How Do Municipalities Handle Cash Flow Challenges?

Over the past few weeks we have seen state medical agencies (Medicaid) curtailing their provider reimbursements. A common theme nationwide, providers of all kinds are suffering from "the budget has not been passed yet" disorders. How do state agencies expect a medical professional to care for patients, pay for supplies, pay rent, buy new and updated equipment and feed his/her family? State agencies should know better!

It is interesting to note that when state or local municipalities have short falls in cash flow, they can and usually issue very short term bonds (tax free to investors) called "revenue anticipation notes" (RAN's), "tax anticipation notes" (TAN's), and "bond anticipation notes" (BAN's). These securities are issued specifically to fill the cap created by short term cash flow deficiencies, and once the main source of funds arrives (the "revenue" "taxes" or "bonds") the short term notes are paid off. Municipalities have such abilities, but providers do not.

So what do providers have to fill the cash flow gap? Medical providers can use a strategy very similar to "revenue anticipation notes." A provider can sell his/her medical claims in anticipation of payment, through MAR (medical accounts receivable) funding. The sale of these anticipated payments can only be done through a finance facility specifically accustomed and designed to buy these receivables.

So the question is answered...medical providers can use the same strategy that municipalities use. A revenue anticipation note issued by cities, states and counties is a debt instrument. MAR funding is not! It is the sale (not borrowing) of the asset in anticipation of payment by a third party payor. If doubt arises when considering MAR funding, think for a moment....municipalities do something very similar almost every month!