NOT JUST FOR THE FISCALLY CHALLENGED

MAR [Medical Accounts Receivable] funding is not just for the fiscally challenged healthcare providers. As healthcare leaders and financial executives look for more tools to add to their financial toolbox, they are realizing that they can use the flexibility of a Sun Capital HealthCare MAR funding program to fund long term growth and expansion.

There are several strategic reasons for healthcare executives to utilize their third pary claims [or A/R] as a debt-free funding source.

1. Accelerate cash flow - MAR funding provides an immediate infusion of cash without the lengthy application process of banks.
2. Provider is under fiscal stress - while cash flow is often an obstacle to growth or profitability, MAR funding turns a non performing asset, third party claims, into working capital that will yield an internal rate of return.
3. Realize cost savings from operations - MAR funding allows providers/suppliers to take advantage of cash discounts and/or quantity discounts and/or other savings typically offered by vendors. Other improvements in operations that typically are outside the context of capital budgets and/or new marketing programs to generate additional revenue are some of the other ways that can yield cost savings at the operational level.
4. Protect credit ratings for bond issues - by using MAR funding and not adding debt to the balance sheet, substational savings on long term interest costs could be realized by maintaining or improving the provider's credit rating.
5. Reduce costs of capital expenditures - by using MAR funding to finance otherwise deferred capital projects or those "below the cut-off line" of current capital budgets, providers could take advantage of negotiating costs with suppliers and vendors at today's prices rather than at an increased cost in the future.

In the current economic climate that is fiscally challenging healthcare providers, one lesson to be learned is to not put all your financing options into one basket. Another lesson is to use all the funding tools, including MAR Funding, available in your financial toolbox to implement your strategy for growth and expansion.

MAR Funding: Not Just A Tool For The Financially Stressed

Having just returned from the HealthCare CFO conference in Florida, a number of interesting and creative strategies emerged from our one-on-one meetings with leading financial executives.

The current liquidity crisis was the main issue healthcare leaders were concerned about. The financial pressures were not only severely impacting the poorly performing hospitals that were in fiscal stress, but even the large well financed and well performing hospitals were increasingly concerned about where they go from here. The impact of rising costs and reduced liquidity in the bond market were of major concern for two major reasons:

Where was the hospital going to get its future capital funding from if the bond markets dried up?

Further, if the hospitals go to the banks to increase their credit lines and take on more debt, how was this going to affect their credit ratings and subsequently their interest expenses?

After discussing with one hospital CFO, in a successful and profitable hospital, how a medical accounts receivable [MAR]program from Sun Capital HealthCare works, he identified a very effective role that MAR funding can perform within his overall financial strategy. Instead of taking on additional debt that could affect his financial ratios and increase the costs of his next series of bonds, he suggested that he could use a MAR funding program to protect his current AAA bond rating. Additionally, the costs of MAR funding would be far less than the increased costs associated with any drop in his bond rating over a 14 or 20 year bond issue.

This is just another reason why more and more healthcare financial executives are adding MAR funding to their financial strategies. Given the financial conditions in today's healthcare markets, MAR funding is no longer just for the financially distressed hospitals. This debt-free funding tool can be used in many different ways to protect and enhance the financial resources of healthcare providers.

Demand for Beds Fueling Hospital Construction

$41 billion dollars worth of new hospital and clinics were under construction during the fourth quarter of 2007. According to the article in H&HN Magazine, the driving force for this construction spree is the demand for beds. New technology and new equipment [i.e. imaging rooms, etc.] are contributing, but the addition of beds is what is keeping the pace of hospital construction going. And the pace is continuing in spite of the credit crunch in the financial markets and in spite of the reimbursement issues from Medicare and Medicaid that hospitals are facing.

How will they pay for this? Adding Medical Accounts Receivable (MAR) funding to their financial strategy is an additional financial tool that healthcare executives can take advantage of. By transforming a non-performing asset, the hopsital's receivables, into cash through a purchase and sale of that asset, medical accounts receivable funding is not just a financial solution for a hospital in fiscal stress. The immediate cash infusion and the ability to plan for a consistent cash flow makes MAR funding a financial strategy for growth and expansion as well....and one who's cost and availability is not subject to the fluctuations of the financial market since it is debt-free.

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.

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