer the ability to use their MAR Funding as a working line of credit. Providers must consider the flexibility offered by the funding source chosen. The ability to pick and choose when and what to finance can reduce costs of funding and allows the provider to "customize" their funding solutions.

Financially Troubled Hospital Can't Afford to Improve

Kenneth Hall Regional Hospital has lost an average of $3 million per year for the past 5 years, according to a recent article in the St. Louis Post.

When hospitals struggle financially, a downward spiral frequently occurs. Financial losses make it difficult to upgrade technology and keep the hospital looking attractive. This, in turn, makes it hard to attract physicians and their patients; a circumstance Kenneth Hospital knows all too well.

Kenneth Hospital is a 161 bed facility, but on an average day only about a quarter of those beds are filled. In 2006, federal health inspectors found that the hospital's on-call trauma surgeons failed to respond within the mandated 30-minute time frame.

Mike McManus, COO for the foundation which owns Kenneth Hospital, blames inadequate finances for the hospital's decline in treatment. "We acknowledge that some of our results are not where they should be, but our hospitals do not have cash reserves. What's happened in the past basically is we've repaired things when they break, but we don't have the resources to improve."

McMannus sees a merger of services with its other facility, Touchette Regional Hospital, as only a short term solution for both hospitals' chance of survival.

Hospitals finding themselves in a similar financial crisis should strongly consider Medical Accounts Receivable (MAR) Funding as a solution. MAR Funding is a strategic way to generate working capital. With MAR Funding, a hospital's account receivables can be converted to cash to keep up with ever-changing medical technology, purchase new equipment, invest in additional personnel, and ensure a hospital's financial survival.

Medical Accounts Receivable Funding Glossary

Many healthcare businesses have started to become familiar with the advantages of Medical Accounts Receivable (MAR) Funding over the past few years. With a new financial tool comes new vocabulary to become familiar with as well. By understanding the terminology used in the MAR Funding industry, you can gain a better understanding of how this financial tool works and how it can benefit your healthcare company.

Advance Rate: The percentage of the factored invoice advanced to a client upon initial invoice funding. The advance rate is typically expressed as a percentage of the total invoice amount. Advance Rates usually range from 70-80%.

Discount Fee: This is the fee charged by the funding company for performing funding services. Discount fees are typically time-sensitive and are usually a flat, fixed percentage of the total invoice. This fee can be calculated on a daily basis or in 15 or 30-day increments.

Due Diligence: The background check and research conducted by the funder to assess the validity of a prospective client (and that client’s customers) before officially entering into a funding agreement. Due diligence generally involves credit checks, appraisals, UCC searches, lien searches and/or on-site visit with clients.

Medical Account Receivable (MAR) Funding: Medical accounts receivable funding is the sale and purchase of an asset at a discount. There is no debt incurred on the client's balance sheet, and the net result of each transaction will be the conversion of the client's accounts receivable into cash.

Payor: The person, company, or government responsible for making payments on an income stream.

Reserve: An amount withheld by the funder net of the advance. Can be used as a financial cushion to offset against payment shortages, client and the customer disputes, or bad debt losses due to non-payment. The reserve should be released to the client after the customer has paid the funder the total money due on the invoice.

Reserve Release: The process of the funder releasing final monies due the client once the invoice has been totally satisfied less any applicable fees or charge-backs.

Working Capital: In general, the funds needed by a business to pay current expenses such as payroll, benefits, rent and other operating costs.

Medical Accounts Receivable Funding During Current Economic Times

Medical Accounts Receivable (MAR) funding has become the finance choice to many providers seeking working capital for growth or survival. Although lowering interest rates exist in the lending community, access to the loans with such attractive rates has become challenging. A weak economy means a weak financial statement, which means weak credit evaluation, which leads to a rejected loan application.


MAR funding companies in these times are usually inundated with applicants for funding as such transactions do not require strong credit data on the applicant/provider. Medical practices and other equipment or services providers experiencing growth needs, along with decreasing and protracted payments from third party payors, can benefit from MAR funding.


