A medical practice has the same concerns and needs as any other business. For this reason, proper cash flow management is paramount to the success of any practice. This is why it is important to be knowledgeable of all of the benefits that can be derived by utilizing a medical factoring company for your practice.
What is Medical Factoring?
Medical factoring assumes the tedious and frustrating process of billing insurance companies for the services rendered by your practice. It also bridges the time from when services were originally rendered to the patient and that of receiving payment.
Instead of waiting 60 or even up to 120 days to get paid, a healthcare factoring service can provide the practice with an advance payment for the majority of the sum being billed on an insurance claim. This is done in a matter of days, not months. This allows a practice to operate in a much healthier cash flow position.
Related: What is Invoice Factoring?
Various factors come into play when determining the amount that is advanced to the practice, however, it is not unusual for them to be upward of 75 percent. The advance payment is released by the medical factoring company upon the initial submission of the claim. The remaining balance of the claim is issued to the practice once it is actually paid by the insurance company. The only cost to the practice for this level of convenience is a small processing fee that is applied once the final claim payment is received.
Advantages Over In-House Insurance Billing
A well run practice will always have an efficient practice administrator. Unfortunately, regardless of how efficient a practice’s administrative staff may be, they cannot overcome the delays that are caused by insurance company bureaucracies and an institutionalized payment scheme. It is clearly designed for the benefit of the insurance companies, not the practitioners.
If anything, the level of efficiency obtained from an in-house administrative staff will be greatly enhanced by the services of a medical factoring provider. Instead of being consumed in dealing with the minutiae of billing — constantly attempting to resolve payment delays by the insurers — the administrative staff can focus on actually running the office. Outsourced medical factoring allows a practice’s back office staff to focus on such things as improving the patient experience, enhanced marketing and lowering costs.
Helping a Practice Grow
By eliminating the cash flow problems created by a slow paying claims process, medical factoring also helps to realize a practice’s growth potential. Many times growth plans are delayed due to the strains presented by a practice’s cash flow. Prime opportunities for expansion are often delayed by these financial realities.
The financing that medical factoring extends by advancing claim payments allows for a better leveraging of the practice’s revenue. It also makes for more accurate budgeting and for more precise allocation of capital toward growth or increased marketing efforts. The correlation between factoring and improved cash flow is as direct as that between a strong cash flow and sustained growth of the practice.
Related: Choosing a Factoring Company
Who is Medical Receivables Factoring Best Suited For?
The short answer to this question is that any health care provider, regardless of size or specialty, can benefit from factoring. Some specific examples include:
- Individual Physicians
- Rehabilitation centers
- Nursing homes
- Home hospice care providers
- Home medical equipment providers
- Ambulance services
Practices that are in their first three years of operation can derive vast benefits from factoring. Due to their short operational history, these practices lack the established credit history that banks look for to finance loans. By using factoring as a way to have sustained positive cash flow, these start-up practices can fund growth and operations without having to procure other forms of more expensive financing. Similarly, if the practice is in the process of recovering from a bankruptcy, factoring is a cost efficient way to fuel the operation forward.
It is also important to note that medical factoring is an outsourced service, This means that a practice can use it as it deems fit. They can funnel all of their insurance billing through it, or just selected claims. Likewise, they can discontinue its use at any time.
What about Medicare and Medicaid billing?
The majority of medical receivables factoring companies are able to accommodate both Medicare and Medicaid billing as well. The service fee and the amount that is advanced may vary slightly from those for private insurer billings, but for practices with large amounts of Medicare and Medicaid billing, it can be very helpful.
The benefits of medical receivables factoring for a modern health care practice are solid. Viewed as a financing vehicle, it is perhaps the most cost effective option. In terms of practicality, it can be seen as the easiest. Cash flow gaps are reduced and administrative staff is freed to best manage your practice. The cost-benefit analysis of factoring make it something that every health care practice should consider.