What Is Medical Receivables Financing?

Medical receivables financing is any way for a hospital, clinic or other provider to get cash now for insurance claims it has already billed but not yet been paid for. The provider either borrows against those receivables or sells them, instead of waiting 30 to 120 days or more for payers to pay.

Why providers use it

A provider pays staff, suppliers and lenders on a fixed schedule, but is paid for care weeks or months after delivering it. Medicare, Medicaid and commercial insurers almost always pay valid claims. The open questions are when, and how much. That timing gap ties up working capital and pushes down days cash on hand. Medical receivables financing closes the gap with the claims themselves.

The main types

Factoring. The provider sells claims to a factor at a discount, and the factor usually takes over collection. It's fast, but it's typically the most expensive option, because the factor prices in its own uncertainty about what each claim is worth.
Asset-based lending. A bank lends against a borrowing base of eligible receivables. The receivables are collateral, but the loan is debt on the provider's balance sheet, with covenants. See healthcare asset-based lending.
True-sale purchase programs. A buyer purchases defined pools of claims outright. Because it's a sale, not a loan, it adds no debt.
Securitization. Large pools of receivables are sold into a special-purpose vehicle that issues securities to investors. See medical receivables securitization.

What sets the price

The cost of any of these comes down to how well the funder can predict what the claims will pay, and when. When a lender can't value individual claims, it discounts all of them heavily or prices the provider's own credit instead. Better claims valuation narrows that discount, because the funder can price the creditworthiness of the payers who owe the money.

How Capital Pulse does it

Capital Pulse values each claim with its Healthcare Claims Scoring System, and its banking partners buy qualified claims in a non-recourse true sale. The provider gets most of a claim's value within days, keeps servicing its own claims, and receives the remainder, less a fee, as the claims are paid. It is not factoring. See how medical receivables financing works with Capital Pulse.

Frequently asked questions

Is medical receivables financing the same as factoring?

No. Factoring is one type of medical receivables financing, in which a factor buys claims at a discount and usually takes over collecting them. Other types include asset-based loans secured by receivables, true-sale purchase programs, and securitization.

Does medical receivables financing add debt to the balance sheet?

It depends on the structure. A loan secured by receivables, such as an asset-based line of credit, is debt. A true sale of receivables transfers ownership of the claims, so it is not a loan and does not add debt.

Can Medicare and Medicaid receivables be financed?

Yes, but Medicare and Medicaid generally pay only the provider, not a third party, so financing of government receivables is structured around the provider's own deposit accounts rather than an assignment of the payments.