Sustaining a modest 2%-4% discount as the fee for selling claims, a provider can grow and can also pay suppliers quickly taking advantage of cash discounts. Growth and vendor discounts can more than cover the low cost of MAR funding. A keen business mind will immediately recognize how a predictable cash flow can be of use especially in the economic environment we live in today. Consider using your laziest asset, your accounts receivable, to fund medical practice operations and growth.

Moving from crisis management to strategic planning

A special commission in New Jersey has issued a report dealing discussing financially ailing hospitals in the state. Five have filed for bankruptcy since July 2006 and 16 acute care hospitals have closed in the last decade. N.J. is one of two states that require hospitals to provide Charity Care through which hospitals are reimbursed from public insurance funds for costs associated with the poor. While reimbursement rates are part of the problem, Heather Howard, the New Jersey health commissioner, said officals are working on a early warning system for rescuing financially troubled hospitals. "Unfortunately, a hospital will sometimes come in on Friday and say, 'We can't meet payroll; can you help us out.' "Ms. Howard said, "I want to move from a culture of crisis management to one of strategic planning."

New Jersey's experience has relevance for the healthcare industry, especially in the current liquidity crunch. Effective financial planning using all the financial tools available to the healthcare industry is even more important today. An underutilized financial tool is medical accounts receivable [MAR] funding. More and more providers are adding MAR funding to their financial portfolio because it is debt-free and provides a predictable cash flow to their finances. It transforms your accounts receivable into a cash flow solution for generating working capital rather than an obstacle to growth and profitability.

Choosing the Right Funder

An increasing number of healthcare providers and suppliers have discovered that Medical Accounts Receivable (MAR) Funding is a viable solution to combat the demands on cash flow.

However, when selecting the right funder for your company, it is important to find the answers to the following questions to ensure you are making the best choice:

Flexibility:
Are you required to sell all of your claims or can you choose which claims you want to fund? The funder you select should have a flexible program that allows you to stay in control.

Funding Procedure:
How long will it take to process and fund your claims? A seasoned funder knows the importance of having a rapid turnaround time so that funding is available to you as you need it, when you need it.

Hidden Fees:
Are there any miscellaneous fees you may be charged along the way? Some funding sources will charge audit fees, report fees, and due diligence fees which are not disclosed in the contract.

Service:
Does the funder offer any value added services? Will there be one-on-one attention to your account as needed? It is important to choose a funder who has a commitment to client satisfaction and who knows and understands the pressures and demands of the healthcare business.

Medical Accounts Receivables 21st Century

It appears that healthcare medical records are moving into the 21st century. Our health-care system is considered one of the most costly in the world. Many providers maintain their records in old fashioned filing cabinets, prescriptions scribbled on paper and patients must complete a medical history form with each provider.

If healthcare providers could use a universal electronic system that would give better access to information, it would cut cost of the BIG need to assemble patient records. The end result would be less mistakes, botched diagnosis, billions of dollars of unnecessary costs and lost productivity. Plus, create better coding and claims billing efficiencies.

On February 18th a pilot project began at the Cleveland Clinic/Google . The Cleveland Clinic, a not-for-profit medical facility founded 87 years ago, has invested millions in IT Projects. Google is not the first to enter this realm. In 2007 rival Microsoft Corp. introduced a similar service called HealthVault; and AOL Co- founder, Steve Case, is backing Revolution Health. C. Martin Harris, the medical center's Chief Information Officer, said that the Cleveland Clinic decided to work with Google to create a more efficent national health care system.

The systems are revolutionary but still a work in progress. The payoff is cutting healthcare costs and allowing patients access to their records.

However, the downside of this is these third-party services are not covered by HIPPA - Health Information Portability and Accountability Act.

