Medical Factoring Service Helps Medical Care Facility Grow
Posted: Apr 11, 2018
For any business including medical service, cash inflow plays a major role in running daily operations and making decisions for future growth. When a patient is admitted and treated under a medical service provider, the former does not pay any money in advance. Moreover, if the patient is covered under medical care insurance scheme, then the insurance service bears the cost of the medical treatment.
After the medical service provider performs the treatment, he or she has to wait for some days to receive the payment. This happens, as inefficiencies exist in the healthcare system. Due to loopholes present in the accounts receivable process, the medical service provider has to wait for between 15 and 150 days for the realization of the invoice. Is there any way to speed up the process? Yes, the answer lies in medical factoring.
What Is Medical Factoring?
Medical factoring is a process through which a medical service provider sells invoice to a financial institution to monetize the accounts receivable. The financial institution, which purchases the invoice, is known as the factor.
After the factor purchases the invoice from the medical service provider, the former pays money to the later based on the outstanding accounts receivable. The factor provides the required fund to the medical care provider and waits for the bill to be paid from the third party insurance service provider. A medical factor will consider any provider that raises an invoice for third party insurance carrier. The medical service providers include doctor groups, doctors, home healthcare companies, DME, skilled nursing facilities, drug rehab centers, hospitals, translation companies, medical transport, labs and imaging centers.
Is Bank a Good Option for Raising Finance?
Nowadays, the medical service provider has to become ready with cash in hand in order to perform the medical practice. Banks offer credit. It does not mean that every loan seeker will receive credit. A bank makes a decision of offering credit to a medical service provider after the analyzing the past performance of the later.
The traditional method of analyzing the past performance bears a disadvantage. The bank does not take into account the future growth of the medical service provider. In some cases, the loan seeker does not qualify for the loan. Even if the medical service provider is granted a loan, the amount may not be sufficient for meeting the capital requirements.
If the capital requirements are not met properly, the owner of the medical care facility might land up with tax irregularities and under extreme situations, he or she may have to file bankruptcy.
A medical care facility has to run smoothly. It should arrange for steady cash flow. That is why choosing a medical factor is the best option.
How Medical Factoring Option Works?
The first step of seeking the medical factoring service is to build a relationship with the factor. After the relationship is established, the medical service provider submits the bills to the third party insurance company. Copies of invoices are also submitted to the factor.
After receiving the copies of the bills, the factor pays around 80% of accounts receivable to the medical care facility. The advance paid is based on expected net collectible value.
The factor pays the advance through an online system or deposits the money directly into the bank account of the medical service provider. The process may consume 72 hours.
Why the Factor Pays Up To 80% Of the Accounts Receivable?
The factor pays up to 80% of the accounts receivable. The rest of the money acts as financing cushion. It is a reserve that the factor maintains in case some bills are not paid or bills have been detected with errors.
Once the third party insurance carrier pays the bill, the factor returns the financing cushion after deducting the factoring fee. The factoring fee varies between 1% and 2.5% and the fee is charged on monthly basis.
Medical factoring option has become popular among medical service providers as it offers some benefits.
Benefits of Medical Factoring Service
Medical factoring is the best option for those medical service providers who do not qualify for bank loans. A medical factor provides the medical care facility with substantial capital than a bank. A bank decides to grant of a loan based on the cash flow history of the loan seeker. The cost of factoring is economical than MCAs.
Medical factoring service can help the medical care facility for attaining future growth. This becomes possible when the medical service provider submits bills and receives advances from the factoring service.
Factoring helps at maintaining steady cash flows. Therefore, a medical service provider can make plans for improving the service quality in future. The owner of a medical care facility can conduct market research easily as he or she is assured of advances.
Medical factoring is a niche service. Professionals who are into this field have the right expertise to understand the collection of medical claims and revenue cycle management.
The professionals working at a medical factoring firm possess the knowledge of situations where insurance carriers deny claims or delay the claim disbursement process. If required, a medical factoring firm can offer consulting service to the medical service provider. The factoring company can suggest the medical care service on how to collect claims at higher rates from the insurance companies within a short time.
Factoring service is also beneficial for medical facilities that deploy nurses at patient’s house. In general, most of the medical services are covered under the Medicaid system. When a patient is treated, the service provider has to submit bills to the Medicaid office. It generally takes around sixty days to receive the claim. This way a medical facility cannot attain quick growth.
In order to attain quick growth, the medical facility has to accommodate more patients. Serving more patients means the facility has to take care of expenses of nurses, doctors and other medical staff. For that, the facility needs steady cash inflow. The cash inflow goal is fulfilled once the medical facility hires a reputed medical factoring service.
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