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Medical Billing Companies Can Increase Their Cash Flow through Factoring

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By Phil Cohen

While the public’s confidence on the economy continues to spiral downward, the demand for health care in this country continues to grow. According to the National Coalition on Health Care, the U.S. spent approximately 17% of its GDP in 2008 on health care costs. That percentage is expected to jump to 20% by 2017.

Doctors’ offices will soon be flooded by 78 million baby boomers as they become eligible for retirement. To handle this sudden influx, physicians will have little time for the day-to-day business operations of their practices and must focus primarily on patient care. As a result, medical billing companies are seeing increased demand for their services.

More and more doctors are outsourcing services such as medical billing and coding to subcontractors, and these companies are reaping the benefits. However, due to the slow pace at which insurance companies approve patient claims, it takes a while for doctors to be paid, and in turn it takes even longer for them to pay their vendors, especially medical billing companies. According to the American Medical Billing Association, it takes an average of 90 days for paper claims to be reimbursed. Granted the advent of an electronic claims system has lowered reimbursement times, it is still problematic for medical billing companies to wait to be paid.

For example, an insured patient goes in to see a doctor. The cost of the visit is $100. Because the patient is covered for this visit, the doctor must make a claim to the insurance company and wait an indefinite amount of time for the claim to be approved. If the claim is not approved, the doctor must send more details of the visit. This increased lag creates a problem for doctors who would rather spend their time with patients than following up on claims. Therefore, doctors turn to experts and subcontract medical billing companies to handle these issues.

Whether they are start-ups trying to gain a market share of this ever-increasing business, or a veteran company trying to beat the slow-payments system of insurance companies and doctors, a viable and flexible option exists for companies called medical billing factoring.

Introduction to Medical Billing and Factoring

Medical billing is a critical process in the healthcare industry, involving the submission of claims to insurance companies for reimbursement of medical services provided to patients. However, the medical billing process can be complex and time-consuming, often resulting in delayed payments and cash flow challenges for healthcare providers. This is where medical factoring comes in – a financial solution that enables healthcare providers to convert unpaid invoices into immediate working capital.

Medical factoring addresses the cash flow issues that arise from the slow reimbursement process by insurance companies. Instead of waiting months for payments, healthcare providers can sell their outstanding invoices to a medical factoring company. This provides them with the immediate cash they need to cover operational expenses, invest in new equipment, or expand their services. By leveraging medical factoring, healthcare providers can maintain financial stability and focus on delivering quality patient care.

Understanding Medical Factoring

Medical factoring is a type of accounts receivable financing that allows healthcare providers to sell their outstanding invoices to a factoring company at a discount. The factoring company then collects the payment from the insurance company or patient, providing the healthcare provider with immediate access to cash. This process helps healthcare providers manage their cash flow more effectively, ensuring they have the funds needed to cover day-to-day expenses and invest in their business.

The process is straightforward: once a healthcare provider delivers services and issues an invoice, they can sell that invoice to a medical factoring company. The factoring company advances a significant portion of the invoice value, typically around 80-90%, to the healthcare provider. Once the insurance company or patient pays the invoice, the factoring company releases the remaining balance, minus a small factoring fee. This arrangement allows healthcare providers to receive immediate cash flow, reducing the financial strain caused by delayed payments.

Benefits of Medical Factoring

Medical factoring offers several benefits to healthcare providers, including:

  • Improved Cash Flow: Medical factoring provides healthcare providers with immediate access to cash, enabling them to meet their financial obligations and invest in their business. This steady cash flow is crucial for maintaining operations and planning for future growth.

  • Reduced Administrative Burden: Medical factoring companies handle the collections process, reducing the administrative burden on healthcare providers. This allows healthcare providers to focus more on patient care and less on chasing payments.

  • Increased Financial Stability: By providing a steady stream of revenue, medical factoring helps healthcare providers better manage their finances and make informed business decisions. This financial stability is essential for long-term success in the healthcare industry.

  • Flexibility: Medical factoring can be used to finance a variety of healthcare services, including medical billing, medical staffing, and medical equipment. This flexibility makes it a versatile financing option for healthcare providers of all sizes.

Healthcare Industry Trends and Factoring

The healthcare industry is constantly evolving, with new trends and technologies emerging all the time. Some of the key trends in the healthcare industry include:

  • Increased Use of Technology: The healthcare industry is becoming increasingly reliant on technology, with electronic health records (EHRs) and telemedicine becoming more widespread. These advancements improve patient care but also require significant investment.

  • Growing Demand for Healthcare Services: The demand for healthcare services is growing, driven by an aging population and an increase in chronic diseases. This surge in demand puts additional financial pressure on healthcare providers.

  • Increased Focus on Patient Care: There is a growing focus on patient care, with healthcare providers seeking to improve patient outcomes and satisfaction. This shift requires healthcare providers to invest in better facilities, equipment, and staff training.

Medical factoring can help healthcare providers navigate these trends and challenges, providing them with the financial stability and flexibility they need to succeed. By ensuring a steady cash flow, medical factoring allows healthcare providers to invest in new technologies, expand their services, and focus on delivering high-quality patient care.

Alternative Financing Options for Healthcare Providers

While medical factoring is a popular financing option for healthcare providers, there are other alternative financing options available. Some of these options include:

  • Medical Loans: Medical loans are a type of loan specifically designed for healthcare providers. They can be used to finance a variety of healthcare services, including medical billing and medical staffing. Medical loans provide a lump sum of money that must be repaid over time with interest.

  • Medical Lines of Credit: Medical lines of credit are a type of revolving credit facility that can be used to finance healthcare services. They offer flexibility, allowing healthcare providers to draw funds as needed and repay them over time. This option is useful for managing short-term cash flow needs.

  • Medical Invoice Financing: Medical invoice financing is a type of financing that allows healthcare providers to finance their outstanding invoices. Similar to medical factoring, this option provides immediate cash flow by advancing funds based on the value of unpaid invoices.

Each of these financing options has its own advantages and disadvantages, and healthcare providers should carefully consider their options before making a decision. By understanding the various financing solutions available, healthcare providers can choose the best option to meet their specific needs and ensure financial stability for their practice.

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Phil Cohen

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