Healthcare Billing Practices Questioned

Who is Ingenix Inc.? Medical fees are determined and set by this company and accepted by some of the largest insurers. A six-month investigation has determined that Ingenix operates a defective and manipulated database that most major health insurance companies use to get reimbursement rates for out-of-network medical expenses. Are they defrauding consumers by manipulating reimbursement rates? How a patient is billed is being questioned by regulators across the country.

Ingenix was founded in 1996 to develop, acquire, and integrate some of the world’s best-in-class health care information technology capabilities. Ingenix is a wholly-owned subsidiary of United Health Group.

United Healthcare was ranked #21 on FORTUNE Magazine’s 2007 listing of the largest U.S. corporations and ranked #1 among the Most Admired Health Care Companies.

Rates set by Ingenix, Inc. are used by the five largest insurers in the nation and affect hundreds of thousands of patients from New York to California. With rising medical costs, record numbers of people losing their coverage, and healthcare at the top of the domestic agenda, health insurers find themselves in the cross-hairs of regulators, elected officials and law enforcement in California and across the nation.

Getting shortchanged? Ingenix data allow insurers to short patients on out-0f-network reimbursements.

example: 2007
Doctor's visit -15 min. rate for common illness.

Fair Market value -$200/ Igenix rate-$77/ Insurer rate (80%)-$62 / Consumer rate-$138.

The Insurer should pay $162 and Consumer should pay only $40

Overcoming the Liquidity Crunch in Healthcare

Despite the lowering of rates by the Federal Reserve, the availability of credit is becoming more restrictive. This is especially worrisome for the healthcare industry. Additional debt and lines of credit from banks are more difficult to obtain while the demands on cash flow for healthcare providers and suppliers is increasing. An underutilized solution to this liquidity crunch, not dependent on the availability of credit or limited by caps on credit lines, is medical accounts receivable funding [MAR funding].

More and more healthcare CFO's are adding this funding tool to their financial portfolio because:

• it is debt-free


• funds are available within 24-48 hours


• the amount of funding grows as their A/R grows


• it provides a predictable cash flow

Medical Accounts Receivable Funding VS. Banking

When considering the funding options available to help gain working capital, the two most reputable solutions that come to mind are medical accounts receivable funding and banks. The banks can either provide you with the money only one time, the day you receive the loan or the bank can provide you with a line of credit that you use only when you need the money but the bank is charging you for that privilege...if you need to increase your line of credit, you will need to go through the qualifying process all over again. Medical accounts receivable funding doesn't create debt, mortgages, liens or personal and corporate risks...you are actually receiving your money at a discount.

Below is a comparison chart which displays the differences between medical accounts receivable funding and banking:

Visit http://suncapitalhealth.com/benefits.asp to learn more about the benefits of medical accounts receivable funding.

Setting Up A Small Business

Many individuals want to start their own business, but are worried about the expense and the risk. Help is available. Today with a computer and the internet it is easier to access information to form a “startup”.

The most difficult part of this endeavor is finding financing. The owner of the business first must decide how the business will be structured, what it will sell, and determine how the funds will be used in the business.

Banks can provide a line of Credit (“LOC”). There are a multitude of finance companies that can be researched on the internet that can provide Purchase Order Financing, Accounts Receivables Funding, or Inventory Financing. If a company has decided to do business with the federal government there are companies that specialize in Government Receivables Funding.

Help is out there for the small business owner!

Financial Challenges in Future for Hospital Industry

Despite the challenges they face, U.S. hospitals have actually improved their financial status in recent years -- but that may be about to change, according to a new report. Moody's Investors Service, which rates not-for-profit hospital debt, has issued a warning that while hospitals appear to be financially stable in 2008, it's not clear what will happen in 2009 and 2010 if the economy takes a plunge.

The Moody report states that in years to come there will be rising numbers of uninsured and underinsured patients. Changes generated by the upcoming presidential election could also present financial dilemmas for the hospital industry. To weather the storm, hospitals are looking at mergers as well as other strategic funding solutions such as Medical Accounts Receivable (MAR) Funding as a way to increase cash flow to expand and/or upgrade facilities.