Medical Factoring Wears Many Hats

Those of us that call ourselves medical factoring companies may in fact be quite different from one anther.

Throughout the years certain niches have been serviced by finance companies all of which are called medical factoring but each focuses on dissimilar asset classes.

This discussion is designed to identify these different asset classes within the framework of Medical Factoring, and to provide the broker with a clear understanding of how to find the right financial institution for each.

Medical Factoring Wears Many Hats

First we can begin with an easily understandable type of medical practice called “dentistry.”

Dentists bill the typically recognizable insurance carriers that are associated with healthcare plans and payments. I have chosen this as a first discussion because I am not aware of any medical factoring company that will purchase dental receivables.

The question therefore is “if these are the typical medical insurance carriers why are their receivables not eligible for factoring?”

Any factor wants to be comfortable with the notion that he/she will be repaid the amount advanced on the factoring transaction (plus fees). When looking at dental insurance claims, that notion is not always possible.

Dental insurance can, and most of the time does, get used up within the calendar year. If someone get a crown installed in January, and their dental insurance has paid for that service, one can be assured that any other dental services within that year will not be covered. The reason is that benefits are limited to a very small amount of coverage and the expensive process of installing a crown will most assuredly use up all of the coverage.

So.. a cleaning six months later will not be paid by insurance. Imagine if a factor actually purchased the claim for the cleaning. (Note: Also, there is no expeditious way to verify if any insurance coverage is still available prior to purchasing the claim).

As I said above, I’ve been in medical factoring for more than a decade I have never come across a factor that buys traditional dental claims. I would suggest that when you come across these types of transactions, just say no!

Personal Injury Medical Factors

Recently (over that past 3-5 years) medical factors specializing in personal injury insurance claims have come on the scene. What makes these claims different than other medical insurance claims? The answer is found in examining the nature of the insurance carrier paying those claims. Although they will have very recognizable names such as Allstate, State Farm, GEICO and perhaps Progressive, these are not medical health-plan carriers, these are casualty insurance carriers.

Personal Injury (PI) claims typically arise as a result of an auto accident. The medical factors that purchase these claims are comfortable with waiting the protracted time span for payment and also know how to file the appropriate liens securing their collateral (the personal injury claims). They know how to deal with PI attorneys and understand the litigation / settlement processes. Therefore, when coming across a medical receivables transaction with large amounts of PI claims, look for medical factors that specialize in PI claims factoring.

Delinquent Debt Receivable Factoring

Much too often I’ll see a transaction in which I’m told that “the doctor has about a million in receivables to sell.” After further investigation I find out that the provider wants to sell his/her old receivables payable by insurance or payable by patients (their portion of the co-pay or deductible). Once again there is a home for this “delinquent debt” type of factoring opportunity, but you, the broker, have to ask your medical factoring resource if in fact they buy old, delinquent claims. Very often these transaction turn out to be a structure unlike typical factoring, and more like a one-time purchase of the entire bucket at $0.20 to $0.50 on the dollar. The broker in this case will get a one-time finder’s fee at closing.

We now have the medical factoring transaction in which the medical facility or provider may not be the seller of the receivable but conversely the payor (debtor) of the receivable. Companies that provide staffing service to hospitals or doctors being paid by those entities would be such and example. This is an easy one to identify by asking yourself the question “who is the payor?” Still another example would be an ambulance (or other medical transportation) company that is paid by a hospital, hospice or skilled nursing facility (formerly know as a nursing home).

Traditional Medical Factoring Transactions

This leaves the final category which is the traditional medical factoring transaction. What classifies this as “traditional?”

First the carriers (insurance companies) are medical carriers and government (Medicare/Medicaid) carriers. Typical names are Aetna, Cigna, United Health, Blue Cross/Blue Shield, Oxford and the others.

Other types of carriers that pay Worker’s Compensation claims may also be part of the mix. Workers Compensation claims are subject to review to determine the ability to fund these. In many states these are fine and are perfectly acceptable for factoring, but in some sates they are not qualified.

For traditional medical factoring, the claims must have a history of paying within 120 days (sometimes 150 days, to be determined by the underwriter). The medical provider (the factoring client) must be in good standing with governmental regulatory agencies, and cannot be currently on “hold” with Medicare/Medicaid.

Where does all of this leave you, the broker?

By understanding this discussion you can further qualify the applicant as to the type of receivables that are for sale, and you can then bring the transaction to the appropriate medical factoring company fitting the needs of that provider.

Your credibility in the eyes of your client will increase as you will be asking very educated questions. Your credibility with your factoring sources will increase as you can show them potential transactions fitting their particular niche within the medical community.

Your self esteem will grow as you interface more confidently with potential clients. The field is wide open so take advantage of this large and underserved market.

About Fred Leder: Xynergy Healthcare Capital LLC is an industry specific finance company located in south Florida, with nationwide clients and referral sources.

For more information contact Fred Leder at (954) 519 2376 or by email at fleder@xynergycapital.com. You can also visit the company website at xynergycapital.com.