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The Industry
The healthcare industry is now transacting approximately $1.3 trillion dollars annually and is increasing in size extremely rapidly. As the “baby-boomers” enter the system, the industry expected to triple in revenue growth in the next 10-15 years. A tremendous burden is put on providers in this industry to handle the rapid growth, maintain the highest standards of service available, and update equipment to the most modern technology now available. Many issues must be addressed, such as technology changing very quickly and the standards of service rapidly increasing. To provide its patients with the highest standard of healthcare and to compete in an ever-changing market, the providers need a generous amount of working capital.
Many hospitals and healthcare facilities are beginning to experience a crunch, but not like the cash flow challenges we often see in the commercial sector. It is important for the Certified Cash Flow Consultant to understand the differences in the challenges faced by the healthcare industry, the causes of those challenges, and the solutions they can offer to the prospective client.
The Challenge
Healthcare providers, such as hospitals, rehabilitation centers, MRI centers, and many other types of facilities are experiencing “compressed margins.” In our daily terminology, we would say less profit. It is no secret that the large healthcare insurance carriers, as well as Medicare and Medicaid, have reduced the amounts of payments for the various medical procedures being billed. Although payments typically are coming more quickly than previously, the compressed margins make operating the facility more difficult. Also, many of the providers seem to create a substantial amount of underused assets. A seemingly mysterious bucket of unpaid claims is often created that is consistently unavailable to use for cash flow. To exist, the provider must increase his “top line,” which is the revenue he transacts on a regular basis, and reduce the amount of assets he is not using. If overhead is maintained while sustaining a reasonable increase for increased business, the bottom line will also increase. It is the increase in revenue that will allow a facility to exist and pay its bills. Systems must be in place for the provider to properly valuate his claims, maintain and secure good collection procedures, and monitor billing procedures. There is a cost associated with installing, maintaining, and monitoring of these systems.
The Solution and What You Provide
The role of a consultant in the medical receivables funding industry is to identify a potential client and to introduce the client to the funding source. Many funding sources do not even require an application for the introduction and would still be willing to initiate a conference call with the prospective client. Many times, the application will follow a series of calls between the parties, and the application and Summary Aging by Payor will be acquired directly by the funding source. Inquire from each of the various funders as to what each of them may require.
Most funding sources require a monthly minimum to begin opening an account for a potential client. The consultant may hear “$50,000 per month in collectibles,” or something similar. A provider may bill a certain amount each month but may also collect something less than is being claimed. The funding source determines the viability of an account by how much is being collected, not billed. Check with the various funders and discover what the minimum amount of collections is for each of them.
Some funders have upfront fees for audits and some do not. Some funders do batching of invoices. These two techniques are very different and affect more than just upfront fees. The choice can also affect the amount of advance funds or the fees over a duration of time. A professional consultant should discuss and learn the various differences by asking questions and always be in a position to select the best method for his client.
Healthcare is primarily a referral-based business. It is difficult to get through gatekeepers and speak to the decision-maker in healthcare. The best way to participate in the business is to speak to everyone you know who may have a connection in healthcare already and is able to introduce you to the right people. Cold calling and direct mail may work well in commercial receivables but do not work in medical. Attend the right meetings, network in the right places, speak to the right people, and try to attain the best referrals available to you.
Most importantly: What do you offer? Funding in healthcare is often done in two stages. The initial funding will reduce the entire bucket of underused assets to a single, first funding. The facility may receive a windfall of cash by taking every claim due to be paid and receiving an immediate payment from the funder. Millions of dollars can be made available within days of opening an account. In the second stage, the ongoing funding not only gives the provider a consistent cash flow but also prevents that bucket of underused assets from recurring. In essence, you solve many issues that will allow a provider to move forward with what he needs to prepare for the future of healthcare.
Fred Steinberg, CFS, is executive vice president of the business development group at Sun Capital Group, a member of the Million Dollar Club, and instructor for the American Cash Flow Institute, and the recipient of the 2003 Presidents Award. He can be reached at 800-880-1709 or via e-mail at freds@suncapitalinc.com.

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