Medical factoring helps companies that bill private insurance companies, Medicare, or Medicaid, and have cash flow problems due to slow payments. This type of financing is commonly used by healthcare providers and medical professionals of all specialties.
Medical accounts receivable factoring advances funds to medical providers who bill third-party vendors. These payors include commercial insurance companies, HMOs, Blue Cross/Blue Shield, Medicare, and Medicaid.
What problem does medical factoring fix?
One of the greatest challenges for companies in the healthcare industry is the length of time it takes to get a claim paid. Unfortunately, few medical claims are paid quickly. Instead, most medical insurance claims take 30 to 120 days to pay. This delay can create cash flow problems for providers because few can afford to wait that long for payment.
This problem can affect healthcare businesses of all sizes. However, it predominantly affects new companies and those that are growing quickly.
How does medical factoring work?
Medical factoring solves this problem by providing you with quick payments for your medical claims. Transactions are simple. You sell and assign your claims to a medical factoring company. The finance company advances funds for the claims and holds the claims until maturity. The transaction settles when the insurance carrier pays the claims.
Generally, transactions work as follows:
- You submit your approved claims to the factor
- The factoring company purchases the claim at a discount.
- The claim is paid to the factoring company.
The amounts advanced vary based on the size of the business and the size of the claims as well as their age.
Financing is based on net claims
One important detail about medical factoring is that transaction is financed based on the net payment of the claim. The net payment is the amount that the insurance will actually pay for the claim. In some instances, this amount may vary from the gross invoice amount.
Handling Medicare and Medicaid claims
Financing Medicare and Medicare claims requires a special procedure since they cannot be assigned like conventional medical claims. Most, but not all, medical factoring companies can process Medicare and Medicaid claims.
Medicare and Medicaid claims are usually handled by using a special type of bank account called a sweep account (also known as a control account). The exact process varies by company.
