Financing a Nursing Home with Medical Factoring

Running a successful nursing home can be challenging. Managers and owners have many demands calling for their constant and immediate attention. One the most persistent and important demands is cash flow.

Cash flow demands must be handled correctly to avoid serious problems that could, ultimately, compromise care.

Slow payments are a problem

A common source of cash flow problems for skilled nursing facilities is slow insurance payments, especially from Medicaid. Private and government insurance companies exert constant pressure to lower claim values and to pay them slowly.

This pressure can create a serious problem because Medicaid is the primary payer for most nursing homes. Slow payment affects facilities that don’t have sufficient reserves, or financing, to handle the situation.

Is a business loan the right solution?

Unfortunately, no. A business loan is usually not the right solution.

When faced with cash flow problems, managers often seek a business loan from a specialized bank or the SBA. While a business loan can help, this strategy includes some problems.

The most important problem is that financial institutions review all your collateral before making a loan. This step can be an obstacle for new or growing nursing homes with limited collateral. Furthermore, the application process can take weeks or months. And results are far from certain.

The solution: Improve cash flow with factoring

If your main cash flow problem is that Medicare and other insurance providers are paying too slowly, consider using medical receivables factoring.

This solution improves your cash flow by financing slow-paying insurance claims. Instead of waiting 30 – 120 days to get paid, you get an immediate payment from the finance company. This accelerated payment improves your cash flow and provides working capital to pay expenses.

How does medical factoring work?

The medical factoring process is fairly simple. The company finances your medical receivables in two installments: the advance and the rebate. The advance is paid soon after you submit your claims for financing and covers 70% – 80% of the net realized value (NRV) of the claim. The remaining 20% – 30% is rebated, less a fee, when the claims are paid on their usual schedule.

The process works as follows:

  • You gather and submit claims to the finance company
  • The finance company deposits the advance: 70% – 80% of NRV
  • The insurance company pays after 30 – 100 days
  • The finance company deposits the rebate: 20% – 30% of NRV, less fees

Keep in mind that financing is based on the net realized value. The NRV is the amount that the insurance company or Medicare is expected to pay.

Simple and quick application process

The application process is comparatively simple and quick. The nursing home needs to submit an application package and some financial statements. In some cases, especially for large facilities, a visit may be scheduled.

Usually, the due diligence process takes about a week. If the process is successful, the account can be funded shortly thereafter.

Handling Medicaid payments

Handling and processing Medicaid payments requires a special process. Usually the bank account that handles payments is converted into a control account (also called a sweep account). This conversion allows the factoring company to settle payments as they are received. Be sure to ask a representative for more details.

More information?

For more information, get an instant online quote or speak with an expert by calling toll-free (877) 300 3258.